[Senate Hearing 110-598]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-598
 
                      ELECTRICAL TRANSMISSION GRID

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   TO

 CONDUCT OVERSIGHT ON THE STATE OF THE NATION'S TRANSMISSION GRID, AS 
 WELL AS THE IMPLEMENTATION OF THE 2005 ENERGY POLICY ACT TRANSMISSION 
PROVISIONS, INCLUDING RELIABILITY, SITING AND INFRASTRUCTURE INVESTMENT

                               __________

                             JULY 31, 2008


                       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
               Karen K. Billups, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Boston, Terry, PJM Interconnection, Norristown, PA...............    61
Casey, Hon. Robert, U.S. Senator From Pennsylvania...............     5
Domenici, Hon. Pete V., U.S. Senator From New Mexico.............     4
Hoecker, James J., Counsel to WIRES..............................    55
Kelliher, Joseph T., Chairman, Federal Energy Regulatory 
  Commission.....................................................    15
Kolevar, Kevin M., Assistant Secretary for Electricity Delivery 
  and Energy Reliability, Department of Energy...................    26
Loehr, George C., Representing Piedmont Environmental Council, 
  Albuquerque, NM................................................    86
Smith, Marsha H., Commissioner, Idaho Public Utilities 
  Commission, Boise, ID..........................................    32
Tomasky, Susan, American Electric Power, Columbus, OH............    80
Whitley, Colin, Representing American Public Power Association, 
  Wichita, KS....................................................    69

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    99

                              Appendix II

Additional material submitted for the record.....................   137


                      ELECTRICAL TRANSMISSION GRID

                              ----------                              


                        THURSDAY, JULY 31, 2008

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:33 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. Ok. Why don't we go ahead and get started 
here. Let me make a very short statement and then defer to 
Senator Domenici for his statement. Our first witness is 
Senator Casey, who has certainly been urging us to proceed with 
this hearing because of the importance of many of these issues 
that we're dealing with this morning to his State.
    It's been said that electricity is the lifeblood of our 
Nation. If that's true then the transmission lines, of course 
are the veins and arteries that carry that electricity, our 
lifeblood. Our electricity is increasingly important to our 
economy and our health and our safety and security and 
happiness of Americans. Generally, the importance of the 
transmission system is growing with each passing year.
    Demand for electricity has grown by about a third in the 
last 15 years. The transmission system has not kept pace. It's 
expected that the demand will grow by another third in the next 
10 to 12 years.
    According to one witness there have been less than 700 
miles of new transmission line that have been built in the last 
10 years, less than that in the 25 years prior to that. So the 
North American Electric Reliability Corporation tells us that 
transmission investment has increased in the last few years. 
Proposals for new lines over the next few years have also 
increased, but the projected transmission will still fall far 
short of projected needs.
    In the early years of the last century the transmission 
system was, as a conduit for interstate commerce, was not as 
important as it is today. Obviously it's grown enormously as a 
part of our economic system. Since the 1970s Congress has been 
trying to facilitate interstate trade in electricity.
    It's been trying to deal with the transmissions issue, 
issues that arise from that trade. FERC has been trying ever 
since to develop a system of rules that eliminate 
discrimination in the provision of transmission services.
    We did a lot of different things in our 2005 Energy bill 
that Senator Domenici and I led us on here in this committee. 
Let me mention some of those. We gave FERC authority to license 
and oversee an organization to develop mandatory reliability 
rules.
    We gave FERC limited back stop siting authority, where the 
Department of Energy had designated national interest in 
electric transmission corridors.
    Third, we required DOE to develop a system to facilitate 
decisions by Federal agencies which related to permitting 
transmission on Federal lands.
    Fourth, we expanded FERC's authority over entities that had 
previously been non-jurisdictional.
    Finally we required a rulemaking on an incentive based 
rates for transmission.
    These actions were intended to overcome the balkanization 
of decisionmaking about transmission, and a main purpose of 
this hearing is to look back at these provisions; to find out 
how they are working; and to find out what else needs to be 
done.
    There are four key questions that seem to me to be central 
to our hearing today.
    No. 1, have we done what we need to do to ensure the 
reliability of the transmission systems?
    No. 2, have we done what we need to do to ensure that the 
transmission system is operated in a non-discriminatory way 
that promotes genuine competitive electric markets, or 
electricity markets?
    No. 3, have we done what we need to do to ensure that 
needed transmission will be built while protecting the rights 
of the public in that process?
    No. 4, have the agencies that we charged with these tasks 
fulfilled their obligations?
    I look forward to the testimony. Let me call on Senator 
Domenici at this point for his comments before we hear from 
Senator Casey.
    [The prepared statements of Senators Salazar and Bunning 
follow:]
   Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
    Mr. Chairman and Ranking Member Domenici, thank you for holding 
this hearing on the state of our nation's electric transmission 
infrastructure. The Energy Policy Act of 2005 in particular ushered in 
a set of new policies with significant consequences for the operation 
and development of the grid, and I am grateful for the opportunity to 
examine the impacts that legislation has had. But more broadly, I 
welcome this forum for discussion of the state of the grid and what we 
can do to blaze the path forward towards wide-scale deployment of clean 
energy resources such as renewables and plug-in hybrids--technologies 
that will have profound impacts on the operation and management of the 
electric grid.
    Our electric infrastructure is a modern marvel. Few stop to think 
about the complex collection of electric generation, distribution, and 
transmission infrastructure components that facilitate the virtually 
instantaneous delivery of electricity anywhere at any time. But 
unfortunately while reliability is the paramount goal of many electric 
service providers, I am worried that we as a country are not making the 
investments that will be necessary to maintain reliable electric 
service, especially in our most congested areas, and to take advantage 
of the clean energy and efficiency solutions that technological 
innovation promises.
    The grid is obviously by nature highly interconnected. In reality, 
however, the processes for planning and implementing grid investments 
do not reflect this simple truth and are highly balkanized. This has 
real consequences across the electric sector. Failures to modernize and 
make investments in one locale can in the worst cases affect the 
reliability of electric service for customers in surrounding areas. As 
we discussed at a recent hearing of this committee, the slow, 
fragmented process for siting and obtaining cost recovery for major 
interstate transmission projects is frustrating our ability to deploy 
renewable energy projects of all sizes and to connect them to load 
centers. We are all aware that T. Boone Pickens is on the warpath to 
make wind energy the dominant source of electric power in this country, 
and I applaud his vision and efforts. Mr. Pickens amplified these 
concerns in his testimony, explaining that investment in our electric 
transmission infrastructure is a bottleneck to moving forward with 
clean energy. In the West we have grand plans for major advances in 
renewable energy production. The Western Governors Association's 
resolution to deliver 30,000 megawatts of renewable electric power to 
the nation by 2015 is both lofty and achievable--but only if we can 
meet our transmission infrastructure goals.
    Smart grid is another example of a major investment that needs to 
be made to modernize the grid. I am proud that in my state of Colorado, 
the major public utility, Xcel Energy, has partnered with several 
cutting edge companies to transform the city of Boulder into the first 
full-scale Smart Grid City. Smart grid technologies installed 
throughout the distribution and transmission infrastructure will 
without question revolutionize not only the nation's electric 
infrastructure but also consumers' energy-use self-awareness. The 
transformation from the present electric grid to a smart grid is 
analogous to the transformation from the analog telephone network of 
the early twentieth century to the internet. The transformation will be 
that profound. Wide-scale deployment of plug-in hybrid vehicles and 
distributed generation depend on the real-time intelligent management 
of the grid that only smart grid can provide. The question is, how will 
we get there? Are we doing everything we can to put in place the 
improvements to the grid that will enable the greatest energy savings 
and that will provide consumers with the information they need to make 
real choices about their energy consumption?
    In many respects our path to the economic, energy, and 
environmental security promised by our nation's growing Clean Energy 
Economy depends on the grid's capabilities. ``Electrifying'' a huge 
swath of the transportation sector with plug-in hybrids and thereby 
reducing our dependence on foreign oil and making renewable energy the 
dominant source of electricity depends on the grid's capabilities. We 
will only go so far in our quest for energy independence as our 
electric infrastructure will take us.
    I am eager to engage in a discussion of the investments we need to 
make in our electric infrastructure and to hear the perspectives of our 
panel on these critical issues. Thank you, Mr. Chairman.
                                 ______
                                 
   Prepared Statement of Hon. Jim Bunning, U.S. Senator From Kentucky

    Thank you Mr. Chairman and Senator Domenici for taking the time to 
hold today's hearing on the state of our national transmission grid.
    Our electricity grid is a complex system. We must do all that we 
can to ensure we have a reliable transmission network that meets our 
growing energy demands.
    With this reliability it is also important to work to keep rates 
affordable and not to shift the excess cost of expanding our 
transmission networks onto the consumer.
    Back in my home state of Kentucky, we have one of the lowest 
utility rates in the country. At time when Kentuckians are getting hit 
hard in their pocketbooks because of high gas prices, it is important 
to me to continue to keep these rates affordable.
    As we look to ways how to address overly congested areas in the 
country, I believe it is important to look at all technologies to 
improve and increase transmission.
    I want to be clear--I support efforts to expand wind and solar 
energy where it makes economic and logistical sense. However, I am not 
naive--the wind does not always blow and the sun does not always shine. 
And in times like these, I believe it is critical that our nation's 
electric grid have a backstop to ensure generation does not cease due 
to weather conditions.
    I believe that until renewable energy can be stored at a level that 
meets the demands of our utility grid; our nation needs to invest in 
other advanced energy infrastructure--like new coal plants and nuclear 
plants--that meet future demand no matter the forecast.
    I also believe that it is important to consider the role of state 
and local utilities in expanding transmission lines. We must allow them 
the opportunity to work out their utility issues in high use areas on 
their own before stepping in at the Federal level.
    I look forward to questioning our witnesses today and thank the 
chairman for holding this hearing today.

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

    Senator Domenici. Thank you very much, Mr. Chairman. I 
believe you and I, along with a number of Senators on this 
committee, some who are here with us today, took a great deal 
of pride when we passed EPACT and to know that we had taken 
action with reference to one of the most serious American 
problems that was upon us. That was the reliability of the 
American grid system.
    As we were in the midst of the work, we were confronted 
with a grid break down. As you remember we were quite boastful 
that we had developed a bill that would not permit that to 
happen again.
    But we didn't say, if everything is done right as 
prescribed by our law. Certainly it hasn't all been done. It's 
slow coming.
    But I think I would commend the agencies and commissions 
that have the authority to accomplish the goals that you just 
enumerated which are very important. I think they've done 
better than the Executive branch at fulfilling the requirements 
and goals that we set forth in the law. There are many things 
in that law that the Administration hasn't even looked at.
    The people come up and ask, what are we doing about it. 
It's already written. It's in our bill. But nobody has asked 
for any money. Nobody's doing anything.
    But at least the Commission, FERC and others are trying to 
get to this issue of reliability, cost allocation, and what 
we're talking more about today obviously, the issue that the 
distinguished Senator brings to us. He seems not to like the 
law we wrote. He's a wonderful, young Senator. I have great 
respect for him.
    But if he's recommending that we weaken the power we gave 
to make decisions on behalf of the states where they are 
involved in things that are in gridlock, he'd have to wait for 
another Senator then, not Senator Domenici to help him.
    [Laughter.]
    Senator Domenici. But he won't have to wait very long. 
Somebody will be here in my place. So that will just be a 
little while.
    I'd like to put my statement in the record, Mr. Chairman. 
Thank you.
    [The prepared statement of Senator Domenici follows:]

    Prepared Statement of Hon. Pete V. Domenici, U.S. Senator From 
                               New Mexico

    Thank you, Mr. Chairman, for calling this oversight hearing on the 
state of the nation's electrical transmission grid. Today's hearing 
builds on the one this Committee held last month, addressing the lack 
of available transmission capacity to bring alternative energy 
resources online.
    The state of our nation's electrical transmission grid is an 
important issue that, until recently, has often been overlooked. There 
is no question that our current system is overloaded. Demand has 
increased substantially, with home computers, plasma screen TVs, and 
other electronic devices. By 2030, the Energy Information 
Administration projects a 30% increase in U.S. electricity demand--an 
estimate that assumes significant efforts to improve energy efficiency 
and demand response.
    This country faces an urgent need to build out more transmission--
for reliability and security purposes, to hook up new sources of 
renewable energy that are often located far from load centers, and to 
realize the promise of plug-in hybrids.
    Following the 2003 August blackout, Congress sought to address 
these transmission problems. With enactment of the Energy Policy Act of 
2005, we called for the creation of an Electric Reliability 
Organization and mandatory reliability standards. We tasked FERC with 
issuing transmission rate incentives designed to spur transmission 
development. And, perhaps most importantly, we tackled the difficult 
issue of siting much needed interstate transmission lines.
    In EPAct we directed DOE to study the country's transmission 
constraints and designate National Interest Electric Transmission 
Corridors in areas of severe congestion. We also provided FERC with 
backstop siting authority designed to counter NIMBY opposition to 
interstate lines. These are significant federal authorities aimed at 
ensuring adequate transmission. Unfortunately, since their enactment 
and before they have even been fully implemented, these provisions have 
been attacked by numerous interest groups and even members of Congress. 
Both DOE and FERC now face lawsuits designed to thwart these new legal 
authorities.
    This process has certainly been contentious. That's why I was 
surprised to hear from witnesses at last month's hearing that they 
believe that Congress did not go far enough with its EPAct siting 
provisions. We heard witnesses ask us to give the federal government 
even more siting authority--perhaps along the lines of FERC's exclusive 
siting authority under the Natural Gas Act. Since 2000, we built over 
10,000 miles of interstate gas pipelines--but just 900 miles of 
transmission lines.
    We must do better--particularly if we want to increase our nation's 
use of renewable sources of energy. I want to borrow a phrase from one 
of our witnesses today--``you can't love renewables and hate 
transmission.'' That just about sums it up. Renewables and transmission 
are interdependent.
    I want to thank all of our witnesses for being here today and 
sharing their expertise on this important issue. In particular, I want 
to commend our federal witnesses for all of their efforts in 
implementing EPAct 05 and thank Joe Kelliher for interrupting his 
family vacation in Florida to join us today.

    The Chairman. Thank you very much. Senator Casey, you're 
welcome to our committee. Thank you very much for coming. We 
look forward to your comments.

         STATEMENT OF HON. ROBERT CASEY, U.S. SENATOR 
                       FROM PENNSYLVANIA

    Senator Casey. Mr. Chairman, thank you very much. I want to 
thank you and Ranking Member Domenici for this opportunity as 
well as other members for allowing me this chance to present 
some testimony. Which I think by the way has application beyond 
Pennsylvania.
    With respect, Senator Domenici, this is not an attack on 
the legislation. It's really, in total, I think a very frank 
assessment of the way the law has been implemented and the way 
Federal agencies have acted. I'll get into that in a couple of 
moments.
    But I do appreciate the opportunity to gather information. 
That's part of what you're doing here today, on the National 
Interest Electric Transmission Corridors authorized under 
section 1221 of the Energy Policy Act of 2005. Senator Menendez 
has worked on this issue in particular with us and I appreciate 
his work.
    I think that there's broad agreement here. There might be 
disagreement about some aspects of how the law has been 
implemented by Federal agencies. But I think there's broad 
agreement that affordable electricity is the cornerstone of a 
strong economy. We must ensure that electricity moves through 
the grid and is delivered to customers efficiently and 
reliably.
    On February the 12th of this year, 14 bipartisan Senators 
from the Mid-Atlantic and Northeastern states sent a letter to 
this committee requesting oversight hearings on the 
transmission corridors. We sent this letter because of concerns 
raised in our states about the way the corridors are being 
implemented. We are concerned that the scope of the 
implementation and the potential over use of the new Federal 
power line siting authority, that was the principle area of 
concern. So it goes beyond the narrow, kind of back stop 
authority that the committee intended when it drafted the 
provision.
    Just some background on Pennsylvania. Pennsylvania is 
literally the power provider for the Northeast and the Mid-
Atlantic. We rank second or third in the Nation for electricity 
generation.
    We export at least 30 percent of the power we generate. 
We're the principle supplier of electricity to our neighboring 
states. States like Delaware, New Jersey and Washington DC, the 
District here, as well as Maryland, each import over 30 percent 
and in some cases up to 50 percent of their electricity. 
Pennsylvania provides much of their power.
    We have a robust generation industry in Pennsylvania. That 
industry combined with our willingness to site high voltage 
lines make it possible for our neighboring states to avoid 
difficult decisions to site new power lines within their own 
borders. So the concern that Pennsylvanians have over the 
implementation of the 2005 Energy bill is not simply a not in 
my backyard or NIMBY issue. It goes beyond that.
    One of the concerns that we have is the transmission 
corridors, rightfully so, I think, in our State and a lot of 
other States, are the subject of intense interest. Local 
residents who worry about the impact of the corridors on their 
towns have reported to State and local government. I have a 
compendium of petitions here, 4,511 signatures* from the people 
of our State and even beyond. But most of them are from 
Pennsylvania.
---------------------------------------------------------------------------
    * See Appendix II.
---------------------------------------------------------------------------
    We have a chart that I think is right there, that I wanted 
to show you in terms of the region, all of the, kind of, almost 
the most of the Eastern seaboard or Northeastern part of the 
United States. The sections in red there, right in the middle 
of course is the boundary of Pennsylvania. You see all the 
States that are affected are red. That's the designation and 
I'll get into that in a little more detail.
    On a national level the Mid-Atlantic corridor in the 
Southwest corridor includes portions of ten States and affects 
more than 72 million people. The word corridor sounds benign 
when we are looking at huge swaths of land. The majority of a 
State being wrapped up in what should be the narrow focus on 
key electricity congestion points.
    The Energy Department maintains that their designation 
doesn't really do anything. What you're seeing there is a 
designation. I understand that it's not siting. It's 
designation.
    But this designation determines the area in which the 
Federal Energy Regulatory Commission or FERC, as we know it, 
can invoke new Federal siting power. So the designation may not 
have anything to do with what is happening right now. But that 
becomes the basis for siting power as you know from the law.
    At the State level, our State House of Representatives and 
our State Senate, along with Governor Rendell, have all voiced 
opposition to the transmission corridors as implemented by the 
Energy Department and FERC. Our reason, or one reason, I should 
say, is their concern by the over reaching of Federal 
authorities to effectively displace the States and substitute 
the Federal Government as the ultimate authority responsible 
for siting, siting electric transmission lines.
    Another reason is the worry that the transmission corridors 
undermine State renewable electricity standards, greenhouse gas 
reduction programs and energy efficiency initiatives in terms 
of the way this Department of Energy has gone about the work of 
implementing the bill. The way the Energy Department has 
carried out the designation process, we don't know what will 
happen on siting yet. But the way they've carried out the 
designation process, to me, is unacceptable, the way they've 
done it.
    In Pennsylvania we had one public meeting. One public 
meeting was held to inform residents about what this meant. 
That meeting which was held in Pittsburgh was only added to the 
calendar after a regional Congressional delegation sent a 
letter to Secretary Bodman.
    I don't think there's anyone on this committee that would 
find it acceptable to have one public meeting when you have 75 
percent of your State designated by FIAct, by the Department of 
Energy. I don't think that's what the law intended. But that's 
the way the law has been implemented.
    We had over 2,000 public comments at that time expressing 
concern about the designation. To the people of Pennsylvania 
this conveys one thing from the Federal Government, arrogance, 
pure and simple arrogance by a Federal Government agency. 
Again, I don't think that's what the 2005 law was intended to 
do. I don't think anyone who voted for that law intended that 
to happen.
    In addition the Energy Department did not abide by the 
spirit of the 2005 Energy Act. It failed to consult with the 
States in conducting their congestion study. That's No. 1.
    No. 2, it failed to assess and evaluate transmission needs 
and non-transmission alternatives to relieve congestion.
    No. 3, it failed to comply with existing Federal laws that 
protect public lands and the environment.
    There are other ways to go about this. There are non- 
transmission line solutions to electric congestion. The Energy 
Department is looking at alternative methods. Thank God, they 
should, at relieving congestion.
    But those alternatives have not been considered on equal 
footing with the construction of more high voltage lines. 
Alternatives include, as members of this committee know, Demand 
Side Management, that creates incentives for customers to 
reduce usage during peak times, siting local generation near 
the demand, distributed generation conservation and efficiency. 
Lots of options here.
    The Federal Energy Regulatory Commission, FERC, 
overreaching. Let me just go through that quickly. I have 
concerns about conflicting statements I've gotten from FERC 
through meetings and letters. I'm worried that for a provision 
that Congress intended to be rarely used to address a lack of 
State action on an interstate proposal, FERC has taken a very 
liberal view of the new power afforded to FERC pursuant to the 
2005 Act.
    In 2006, FERC issued final regulations that assert FERC's 
jurisdiction over siting decisions in circumstances where 
States have timely and lawfully denied approval of transmission 
line proposals. Not only does this assertion of authority fly 
in the face of the plain language of the 2005 Act. It is also 
contrary to the purpose of the Act to provide a process point 
for the Federal Government to step in and approve or disapprove 
of transmission lines that are necessary to relieve 
specifically identified congestion where the States have not 
acted.
    So, a law that was intended to be narrowly applied has, in 
my judgment been applied too broadly. I think with without 
taking into consideration the concerns of Pennsylvania. But 
also the concerns of a lot of other States.
    The combination of transmission corridors that swallow our 
States in the broad implementation of the law by FERC are 
already impacting the people of Pennsylvania. Last year a power 
company was censured by the Pennsylvania Consumer Advocate. 
Among the complaints from families who were affected were that 
the contractors visited their properties and told them they 
could fight it.
    But that the company would just wait it out for a year. 
Then the Federal Government would take over. The same kind of 
arrogance at the contractor level and this isn't the Energy 
Department directly.
    But ultimately you have the same kind of arrogance which it 
could be summed up simply in the phrase, just get used to it. 
These are coming and you've got to get used to it. If you step 
in our way, we're going to have a Federal Government agency run 
you over. That's the message that the people of Pennsylvania 
have gotten.
    One thing about the people of our State is we're fighters. 
We like a good fight. We like to avoid them, but we also like a 
good fight.
    We're ready to fight on this. I think a lot of other States 
are as well. If that's the arrogance the Energy Department is 
going to display in our State, we're going to fight them, tooth 
and nail, every step of the way.
    I hope the committee will take all of these concerns into 
account and work to address what I believe to be a faulty 
implementation of the law of what should have been a focused 
and narrow provision of the law. I ask the committee as you 
consider solutions, I urge you to refine the law to require:
    No. 1, appropriate public meetings in affected areas.
    No. 2, if the committee would address the impact of a 
proposed project under the transmission corridors could have on 
State renewable energy and greenhouse gas programs.
    No. 3, I'd ask the committee to ensure that non- 
transmission alternatives are part of the solution.
    But I thank you for the hearing today. I thank you for this 
opportunity especially at the end of a busy work period before 
we head back to our States. I stand ready to assist you in any 
way, based upon the experience we've had in Pennsylvania to 
make sure that transmission corridors under the 2005 Energy Act 
work for the people of Pennsylvania, for the people of the 
Northeastern corner of the United States and work for all 
America.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Casey follows:]

     Prepared Statement of Hon. Robert P. Casey, Jr., U.S. Senator 
                           From Pennsylvania

    First, I want to thank Chairman Bingaman and Ranking Member 
Domenici for holding this morning's hearing on transmission issues, 
including new provisions of law under the 2005 Energy Policy Act. I 
appreciate the Committee's willingness to gather information 
specifically on the National Interest Electric Transmission Corridors 
authorized under Section 1221 of the Energy Policy Act of 2005. I also 
want to recognize Senator Menendez for his leadership and thank him for 
his continued work on this issue.
    Affordable electricity is a cornerstone for a strong economy, and I 
agree that we must ensure that electricity moves through the grid and 
is delivered to customers efficiently and reliably.
    On February 12th, fourteen bipartisan senators from the Mid-
Atlantic and Northeast sent a letter to this Committee requesting 
oversight hearings on the transmission corridors because concerns have 
been raised in our states about the way those corridors are being 
implemented. I am concerned that the scope of the implementation and 
the potential over-use of the new federal power line siting authority 
go beyond the narrow back-stop authority that the Committee intended 
when it crafted the provision.
    Pennsylvania is the power provider for the Northeast and Mid-
Atlantic and we annually rank second or third in the nation for 
electricity generation. We export at least 30% of the power we generate 
and are the principle supplier of electricity to our neighboring 
states. Delaware, New Jersey, Washington D.C., and Maryland each import 
over 20% (up to 50% in some cases) of their electricity and 
Pennsylvania provides much of that power. Pennsylvania's robust 
generation industry combined with our willingness to site high-voltage 
lines so that reliability is preserved throughout the region have made 
it possible for our neighboring states to avoid difficult decisions to 
site new power plants in their own borders. So the concern that 
Pennsylvanians have over the implementation of the 2005 energy bill is 
not simply a NIMBY issue.
    In Pennsylvania, the transmission corridors are the focus of 
intense interest from local residents who are worried about the impact 
of the corridors on their towns to officials in state and local 
government. These concerns are evident from the over 4,500 people who 
signed a petition on my website earlier this year. One glance at the 
Energy Department's corridor designation map and it's easy to see why 
everyone is worried. The Mid-Atlantic Corridor covers about 75% of 
Pennsylvania. On a national level the Mid-Atlantic Corridor and the 
Southwest Corridor includes portions of 10 states and affects more than 
72 million people.
    The word corridor sounds benign when what we are looking at are 
huge swaths of land and the majority of a state being wrapped up in 
what should be a very narrow focus on key electric congestion points. I 
know that the Energy Department maintains that their designation 
doesn't really ``do'' anything. But in as much as the corridors 
determine the area in which the Federal Energy Regulatory Commission 
(FERC) can invoke the new federal siting power, the designation is very 
significant.
    At the state level, the Pennsylvania State House and State Senate, 
along with Governor Rendell have all voiced their opposition to the 
transmission corridors as they are being implemented by the Energy 
Department and FERC. One reason is the concern of over-reaching by 
these federal authorities to effectively displace the states and 
substitute the federal government as the ultimate authority responsible 
for siting electric transmission lines. Another reason is the worry 
that, as implemented, the transmission corridors undermine state 
renewable electricity standards, greenhouse gas reduction programs, and 
energy efficiency initiatives by making it virtually impossible for 
new, important and rapidly expanding power sources to compete with 
highly-moveable established power generation.
    The way the Energy Department carried out its designation process 
was unacceptable. In Pennsylvania, only one public meeting was held to 
inform residents of what the transmission corridor does and does not 
do. And that meeting, which was held in Pittsburgh, was only added to 
the calendar after the regional Congressional delegation sent a letter 
to Secretary Bodman. I don't think that this is the way the federal 
government ought to flex its muscle over states and towns. The fact 
that over 2,000 public comments expressing concerns over the draft 
corridor designation were sent to the Energy Department, and yet the 
final designation was virtually unchanged, should concern all of us. To 
the people of Pennsylvania, these actions conveyed a level of arrogance 
on the part of the federal government that undermines confidence in 
government.
    In addition, I don't think that the Energy Department abided by the 
spirit of the 2005 energy act in failing to consult with the states in 
conducting their congestion study, failing to assess and evaluate 
transmission needs and non-transmission alternatives to relieve 
congestion, and failing to comply with existing federal laws that 
protect public lands and the environment.
    I want to talk a little about the idea of non-transmission line 
solutions to electric congestion. While the Energy Department is 
looking at alternative methods of relieving congestion these 
alternatives have not been considered on equal footing as the 
construction of more high-voltage lines. Alternatives like Demand Side 
Management that create incentives for customers to reduce usage during 
peak demand times, siting local generation near the demand, distributed 
generation, conservation, and efficiency all should be considered.
    On the FERC side of the implementation process, I have concerns 
about conflicting statements that I have gotten from FERC through 
meetings and letters. I also am worried that for a provision that 
Congress intended to be rarely used to address a lack of state action 
on an interstate proposal, FERC has taken a very liberal view of the 
new power afforded them. In 2006, FERC issued final regulations that 
assert FERC's jurisdiction over siting decisions in circumstances where 
states have timely and lawfully denied approval of transmission line 
proposals. Not only does this assertion of jurisdiction fly in the face 
of the plain language of the 2005 Energy Policy Act it is also contrary 
to the purpose of the Act, which was to provide a process point for the 
federal government to step in and approve or disapprove of transmission 
lines that are necessary to relieve specifically identified congestion 
where the states have not acted.
    The combination of transmission corridors that swallow our states 
and the broad implementation of the law by FERC are already impacting 
Pennsylvanians. Last year a power company was censured by the 
Pennsylvania Consumer Advocate. Among the complaints from the families 
who were affected, were that contactors visited their properties and 
told them that they could fight it now but that the company would just 
wait it out for a year and then the federal government would take over.
    I hope that the Committee will take all of these concerns into 
account and work to address what I believe to be a faulty 
implementation of what should have been a focused and narrow provision 
of law. As the Committee considers solutions, I urge you to refine the 
law to require appropriate public meetings in affected areas, address 
the impact a proposed project under the National Interest Electric 
Transmission Corridors could have on state renewable energy and 
greenhouse gas programs, and ensure that non-transmission alternatives 
are part of the solution.
    Again, thank you for holding today's hearing. I appreciate your 
time during this last busy week before we return to our states for the 
next month. I stand ready to assist you in any way that I can in order 
to make the transmission corridors under the 2005 energy act work for 
the people of Pennsylvania and all of America.
    Thank you.

    The Chairman. Thank you very much, Senator Casey. I think 
you're comments help us to understand the particular problems 
that have arisen under this law. We need to understand those, 
and we need to determine whether additional action by this 
committee or this Congress is required in order to address 
them.
    We do have witnesses here today from both the Department of 
Energy and FERC, as well as many others who will, I'm sure, get 
into some of these same issues and give us their views as well. 
So thank you very much for being here. Let me just ask if 
Senator Domenici had any questions. I did not have any 
questions.
    Senator Domenici. Mr. Chairman, first I want to thank the 
Senator and hope he understands that my comments had intended 
no offense. In fact----
    Senator Casey. I know that.
    Senator Domenici. I have a great affinity for the Senator. 
He knows that, too.
    Senator Casey. I share that for you.
    Senator Domenici. I wanted to just say, Senator, you should 
know that when we got to this issue of the grid. What we were 
going to do about the fact that we were hearing, almost on a 
regular basis, about the great fear that was attendant our grid 
and how it was explained almost on a regular basis that we did 
not have a reliable grid, America. That it was apt to go out at 
any time.
    Then we had that Northeastern, wherever it was. Larry. I 
don't remember.
    We had a grid failure after our law passed. We said we're 
not going to have those anymore. We thought that was because 
things would happen in the reliability section and in the 
section of transmission corridors where there was blockage.
    You couldn't get anywhere because there was bickering which 
went higher than bickering. But I'll just use that word. It got 
to the point where you couldn't get a decision. That's what we 
were talking about.
    We said, ok, we will change our philosophy. Most people 
were on our side. We will go ahead and have ultimately what 
could be a Federal condemnation.
    We did not apologize for it because we thought it would 
only be used when a situation of the type that I described was 
there. Findings would have to be made and it would not be an 
everyday occasion. I agree with you, it would not be an 
everyday way of doing business. It would rather be a once in a 
while type of situation.
    But nonetheless, we surely didn't think every single 
corridor construction would be done with everybody agreeing. We 
thought there would be some. Since we had heard about so many 
where they were butting heads.
    So I want you to understand that we did intend this to be a 
tough new section of the law. You are not telling us that it 
shouldn't be. You're complaining about the way it's implemented 
as I hear you.
    I listened carefully. I hope we can get to the bottom of at 
least the arrogance which you seem to repeat a couple of times 
and think really exists. There should be no arrogance. I assure 
you we didn't intend that.
    So thank you very much.
    Senator Casey. Can I just respond briefly, Senator? Thank 
you for walking us through that history. Because it's important 
to be able to, I think, accommodate the obvious national 
interest in having a grid and having the kind of reliability 
that you and others worked so hard to achieve.
    I think we can accommodate that national interest with the 
process that we undertake. I think in Pennsylvania one of the 
problems is that we have, because that section of the law was 
designed for, I think, situations where a State is not acting 
or utility commission in a State has been kind of dragging 
their feet. We have a tradition in our State where we've got a 
utility commission which is active and has acted in a 
responsible way.
    I think just the way it happened here where you have no 
public hearing and then most of the State, as you can see by 
the chart. We took it down, but most of the State is 
designated. That seemed like it was being imposed upon the 
State. That's where the complaint is.
    So I think we can accommodate both interests. I think it's 
really just a question of how it's implemented. Some of it may 
not be statutory.
    I would say I've recommended some statutory changes. But 
some of it's the personality of the Secretary and his or her 
team. Some of it is the way that people on the ground operate.
    But I mean at a minimum have a couple meetings in each, you 
know, media market. You've got a State of six media markets, 
but in this instance I think we can work together to 
accommodate those interests.
    Senator Domenici. Thank you.
    The Chairman. I believe there were one or two others who 
wanted to make comments here before we----
    Senator Casey. Sure.
    The Chairman [continuing]. Move to the next panel. Senator 
Craig and Senator Cantwell both indicated they did. Go ahead.
    Senator Craig. Bob, thank you very much.
    Senator Casey. Thank you.
    Senator Craig. I too, wanted to express a similar 
frustration that I had at the time we crafted this provision 
and someone who strongly believes in States' rights. It became 
obvious to me that I had to give a little. I had to give a 
little because there were States who were simply not in my 
backyard blocking the ability for us to create national 
systems.
    We do have national systems. They must be that. They must, 
and in so doing, they have to be reliable.
    The only way to do that was to take us from what I'll never 
forget. I oftentimes repeat it. In the course of the hearings 
we held as we were shaping the fundamental structure of EPACT 
2005 was someone talking about transmission systems in our 
country as a bunch of country roads that every so often kind of 
came together, that there had never been a grand, uniform 
design.
    You said it. Pennsylvania kind of grew up and grew out 
because it found itself a supplier of a region not a State. We 
saw that happening all over the Nation. There was not the 
connectivity that obviously we're going to have to have to have 
reliability. So we gave authority that I was very hesitant to 
give.
    Now I can't speak for what went on in your State. You're 
the spokesman of that and you've done it well. If there is a 
lack of the kind of participation we expected let's not base 
that on personalities.
    Let's make sure that's institutionalized. Because you and I 
both know personalities will come and go, not only on this 
Dias, but downtown. It's very important that we 
institutionalize it and that the citizen gets what they expect.
    But no citizen in Pennsylvania or any surrounding State 
ought to have a right to say no, period. I'm going to stop a 
national movement or a national necessity. Here we are in the 
grips of a fundamental energy debate in our country.
    Our consumers are telling us one thing. We're resisting 
institutionally here in Congress at the moment because of our 
historical past. That will change in time.
    It changed with the Environmental Policy Act or the Energy 
Policy Act of 2005. Fundamental sweeping changes that were 
products--that were changes from historic positions of a past 
time. I'm a perfect example.
    Out West we don't worry about the neighboring State. We 
worry about the neighboring Federal expanse and the bureaucracy 
of the Federal Government being our problem when we want to 
move a transmission system or corridor and all of the little 
NIMBYisms within the structure of Federal policy. You think 
you've got problems in States like Pennsylvania and Delaware 
and neighboring States. Come out West and try to figure out how 
to cross Federal land. It's a whole new game.
    But anyway, thank you. I'm glad the chairman is holding 
this hearing. Anytime we write new law and bring it into power 
and policy we ought to be reviewing it, working with the 
agencies and making sure that it follows through with the 
congressional intent that was clearly there. Thank you.
    The Chairman. Senator Cantwell.
    Senator Cantwell. Thank you, Mr. Chairman. Senator Casey, I 
know that the Carnegie Mellon Electricity Industry Center is at 
the University there. They're obviously doing a lot of thinking 
on generation and how we move forward on all sorts of new 
technologies and solutions; everything from wireless 
transmission to how we can be more sufficiently green in this 
area.
    Do you think that they could be helpful in trying to come 
up with options for how to make this process move more smoothly 
to address some of these local concerns?
    Senator Casey. Oh, I think so. I think that, like a lot of 
States, we're all proud of our institutions of higher 
education. Carnegie Mellon is one of the leading lights.
    I think in terms of some of the research that you point to 
and also I think the State government has actually done a lot 
in this area. The departing Secretary of Environmental 
Protection, Kathy McGintee, Katie McGintee, worked in the 
Federal Government, knows a great deal about these issues about 
alternatives and using other options here. I think that some of 
this problem we've had with the Federal Government is easily 
correctable.
    It's as simple as saying that before you designate this 
many counties out of our 67 counties, 75 percent of them, that 
you're going to have more public input. I think that we can 
correct that. Now beyond that it's probably more complicated.
    But we could probably, I think it has been stated earlier, 
institutionalize a process where you have to have more public 
input. But I think Carnegie Mellon and institutions like that 
can help us both on the policy and the research, but also on 
the way the law gets implemented.
    Senator Cantwell. Mr. Chairman, I certainly appreciate the 
point that the Senator is making. But I do think that 
transmission technology is continuing to change. We certainly 
want to modernize the grid in every way possible because it's 
going to be a key element of our efficiency and will drive 
greater fuel savings in the long run.
    Maybe we can hold a hearing in the future, I know you've 
been doing a lot in this area, about how some of those 
technology solutions can help us on transmission siting issues. 
I know there's been some instances with TVA where we had fuel 
cell technology used for transmission capacity.
    I know we in the Northwest look at this issue because we 
just had a major storm come through and knock out all the BPA 
transmission capacity. Chances are the 150-mile-an-hour winds 
will devastate us again sometime, if not in this decade the 
next one. So I think looking at all these tools to help us on 
new transmission technology is a good idea.
    Senator Corker. Mr. Chairman, may I ask a brief question?
    The Chairman. Yes, certainly.
    Senator Corker. I know it's seldom we have a Senator come 
here that we actually ask a lot of questions of and we're glad 
that Senator Casey is here. You mentioned something that I 
found interesting in your testimony. You mentioned that what we 
were doing was actually hurting renewable energy.
    Senator Casey. The----
    Senator Corker. We've had T. Boone Pickens come before our 
committee here. Obviously he wants us to build a magnificent 
transmission grid around our country to utilize renewable 
energy, wants us to make significant investments. I think along 
with that give even more powers, if you will, to the Federal 
Government to make sure the grid is in place or get out of the 
way and let them do it.
    I just wondered when you said that what you were referring 
to. I found it very interesting.
    Senator Casey. There's a concern that's been raised in our 
State, I'm sure there might be others. But I know in our State 
that the way this is being implemented could undermine those 
efforts that you have kind of, a narrow focus on the 
traditional towers and the power that can come from that. 
Obviously, I mean, I think it stands to reason that that 
concern might be valid because that may be the easier way to go 
because we're used to doing that.
    We're used to putting up towers and used to having these 
transmission lines when there are other alternatives. We know 
from our historic debates, but also our recent debates that's 
it's sometimes easier to fall under the old way of doing things 
instead of pursuing other options. I just want to make sure 
that those other alternatives get the kind of attention and 
review and, hopefully, investment that will give us other 
options that, frankly, may not raise as much concern within 
communities.
    I think if you give communities more options I think 
they're less--assuming you give them public hearings and input. 
I think if you give them other options you're more likely to 
have community support for any kind of new technology you can 
bring to bear on the question of the grid and reliability.
    Senator Corker. Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Casey, thank you very 
much. I think you've focused our attention on many of the 
issues we're going to be trying to understand this morning. 
This is very helpful.
    Again, thanks for urging us to have this hearing.
    Senator Casey. Thank you very much, Mr. Chairman.
    The Chairman. We have two panels this morning. Let me just 
advise members, we have eight witnesses so it's going to be a 
full hearing. We want to hear from all of them.
    If the first panel would come forward.
    Honorable Joseph Kelliher, who is the chairman of FERC, the 
Federal Energy Regulatory Commission.
    Honorable Kevin Kolevar, who is the Assistant Secretary for 
Electricity Delivery and Energy Reliability in the Department 
of Energy.
    The third witness is Honorable Marsha Smith. I know Senator 
Craig wished to make a short statement of introduction for 
Commissioner Smith. So why don't you go ahead and do that, 
Senator Craig, at this time.
    Senator Craig. Thank you very much, Mr. Chairman. We're 
extremely pleased to have Marsha Smith from Idaho here to 
testify today for the National Association of Regulatory 
Utility Commissioners. Marsha, as chairman of the Idaho PUC, 
has been a very clear voice for reason and wise decisionmaking 
at our commission and has been a national spokesperson as we've 
tried to work our way through this myriad of transmission 
problems that our country has and how we regionalize it.
    Do we regionalize it? Who owns it? Who doesn't own it? How 
do we build it?
    All of those kinds of things that are clearly in the public 
forum today, so extremely pleased that Marsha is here. Thank 
you for being here. To all the rest of you, welcome.
    The Chairman. Alright. Why don't we start with Chairman 
Kelliher and hear from him and then Secretary Kolevar and then 
Commissioner Smith. After all three of you have testified, we 
will have some questions.
    We'll put your full statements in the record and if you 
could just make the main points you think we need to 
understand, we would greatly appreciate it.
    Chairman Kelliher.

   STATEMENT OF JOSEPH T. KELLIHER, CHAIRMAN, FEDERAL ENERGY 
                     REGULATORY COMMISSION

    Mr. Kelliher. Thank you, Chairman Bingaman and Senator 
Domenici and members of the committee. I want to express my 
thanks for the opportunity to discuss the state of the power 
grid and FERC initiatives in the wake of the Energy Policy Act 
2005. This is probably my last opportunity to appear before the 
committee before the retirement of Senator Craig and Senator 
Domenici.
    I really just want to commend your service, particularly in 
the area of energy policy formation. The Energy Policy Act of 
2005 is the most important Federal energy law, at least in the 
area that FERC is concerned with, since the 1930s. I wanted to 
commend both of you for your huge role in developing sound 
energy policy.
    Particularly thank Senator Craig for his leadership on 
hydro licensing, an area very important to the Pacific 
Northwest. I think that the provisions that you added to the 
Energy Policy Act will make improvements to a licensing process 
that I consider a lawyer's dream and an administrator's 
nightmare.
    But I want to thank Senator Domenici for his leadership in 
the Energy Policy Act. It was a hugely important law. I think 
you leave a tremendous legacy in the area of energy policy 
development. You're a very skilled legislator. I'm glad you 
applied your talents to the area of FERC law.
    Senator Domenici. Thank you.
    Mr. Kelliher. But I want to review the major points of my 
testimony. But I want to use different words than in my written 
statement. So if you're trying to track my written statement 
you'll be frustrated.
    But I think you have to start with a discussion really of 
the grid, the nature of the grid, because otherwise the 
rationale and benefit of FERC policy will probably remain 
elusive. The grid is the interstate highway system for the 
wholesale power market. The robust grid is necessary to assure 
reliability and support competitive markets.
    The United States does not have a national grid. It has 
three large regional grids or interconnections and there are 
sub regions in some of these regional grids. The U.S. does not, 
manifestly, does not have 50 State power grids. That is a 
significant change from the 1930s when the principal Federal 
electricity law was written when there truly was not an 
interstate grid, where electricity delivery was local, not 
interstate.
    But the grid is not only interstate, it's international 
with some of the regional grids in the U.S. fully 
interconnected with Canada and parts of Mexico. The U.S. power 
grid is the largest in the world, encompassing about 200,000 
miles. But the grid ownership itself is highly fractured in 
contrast to most countries.
    Most countries might have one or three or five owners of 
the grid. In the United States we have more than 500 owners of 
the grid. I think that disaggregated ownership greatly 
complicates grid planning, investment and operation. I think, 
frankly, it is a major weakness, perhaps the principal weakness 
of the U.S. electricity market. There's great variety in the 
nature of that ownership.
    But FERC policy with respect to transmission, we have three 
overarching goals, to protect reliability of the grid, to 
assure open and non-discriminatory access to the grid and then 
to encourage development of a robust power grid. There's 
certainly a relationship among these goals. Congress recognized 
the importance of these three goals, expressed them implicitly 
in the Energy Policy Act 2005 and gave FERC additional 
authority in all three areas.
    Since the Energy Policy Act of 2005, FERC has pursued a 
series of initiatives to achieve these three broad policy 
goals, relying on both pre-existing and new regulatory 
authority. Specifically, we moved quickly to implement the new 
reliability authority by certifying the electric reliability 
organization, by setting reliability standards, by approving 
delegation agreements with regional entities and by requiring 
improvements in reliability standards and approved standards 
and also by developing enforcement of reliability. We've also 
established rules governing the very limited Federal siting 
authority.
    We've crafted new rate policies to encourage investment, 
relying in part on Energy Policy Act authority. We've revisited 
interconnection cost allocation policies to encourage the 
development of new generation, especially renewable energy. 
We've reformed landmark open access rules to achieve more 
perfect access to the grid and, among other changes, to improve 
regional transmission planning. We've also made a number of 
regional cost allocation decisions in certain regions of the 
country.
    Now there's a lot to say in each of these areas and my time 
is limited. So I'm going to touch on only a few of the areas 
focusing on the purpose and the goals of FERC policies rather 
than the details. But I invite questions from Senators in all 
of these areas.
    With respect to reliability, FERC met every deadline set by 
Congress with respect to reliability. Put reliability standards 
in place a full year before contemplated in the Energy Policy 
Act. Last summer was the first summer where the grid was 
protected by mandatory and enforceable reliability standards.
    But one of the most important decisions was a threshold 
decision to define what exactly should FERC's role be in the 
area of reliability and there frankly, hasn't been that much 
attention to that threshold decision. Now under one vision FERC 
could have assumed the role of the court of appeals. That all 
we would have done is hear appeals of reliability enforcement 
decisions made at the regional level or by the ERO.
    But the alternative vision was a more active role focused 
on steady improvement to reliability, to strengthen reliability 
standards over time, to try to promote excellence in grid 
operations for FERC to assume an active role in enforcement and 
to work closely with the ERO and regional entities. We 
ultimately concluded that that more active role was necessary 
and more consistent with Congressional intent. I think the 
process, the reliability process, established in the Energy 
Policy Act has worked well with one exception, namely cyber 
security.
    I think current authority is inadequate for the Federal 
Government, for FERC, to guard, protect the grid against cyber 
threats and that is one area where I urge Congress to pass 
legislation to give us additional authority to guard the grid 
against cyber threats. I commend Chairman Bingaman for 
recognizing that need.
    Now with respect to siting I'm just going to focus on 
FERC's role because I think the Assistant Secretary Kolevar 
will discuss DOE's role. Again the nature of the grid, it's 
interstate in nature. We don't have 50 State grids.
    But the laws that govern transmission siting in this 
country are, frankly, inconsistent with the nature of the grid. 
They reflect the past, the 1930s, rather than the current 
reality of the grid. The result is that the U.S. has a weaker 
grid than it needs to assure reliability, support competitive 
markets and meet the climate change challenge.
    Senator Domenici. Sir, would you back up a minute?
    Mr. Kelliher. Yes, sir.
    Senator Domenici. and a half?
    Mr. Kelliher. Yes, sir.
    Senator Domenici. Go back about a minute in your testimony 
please. Repeat about a minute of your back testimony because I 
didn't get it.
    Mr. Kelliher. The reliability portions?
    Senator Domenici. Just right at the end there about a 
minute back.
    The Chairman. Cyber?
    Mr. Kelliher. On cyber security?
    Senator Domenici. Right after cyber.
    Mr. Kelliher. Ok. With respect to siting?
    Senator Domenici. Yes.
    Mr. Kelliher. Yes, sir. That on siting, I think it's 
important to recognize the nature of the grid because I think 
that's critical to developing a view on siting. How 
transmission should be sited in this country?
    In the 1930s there was no interstate power grid. 
Electricity delivery was local. So for that reason because of 
the reality of the grid at the time, the law made sense in the 
1930s. It provided for State siting of transmission facilities.
    Now we have a grid that is interstate and international. 
But I think State siting of--these are essentially machines. 
You're talking about large regional machines. State siting of 
large regional machines that extend across national borders in 
some cases these are North American machines, is inapposite. It 
is inconsistent with the reality of the grid.
    Now that is the exact same circumstance that occurred with 
gas pipelines. The Natural Gas Act of 1938 provided for State 
siting of natural gas pipelines. Congress in 1947 concluded 
that that approach was fundamentally flawed because the nature 
of the pipeline network was interstate. It was not local.
    So therefore Federal siting was necessary. Congress in 1947 
amended the Gas Act, provided for exclusive and preemptive 
Federal siting authority for pipelines. That process has worked 
very well for 60 years.
    Congress reached a similar conclusion in 2005. You 
concluded that there was a problem with the transmission siting 
process. Your solution was very different. It was adding a 
supplemental or secondary Federal process to the back end of a 
State process.
    So you reached a different conclusion. You reached a 
similar conclusion to Congress in 1947. But your action was 
very different.
    If you were to take up Senator Casey's invitation to 
revisit the law governing transmission siting and I might 
encourage you to do so. I would propose a very contrary result, 
that you look at the gas pipeline model and adopt that for 
transmission siting.
    I do so with complete respect toward State officials. I 
think it's important to look at what's the duty of a Federal 
official or a State official. If I were a State official, I 
might well reject and vote against a transmission project that 
benefits an entire region or perhaps the entire western part of 
North America because my duty is not to a region. It's not 
toward western North America. It's to one State.
    I don't criticize State officials when they reject a 
transmission project because they believe they're exercising 
their duty. But their duty is limited to one State, citizens of 
one State.
    Let me just make a point about--and I realize I've extended 
my time and I regret that. But reflect the difference between 
how these two processes work. Earlier this week FERC approved a 
certificate for a natural gas pipeline, the Mid-Continent 
pipeline. That pipeline is more than 500 miles long. It crosses 
five States. FERC approved it in nine and a half months.
    Recently FERC approved the REX West pipeline. That pipeline 
crosses five States. It's more than 700 miles long. FERC 
approved it in 11 months.
    I went to the commemoration of the Jackson's Ferry line 
which is a major AEP line. It's the largest, to my 
understanding, the largest transmission line added in recent 
years. That line is 90 miles long, crosses 2 States. It took 16 
years to site and approve that project.
    I agree with the conclusion that the committee reached--
Congress reached 3 years ago. But I think the action you took 
was at best, the next best alternative. I think I'm committed 
and DOE's committed to making the new law work as well as 
possible. But I don't think it's going to be very close to the 
natural gas pipeline model. It will be much closer to the 
status quo ante, the status quo that the committee, Congress, 
found unsatisfactory.
    Now, Senator Casey, yes. Senator Casey made a point about 
overuse of Federal authority. I just want to be very clear that 
the committee should appreciate that we've had a grand total of 
zero applications for transmission siting under the Energy 
Policy Act. So I don't think we could have used our authority 
less than that.
    I think it could not have been used more sparingly. But we 
have had one pre-filing request, a request that's strongly 
supported by the State officials in California regarding a line 
from Arizona to California.
    Investment--and I realize I extended but I'll try to speak 
very briefly on investment. Then wrap it up.
    We are now coming out of a long period of sustained 
underinvestment in the grid that goes back to the 1970s. 
Congress recognized that problem in the Energy Policy Act 2005. 
Because you directed FERC to undertake a rulemaking whose 
purpose was to secure greater grid investment through 
incentives, through rate incentives.
    We did exactly that. We approved a rule that was adopted by 
unanimous vote of the Commission. In my view that rule was 
fully consistent with the statute and with Congressional 
intent.
    Now since the rule was adopted, FERC has received 30 
applications for rate incentives involving thousands of miles 
of new transmission, thousands of megawatts and in almost every 
region of the country. These projects are the kinds of projects 
that haven't been seen in a quarter century. Now we have 
approved a good number of these incentive orders. We've also 
rejected those that were not consistent with our rule. A number 
of these applications remain pending.
    But among the ones that we've approved are major projects. 
Major backbone projects that will provide broad, regional 
benefits. Some proposals that nearly double the transmission 
investment of individual utilities and others that are designed 
clearly to increase fuel diversity and deliver renewable energy 
from certain regions of the country.
    Now I would have to say we're on the right track on grid 
investment. The level of grid investment has doubled in recent 
years. But I frankly don't think that we're at the levels that 
we need to assure reliability, support competitive markets and 
meet the climate change challenge.
    But I do want to emphasize in the discussion about 
investment, it's important to bear in mind what a small share 
transmission accounts for the retail bill. Transmission 
accounts on average something like seven cents on the dollar. 
So I think it's a small price to pay because if you improve the 
grid. You improve your access to the 85 cents or more of that 
dollar that is accounted for by the commodity of electricity.
    If you spend a little bit more in transmission you improve 
your access to lower cost electricity. The consumer actually is 
better off.
    We've pursued other initiatives on open access, on regional 
cost allocation and on interconnection policy. But I will just 
refer you to my written testimony in those areas.
    Conclude that I think the Commission has made a lot of 
progress in recent years, over the past 3 years. I think the 
grid now is stronger than it was then. We're on the right track 
on investment.
    We have more perfect open access to the grid. I think we're 
in a better position to meet reliability challenges than we 
were 3 years ago. I want to thank the committee for giving us 
the authority and the confidence you expressed 3 years ago. We 
do recognize that we have a lot more work in front of us at the 
Commission. But I thank you for the hearing today.
    [The prepared statement of Mr. Kelliher follows:]

  Prepared Statement of Joseph T. Kelliher, Chairman, Federal Energy 
                         Regulatory Commission

                              INTRODUCTION

    Mr. Chairman and members of the Committee, thank you for the 
opportunity to speak here today. My testimony addresses key initiatives 
and policies of the Federal Energy Regulatory Commission (FERC or the 
Commission) designed to foster a secure, robust, and reliable 
transmission grid, and non-discriminatory access to that grid, to 
support our Nation's electric supply needs. The additional authorities 
and directives Congress gave the Commission in the Energy Policy Act of 
2005 (EPAct 2005) have been particularly important in the Commission's 
efforts and therefore my testimony emphasizes our implementation of the 
transmission-related provisions of EPAct 2005.
    Any discussion of the transmission grid should start with an 
understanding of the nature of the U.S. transmission system. The 
transmission grid is the interstate highway system for wholesale power 
markets, and a robust grid is necessary to assure reliability and 
support competitive markets. The United States does not have a national 
grid, but a series of large regional power grids. The grid no longer 
consists of a multitude of local systems, as was the case in the 1930s 
when the principal federal electricity law, the Federal Power Act, was 
written. Rather, interconnections among local utilities have shaped the 
U.S. transmission grid into three major interconnections--the Eastern 
Interconnection, the Western Interconnection, and the Electric 
Reliability Council of Texas. Moreover, some of these regional grids 
are also international, fully interconnected with Canada and part of 
Mexico. In a very real sense, some of the regional grids are North 
American. The nature of the transmission grid has changed remarkably 
over time, and the Commission is increasingly confronted with 
transmission issues that can involve multiple states and must be 
considered from a multi-state, interconnection-wide, or North American 
perspective.
    The United States has the largest transmission system in the world, 
extending across about 200,000 miles. At the same time, ownership of 
the U.S. power grid is heavily fractured. In most countries, 
transmission ownership is consolidated; in the U.S. it is highly 
disaggregated, with more than 500 owners. There is also great variety 
in the nature of these owners, which include investor-owned utilities, 
government utilities operated by federal, state, and municipal 
agencies, rural electric cooperatives, and transmission companies (or 
``transcos''). In my view, the disaggregated ownership of the grid 
greatly complicates grid planning, investment, and operation.
    With respect to transmission policy, the Commission has three 
overarching goals: first, to protect the reliability of the bulk power 
system; second, to assure open and nondiscriminatory access to the 
transmission grid, the interstate highway system for wholesale power 
sales; and, third, to encourage development of a robust transmission 
grid. There is a relationship among these goals. It is not enough to 
have open access to the grid--the grid itself must be robust enough to 
assure reliability and support competitive wholesale power markets. In 
recognition of the national importance of a robust transmission grid, 
EPAct 2005 gave the Commission significant new regulatory authority to 
protect reliability, assure open and nondiscriminatory access, and 
encourage development of a stronger grid. The Commission has pursued a 
number of initiatives designed to achieve these overarching policy 
goals, relying on both new regulatory powers granted by Congress and 
pre-existing authority. The Commission moved quickly to implement its 
new authority to protect the reliability of the bulk power system and 
establish rules to govern use of its limited authority to site 
transmission facilities. In addition, the Commission crafted new rate 
policies to encourage greater grid investment, relying in part on new 
EPAct 2005 authority. The Commission also revisited interconnection 
cost policy to encourage the development of new generation, reformed 
the landmark open access transmission tariff, required regional 
transmission planning, and made important decisions regarding regional 
allocation of transmission costs.

                  RELIABILITY OF THE BULK POWER SYSTEM

    EPAct 2005 gave the Commission a new responsibility to oversee 
mandatory, enforceable reliability standards for the bulk power system 
(excluding Alaska and Hawaii). This authority is in section 215 of the 
Federal Power Act, which authorizes the Commission to certify an 
Electric Reliability Organization (ERO). The ERO is responsible for 
proposing, for Commission review and approval, standards to help 
protect and improve the reliability of the bulk power system. The ERO 
may delegate certain responsibilities to ``Regional Entities,'' subject 
to Commission approval.
    The reliability standards apply to the users, owners and operators 
of the bulk power system, and become mandatory only upon Commission 
approval. The Commission may approve proposed reliability standards or 
modifications to previouslyapproved standards if it finds them ``just, 
reasonable, not unduly discriminatory or preferential, and in the 
public interest.'' If the Commission disapproves a proposed standard or 
modification, the Commission must remand it for further consideration. 
The Commission, upon its own motion or upon complaint, may direct the 
ERO to submit a proposed standard or modification on a specific matter.
    The ERO is authorized to impose, after notice and opportunity for a 
hearing, penalties for violations of the reliability standards, subject 
to Commission review and approval.
    The Commission also may initiate investigations on its own motion. 
The Commission has implemented section 215 diligently. Within 180 days 
of EPAct 2005's enactment, the Commission adopted rules governing the 
reliability program. In the summer of 2006, it approved the North 
American Electric Reliability Corporation (NERC) as the ERO. In March 
2007, the Commission approved the first set of mandatory, enforceable 
reliability standards. In April 2007, it approved eight regional 
delegation agreements to provide for development of new or modified 
standards and enforcement of approved standards by Regional Entities.
    Earlier this month, the Commission acted on the first set of 
penalty determinations submitted by NERC to the Commission. The 
Commission decided that, unless an applicant sought review of the 
proposed determinations, the Commission would allow these 37 
determinations to be affirmed by operation of law, without further 
Commission action. None of the applicants sought Commission review. The 
Commission also issued guidance to the ERO on the content of future 
notices of penalty submitted to the Commission. Also this month, the 
Commission, for the first time, approved modifications to strengthen 
previously-approved reliability standards. The Commission is committed 
to the continued development and steady improvement of the reliability 
standards over time.
    While section 215 is an adequate tool for protecting the bulk power 
system against most reliability threats, cyber security threats are 
different. Cyber security threats may be posed by foreign nations or 
others intent on undermining our Nation through its electric grid. 
Cyber security threats stand in stark contrast to past causes of 
regional blackouts and reliability failures, such as vegetation 
management and relay maintenance. Given the national security risk of 
cyber security threats, the Commission may need to act quickly to 
protect the bulk power system, to act in a manner that goes beyond the 
existing standards development process, and to protect certain 
information from public disclosure. Our legal authority is inadequate 
for such action. Accordingly, the Congress should enact new legislation 
on cyber security threats.

                          TRANSMISSION SITING

    Although FERC has authority to establish the rates, terms, and 
conditions associated with transmission service in interstate commerce, 
the primary authority for siting transmission lines lies with the 
individual states. However, transmission siting is increasingly 
becoming a regional issue involving multiple states. Congress 
recognized this in EPAct 2005. Section 1221 of EPAct 2005 added a new 
section 216 to the Federal Power Act, providing for federal siting of 
interstate electric transmission facilities under certain 
circumstances. However, when Congress enacted this change it did not 
provide for exclusive federal transmission siting. States retain 
primary jurisdiction to site transmission facilities, and federal 
transmission siting effectively supplements a state siting regime. 
Section 216 requires the Secretary of the Department of Energy (DOE) to 
study electric transmission congestion and to designate, as a national 
interest electric transmission corridor, any geographic area 
experiencing electric energy transmission capacity constraints or 
congestion that adversely affects consumers.
    Section 216(b) authorizes the Commission, under certain 
circumstances, to issue permits to construct or modify electric 
transmission facilities within a national interest electric 
transmission corridor. In June 2006, the Commission proposed 
regulations to implement filing requirements and procedures for 
entities seeking to construct electric transmission facilities. In 
November 2006, after considering input from numerous commenters, the 
Commission adopted final regulations.
    The Commission's regulations provide for a pre-filing process. 
During pre-filing, the Commission will seek maximum participation from 
all stakeholders, including states and affected landowners, encouraging 
them to present their views and recommendations on the need for and 
impact of the facilities in this early stage of the process.
    During pre-filing, the Commission will commence the coordination of 
the processing of all other federal authorizations which would be 
needed to construct the proposed facilities, as well as state 
authorizations to the extent that the states choose to participate in 
the Commission's process. During pre-filing, the Commission also will 
start its environmental review of the proposed project as required by 
the National Environmental Policy Act. Once the Commission determines 
that there is sufficient information available to enable it to process 
an application for a proposed project, the applicant may file an 
application for a permit. Once the application is filed, the Commission 
has one year to act on the applicant's request.
    In response to concerns raised by some states regarding 
difficulties inherent in overlapping state and Commission proceedings, 
the Commission decided that it would not commence pre-filing on a 
proposed project until the states have had one full year to consider a 
siting application without there being any concurrent Commission 
process. Once the year is complete, the applicant may seek to commence 
pre-filing with the Commission. Neither the commencement of pre-filing 
nor a formal siting application at the Commission has the effect of 
interrupting or terminating state siting proceedings. If a state 
approves a siting request after initiation of pre-filing or a formal 
application, the Commission may terminate its proceeding.
    Section 216 authorizes the Commission to site facilities if a state 
withholds approval of a project for more than one year. The Commission 
interpreted this provision to include instances where a state has 
denied a proposed project. This issue is currently on appeal in the 
United State Court of Appeals for the Fourth Circuit.
    In October 2007, DOE issued an order designating two national 
interest electric transmission corridors. The Mid-Atlantic Area 
National Corridor includes portions of Delaware, Maryland, New Jersey, 
New York, Ohio, Pennsylvania, Virginia, West Virginia, and Washington, 
DC. The Southwest Area National Corridor includes portions of southern 
California and western Arizona.
    Commission staff currently is working on its first transmission 
siting project. Southern California Edison Company (SCE) has proposed 
to construct its Devers-Palo Verde No. 2 Project (DPV2) from Arizona to 
California within the Southwest Area National Corridor. In January 
2007, the California Public Utilities Commission approved SCE's request 
to construct the California portion of DPV2. In May 2006, SCE filed an 
application to construct the Arizona portion with the Arizona State 
Siting Committee, which granted SCE a certificate to construct the 
facility. But, in June 2007, the Arizona Corporation Commission denied 
SCE's request for a permit to site the facility in Arizona. In May 
2008, SCE asked the Commission to commence pre-filing for the Arizona 
portion of DPV2, and the Commission granted the request.
    The developers of other electric transmission projects in the two 
National Corridors may seek siting authorization from the Commission. 
These projects are either in the planning stage (i.e., have been 
announced, but have not yet been filed with the relevant state siting 
authority) or are currently pending before the relevant state siting 
authorities.

             REFORM OF THE OPEN ACCESS TRANSMISSION TARIFF

    In April 1996, the Commission adopted Order No. 888. This Order 
required all public utilities that own, control or operate facilities 
used for transmitting electric energy in interstate commerce to offer 
non-discriminatory service pursuant to an Open Access Transmission 
Tariff. The Commission also required these public utilities to 
``functionally unbundle'' their generation and transmission services. 
This meant public utilities had to take transmission service for their 
own new wholesale sales and purchases of electricity under their open 
access tariff, and separately state their rates for wholesale 
generation, transmission and ancillary services. Order No. 888 greatly 
enhanced the ability of wholesale customers (and retail customers, if 
allowed by state law) to reach alternative suppliers using the 
transmission systems of FERC-regulated public utilities.
    Last year, the Commission revisited the terms and conditions of the 
open access tariff and, in Order No. 890, adopted several reforms. The 
goals of the reform were to: (1) strengthen the open access tariff to 
ensure that it achieves its original purpose of remedying undue 
discrimination; (2) provide greater specificity to reduce opportunities 
for undue discrimination and facilitate the Commission's enforcement; 
and (3) increase transparency in the rules for planning and use of the 
transmission system.
    Specifically, Order No. 890 required the following changes to the 
open access tariff: open, coordinated and transparent planning on both 
a local and regional level; greater consistency and transparency in the 
calculation of the transmission capacity available for use by 
customers; adoption of a ``conditional firm'' component to long-term 
point-to-point service, expanding the service options available to 
customers; and less stringent penalties for imbalances created by 
intermittent resources, such as wind turbines and solar power. At the 
same time, the Commission retained core elements of Order No. 888, such 
as the comparability requirement, protection of native load, and state 
jurisdiction over bundled retail load.
    The planning requirements of Order No. 890 are particularly 
important. Having an open and transparent planning process helps 
eliminate opportunities for discrimination and provides customers with 
information and studies that will help them decide whether potential 
upgrades or other investments could reduce congestion or enable 
integration of new resources. Order No. 890 also required that, where 
demand resources are capable of providing the functions assessed in a 
transmission planning process and can be relied upon on a long-term 
basis, they should be considered on a comparable basis to other 
resources.
    Order No. 890's regional planning requirements will improve 
coordination of planning among utilities. Ownership of the interstate 
transmission grid is highly disaggregated, with more than 500 owners. 
Before Order No. 890, many transmission expansions were planned by 
individual transmission owners, as if we had 500 distinct power grids. 
Like the interstate highway system, however, the transmission grid is 
not merely a collection of local systems that can be planned on a 
stand-alone basis. The need for, and effect of, transmission expansions 
must be considered on a local, sub-regional, and regional basis. To 
that end, Order No. 890 required transmission providers to expand their 
planning processes to provide for coordination among transmission 
providers in the same region. Transmission providers also were directed 
to establish planning processes to consider not only upgrades that are 
necessary to maintain reliability of the transmission grid, but also 
additional expansions that, although not strictly needed for 
reliability, could enhance the economic operation of the grid. The 
consideration of both reliability and economic needs, on a local and 
regional level, is essential to ensuring the proper functioning of the 
interstate transmission system.

              ALLOCATING THE COST OF TRANSMISSION UPGRADES

    With the need for more transmission, the Commission faces the issue 
of who will pay for the transmission upgrades. As noted above, the U.S. 
has regional power grids, but fractured ownership of these regional 
grids. That complicates cost allocation decisions. This issue arises 
particularly in the context of regional transmission organizations 
(RTOs) and independent system operators (ISOs), but also among 
utilities in other regions and even among the transmission customers of 
an individual utility. In a number of regions, the Commission has made 
regional cost allocation determinations. These decisions encourage 
investment, by avoiding project-by-project litigation.
    As part of the open and transparent planning processes required in 
Order No. 890, the Commission directed transmission providers to work 
with their stakeholders to address the issue of cost allocation for new 
projects that do not fall under existing rate structures. In 
particular, the Commission suggested in Order No. 890 that new 
facilities eligible for cost allocation under the new rate provisions 
might include regional projects involving several transmission owners 
or economic projects that are identified independently from individual 
requests for service.
    The Commission suggested several factors for evaluating a cost 
allocation methodology. First, a cost allocation proposal should fairly 
assign costs among participants, including those who cause them to be 
incurred and those who otherwise benefit from them. Second, the cost 
allocation proposal should provide adequate incentives to construct new 
transmission. Third, the cost allocation proposal generally should be 
supported by state authorities and participants across the region. The 
Commission stressed that each region should address cost allocation 
issues up front, at least in principle, rather than triggering 
relitigation each time a project is proposed. In Order No. 890-A, the 
Commission also made clear that the details of proposed cost allocation 
methodologies must be clearly defined, as participants considering new 
transmission investment need some degree of cost certainty.
    In response, transmission providers have submitted a number of 
proposals to address cost allocation for new projects on both a local 
and regional basis. The Commission has acted on several of these new 
filings in recent months, while others remain pending before the 
Commission.
    In RTO and ISO regions, the cost allocation proposals have built on 
existing policies intended to attract investment, tailored as 
appropriate to the physical differences and regional needs of each RTO 
and ISO. For example, in April 2005, the Commission approved a cost 
allocation for Southwest Power Pool (SPP) in the south central United 
States, specifically for its ``base plan facilities,'' i.e., 
reliability-related network upgrades needed to meet SPP's reliability 
planning criteria. Under the approved allocation, the cost of base plan 
facilities costing less than $100,000 is allocated to the transmission 
zone in which the upgrade is located. For base plan facilities costing 
more than $100,000, onethird of the cost is allocated across the SPP 
system, while the remaining two-thirds is allocated to specific zones 
based on a ``megawatt-mile'' engineering analysis.
    In November 2006, the Commission accepted a methodology proposed by 
Midwest Independent Transmission System Operator, Inc. (MISO) to 
allocate 20 percent of the costs of high-voltage ``baseline 
reliability'' network upgrades on a system-wide basis and allocate the 
remaining 80 percent to affected transmission owners based on a load 
flow analysis. In March 2007, the Commission conditionally accepted 
MISO's proposal to allocate 20 percent of the costs of regionally 
beneficial projects (e.g., new economic projects) on a system-wide 
basis and allocate the remaining 80 percent among three sub-regions 
based on a ``beneficiary pays'' approach.
    And, in April 2007, the Commission approved a cost allocation plan 
for PJM. Under the approved plan, the costs of existing transmission 
facilities within PJM are allocated to the utility that owns the 
facilities. For new facilities below 500 kV, the costs would be 
assigned on a ``beneficiary pays'' approach. The costs of new 
facilities at 500 kV or above are allocated on a system-wide basis 
across PJM, in recognition of the broad regional benefits of these 
``backbone'' facilities.

                        TRANSMISSION INVESTMENT

    The United States is just coming out of a long period of sustained 
underinvestment in the power grid. Investment in transmission 
facilities in real terms declined significantly between 1975 and 1998. 
While investment increased somewhat after 1998, expansion of the 
interstate transmission grid in terms of circuit miles in 2005 was only 
0.5 percent. Transmission expansion was still lagging behind demand 
growth.
    This lack of investment prompted the Commission to consider new 
pricing policies to encourage the construction of new transmission 
facilities. After the Commission initiated a proceeding on these 
policies, Congress amended the Federal Power Act, through EPAct 2005, 
to require the Commission, within one year of EPAct 2005's enactment, 
to establish incentive-based rate treatments for transmission. Congress 
specified that these incentives were ``for the purpose of benefitting 
consumers by ensuring reliability and reducing the cost of delivered 
power by reducing transmission congestion.''
    In July 2006, pursuant to this new directive, the Commission issued 
Order No. 679, allowing utilities to seek rate incentives such as: (1) 
incentive rates of return on equity for new investment in transmission 
facilities; (2) full recovery of prudently incurred transmission-
related construction work in progress costs in rate base; and (3) full 
recovery of prudently incurred pre-commercial operations costs. The 
Commission allows these incentives based on a case-by-case analysis of 
individual transmission projects. The burden is on the applicant to 
justify incentives. Incentive rates remain bounded by the ``zone of 
reasonableness'' governed by the Federal Power Act, thus protecting 
transmission customers against excessive rates.
    Since adoption of these regulations, the Commission has received 
more than 30 applications for rate incentives for transmission 
projects, representing thousands of miles of high-voltage transmission 
facilities. These facilities will permit the interconnection of many 
thousands of megawatts of additional generation capacity.
    The applications have included major ``backbone'' projects widely 
recognized as providing significant benefits. For example, one case 
involved Southern California Edison Company's ``Tehachapi Project,'' to 
provide transmission for up to 4,500 megawatts of primarily wind 
generation into the Los Angeles area. Other cases included transmission 
facilities to allow substantially more imports of economic power from 
the Midwest into New Jersey, eastern Pennsylvania and nearby areas. Few 
transmission projects of this size have been developed for many years.
    Often, the amount of new investment almost equals the transmission 
owner's existing investment in transmission facilities. Specifically, 
in a number of cases, the new investment is as much as 80 percent of 
existing investment.
    At the same time, the cost of transmission is still just a small 
part of consumers' cost of electricity, typically less than ten 
percent. Yet, investments in new transmission facilities can 
significantly reduce the much-larger generation component of the total 
cost, by allowing buyers to reach cheaper but more distant supplies. As 
a result, transmission expansions can reduce overall costs to 
consumers.
    The new projects also are often designed to increase fuel diversity 
and deliver renewable energy. The Tehachapi Project is one example of 
this. Others include a proposal by Pacific Gas & Electric Company to 
build a thousand-mile transmission line to import up to 3,000 megawatts 
of new renewable power from Canada, and a billiondollar proposal by 
Northern States Power to expand its transmission system to access 
between 300 and 700 megawatts of windpower.
    Finally, major transmission expansions have been proposed in almost 
all regions of the country. The geographic diversity of these projects 
demonstrates that transmission underinvestment is a national issue, as 
Congress rightly recognized in EPAct 2005.
    While the Commission has approved a number of applications for 
incentives, the Commission also has denied requests for incentives when 
the requests did not meet the standards in Order No. 679.
    Overall, investment in transmission facilities appears to be 
increasing. For example, data released by the Edison Electric Institute 
indicates that investment by investor-owned utilities (in real terms, 
2006) increased gradually from $4.6 billion to $5.3 billion in 2000-
2004. Investment then jumped to $6.3 billion in 2005 and $6.9 billion 
in 2006. Investment is projected to increase to $10.2 billion in 2010. 
I believe the Commission's implementation of EPAct 2005's incentive 
provisions is a factor in these actual and projected increases. It is 
important that the Commission maintain policies to encourage greater 
transmission investment.

    POLICIES FOR INTERCONNECTING GENERATORS TO THE TRANSMISSION GRID

    In order to facilitate the interconnection of new generation 
facilities to the transmission grid, the Commission has adopted 
standard procedures and agreements for interconnecting with the 
transmission facilities of jurisdictional public utilities. In the 
past, transmission providers with their own generating facilities had 
the incentive and ability to deny, delay, or make expensive the 
interconnection of rival generating facilities. The Commission 
eliminated that ability of public utilities to discriminate through a 
series of rulemaking proceedings to standardize the generator 
interconnection process. The resulting procedures and agreements vary 
depending on the size and nature of the generation facility, providing 
flexibility for small facilities and non-synchronous technologies, such 
as wind plants. Taken together, these standardized procedures and 
agreements offer comparable, open access to rival generators seeking to 
interconnect with their local transmission provider.
    Recently, the Commission has expressed concern regarding the 
growing backlog of generator interconnection requests. In some regions, 
many interconnection requests pending in study queues appear to be for 
speculative or unlikely projects. Because interconnection requests are 
studied on a first come, first served basis, the resulting backlog in 
study queues is causing delay for projects ready to move forward. This 
problem seems to be particularly significant in markets operated by 
RTOs and ISOs, which have attracted significant new entry to the 
marketplace. Earlier this year, the Commission provided guidance to 
RTOs and ISOs on possible reforms that could be implemented to 
alleviate the backlog in processing generator interconnections. In 
response, interconnection queue reform proposals have already been 
filed by the California ISO and MISO. The Commission acted on the 
California ISO proposal earlier this month, while the MISO proposal 
remains pending.
    Finally, I would note the Commission's willingness to be flexible 
in its approach to transmission rate design. As an example, when 
Southern California Edison Company proposed the Tehachapi Project, 
traditional Commission policy would have required the first wind 
generators on the line to pay the line's full cost, even if they used 
only a small part of the line's capacity. This policy would have 
discouraged development of the wind resources, which were located far 
from existing transmission lines. Wind and other renewable resources 
are often location-constrained in this way, with less flexibility than 
other types of generation to locate near existing transmission lines. 
To recognize this difference among transmission customers, and reduce 
barriers to development of renewable resources, the Commission approved 
a cost allocation under which the wind generators would pay only for 
the capacity they used, and any remaining costs would be allocated to 
other customers until the line was fully used.
                               conclusion
    In conclusion, the Commission has three overarching transmission 
policy goals: protecting the reliability of the bulk power system, 
assuring open and nondiscriminatory access to the transmission grid, 
the interstate highway system for wholesale power sales, and 
encouraging development of a robust transmission grid. In EPAct 2005, 
Congress gave us new regulatory tools to achieve these goals. I believe 
we have carefully used these authorities in the manner Congress 
intended. Much progress has been made in achieving our key policy 
goals, but more must be done.

    The Chairman. Thank you very much for your testimony. 
Secretary Kolevar, why don't you go right ahead with your 
testimony?

    STATEMENT OF KEVIN M. KOLEVAR, ASSISTANT SECRETARY FOR 
  ELECTRICITY DELIVERY AND ENERGY RELIABILITY, DEPARTMENT OF 
                             ENERGY

    Mr. Kolevar. Thank you, Mr. Chairman, Senator Domenici and 
members of the committee for the opportunity to testify before 
you on the Department's work to overcome the challenges of 
building transmission to meet growing electricity demand and in 
our efforts to responsibly implement both the letter and the 
spirit of the Energy Policy Act of 2005.
    I will share Chairman Kelliher's sentiments with respect to 
the significance of that legislation. It is a very far reaching 
statute. We do hope that it will remain on the books, at least 
in as robust a fashion as we see today.
    The chairman spoke a little bit at the beginning of his 
testimony about the nature of the grid. I'll start a little 
differently and discuss demand. Then I'll move into the 
Department of Energy's actions to implement the three most 
significant components of the electricity title of the 2005 
act.
    As a Nation our population has grown nearly 25 percent in 
the last two decades. During this time period peak electricity 
demand has grown over 53 percent. Unfortunately whereas new 
generation has largely kept pace with demand, transmission 
infrastructure has grown only 12 percent in the same period 
that reflects the under investment that the chairman mentioned.
    There's more of course. By 2030 the Energy Information 
Administration projects an additional 30 percent increase in 
U.S. electricity demand. This is a projection that already 
accounts for future efforts to improve energy efficiency and 
demand response.
    This Administration understands that modernization of the 
existing electric transmission and distribution infrastructure 
is a critical component of a secure energy future. Largely 
because much of the Nation's future electricity demands will be 
met by generation sources that are distant from load. This 
applies in particular to many new types of clean and abundant 
energy sources.
    For example, most of the Nation's best utility scale wind, 
geothermal and solar resources are located in remote areas 
where existing transmission capacity is either minimal or non-
existent. Most new nuclear power plants will not be sited in 
populous areas and will likely require additional transmission 
capacity. Clean coal generation with carbon sequestration and 
storage will presumably be sited near geologic formations 
suitable for sequestration and may not be near existing 
transmission facilities.
    At the Department we're working to implement the 
electricity title of the Energy Policy Act of 2005 to ensure 
that transmission development remains a viable tool. Not the 
only tool, but a viable tool to solving electric delivery 
challenges. As directed by EPACT 2005, DOE conducted the 
National Electric Transmission Congestion Study of 2006 which 
analyzed generation and transmission capacity across the United 
States and identified geographic areas that have existing or 
emerging transmission congestion and constraint problems.
    As a result of the study findings, in April 2007 the 
Department designated two draft national corridors, one in the 
Mid Atlantic area and one covering both Southern California and 
Western Arizona. I think it's important to speak to this for 
just a minute. The issuance of these corridors in draft form 
was not called for by the statute.
    It was done voluntarily by the Department as a measure, an 
opportunity so that stakeholders, the States, the utility 
commissioners, and others interested in the ramifications and 
implications of designation, had an additional opportunity to 
see what the Department's thinking was on this matter and to 
speak to the Department about the significance of the 
Department's actions. I will tell you that we benefited greatly 
from that comment period.
    We received a great number of comments. They contribute 
significantly to the thinking of the Department of Energy as we 
move forward on these activities. So after consideration of 
these comments on October 5th of last year, the Secretary of 
Energy designated these two areas as national corridors with 
some modification to the corridor in the Southwest, dropping 
Clark County, Nevada.
    National corridors identify areas where transmission 
systems are not keeping pace with electricity requirements. 
Corridor designation indicates that the Federal Government has 
concluded that a significant transmission constraint or 
congestion problem exists in that area. That these problems 
adversely affect consumers and it is in the national interest 
that the problems be alleviated.
    Corridor designation does not constitute a finding that 
additional transmission capacity must be built in the affected 
area. It does not mean that additional transmission is the only 
or the best solution to resolve congestion. Likewise these 
designations do not propose, direct, or permit anyone to build 
anything. They do not equate to a determination of a route for 
a proposed transmission line.
    State authorities continue to have primary responsibility 
for deciding how to resolve transmission congestion problems, 
evaluating transmission projects and the siting of transmission 
facilities. DOE is also working to streamline transmission 
siting decisions pursuant to section 368 of the Energy Policy 
Act. Senator Craig, this speaks to the difficulty that you 
noted in siting power transmission lines, in particular across 
Federal lands.
    This law directs the Secretaries of Agriculture, Commerce, 
Defense, Energy, and the Interior to identify corridors for 
crude oil and product pipelines to include hydrogen pipelines 
and electric infrastructure. To incorporate the designed 
corridors, really larger rights of way, into relevant agency 
land use and resource management plans or equivalent plans. We 
have been hard at work on this over the past couple of years, 
Mr. Chairman.
    I'm pleased to tell you that the agencies expect to have a 
final Programmatic Environmental Impact Statement for these 
rights of way in the 11 western States out by the end of the 
year. At which point the land management agencies can move 
forward on altering land use plans as necessary. The Department 
is also moving forward now on looking at the eastern States for 
the purpose of the energy corridors.
    In EPACT, Congress also assigned a role to the Department 
to facilitate the Federal approval required to site a 
transmission facility. section 216(h) of the Federal Power Act 
now requires the Department to act as the lead agency for 
purposes of coordinating all applicable Federal authorizations 
and related environmental reviews needed for siting electric 
transmission facilities. DOE has submitted draft regulations 
implementing the provisions of 216(h) to OMB for interagency 
review. Federal registered publication of this regulation is 
anticipated in the very near future.
    As we look for opportunities to deploy clean power to enact 
cost effective clean energy programs, it's important to 
remember that every kilowatt hour of projected demand growth, 
that is not met through energy efficiency or demand response 
programs will have to be met from new supply. We expect that 
the need for net new generation capacity and low carbon 
generation, in particular, will continue to increase and with 
this will come the need to ensure that this electricity can be 
delivered reliably and affordably to consumers.
    Mr. Chairman, this concludes my statement. I look forward 
to your questions.
    [The prepared statement of Mr. Kolevar follows:]

    Prepared Statement of Kevin M. Kolevar, Assistant Secretary for 
   Electricity Delivery and Energy Reliability, Department of Energy

    Mr. Chairman and Members of the Committee, thank you for this 
opportunity to testify before you on the Department's work to overcome 
the challenges of building transmission to meet growing electricity 
demand. This is a critical issue that our country is facing today, as 
one of the largest energy consumers in the world.
    Our electricity grid is a complex and impressive system. It has to 
remain in a constant state of balance in order to function properly. 
The demand has to be equal to the load at all times. The grid operators 
who work to achieve this constant state of balance are among the most 
skilled and talented workforce in the world.
    However, there is only so much that they can do in this effort. We 
as a Nation have to start thinking about upgrading and modernizing our 
electric systems in order to keep pace with increasing demand and a 
changing generation mix.
    The electrical system in the continental U.S. is broken into three 
distinct systems. These are the Eastern Interconnect, the Western 
Interconnect, and the Electric Reliability Council of Texas (ERCOT). 
The Eastern Interconnect consists of 36 different States plus the 
District of Columbia, and partially covers 3 more, serving about 100 
million customers. The Western Interconnect covers most of 11 States 
plus Western Texas, serving 29 million customers. ERCOT covers most of 
the state of Texas, serving 11 million customers. It is important to 
lay these statistics out on paper, as it literally shows that we are 
all ``interconnected''.
    As a Nation, our population has grown nearly 25 percent in the last 
2 decades. During this time period, electricity (summer peak) demand 
has grown over 53 percent. In order to keep up with this growth in 
demand, we have developed new generation. Since 1996, total electricity 
demand has grown by 18 percent, and the industry has kept pace with 
this, illustrated by a 27 percent growth in total generating capacity.
    However, transmission infrastructure growth in the same period did 
not keep pace. We have seen only a 6.8 percent growth in total 
transmission line miles in that same period, and only 12 percent over 
the last two decades. While there has been an uptick in the development 
of new transmission infrastructure since 2005, these have typically 
been small upgrades needed for reliability, not components of the 
large, high-voltage, multistate, and inter-regional transmission 
network needed to deliver reliable and clean energy from remote 
locations to population centers.
    By 2030, the Energy Information Administration projects a 30 
percent increase in U.S. electricity demand, a projection that accounts 
for future efforts to improve energy efficiency and demand response. 
Although this is a positive indicator of a growing economy, it means a 
significant amount of new demand on electricity generation and 
transmission systems that are already stressed and aging. Thus, to keep 
our lights on and to ensure that consumers have access to clean and 
affordable electricity, this country needs to add not only substantial 
new generation capacity, but new transmission infrastructure as well.
    As I believe we all understand, electricity is the backbone of our 
economy. Without a robust, reliable and affordable supply system, the 
operation of all sectors of our economy, the well being of our 
citizens, and our national security will be severely threatened.
    Of course, the Department continues to invest heavily in the 
research and development of a wide range of advanced clean energy 
technologies, including renewable generation like wind and solar power, 
clean coal technologies with carbon capture and storage, and next 
generation nuclear reactors. DOE also devotes significant resources to 
energy efficiency and related demand-side technologies. These demand-
side measures, such as conservation and increased efficiency, are 
almost always less costly and can be implemented much faster than 
supply-side resources. Advancement of these clean generation and 
demand-side technologies and their increased market penetration are 
critical to the President's vision of a cleaner, more secure energy 
future.
    This Administration also understands that modernization of the 
existing electricity transmission and distribution infrastructure 
paired with the development of a new long distance, high voltage 
transmission network is a critical component of a secure energy future; 
largely because much of the Nation's future electricity demands will be 
met by generation sources that are distant from load. This applies to 
many new types of clean and abundant energy sources. For example:

   Most of the Nation's best utility scale wind, geothermal, 
        and solar resources are located in remote areas where existing 
        transmission capacity is either minimal or nonexistent;
   Most new nuclear plants will not be sited in populous areas, 
        and will likely require additional transmission capacity;
   Clean coal generation with Carbon Capture and Storage (CCS) 
        will presumably be sited near geologic formations suitable for 
        CO2 storage, and may not be near major existing 
        transmission facilities.

    The good news is that, as evidenced by this Committee's ongoing 
interest, people are increasingly focusing on the changes that will be 
required to our existing infrastructure as we pursue new energy 
generation sources. It is increasingly apparent that without major 
investments in transmission, many of the optimal wind and solar sites 
will not be viable.
    At the Department, we are working to ensure that transmission 
development is considered early in the development of new generation 
planning and have undertaken several initiatives in this effort.
    As directed by the Energy Policy Act of 2005 (EPAct), DOE conducted 
the National Electric Transmission Congestion Study of 2006, which 
analyzed generation and transmission capacity across the U.S. and 
identified geographic areas that have existing or emerging transmission 
congestion and constraint problems. Upon completion of the study, the 
Department was required to issue a report, based on the study, in which 
the Secretary of Energy ``may designate any geographic area 
experiencing electric energy transmission capacity constraints or 
congestion that adversely affects consumers as a national interest 
electric transmission corridor.''
    During the development of the study, which relied on extensive 
consultation with States and other stakeholders, the Department 
provided numerous opportunities for discussion and comment by States, 
regional planning organizations, industry, and the general public as 
required by FPA section 216(a)(1). The Department initiated a series of 
conference calls with States in December 2005 and January 2006 to 
describe the Department's plan for the development of the Congestion 
Study and to request their suggestions and relevant information. On 
February 2, 2006, the Department published a Notice of Inquiry 
explaining the Department's intended approach for the Congestion Study 
and invited comment. On March 29, 2006, the Department held a technical 
conference for the public in Chicago, Illinois to address the questions 
presented in the Notice of Inquiry. In addition to these efforts, the 
Department held numerous meetings with State officials to discuss the 
Congestion Study and participated in several State conferences and 
events where information about the study was presented.
    The Department sought input from the following organizations: 
National Conference of State Legislatures, Seattle, WA, Aug. 18, 2005; 
Southern States Energy Board, Atlanta, GA, Aug. 27, 2005; Midwest State 
Energy Office, via webcast, Aug. 31, 2005; National Association of 
State Energy Officials, New York, NY, Sept. 12, 2005 and Washington, 
DC, Feb. 7, 2006; CREPC, San Diego, CA, Sept. 20, 2005, Sept. 27, 2006, 
and Portland, OR, April 4, 2006; NARUC, Palm Springs, CA, Nov. 14, 
2005, Washington, DC, Feb. 14 3 and 22, 2006, San Francisco, CA, Aug., 
1, 2006, and via conference calls on Jan. 11, 2006, and June 16, 2006; 
NYPSC, Albany, NY, Dec. 20, 2005; OMS, via conference call, May 11, 
2006; Florida Public Service Commission, Tallahassee, FL on June 15, 
2006; Midwestern Legislative Conference, Chicago, IL, Aug. 20, 2006; 
Organization of PJM States, Inc., Cambridge, MD on Sept. 17, 2006; 
CPUC, via conference call on Sept. 20, 2006; CEC, via conference call 
on Sept. 22, 2006; and Maine PUC, via conference call, Oct. 6, 2006.
    In April 2007, the Department designated two draft National 
Corridors, one in the Mid-Atlantic area and one covering both Southern 
California and Western Arizona. The releasing of national corridors in 
draft form was an additional action not required by law for the 
specific purpose of providing all interested parties with additional 
opportunities to provide input and comments. During the comment period, 
the Department conducted dozens of hours of public meetings across the 
country, and held extensive consultations with State officials, local 
agencies, regional entities, and the public. On October 5, 2007, the 
Secretary of Energy designated these two areas as National Corridors--
the Mid-Atlantic Area National Corridors and the Southwest Area 
National Corridor.
    The National Corridors identify areas where the transmission 
systems are not keeping pace with electricity requirements. Corridor 
designation indicates that the Federal Government has concluded that a 
significant transmission constraint or congestion problems exists in an 
area, that these problems adversely affect consumers, and that it is in 
the national interest that the problems be alleviated.
    Corridor designation does not constitute a finding that additional 
transmission capacity must be built in the affected area; and it 
further does not mean that additional transmission is the only, or the 
best solution to resolve the congestion. In fact, the Department 
already goes to great lengths to encourage additional local generation, 
demand response and energy conservation as solutions to electric system 
challenges.
    Likewise, these designations do not propose, direct or permit 
anyone to build a transmission facility; and do not equate to a 
determination of a route for a proposed transmission facility. State 
authorities continue to have primary responsibility for deciding how to 
resolve transmission congestion problems, evaluating transmission 
projects, and the siting of transmission facilities.
    After thoroughly and carefully considering both the properly filed 
requests for rehearing and other comments the Department received, DOE 
denied requests for rehearing of the National Corridors in March 2008.
    The Department is currently undertaking the second National 
Electric Transmission Congestion Study, to be issued in August of 2009, 
as required by EPAct. The law requires DOE to prepare national 
congestion studies on a set schedule, and although it authorizes DOE to 
designate National Corridors, it does not require such designations.
    The Electricity Office is in the process of conducting six regional 
workshops to receive and discuss input on what publicly-available data 
should be considered to identify and understand the significance and 
character of transmission congestion for the Congestion Study, 
including comments. We have already held workshops in San Francisco, 
Oklahoma City, Hartford, Atlanta, and we will conduct two more 
workshops in Las Vegas and Chicago between now and mid-September. We 
encourage all interested stakeholders to review the papers and 
transcripts on our website and submit comments. We are emphasizing 
contacts with States, regional transmission planning entities, and 
others to compile an accurate assessment of transmission congestion for 
this study.
    As the challenges to continued electric reliability are not only 
technical, but also structural, DOE is also working to harmonize the 
multitude of State and Federal regulatory rules such that they 
complement, rather than conflict with each other. Today, a key 
challenge to timely development of the appropriate network of wires and 
other facilities required to reliably deliver new electricity to 
American consumers is the rigorous and lengthy State and Federal 
authorization requirements.
    On the Federal side, we are doing our part to coordinate and 
streamline transmission siting decisions pursuant to Section 368 of 
EPAct. Section 368 directs the Secretaries of Agriculture, Commerce, 
Defense, Energy, and the Interior (the Agencies) to identify corridors 
for crude oil, petroleum distillate fuels, natural gas, and hydrogen 
pipelines and electricity transmission and distribution facilities, and 
to incorporate the designated corridors into relevant agency land use 
and resource management plans or equivalent plans. Section 368 also 
directs the agencies to take into account the need for upgraded and new 
infrastructure and to take actions to improve reliability, relieve 
congestion, and enhance the capability of the national grid to deliver 
energy.
    Section 368(a) requires such designations for Federal lands in the 
11 contiguous Western States, while section 368(b) requires corridor 
designations be made in the remaining 39 States. The Agencies are 
preparing Programmatic Environmental Impact Statements addressing 
Federal lands under both sections 368(a) and (b).
    At this time the Agencies are reviewing and drafting responses to 
the 14,000 comments (which includes over 1,000 substantive comments) 
addressing corridor location and other suggested revisions received on 
the Draft Programmatic Environmental Impact Statement for the 
Designation of Energy Corridors in Eleven Western States. We expect to 
have the Final Programmatic Environmental Impact Statement for the 
Designation of Energy Corridors in Eleven Western States out by the end 
of this year. A Notice of Intent to conduct a Programmatic 
Environmental Impact Statement regarding corridor designations in the 
remaining 39 States will soon be published by the Agencies.
    In EPAct, Congress also assigned a role for DOE to facilitate the 
Federal approval required to site a transmission facility. EPAct added 
section 216(h) to the Federal Power Act, requiring the Department to 
act as the lead agency for purposes of coordinating all applicable 
Federal authorizations and related environmental reviews needed for 
siting electric transmission facilities. The purpose of this 
coordination is to streamline agencies' review processes and avoid 
duplication among Federal agencies.
    In August 2006, DOE and eight other Federal agencies signed a 
Memorandum of Understanding to facilitate implementation of the 216(h) 
coordination process. The MOU establishes a framework for early 
cooperation and participation that will enhance coordination of all 
applicable land use authorizations and related environmental, cultural, 
and historic preservation reviews, as well as any other approvals that 
may be required under Federal law in order to site an electric 
transmission facility. DOE has delegated its section 216(h) 
coordination responsibilities for transmission projects in National 
Corridors to the Federal Energy Regulatory Commission (FERC).
    DOE has submitted draft regulations implementing the provisions of 
section 216(h) to the Office of Management and Budget for interagency 
review. It is our hope that this process will be completed in the very 
near future.
    Finally, the Department has been providing financial and technical 
assistance to States and regional planning entities to improve the 
effectiveness of the entire range of electricity options available--
energy efficiency, demand response, electricity storage, and 
development of a smarter grid. In the area of Smart Grid, for example, 
we are implementing the provisions in Title 13 of the Energy 
Independence and Security Act of 2007, which directs us to implement a 
program to research, develop, and demonstrate smart grid technologies; 
report to Congress every two years on the status of smart grid 
deployments; establish a smart grid advisory group and an energy 
storage advisory group; and establish a smart grid task force among 
relevant Federal agencies.
    As we look for opportunities to deploy clean power and to enact 
cost-effective clean energy programs, it is important to remember that 
the electric industry exists to reliably and safely meet consumer 
demands. Every kilowatt-hour of projected demand growth that is not met 
through energy efficiency or demand response programs will have to be 
met from new supply. We expect that the need for net new generation 
capacity will continue to increase, and with this, the need to ensure 
that these sources can be delivered reliably and affordably to 
consumers. As previously stated, the Department does not believe that 
additional transmission is the only, or necessarily the best solution 
to resolve the difficulties ahead in meeting load growth; we encourage 
State or regional planning entities to also consider all local 
generation, demand response and energy conservation options available.
    Nevertheless, the fact of the matter is that more investment in 
transmission will have to be on the table as a major tool to achieve 
the energy goals that this Administration, Congress, States, and 
industry leaders share, to achieve a secure and clean energy future.
    This concludes my statement, Mr. Chairman. I look forward to 
answering any questions you and your colleagues may have.

    The Chairman. Thank you very much.
    Commissioner Smith, why don't you go right ahead?

   STATEMENT OF MARSHA H. SMITH, COMMISSIONER, IDAHO PUBLIC 
                UTILITIES COMMISSION, BOISE, ID

    Ms. Smith. Thank you. I appreciate the opportunity and the 
committee allowing us to appear here today before the committee 
and especially thank Senator Craig for his warm welcome in a 
setting that can sometimes be very intimidating for a person 
from the Hinterland, like I am. Thank you for your service to 
the State.
    I want to touch on reliability. As Chairman Kelliher 
mentioned the provisions with regard to reliability allow for 
the delegation of certain responsibilities to entities that are 
organized on an interconnection wide basis like the Western 
Electricity Coordinating Council. WECC is the regional 
reliability organization for the Western Interconnection.
    The delegation of these responsibilities is critical to the 
successfully maintaining the most efficient, least cost and 
most reliable operation of the bulk power system in the West. 
So we appreciate those delegation provisions and the 
farsightedness of Congress in knowing that this region would 
need those.
    With regard to the DOE congestion studies as mentioned by 
Secretary Kolevar they issued the first one in August 2006. The 
States appreciate DOE working with regional entities to assess 
congestion improvements, to assess those congestion areas. But 
we do think that improvements can be made. DOE outlines certain 
principles for those congestion studies in the summer of 2006. 
But it doesn't appear that the August 2006 study conforms with 
the principles that it established.
    We also feel that there's not a clear and consistent method 
for measuring transmission congestion. The use of different 
metrics to the same set of transmission paths leads to 
different conclusions and rankings with regard to congestion. 
We commend DOE also for its support of WECC and its efforts to 
gather the data and perform the analyses needed for these 
studies.
    DOE has started its 2009 congestion study and stated that 
it will focus on recent and current congestion. That's 
important. It's necessary. But it's not sufficient.
    We think they also need to be forward looking. That future 
generation additions that will support State and regional 
policies for renewables and for the associated transmission 
that will be needed should be analyzed. The important thing for 
transmission is not where we have been, but it's where we are 
going.
    For the rest we recommend that DOE rely upon and let the 
WECC TEPPC Committee take the lead on this with regard to the 
congestion studies. The 2009 Congestion Study should also have 
high standards for transparency and thoroughness using 
established processes and data gathering in that process. We 
also would ask DOE to put more emphasis on section 1221(h) 
which is corridors across Federal lands.
    As Senator Craig mentioned earlier Federal agencies are 
still the major delay in siting in the West. But I would note 
that some of those local entities that have the 
responsibilities with regard to this issue have not been given 
adequate resources in terms of budget or staff to carry out 
those responsibilities. So we need to enable them to do the job 
that they've been asked to do.
    With regard to FERC backstop siting authority, States 
believe that FERC should only be exercising that authority when 
a State fails to act or does not act in a timely manner. I also 
note that under the FERC rules states are given 1 year to 
consider applications before FERC starts its pre-filing 
process. We believe this 1 year clock should be stopped in 
fairness, if the reason for the state delay is the failure of 
the Federal land management agency to do its duties and that's 
the hold up.
    First, and with regard to cost allocations I think FERC 
should recognize that in non-RTO regions cost allocations for 
new transmission will not be a mathematical formula as it is in 
RTO tariffs. That FERC should accommodate the cost allocation 
procedures of non-RTO regions to achieve the most efficient, 
quickest way to get new transmission.
    With regard to incentive rates for transmission we believe 
that FERC should use these sparingly in the appropriate 
circumstances as outlined in the statute and that when there 
are cost overruns, the applicant should not get the incentive 
on the cost overruns.
    With regard to Chairman Kelliher's remarks about his gas 
pipeline model for transmission siting, of course I would not 
agree with that model. But I think this is a serious topic that 
deserves its own hearing, its own study and investigation more 
than we could go into today. Except that it did occur to me 
that perhaps it's a good model for siting on Federal lands.
    Finally, with regard to customer bills and this being a 
small portion of transmission there are a lot of pressures on 
customer's bills these days. Not just their electricity bills, 
but all their bills. But I pay attention to electricity. It 
doesn't matter if transmission is a small fraction of the bill. 
Every little bit adds to the bill.
    Thank you, Mr. Chairman. I appreciate your time.
    [The prepared statement of Ms. Smith follows:]

   Prepared Statement of Marsha H. Smith, Commissioner, Idaho Public 
                    Utilities Commission, Boise, ID

    Good morning Chairman Bingaman, Ranking Member Domenici, and 
Members of the Committee:
    My name is Marsha H. Smith, and I am a member of the Idaho Public 
Utilities Commission (IPUC). I also serve as President of the National 
Association of Regulatory Utility Commissioners (NARUC), on whose 
behalf I am testifying here today. I very much appreciate the 
opportunity to appear before you this morning and offer a State 
perspective on transmission issues.
    NARUC is a quasi-governmental, non-profit organization founded in 
1889. Our membership includes the State public utility commissions 
serving all States and territories. NARUC's mission is to serve the 
public interest by improving the quality and effectiveness of public 
utility regulation. Our members regulate the retail rates and services 
of electric, gas, water, and telephone utilities. We are obligated 
under the laws of our respective States to ensure the establishment and 
maintenance of such utility services as may be required by the public 
convenience and necessity and to ensure that such services are provided 
under rates and subject to terms and conditions of service that are 
just, reasonable, and non-discriminatory.
    There are many challenges to resolve prior to the development of 
the much needed growth in the transmission system that is so vital to 
reliable electric service, our economic growth, and our national 
security. Without greater development of and increased capacity in the 
transmission systems, our efforts to assemble the energy resources that 
will be necessary, should we embark on a policy that will constrain 
carbon emissions, may not achieve the desired results. Additionally, it 
has been projected that the demand for electric energy in the United 
States will grow by more than 30 percent over the coming decades. 
Significant upgrades will be necessary in order to meet this demand. 
Solutions to the current transmission challenges facing us are not 
quick, simple, noncontentious, inexpensive, nor, in some cases, 
obvious. Finding and implementing solutions will require cooperation 
by, not confrontation among, the various stakeholders. I would now like 
to address a few specific issues with regard to the state of the 
nation's transmission grid.

                      CONGESTION STUDY AND NIETCS

    The Energy Policy Act of 2005 (EPAct 2005) required the Department 
of Energy (DOE) to conduct a study of electric transmission congestion 
one year after the legislation was enacted, and every three years 
thereafter.\1\ After considering alternatives and recommendations from 
interested parties, DOE must issue a report, based on the study, which 
may designate any geographic area experiencing electric energy 
transmission capacity constraints or congestion that adversely affects 
consumers as a national interest electric transmission corridor 
(NIETC).\2\
---------------------------------------------------------------------------
    \1\ Section 216(a)(1) of the Federal Power Act (FPA).
    \2\ Section 216(a)(2) of the FPA.
---------------------------------------------------------------------------
    The first DOE Congestion Study was issued on August 8, 2006. On 
April 26, 2007, the DOE issued two draft NIETCs--the Mid-Atlantic Area 
National Corridor (some or all counties in Delaware, Ohio, Maryland, 
New Jersey, New York, Pennsylvania, Virginia, West Virginia, and the 
District of Columbia); and the Southwest Area National Corridor (seven 
counties in southern California, three counties in western Arizona, and 
one county in southern Nevada). On October 2, 2007, DOE finalized the 
designations of both NIETCs--the Mid-Atlantic Area National Interest 
Electric Transmission Corridor (Docket No. 2007-OE-01) and the 
Southwest Area National Interest Electric Transmission Corridor (Docket 
No. 2007-OE-02). DOE affirmed the NIETC designation orders on March 10, 
2008.

                           NARUC PERSPECTIVE

    At a July 18, 2006 Annual Pacific North West Economic Region Summit 
in Edmonton, Alberta, Canada, DOE listed the following principles 
during an ``Ending the Stalemate'' presentation:\3\
---------------------------------------------------------------------------
    \3\ See ``Ending the Stalemate'' July 18, 2006 DOE presentation at 
http://pnwer.dataweb.com/tables/jointables/meetingparticipantjoin/
files/presentation/souder.pdf#search=%22DOE%20Alberta%20corridors%22.

          1. The initial round of NIETC designations should focus on 
        the most congested areas in the country;
          2. The NIETC designations must have clear and supportable 
        boundaries;
          3. The NIETC designations must be defensible and demonstrate 
        due diligence--by both the DOE and regional planning entities;
          4. DOE should not issue an NIETC designation until it has the 
        information needed to bound an NIETC appropriate to the 
        underlying problem;
          5. Congress did not intend for DOE to become a planning or 
        siting agency. The NIETC designations should not be route-
        specific, and siting should be left to those who have siting 
        authority;
          6. The NIETC designations should support, not conflict with, 
        efforts and conclusions by regional planning entities; and
          7. The NIETC concept is intended to overcome obstacles to 
        transmission expansion, not impose new ones. The NIETC process 
        must therefore be timely and simple.

    NARUC's comments to DOE expressed its concern that the Congestion 
Study does not adequately conform to these principles or the express 
terms of the agency's statutory charge. In order to remedy these 
deficits, the agency should, at a minimum, (1) perform a more granular 
analysis of congestion prior to designating a specific NIETC and (2) 
work cooperatively with the various regional planning organizations and 
the affected States within each region. Specifically, a review of the 
Congestion Study highlighted the following problems:

          1. The Congestion Study Methodology, without further review 
        and explanation, should not provide the basis for any NIETC 
        Designation;
          2. EPAct 2005 Section 1221 requires a full and productive 
        consultation with affected States before DOE makes any NIETC 
        designations;
          3. There should be deference to areas with mature regional 
        planning processes;
          4. DOE should consider solutions other than transmission, 
        such as initiatives to expand demand-response programs and 
        relieve congestion problems and transmission constraints before 
        making an NIETC designation; and
          5. An NIETC designation should not be made unless cost 
        allocation concerns have already been resolved.

    NARUC appreciated the DOE Secretary's decision to solicit comments 
before taking final action on any specific NIETC designations. We 
commended the Secretary's attention to the comments made by NARUC 
members and State regional organizations on the Draft NIETC 
designations. NARUC did not make specific comments to DOE on either 
Draft NIETC; rather, NARUC focused on two general issues:

          1. The default 12-year term for a NIETC Designation should be 
        modified to a default three-year term to conform with the 
        issuance of the Congestion Study; and
          2. Clarification on DOE's authority under Federal Power Act 
        (FPA) Section 216(a)(2) to designate a conditional area of 
        congestion based solely on projections of future congestion.

    NARUC did not appeal either the DOE Congestion Study or the NIETC 
designations. There are, however, pending appeals by individual States, 
regional, and national environmental groups of both NIETC designations 
in a number of federal district and appellate courts.
Western Perspective
    The Western perspective is that the designation of the Southwest 
NIETC was based on anecdotal information and information from various 
transmission studies, not a systematic review of historical flow data 
provided by the Western Electricity Coordinating Council (WECC), the 
regional reliability organization.\4\ The breadth of the Southwest 
NIETCs, especially in southern California and western Arizona is too 
sweeping. DOE failed to develop objective metrics that would determine 
when there is congestion that would warrant a NIETC designation. The 
various measures WECC provided to DOE did not show any consistent 
pattern that would indicate one path in the West is more congested than 
any other. The Western Interstate Energy Board's Committee on Regional 
Electric Power Cooperation (CREPC) invited DOE to hold a workshop to 
develop metrics to define congestion. To date, it has not been held. 
Such a selective use of information undermines acceptance of a DOE 
designation.
---------------------------------------------------------------------------
    \4\ See CREPC comments at http://www.westgov.org/wieb/reports/
crepc/07-06-07CREPC_comments_SWNIETC.pdf and WECC comments at http://
www.westgov.org/wieb/reports/crepc/07-06-07TEPPC_comments_SWNIETC.pdf. 
The Western Governors Association (WGA) passed a Resolution that says: 
``The Western Interstate Energy Board is to report to the Governors on 
whether the Department of Energy's designation or proposed designations 
of NIETCs in the West is based on sound analysis and information and 
whether such designations adequately incorporate information from state 
and regional renewable energy zone studies... The WGA staff and the 
Western Interstate Energy Board are directed to develop potential 
recommendations to the federal government on policy changes needed to 
enable the region to move renewable energy generation to market, 
including but not limited to changes to Sections 368 and 1221 of the 
Energy Policy Act of 2005, and changes to FERC Order 890.'' The full 
Resolution is at http://www.westgov.org/wga/policy/08/electricity8-
8.pdf
---------------------------------------------------------------------------
    In any case, the primary concern over adequate transmission in the 
West is not existing congestion; rather, it is future congestion that 
will result from locating new power plants. DOE has told its staff not 
to consider future congestion as part of their 2009 Congestion Study 
required by EPAct 2005. Currently, DOE is in the process of preparing 
for the 2009 study and is holding regional workshops to consult with 
States and other stakeholders. During the first Western workshop in San 
Francisco on June 11, 2008, many participants raised similar points 
about congestion metrics and the need to be forward looking about 
analyzing congestion. The WECC transmission planning group, 
Transmission Expansion Planning Policy Committee (TEPPC) plans to take 
a closer look at congestion metrics in preparation for the 2009 
Congestion Study.
    DOE should be putting more emphasis on the implementation of EPAct 
2005 Section 1221(h). Federal agencies are the major cause of delay in 
transmission permitting in the West. This was true before the passage 
of the legislation, and remains the case. Aside from an interagency 
MOU, the federal agencies have not done much more to fix the problem. 
As to EPAct 2005 Section 368, the idea of designating NIETCs across 
federal lands is a good one. Unfortunately, the federal agency work 
thus far is likely to be out-of-date and irrelevant when the NIETCs are 
finalized. Much has changed regarding fuel choices since the passage of 
the legislation. For example, the focus in the West is on renewable 
generation, not new coal plants. But, the proposed NIETCs were largely 
based on existing right-of-ways or transmission plans that had coal 
plants as the anchors of any new transmission. DOE should redo the 
Section 368 corridor work once the Western Governors Association's 
Western Renewable Energy Zones (WREZ) work is completed and load-
serving entities (LSEs) indicate which zones they are interested in.
    The geographic location of my home State makes it important to the 
future development of transmission in the western grid. Idaho has 
entered into a ``Cooperating Agency Status'' with the lead federal 
agency, the Bureau of Land Management, on the Gateway West Project. 
Obviously, access to federal lands is critical to the success of this 
venture. At 1.6 to 2.6 million dollars per mile, decisions that reroute 
transmission paths can result in extraordinary costs to consumers. The 
reality is that customers ultimately pay for transmission projects. 
Transmission is the key to insuring energy security and new generation 
resources (renewable, nuclear, natural gas, etc.) are dependent upon 
new transmission development.

                                 SITING

    A major impediment to siting energy infrastructure, in general, and 
electric transmission, in particular, is the great difficulty in 
getting public acceptance for needed facilities. This tells us that no 
matter where siting responsibility falls--with State government, the 
Federal government, or both--as prescribed in the EPAct 2005, siting 
energy infrastructure will not be easy and there will be no ``quick 
fix'' to this situation.
    During the EPAct 2005 debate, NARUC opposed the ``backstop siting'' 
provision. NARUC's position prior to passage of EPAct 2005 was, and 
continues to be, that to have the greatest economical and environmental 
benefits transmission facilities should not be nationalized; practical 
considerations require they be regionalized and that this 
regionalization should be encouraged, not required. Just as States have 
a role in the siting of interstate highways, States need to continue 
having an active role in transmission decisions.
    EPAct 2005 gave federal backstop siting authority of certain 
electric transmission facilities to the Federal Energy Regulatory 
Commission (FERC).\5\ Upon NIETC designation by DOE, FERC may issue 
permits to construct or modify electric transmission facilities if FERC 
finds that:
---------------------------------------------------------------------------
    \5\ Section 216 of the FPA.

          (1) A State in which such facilities are located does not 
        have the authority to approve the siting of the facilities or 
        to consider the interstate benefits expected to be achieved by 
        the construction or modification of the facilities;
          (2) The applicant is a transmitting utility but does not 
        qualify to apply for siting approval in the State because the 
        applicant does not serve end-use customers in the State; and
          (3) The State with siting authority takes longer than one 
        year after the application is filed to act, or the State 
        imposes conditions on a proposal such that it will not 
        significantly reduce transmission congestion or it is not 
        economically feasible.

    To issue a permit, FERC must find that proposed facilities:

          (1) are used for interstate commerce;
          (2) are consistent with public interest;
          (3) significantly reduce transmission congestion in 
        interstate commerce;
          (4) are consistent with national energy policy; and
          (5) maximize the use of existing towers and structures.

    As Congress considered of EPAct 2005, NARUC expressed deep concern 
with the language that eventually became Section 1221. At that time, 
NARUC opined that the language would in essence overrule legitimate 
State agency concerns and laws with regard to how a State ruled on a 
transmission project. The language would then permit FERC to vacate the 
decision and preempt State law and actions. Whether our initial 
observations and fears were accurate will only be determined by future 
decisions of FERC. FERC issued the Final Order--Order No. 689--
implementing its backstop siting authority on November 16, 2006.

                           NARUC PERSPECTIVE

    In its comments on the FERC rulemaking, NARUC said it expects that 
the backstop siting authority will have limited applicability because 
the majority of the State commissions have the authority to approve or 
deny, as the case may be, proposed transmission projects within their 
jurisdictions and because State commissions are frequently allowed to 
address the interstate benefits of proposed projects. Furthermore, many 
State statutes require a petitioner to obtain a certificate of public 
convenience and necessity, or some other similar certificate, from a 
State commission before constructing transmission facilities regardless 
of whether the applicant provides electric service to end-use 
customers. NARUC proposed that:

          1. FERC clarify that federal backstop siting authority under 
        FPA Section 216 is only triggered when the State Commission 
        fails to or cannot act in a timely manner;
          2. FERC clarify how it will apply the federal backstop 
        criteria;
          3. The proposed rule be revised to implement the due process 
        requirements of the statute; and
          4. The Final Rule adopted should incorporate a reference and 
        deference to extensive siting records developed at the State 
        level to prevent duplication and confusion.

    The Final Order gives the States one full year to consider a 
transmission line siting application before the federal pre-filing 
process begins. The intent is to avoid conducting ``parallel 
proceedings''--where a State commission and FERC would be considering a 
siting application at the same time. If such ``parallel proceedings'' 
were allowed, that process would create ex parte and prejudgment 
concerns under State law. Such a situation could potentially result in 
an applicant ``gaming'' the siting process by purposefully filing a 
deficient application to the State with the hopes of starting the one-
year federal clock and precluding adequate State consideration of the 
application. NARUC did not appeal the FERC backstop siting rule. There 
are pending court appeals by individual States of this rule.
Western Perspective
    The Western perspective is that Congress needs to clarify that if a 
State turns down a transmission line proposal for good reason and 
within a reasonable timeframe, FERC should not be able to second guess 
the State. In Order No. 689, FERC voted 4-1 in favor of saying that 
Congress did not care if a State acted timely or reasonably. FERC 
Commissioner Suedeen Kelly dissented by saying it was incomprehensible 
that Congress intended FERC to override timely State decision. 
Additionally, it only seems fair that the one-year clock for State 
action needs to be suspended whenever a federal agency is the cause for 
the State delay in a permitting decision.

                            COST ALLOCATION

    State regulators are concerned about transmission reliability, 
adequacy, and the costs required to support the development of robust 
competitive wholesale markets. The investment that is needed to upgrade 
the nation's transmission grid in order to support expanded wholesale 
power markets will cost billions of dollars. Notwithstanding the 
general benefit to the wholesale electric marketplace of encouraging 
the construction of new generating capacity and its interconnection to 
the grid, it is also important to provide proper price signals to 
encourage optimal demand response and promote economic and efficient 
expansion of the transmission grid and siting of generation. The FERC 
has in the past adopted transmission pricing policies that generally 
provide for the direct assignment of costs to the parties causing the 
costs.
    FERC Order No. 2000 stated the ``[m]arket designs that base prices 
on the average or socialization of costs may distort consumption, 
production and investment discussions and ultimately lead to 
economically inefficient outcomes.''\6\ FERC has departed, in some 
instances, from a transmission pricing policy that provides for the 
assignment of costs to the cost-causative parties. In general, NARUC 
supports efficient pricing policies that result in the economic use and 
expansion of the transmission systems to support a robust wholesale 
electricity market. We recognize that transmission investments needed 
to maintain the reliability of the existing transmission systems should 
continue to be recovered through transmission rates charged to all 
transmission users. We advocate that the cost of upgrades and 
expansions necessary to support incremental new loads or demands on the 
transmission system should be borne by those causing the upgrade or 
expansion to be undertaken, except that FERC should not preclude the 
assignment of interconnection cost to the general body of ratepayers 
within a State when that State's regulatory body determines that such 
allocation is in the public interest.
---------------------------------------------------------------------------
    \6\ Order No. 2000 at pp. 642-3.
---------------------------------------------------------------------------
    A robust regional electric transmission system is an essential 
prerequisite to support a) reliability and b) the market function 
allowing more generators to reach loads and compete directly for 
wholesale sales to such loads in order to increase competition among 
generation suppliers and meet national goals for renewable generation 
and energy independence. A new rate design is needed that will 
facilitate the construction of the strong transmission backbone 
required to support the nation's wholesale electric markets, future 
increases in renewable generation capacity, and reliability.

                            INCENTIVE RATES

    Pursuant to Section 1241 of EPAct 2005, which adds a new FPA 
Section 219, FERC proposed a rulemaking to amend its regulations to 
establish incentive-based rate treatments for the transmission of 
interstate electric energy by public utilities to ensure reliability 
and reduce the cost of delivered power by reducing transmission 
congestion. NARUC's comments to FERC discussed the factors, other than 
the absence of incentive-based rate treatments that affect the level of 
transmission system investment, offered a framework for implementation 
of the new FPA Section 219, and discussed the role of research and 
development in encouraging the use of new technologies.
    In particular, NARUC said that the Final Rule should require 
certain showings as a prerequisite for an award of incentives and 
provide that the amount of incentives awarded in connection with any 
particular project will not exceed the amount necessary to obtain 
construction of the proposed facilities. By specifying the purposes for 
which incentives are available and requiring FERC-jurisdictional rates 
to remain just and reasonable,\7\ Congress has clearly recognized the 
risks to customers involved in incentive rate awards. We said that FERC 
should carefully limit the availability of incentives to projects of 
the type specified in FPA Section 219 to reduce the risk that consumers 
will be forced to pay higher rates for the construction of facilities 
that would have been built regardless of the availability of an 
incentive or that do not provide substantial benefits to customers. FPA 
Section 219(a) clearly establishes that authorized ``incentive-based 
rate treatments'' are intended to facilitate the construction of new 
transmission facilities that either ensure reliability or reduce the 
cost of power by reducing congestion. NARUC asked FERC to include 
language in any rule adopted in this proceeding to ensure that a 
successful applicant for incentive-based ratemaking treatments must 
prove to the Commission that the proposed transmission facilities would 
not be constructed in the absence of an incentive award and that the 
proposed facilities will either materially improve reliability or 
materially reduce the overall cost of power by reducing transmission 
congestion. A failure to make the necessary showing will result in a 
denial of the application for an incentive award. Congress's 
recognition of these limitations on the availability of incentives is 
appropriate given that some transmission investment will occur with or 
without incentive support and because the construction of new 
transmission facilities may not invariably improve reliability or 
reduce costs to a degree appropriately reflective of the cost of the 
project.
---------------------------------------------------------------------------
    \7\ FPA Section 219(d) provides that ``[a]ll rates approved under 
the rules adopted pursuant to this section, including any revisions to 
the rules, are subject to the requirements of Sections 205 and 206 that 
all rates, charges, terms, and conditions be just and reasonable and 
not unduly discriminatory or preferential.''
---------------------------------------------------------------------------
    Furthermore, while certain of the incentives proposed inherently 
specify the amount of the incentive to be awarded, the same is not true 
of other proposed incentives. As a result, NARUC asked that FERC should 
specify in its Final Order that the amount of incentives awarded in 
connection with any particular project will not exceed the amount 
necessary to obtain construction of the proposed facilities. FERC 
issued the Final Order--Order No. 679--on July 20, 2006.
    For an example of the implementation of the FERC transmission 
incentives rule, please see the New England Conference of Public 
Utility Commissioners (NECPUC) involvement in the Docket: Docket No. 
ER08-69-000. One of the concerns recently voiced by the NECPUC was that 
applying rate of return adders to the actual cost of a project, 
regardless of how much the project's eventual cost exceeded original 
estimates, would create perverse incentives by rewarding transmission 
owners for bringing projects in over budget. On June 12, 2008, NECPUC 
filed a complaint with FERC in that Docket pointing out that the costs 
of many of the projects that FERC had ruled eligible for rate of return 
adders are now double and triple their originally estimated levels. The 
resulting cost of the incentive adder to ratepayers, NECPUC 
observed,would be far greater than FERC could have anticipated when it 
approved the adder. NECPUC urged FERC to prevent this result by 
limiting the adder to the transmission owner's original estimated cost. 
Because rapidly rising costs of material and construction is a 
nationwide phenomenon, FERC's ultimate disposition of NECPUC's 
complaint may have significant ramifications beyond New England. While 
we expect the Commission to fully consider the merits of these critical 
issues as it addresses the NECPUC complaint, this case may illustrate 
the extent that the policies Congress adopted in 2005 should be 
reexamined in light of changing market conditions.
    In conclusion, there is much to be done to ensure that this nation 
avoids an ``electric transmission crisis.'' The solutions to the 
challenges will not come quickly or easily. Finding these solutions 
will require cooperation by, not confrontation among, the various 
stakeholders, including State and federal government. Thank you and I 
look forward to your questions.

    The Chairman. Thank you. Thank you all very much for your 
good testimony. Let me start with some questions and then defer 
to my colleagues.
    Let me start with you Secretary Kolevar. I guess I would 
first of all just ask your explanation of the map that Senator 
Casey put up. It did look very much as though the Department of 
Energy has essentially said to most, 75 percent of Pennsylvania 
is a corridor.
    That's not the common understanding that I've always had of 
the word corridor. I don't know that it was our intent to have 
the Department of Energy just designate large swaths of the 
country as corridors under this authority that was given to the 
Department of Energy. What's your explanation or justification 
for having the kind of very broad interpretation of that that 
you seemed to have taken?
    Mr. Kolevar. Mr. Chairman, when we looked at the statute 
and were making our determination on how to responsibly 
interpret the statute, it speaks to both corridors and 
geographic areas. The reasons for having these, the corridors, 
larger, there are several reasons.
    One is that the approach that we decided to adopt which is 
a source to sink approach, was intended to ensure that 
designation of corridors actually provided a potential solution 
to the problem. In other words if we had only put the corridors 
over the most congested areas of the country there would have 
been no practical transmission solution to resolving the 
congestion within them. They would have been designations with 
no real effect.
    Perhaps you could have made them smaller it certainly would 
have been problem identification. But it would not have served 
as a tool to the FERC, for example or for that matter to inform 
the States on where they might be considering transmission to 
put power into those heavily congested areas. So for the 
purposes of this discussion you would say Southern California 
and the Mid-Atlantic, but mostly the New York City, northern 
New Jersey area.
    So that was the reason why we had the corridors reach 
farther out, away from just that heavily congested area into 
surrounding areas. It allows for existing transmission to be 
tapped into. That is certainly the case in the Mid-Atlantic 
area where you have a strong backbone in the Eastern Ohio 
region.
    It allows you to bring power in from other areas of the 
country. In fact in the East, it allows you to bring hydro 
power down from Canada. The larger size also means that it is 
the FERC that will exercise the siting of transmission lines 
which we understand clearly, to be the intent.
    In other words, Mr. Chairman, if we had made corridors very 
narrow, the Department of Energy would have, in effect, been a 
siting agency. We did not believe that that was at all the 
interpretation or the intent of Congress that it was FERC with 
its expertise in siting that would be carrying out that duties. 
So having that corridor wider, means that the Department of 
Energy is not at all specifying any potential route for a 
future transmission line.
    To the contrary, having that corridor wider gives 
tremendous leeway to the FERC if there is ever a point in time 
in which the Commission has to consider using that backstop 
authority to site that line. They can only exercise that 
authority within the corridor. The larger the corridor, the 
greater the flexibility the Commission has to route around 
sensitive areas, historical areas or any of the other issues 
that the FERC considers, I believe on an everyday basis when 
it's siting natural gas lines.
    So those are the reasons. It was----
    The Chairman. Let me jump to another question here because 
I'm going to run out of time. With regard to this West Wide 
Energy Corridor, now it's a different kettle of fish than what 
we've been talking about in Pennsylvania or the one in Western 
Arizona, as I understand it. You were there designating areas, 
proposed corridors, which utilities can then use to build 
transmission capability, without having to go through 
additional environmental impact statement.
    Mr. Kolevar. This is the 368 corridors that you're 
referring to?
    The Chairman. Yes, that's exactly right. Yes, in New 
Mexico, let me just get down to a specific here and ask a 
question. In New Mexico you're designating such a corridor 
going down through part of the Saveta National Wildlife Refuge. 
As I understand it, instead of using transmission lines or 
existing rights of way there, you're designating a different 
area in that refuge.
    I'm just wondering what is the realistic opportunity that 
people have to complain about that. To affect this before it is 
firmed up and finalized by the Department of Energy. Because it 
seems as though there's a lot of potential opposition.
    The more people are going to know about this, the more 
opposition there's going to be, in my opinion, in my State. I'm 
just concerned that we may be engaged in a process here that is 
not, similar to what Senator Casey said, is not being 
sufficiently deferential to the concerns of local government, 
to the concerns of local land owners, to the concerns of local 
groups. What's your response to that?
    Mr. Kolevar. Mr. Chairman, we do our best to learn from 
each of these. We're executing new authorities in this respect. 
So I think every time we do this better.
    With respect to the 368 rights of way. I do believe that 
the Department of Energy and the land management agencies have 
been working very diligently. We've, frankly, relied very 
heavily on the land management agencies to utilize their 
current public participation process.
    It includes 14,000 comments, consultation with 250 tribes, 
and dozens of meetings across the west. Of course, this again, 
it's building on the back of what BLM does and the Fish and 
Wildlife Service does. So we do believe that there has been 
extensive outreach.
    Now with respect to the draft and the National Wildlife 
Refuge that you mentioned, in the earlier draft, as I 
understand it, did route through the National Wildlife Refuge. 
Of course, I will tell you in that process this is not the 
Department of Energy's decision. This is a collective decision 
made by the Department of Energy with the land management 
agencies.
    While the final PEIS is coming out, my understanding is 
that there has been reconsideration with respect to the routing 
through the National Wildlife Refuges. I expect that that would 
be public when we release the final PIS later this----
    The Chairman. Alright.
    Senator Domenici.
    Senator Domenici. First of all thank you very much for 
holding this hearing. When I first started looking at it and 
yesterday when I started reading a little bit, I thought why 
are we doing this, this late in the year? You know, it's too 
late now.
    But frankly, I believe it's a good hearing. It's important 
that we hear what we're hearing. It's important that we hear 
somebody as expert as the chairman tell us that he doesn't 
think we gave enough authority to the Federal Government with 
reference to transmission siting.
    He compares it as an analogous siting situation. What's 
going on on pipelines? I would suggest, it's not all that easy 
to compare. One is much easier to do as you know.
    It's a lot easier to construct 1,000 miles of underground 
pipeline which most of it is and the complexity of a grid 
connecting huge power capacity going for six or eight hundred 
miles. But your view is well taken. If in fact what we're doing 
doesn't work. It's certainly not going to look at easing up. 
They're going to have to look at more streamlining rights 
somehow.
    I just wonder, between the two of you, could you? You heard 
a reputable Senator. We understand that we come down here as 
politicians, not technicians.
    But you heard him talk about how concerned the citizens of 
his State were. He's only representing them. There are, how 
many of hundreds of petitions and resolutions they've received.
    He contends in summary that it's arrogance. You didn't give 
them a chance to be heard.
    Could you tell us your view on that? You're the ones 
they're addressing that to, you know? You're on the hot seat.
    I'm wondering what'd you do? Did you give people a chance 
to have input or was it not that much necessary because it was 
a different animal than he thinks? You weren't producing 
anything final? Just answer it for the record so we'll know, 
both of you, please.
    Mr. Kolevar. Let me start sir, by saying to the extent that 
the Senator or members of the delegation or the public think 
that there's been arrogance on behalf of the Department, that 
has never been our intent. I would apologize for that 
perception. He referenced the Secretary and his team, I'm sure 
he meant me and the people and the electricity office.
    That has never been the Secretary's demeanor, to the best 
of my knowledge. It sure has never been mine. The Secretary 
would certainly never tolerate it.
    With respect to the public outreach, the Department, we 
think, went beyond just a reasonable methodology for public 
outreach. We did our best to communicate the Department's 
actions and intentions across the country and of course, this 
with the exception of Texas, this touched all of the 
continental United States. So they did include public meetings 
in different parts of the country, and meetings with officials 
from the States.
    We met with officials from the States.
    Senator Domenici [presiding]. You heard him say how few 
opportunities the people had to attend meetings and listen and 
object and to address that specifically.
    Mr. Kolevar. I believe in the early formulation we proposed 
three public meetings. In response to requests that we got from 
Senator Casey and others we more than doubled that to seven 
public meetings. But, Senator Domenici, I think the most 
significant thing we did in response to the concerns that we 
were receiving was to insert an added step, which admittedly 
inserted an additional 6 months of consideration into the 
designation process.
    That was that the Secretary decided to issue these 
designations in draft form, not called for by the legislation. 
It was certainly within his authority to simply make the 
designation as he saw fit in and consistent with the study back 
in May.
    Senator Domenici. Right.
    Mr. Kolevar [continuing]. Of 2007. We believe that, we hope 
that, that demonstrated our commitment to having the public see 
what the thought process of the Department of Energy was and it 
certainly allowed for additional comment. We did receive a 
great number of comments.
    Senator Domenici. Yes.
    Mr. Kolevar. At the end we were guided by the information 
that we had received largely in the congestion study. In that 
congestion study we relied, overwhelmingly, on existing bodies 
of work. In the West we relied on WECC's analysis for 
determining where congestion was.
    Senator Domenici. Ok. I got it.
    Mr. Kolevar. So we went with those corridors finally.
    Senator Domenici. Now the draft clearly was, as I 
understand it from you, and I tend to agree, was an opportunity 
to truly give everybody that had representation and that has a 
proprietary interest or future proprietary interest. They all 
saw what you're trying to do. Yet you hadn't finalized it. So 
they could comment on it, right?
    Mr. Kolevar. Yes, sir.
    Senator Domenici. So he and his constituents of the good 
Senator had that draft and it was nothing more than that.
    Mr. Kolevar. Yes, sir.
    Senator Domenici. Clearly designated draft so they knew it. 
They responded knowing it was a draft. Is that right?
    Mr. Kolevar. Yes, sir with an additional comment period 
inserted.
    Senator Domenici. Right. What is your response to this, Mr. 
Chairman?
    Mr. Kelliher. Yes, sir. First of all I do think Senator 
Casey's criticism with respect to arrogance of Federal agencies 
doesn't extend to FERC. He disagrees with how we've interpreted 
the siting rule.
    Senator Domenici. That's true.
    Mr. Kelliher. But we have no transmission siting proposals 
in Pennsylvania pending before the Commission, no pre-filing, 
no formal applications. But we have committed to the Senator 
that if there were a filing in Pennsylvania we would hold 
multiple community meetings depending on how large the project 
is. But in our meetings in other States, when DOE finalized its 
corridors, we offered to meet with every State official in the 
designated corridors with Governors on down State commissions 
to explain our process.
    In those meetings and some community meetings, actually 
some community leaders thought that the Federal process was--
they had a larger role, a greater ability to participate in the 
Federal siting process than they did in their State process, 
not Idaho, just want to add because there is no corridor in 
Idaho. So Idaho law I think probably works great. So I think--
--
    Senator Domenici. Ok, let me finish here. I don't want to 
take any more time. I just want to say when we did this. When 
we wrote this law, somebody, I don't know if it was one of us.
    But somebody mentioned that what we would probably see was 
just because this backstopping authority was put in the law 
that we would see some additional, you know, others would reach 
agreement because they didn't want the feds to get involved. 
That it would cause action. Is that happening? The fact that 
this is in the law. Are deals being made? Are agreements being 
made rather than let you all get involved, others are saying 
let's get it done?
    Mr. Kelliher. I'd say that's still an open question.
    Senator Domenici. Ok.
    Mr. Kelliher. But I think it might be resolved 
satisfactorily. We are seeing projects particularly in say, the 
Mid-Atlantic region that we haven't seen in 25 years. We are 
seeing some serious consideration at the State level.
    So I think it's possible that the prospect of Federal 
siting might expedite State consideration and focus State 
consideration.
    Senator Domenici. My last question. When we were writing 
this we had been hearing about situations within the grid where 
we have a big grid failure. We were saying what we produce now, 
there should not be grid failures.
    With reference to your work in getting the reliability 
standards put in place, etc. What would you say to us now about 
the expectation of grid failures? Have they been minimized by 
what we've done?
    Mr. Kelliher. I think the risk has been minimized or at 
least if there's a failure that's caused by violation of a 
standard there will be consequences this time. In the past 
we've seen eight large regional blackouts caused by violation 
of voluntary reliability standards.
    Senator Domenici. Gotcha.
    Mr. Kelliher. I can't promise mandatory standards mean that 
there will never be violations. We do have a large number of 
violations pending. But if there's a blackout caused by 
violation of standards there will be consequences this time.
    Senator Domenici. They seem to know that.
    Mr. Kelliher. Yes, sir. I think we're in a better position. 
It's almost 5 years ago that we had the August 14, 2003, 
blackout. Whereas I think the grid is in better condition than 
it was then. Now it is protected by mandatory reliability 
standards.
    Senator Domenici. Thank you very much.
    The Chairman [presiding]. Senator Craig.
    Senator Craig. Thank you, Mr. Chairman. Senator Murkowski 
has just come into the room. She and I, I say this to our 
panelists and to the committee, just had a fascinating 
experience in France looking at nuclear facilities. Many of 
this committee has done what we did.
    Looking at reprocessing, looking at the construction of the 
new reactor generator, looking at enrichment facilities, we saw 
a lot of concrete, some interesting buildings and some 
fascinating processes. But I think the thing that fascinated me 
the most and both Lisa can speak for herself. But I saw her 
engaged in a similar kind of questioning was how the French 
have become so successful in working with their communities of 
interest to do what they do to become 80 percent nuclear at a 
time when we were fumbling and stumbling and all but lost in 
industry.
    It became very clear over a period of time how they do it. 
There's tremendous openness and transparency in their processes 
both with their quasi, Federal, private companies and their 
Federal entities. There's a very aggressive outreach.
    But as it relates to the publics involved. I found that 
quite fascinating and a very valuable model, obviously because 
of their success rates. Only that when were coming out of the 
north, the train was stopped because the greens were protesting 
nuclear. But other than that, it was a great trip.
    So when I'm sitting listening to Senator Casey this 
morning, that's the kind of thought that goes through my mind. 
Was there enough of an openness, a transparency of process or 
an understanding of process, especially if it's new that we go 
through. Is a corridor a grid or is a corridor a siting? Is a 
corridor a siting of a given line in a given location? No.
    But it certainly is an area in which that activity can go 
on. I'm pleased the chairman is focusing on this with Senator 
Casey to make sure we get it right or it gets better. Because 
we've just come out of an experience, both the Senator and I 
have, where obviously something over there is going well or 
better than we've been able to do it in the past.
    Let me ask a couple of questions. Marsha, obviously your 
frustration as is mine still with Federal entities and in land 
locked States oftentimes of the kind we have, when you like to 
draw straight lines from point A to point B which are the most 
efficient. All of a sudden you're passing over hundreds of 
miles of Federal land.
    All of the stakeholders of interest that are out there 
along with oftentimes the rigidity of Federal agencies to move 
in a timely fashion. So I think your suggestion about stopping 
the clock, if it's a federally provoked time problem, has some 
strong legitimacy to it. Let me ask you this question because 
in the West now one of our siting problems is the connectivity.
    First of all, the locating and then the connectivity of 
wind, much of the best wind location in the West happens to be 
on Federal lands. So I guess I would ask you this question. 
What could we do here that would have the biggest impact on, 
not just solving the problem of transmission, problems on the 
Federal lands, but also the locating of a wind facility and 
then the connectivity of it through transmission?
    Should we be allowed to use similar kinds of approaches in 
that kind of siting that we might be able to use or we do use 
in transmission? I'm talking farm verses connectivity, the 
transmission for wind.
    Ms. Smith. As you may be aware the Western Governors' 
Association has a project called WREZ, of course everything is 
reduced to an acronym, WREZ, the Western Renewable Energy 
Zones.
    Senator Craig. Yes.
    Ms. Smith. They're trying to identify the most productive 
wind zones in the West and hope that that gets incorporated 
into transmission planning that is going on all over the West 
so that those transmission lines can run in a way that would, 
excuse me, accommodate these renewable energy zones.
    Senator Craig. Um hmmm.
    Ms. Smith. I think that's a hopeful and useful process. 
You're right when you have a State that's what, 65 percent 
federally owned. You can't build anything without crossing some 
Federal lands. So I think we need to make it possible for those 
Federal land management agencies through appropriate staffing 
and funding to be part of that process in identifying those.
    I would also say that for our State, we have an 
organization called NTTG, the Northern Tier Transmission Group.
    Senator Craig. Right.
    Ms. Smith. Which are the States of Montana, Wyoming, Utah, 
Idaho and Oregon. Because we have a serious need for 
transmission to solve our congestion from East to West. We're 
very hopeful that that process which includes officials from 
all the States as well as the industry will yield fruit in 
terms of actual lines on the ground.
    Senator Craig. My time----
    Ms. Smith. I think the renewable issue will be considered 
in that, also as they do their planning studies and their 
implementation.
    Senator Craig. Thank you. My time is up.
    The Chairman. Senator Bunning.
    Senator Bunning. Secretary Kolevar, how is DOE working with 
the States within the affected transmission corridor regions to 
address all their concerns? We've heard from Pennsylvania. Will 
these concerns be taken into consideration, particularly when 
you release your next national electric transmission study in 
August 2009?
    Mr. Kolevar. Senator, we do pay very close attention to the 
comments that we receive. I should note that similar to FERC's 
actions, after the Department released its draft in May 2007. 
We proactively reached out to all of the Governors, all of the 
congressional delegations, the State public utility commissions 
and solicited their input on this so that we could hear from 
them and give them the opportunity to communicate to us what 
their constituents felt about the corridor as it currently 
existed in draft form.
    I do have to say that I do disagree with some of the points 
that the Senator raised earlier with respect to the overall 
effect of these----
    Senator Bunning. Will that all be included in your report 
in 2009?
    Mr. Kolevar. It probably will not. But the reason for that, 
Senator is the law as established, really set up, a two part 
process. In part one the Department conducts a congestion 
study, speaking to the state of congestion across the Nation. 
We have to do that every 3 years.
    The second part of that is a report that the Secretary must 
produce based on that study in which the Secretary may or may 
not designate corridors. So while we are required to do the 
2009 study. Indeed, we began it months ago, so that we----
    Senator Bunning. We being the Department of Energy?
    Mr. Kolevar. The Department of Energy. Yes, sir.
    Senator Bunning. We may not be you.
    Mr. Kolevar. Yes, sir, that's correct. Right. It certainly 
will not be.
    Senator Bunning. The Department of Energy being the 
responsible entity.
    Mr. Kolevar. That's correct. The Department of Energy on 
its current track will produce, consistent with the law, the 
report, and the congestion study in August 2009. That will make 
no determination with respect to any future corridors. That 
will be entirely within the purview of the next Secretary of 
Energy. In the study that follows that report which the 
Secretary will be required to do by law. That Secretary will 
then speak to the issue of future corridors, the impacts, the 
benefits, if they choose to put new corridors into place.
    Senator Bunning. Ok. First of all I want to be very clear 
about this. I support efforts to expand wind and solar energy 
where it makes economic and logistical sense.
    However I am not naive. The wind does not always blow. The 
sun does not always shine.
    In times like these I believe it is critical that our 
Nation's electric grid have a backstop to ensure generation 
does not cease due to weather conditions. We have a storage 
problem, obviously with wind energy. We have a storage problem 
and what I'd call a problem with the overall solar ability to 
produce enough electricity to make it viable, in other words, 
the technology of that.
    Mr. Kolevar, would you agree that until renewable energy 
can be stored at levels that meet all demands of our utility 
grid, our Nation would be wise to invest also in other advanced 
energy infrastructure, like new coal plants and new nuclear 
plants that would meet future demands, no matter what the 
weather forecast is?
    Mr. Kolevar. Yes.
    Senator Bunning. Yes.
    Mr. Kolevar. Yes, sir. Absolutely.
    Senator Bunning. Ok. Thank you. That was an easy question. 
Too easy.
    [Laughter.]
    Senator Bunning. I would yield time.
    The Chairman. Thank you very much. Let me go ahead and call 
on Senator Murkowski who has been waiting here and then Senator 
Menendez after that. Go ahead.
    Senator Murkowski. Thank you, Mr. Chairman. I want to thank 
you for hearing today. You know, as we talk about our energy 
solutions. We rightly get excited about the future of 
renewables, whether it's solar, whether it's wind or geothermal 
or biomass. It's all great.
    We all want to get there. But as my colleague has just 
mentioned the sun doesn't always shine. Wind doesn't always 
blow. It doesn't always shine and blow where the people are.
    So the issue of transmission, we just simply cannot be 
talking about renewables in isolation. We have got to be 
talking about the transmission component when we talk about the 
future of renewables and allow the consuming public to 
understand that we can give it to you, cleaner.
    We can give it to you sustainably and renewably. But in 
order to get it to you, unless you happen to live right 
underneath that wind generation unit. We've got to have 
transmission capacity here.
    We don't like to talk about that because it's not nearly as 
interesting as the technology for wind and solar and 
geothermal. Getting it to your home is not very sexy. Yet, 
that's really what we've got to reckon with. So I appreciate, 
again, Mr. Chairman, the spotlight here.
    Commissioner Kelliher, thank you for being here to testify. 
I also want to thank you for your recent visit up to the State. 
My only regret was that you got to go to some pretty incredible 
places that I wasn't able to join you and to give you a more 
personal tour of some of the great opportunities that we have 
in Alaska when it comes to our energy sources. But again, I 
appreciate your visit.
    I also recognize that you have given up personal time with 
your family to be here with us today. I greatly appreciate 
that. We give up a lot for our jobs and when it cuts into that 
family time, again, I just want to thank you for your sacrifice 
there.
    I want to ask you a pretty general question here this 
morning and recognizing that FERC has proceeded with 
designating the two national interest transmission corridors. 
Given though the power needs that we have here in the Congress, 
do we--not in the Congress, in the whole country, but do we 
here in Congress need to go back and revisit the terms of 
EPACT? Rather than reduce the authority of the FERC, actually 
increase it to make it easier to allow for the transmissions to 
be sited in a more timely manner?
    We've got two different ways to go here. But as I mentioned 
in my brief comments, we've got to figure out the transmission 
aspect of it. What does the FERC need, more or less?
    Mr. Kelliher. I respectfully suggest more. I do think that 
the transmission siting provisions of the Energy Policy Act are 
an improvement over the status quo, but they might end up being 
a very modest improvement. I think DOE has very carefully 
implemented the law. They've done their part designating 
corridors.
    But in part from the way the statute is written, they have 
designated corridors to date in areas where there is very clear 
existing congestion.
    Senator Murkowski. Right.
    Mr. Kelliher. I look at the situation in the upper Midwest 
where you--there's a tremendous amount of wind potential in the 
upper Midwest and a relatively weak grid. The market for the 
wind potential in North Dakota and Western Minnesota is not 
North Dakota and Western Minnesota, it's the Midwest, it's the 
Mid-Atlantic, it's perhaps New York. So it's a very broad 
regional market.
    Right now there isn't congestion because that wind 
potential hasn't been developed. So DOE, I think has concluded 
that it's not clear that they, I'm not going to say you can't 
as a legal matter. But I think they concluded it's not clear 
that they could designate a corridor to prevent the creation of 
congestion. They've so far created designated corridors to 
address existing congestion.
    Now I think if you look at wind. I've used the gas analogy. 
You can look at wind potential almost like gas reserves. 
Potential in gas reserves are where nature has endowed certain 
areas. It's where the potential is, not where you might prefer 
it to be.
    Now you see people going to the Rockies right now exploring 
and producing natural gas even though they know there are 
limits on the take away capacity, the pipeline take away 
capacity. Because they know that pipelines will propose new 
projects to increase the take away capacity. They are very 
confident that FERC has the ability to approve those pipelines, 
the expanded take away capacity.
    That's a very different situation with respect to wind 
potential. It might take 2 years to build a wind facility. But 
if it takes 10 years to expand transmission so that that wind 
can get to market, the wind is not going to be built in the 
first place, I believe.
    So you have a great disconnect on power between the very 
rapid ability of wind to enter, but the very limited ability to 
take that generation away from the relatively remote areas 
where there's the best wind potential in the country. That's 
one reason I think the situation has changed since 2005.
    You've seen a host of State renewable portfolio standards 
enacted. You've seen the country really shift ground on climate 
change. I think those are two very significant events that have 
occurred over the past 3 years that I think do suggest that 
Congress should revisit the decisions with respect to grid 
siting.
    Senator Murkowski. Mr. Chairman, may I ask a very quick 
follow onto Mr. Kolevar? This relates to the DOE study 
regarding the existing constraints and the congestion that 
Commissioner Kelliher has mentioned. In that study can you look 
at the adequacy of transmission capacity and does that count as 
a constraint to be considered?
    Mr. Kolevar. Yes, Senator.
    Senator Murkowski. Ok.
    Mr. Kolevar. In the report that the Secretary released 
following the congestion study the Department did indicate that 
it considered a lack of transmission to be a constraint.
    Senator Murkowski. Ok.
    Mr. Kolevar. So the Department does believe that it would 
be within its authority to designate a corridor based on that 
lack of transmission. We chose not to do that in this first 
instance because this was the first time this kind of authority 
had ever been exercised. To the best of my knowledge there is 
no analogous authority in government.
    So we were designing and building at the same time. We felt 
it would be most appropriate with this first designation to be 
conservative in nature. I understand that Senator Casey and 
others don't believe that that's an apt characterization.
    But we do believe that it is. That is was conservative. We 
went where everyone understood that significant congestion 
existed. We addressed that first.
    Personally I would hope the next Administration would look 
to be expansively consistent with the Secretary's study and 
consistent with the chairman's remarks.
    Senator Murkowski. Thank you. Thank you, Mr. Chairman.
    The Chairman. Senator Domenici.
    Senator Domenici. Mr. Chairman, before we proceed to your 
cycle, could I just take 1 minute. I have to leave and I just 
want to make one observation. Then talk to you, Mr. Chairman.
    First of all, I do think every now and then you're privy up 
here to passing the law. You are still around when you see some 
real effects. So I was just telling our chairman that as of 
yesterday there are 16 complete applications, applications for 
design and location and construction, of 16 new power plants, 
nuclear. They're all construction permits.
    In some instances they are more than 1,000 megawatts so it 
might be that those 16 are perhaps as much as 20,000 megawatts. 
That's from zero before we passed the law. So there's got to be 
some enjoyable cause and effect for a change.
    But Mr. Chairman I wanted to ask you about the concern you 
have that the non-congested areas might not be the subject 
matter of consideration for grid addition under the existing 
law, that we perhaps didn't put enough authority in. If so, it 
ought to be considered. But I would ask isn't it apt to be 
easier to site the electric lines or transmission lines, excuse 
me, in the areas you're alluded to as perhaps being not 
included.
    Won't it be easier in the non-congested areas to get a 
designation then in congested areas?
    Mr. Kelliher. I do think in those areas there is a lot of 
support and North Dakota certainly for development of wind 
potential. I think there's support for siting. I think the 
State has indicated they're generally supportive of major 
transmission projects.
    There has been difficulty in the past.
    Senator Domenici. In Texas, same thing.
    Mr. Kelliher. Yes, sir.
    Senator Domenici. That's where a lot of it's going to be 
already on because there's money there.
    Mr. Kelliher. Yes, but the upgrades may extend outside of 
North Dakota. If North Dakota is supportive of major 
transmission projects to get North Dakota wind to other broader 
markets there may be need for upgrades outside of North Dakota. 
Then there might be siting problems outside the State.
    Senator Domenici. Thanks.
    The Chairman. Thank you.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman for holding an 
important oversight hearing at the request of myself and 14 
other colleagues who now represent 51 million people who really 
find themselves with very little say in this process. I look at 
this corridor, Mr. Chairman. The entire State of New Jersey, 
not part of it, but the entire State of New Jersey is 
designated as a corridor. Now that's just simple unacceptable 
and it's unconscious able.
    Mr. Kolevar, let me ask you. New Jersey has a master energy 
plan to solve its congestion problems with energy efficiency, 
with demand response, with new local generation. Now EPACT 
2005, a law that gives the Department the power to set up these 
corridor States, that you must take into consideration what 
interested parties desire. It also requires you to take into 
account other alternatives to relieving congestion.
    Yet when I look at having the entire State of New Jersey in 
your corridor it seems to me that what we have is a highway for 
dirty coal electricity to make its way into my State. So what 
is it that you did in pursuing your congressional mandate 
because we believe that you have ignored the interest of the 
Mid-Atlantic States as expressed by their elected 
representatives, as expressed by their utility regulators, as 
expressed by what even some of the very utility companies 
themselves? So what is it that you do and you did in pursuing 
the congressional mandate that you have in considering what the 
interested parties desires were?
    Mr. Kolevar. Senator, the Department of Energy considers 
the corridor designation to be problem identification. In 
designating the corridor that covers New Jersey, we believe 
that the use of transmission to address the very severe 
congestion problems that you have in the northern part of your 
State is now a tool in your State regulator's tool box that 
perhaps they didn't have before because they couldn't guarantee 
that if they wanted to build a line through Southern New 
Jersey----
    Senator Menendez. You're not answering my question.
    Mr. Kolevar. I'm trying.
    Senator Menendez. I don't want to have my time eaten up. 
The bottom line is I had asked you what you think you gave them 
as a tool box. I'm asking you what in fact you did in pursuit 
to the congressional mandate that says you have to take into 
account and including alternatives for the interested parties. 
Certainly New Jersey, you've covered New Jersey in this 
corridor as an interested party I would hope.
    Mr. Kolevar. Sir, we consider all alternatives and frankly 
want all alternatives to transmission.
    Senator Menendez. What alternatives did you consider in 
this case?
    Mr. Kolevar. But the Department does not consider the 
legislation to require the Department of Energy----
    Senator Menendez. It does not?
    Mr. Kolevar. The legislation requires the Department to 
consider alternatives to designation. We interpret that as no 
designation or different types of designation, different bodies 
of areas to----
    Senator Menendez. I think the intent of Congress is pretty 
clear. It says the Energy Policy Act 2005 says that the Energy 
Secretary will designate national interest transmission 
corridors, and I quote, ``after considering alternatives.''
    Mr. Kolevar. Right.
    Senator Menendez. Now, what are the alternatives you 
considered?
    Mr. Kolevar. Whether or not the designation and----
    Senator Menendez. With the stakeholders.
    Mr. Kolevar [continuing]. The size of the corridors that 
you might designate if you choose to. Senator----
    Senator Menendez. So you only considered the size of the 
corridor, not other alternatives?
    Mr. Kolevar [continuing]. Or the applicability. If the 
Department----
    Senator Menendez. Will you send to me in writing all of the 
alternatives that you considered prior to making this decision?
    Mr. Kolevar. We will respond in writing. Yes, sir.
    [The information referred to follows:]

    In its National Electric Transmission Congestion Report and Order 
(72 FR 56992, Oct. 5, 2007), the Department addressed the requirement 
in FPA section 216(a)(2) that calls for the Secretary to consider 
``alternatives and recommendations from interested parties'' before 
making a National Corridor designation.
    The Department concluded that, given the overall statutory 
framework, the term ``alternatives'' in section 216(a)(2) was intended 
to refer to comments suggesting National Corridor designations for 
different congestion or constraint problems, comments suggesting 
alternative boundaries for specific National Corridors, and comments 
suggesting that the Department refrain from designating a National 
Corridor. A detailed discussion of the Department's reasoning for this 
interpretation can be found in the Report and Order at 72 FR 57010. 
This specific text is on the attached sheet. Although this discussion 
is in response to comments on the designation of the Mid-Atlantic Area 
National Corridor, the Department also applies this reasoning when 
responding to comments on the designation of the Southwest Area 
National Corridor at 72 FR 57018.

          F. Consideration of Alternatives Under FPA Section 216(a)(2) 
        . . .

                              DOE RESPONSE

    The Department concludes that consideration of non-transmission 
solutions to the congestion problems facing the Mid-Atlantic Critical 
Congestion Area is neither required nor necessary as a precondition to 
designating the Mid-Atlantic Area National Corridor. FPA section 
216(a)(2) calls for the Secretary to consider ``alternatives and 
recommendations from interested parties'' before making a National 
Corridor designation. The statute, however, does not specify what the 
term ``alternatives'' refers to. Numerous commenters would have us 
interpret the phrase to mean alternative solutions to congestion or 
constraint problems, which would then necessitate a comparison of non-
transmission solutions against transmission solutions. Nothing in the 
plain language of FPA section 216 requires or suggests such an 
interpretation.
    As discussed in Section I.A above, the very structure of FPA 
section 216 indicates that the Department's role is limited to the 
identification of congestion and constraint problems and the geographic 
areas in which these problems exist, and does not extend to the 
functions of electric system planners or siting authorities in 
evaluating solutions to congestion and constraint problems. Even the 
statutory requirement to consider alternatives is not couched in terms 
of an independent analysis of a reasonable range of alternatives, as 
one would expect if Congress had intended the Department to analyze and 
select a solution, but rather refers merely to the Department 
considering those alternatives and recommendations offered by 
interested parties. The Department believes that expanding its role to 
include analyzing and making findings on competing remedies for 
congestion could supplant, duplicate, or conflict with the traditional 
roles of States and other entities.
    Not only does the statute not require the Department to analyze 
non-transmission alternatives, such analysis is also not warranted as a 
matter of discretion. The primary concern of those arguing for analysis 
of non-transmission solutions to congestion or constraints is that 
National Corridor designation disadvantages those solutions, and thus, 
according to these comments, the Department should only make such a 
designation where it has determined that transmission is the best 
solution. As discussed in Section I.A above, the Department sees no 
basis to conclude that designation of the Mid-Atlantic Area National 
Corridor would either prejudice State or Federal siting processes 
against non-transmission solutions or discourage market participants 
from pursuing such solutions.
    The Department concludes that the phrase ``alternatives and 
recommendations from interested parties'' as used in FPA section 
216(a)(2) is ambiguous. For the reasons given above, the Department 
declines to interpret the phrase to mean non-transmission solutions to 
congestion or constraint problems. The Department believes it is more 
appropriate to interpret this phrase in a manner that recognizes the 
statutory limits on DOE's authority. Upon completion of a congestion 
study, the statute gives the Department two options: Designate one or 
more National Corridors or do not designate any National Corridors. In 
light of this statutory framework, the Department concludes that the 
term ``alternatives and recommendations from interested parties'' was 
intended to refer to comments suggesting National Corridor designations 
for different congestion or constraint problems, comments suggesting 
alternative boundaries for specific National Corridors, and comments 
suggesting that the Department refrain from designating a National 
Corridor. (72 FR 57010, October 5, 2007).

    Senator Menendez. Let me ask you this. It seems to me that 
this is a corridor for dirty coal energy. We already have clean 
air action challenges. We have our own programs in New Jersey 
as to how to achieve this.
    How is this not just about coal getting to the East coast 
in terms of energy production?
    Mr. Kolevar. Senator, it is not the responsibility of the 
Department of Energy to determine what kind of generation 
resource will send electricity into a State. That is within the 
purview of the States. To the extent that there's an 
expectation that the Department would consider alternatives as 
included in the statute to speak to other forms of generation, 
then you are setting up a situation where you potentially have 
the Department of Energy truly impinging on State sovereignty 
by determining what the generation mix will be in that State.
    Senator Menendez. There's no doubt that this is about coal 
at the end of the day getting to the East coast.
    Mr. Kolevar. Sir, the fuel mix in the United States over 
the next 20 years will be determined by Federal policies and 
statute regulations, State policies and regulation. It should 
not be determined by the Department of Energy----
    Senator Menendez. I find it hard to believe that this 
designation has to do, you know, to suggest. I think in some of 
your earlier testimony you mentioned something about wind. I 
really find it hard to believe that megawatts of power 
presently being generated by wind in the Midwest and not 
gigawatts being generated by coal is what's at stake here. I 
find it very hard to believe.
    Let me ask one last question, if you can, Mr. Chairman with 
your indulgence. Commissioner Kelliher, the Department of 
Energy has claimed that in other venues that the designation of 
the national corridors doesn't really actually do anything. 
That was in my mind their excuse for failing. I wait to see the 
written response.
    But for failing to examine alternatives and that was their 
reason for not conducting environmental impact assessments. 
Instead they claim that FERC is going to consider alternatives 
in evaluating transmission projects under section 1221 of EPACT 
2005. I'd like to understand FERC's approach.
    Mr. Kelliher. You want me to revisit DOE's conclusion or 
you want me to discuss how FERC would proceed if----
    Senator Menendez. How FERC would proceed.
    Mr. Kelliher. First of all I just want to point out we've 
gotten a grand total of zero applications to site transmission 
anywhere in this country. So this is a hypothetical. I can't 
tell you what we have done because there have been no 
applications.
    But we have offered to meet with every State official. I 
think we've met with New Jersey officials on how we would 
proceed under our rule if we were to actually get applications 
to site transmission. Our approach would be modeled very 
closely on how we've built pipelines. FERC has had exclusive 
authority to site pipelines for 60 years, for more than 60 
years.
    First thing we would do is hold community meetings. The 
bigger the project, the more meetings we would hold. We would 
certainly look at route changes. That's one benefit of the 
approach that DOE took to have a broader corridor.
    If instead of that--and I'm from New Jersey, so I'm 
sympathetic to the whole State.
    Senator Menendez. I hope you remember that.
    Mr. Kelliher. I do remember that. But if instead of a broad 
corridor, DOE had a thin pencil line across New Jersey and 
Pennsylvania, they would be choosing the route. Our role would 
be limited to yes or no.
    Now I've asked FERC's staff can they find a pipeline over 
the past 60 years where we haven't made a route change. They 
have been unable to find a pipeline. We make route changes to 
save the trees on an individual land owner's home.
    So I think DOE preserved our ability to make route changes. 
We do so to choose a route that is more environmentally benign. 
So we would hold community meetings. We would consult with 
State officials. The inception if we were to get an application 
at the beginning of a FERC proceeding does not cutoff the State 
proceeding.
    If ultimately the State sited transmission there's a very 
high probability we would terminate our proceeding. So the 
beginning of a Federal process doesn't cutoff the State 
process. We actually have not exercised our full authority 
under the Energy Policy Act.
    The law that Congress enacted 3 years ago, provided that 
FERC could make a final decision 366 days into a State 
proceeding. The limitation, the 1-year limitation was on the 
end of Federal proceeding. We imposed a 1-year bar on the 
beginning of a Federal proceeding because we wanted States to 
have a clear year to make decisions on siting transmission.
    We could have done the complete opposite and allowed 
parties to come to FERC and States the exact same day to file 
simultaneously in both fora. We'd have to wait 365 days. On day 
366 we----
    Senator Menendez. Let me because I've overstayed my time. 
But Mr. Chairman this was such a major issue for us, let me 
close by saying this. It is counter intuitive. I know a lot of 
my colleagues here in the Senate have talked about property 
rights. We'll see if all of a sudden all of those who have been 
advocates of property rights are willing to snuff it out.
    It's counter intuitive to say, give me the whole State in 
the corridor because this way I'll narrow my focus. It's like 
saying give me big, you know, a big blank check to Fannie Mae 
and Freddy Mac because hopefully we won't have to use any part 
of it. It's counter intuitive.
    So, you know the reality is that, you know, I hope that 
FERC is going to, when and if it gets its application among the 
other things you've said, is going to consider environmental 
impacts. I hope it's going to look at the greenhouse gas 
emissions in evaluating those proposals. I hope it's going to 
work with the State in addressing siting and environmental 
obstacles because as far as I'm concerned this isn't over.
    I do hope, Commissioner, that you will remember the State 
that you came from and how we don't want it to be one big grid 
of coal fired emissions in a State that already has far too 
high an incidence of cancer as a result of the type of 
emissions that are taking place there. Thank you, Mr. Chairman.
    The Chairman. Thank you very much. We have another panel.
    Senator Bunning. May I?
    The Chairman. Yes, Senator Bunning.
    Senator Bunning. Thank you. If the Senator from New Jersey 
is concerned about the corridor and the electric generated by 
coal which is about 50, 51 percent of all electric generation 
in the United States of America today, I suggest to the Senator 
that he pass--he's got a Governor who agrees with him, I know. 
I suggest to the Senator that he would refuse to accept any 
electric generated by coal in the United States that is going 
through New Jersey. That he replace that with some alternative 
fuel presently, that generates electricity like natural gas, 
like biomass, like wind, like whatever alternative he may 
choose.
    Senator Menendez. I appreciate the advice of the Senator 
from Kentucky. The fact is only 12 percent of energy in New 
Jersey is generated by coal. Under the Governor's plan we would 
move to a point in which we would move away totally from that. 
So we're, of course----
    Senator Bunning. I think that's a great idea.
    Senator Menendez. I appreciate the Senator from 
Kentucky's--I know he's a big property rights advocate. I'm 
sure that he'll look at that as one of the issues in moving 
forward.
    Senator Bunning. I am and I will do that.
    The Chairman. Let me thank this first panel. It's been very 
useful testimony, and we appreciate it. Let me just mention, 
Chairman Kelliher, I do know you've had to cut your vacation 
short to be here for this hearing. We very much appreciate that 
inconvience that you suffered.
    Let me ask the second panel to come forward. I'll go ahead 
and introduce the second panel as they're taking their seats.
    We have the Honorable Jim Hoecker, who is here today 
representing WIRES, which is, I understand the working group on 
investment in reliable and economic electric systems. Thank you 
for being here, Jim.
    Colin Whitley is representing the American Public Power 
Association from Wichita, Kansas.
    George Loehr is from Albuquerque, New Mexico, here 
representing the Piedmont Environmental Council. I believe he's 
here. At least, I was told he was.
    Terry Boston is here with PJM Interconnection out in 
Norristown, Pennsylvania.
    Susan Tomasky is here representing the American Electric 
Power out of Columbus, Ohio. Thank you for being here.
    Why don't we just start with Commissioner Hoecker and we're 
glad to hear your testimony. We'll do the same here that we did 
with the first panel. That is include your full statement in 
the record as if read, but we would appreciate it if you could 
take five or 6 minutes and just summarize the points you think 
are most important for us to understand. Jim, go right ahead.

        STATEMENT OF JAMES J. HOECKER, COUNSEL TO WIRES

    Mr. Hoecker. Thank you. Thank you very much, Mr. Chairman, 
members of the committee. It's a pleasure to be here.
    I certainly appreciate your shining a light on a critical 
issue. This committee did great work in 2005 and last year in 
improving the prospects of electric transmission and the 
industry as a whole. We look forward, WIRES does, to working 
with the committee in the future.
    WIRES for your information is the national coalition of 
transmission providers, transmission users, service companies, 
both investor owned, publicly owned, cooperatively owned. Our 
purpose is really to promote transmission investment as 
appropriate. Transmission, of course, is as you've heard over 
and over this morning is a shared network.
    It's a public good. It's the electron superhighway. It 
provides tremendous optionality in terms of availability of 
various generating resources and a fluid commerce in 
electricity at the wholesale level.
    We believe that this country needs to take a serious look 
at constructing considerable amounts of additional transmission 
over the next 30 years. But because cost allocation is 
controversial, because siting transmission towers is difficult 
and never easy and never brief either, because recovery of 
costs at both the Federal and State level tends to be 
uncertain. Certainly transmission development needs to be done 
well.
    I think whichever side of the debate you're on about 
national interest corridors, I think it's fair to say that 
everybody wants to ensure that the public will is felt and the 
planning is done on a regional basis and done with a great deal 
of care. The needs and the challenges that transmission face 
now are tremendous. This is perhaps a transformative moment in 
the history of this industry.
    Not only are we dealing with eliminating congestion, 
replacing aging infrastructure, dealing with the stresses that 
competitive markets put on the transmission system and making 
up for a lack of investment over the last 20 or 30 years and 
anticipating significant increases in demand for electricity. 
We're now looking at the prospect of major climate change 
initiatives that will require cleaner energy, renewable 
portfolio standards that will place a premium on renewable 
energy and connecting alternatives that are frequently very 
distant from load.
    We're trying to make more sufficient use of generation by 
high cost fuels. So, Commissioner Smith was absolutely right 
transmission is not about what it's in the past, but where 
we're going. I just want to make two comments this morning 
about that.
    On the issue of cost allocation, I would draw your 
attention to the Blue Ribbon Panel Report that was attached to 
my testimony. WIRES commissioned this report last year. It's a 
very common senses approach to allocating costs, a principled 
approach to allocating costs to those who benefit.
    I think in this era of open access transmission and large 
regional bulk power markets that the panel concluded that we 
needed to look at broader allocations and do more socialization 
of cost. But this is not a doctor on their thesis on an 
Appalachian for socializing cost. But there are principles here 
that are not being following, specifically by FERC or other 
parties in the regions. We would recommend that they try to 
take a more principled approach to allocating costs.
    Last the whole issue of infrastructure corridors. We give 
the Department of Energy great praise for making this 
courageous designation. I think they did a fine job. I think 
they could have done it more quickly.
    The important thing is that the DOE's approach and the 
statute itself is like looking in the rear view mirror. We're 
looking at past congestion on the grid. We need to be looking 
forward to economic development, energy security, connecting up 
renewable energy remote location restrained resources.
    The corridors don't really do that. Even though DOE 
probably could have, I think, construed the statute as 
requiring it to do that. It chose not to.
    So the corridor process is not only limited in its 
implications. It's far too limited to be very useful going 
forward with regard to these kind of transformative events that 
we're looking at. FERC has been at great pains to encourage 
States to use their proceedings to site transmission so that 
these things don't end up on their doorstep.
    So I'm not quite sure why Senator Casey thinks that the 
citizens of Pennsylvania have been run over. But I absolutely 
agree with him that that's an unacceptable result. That's why 
we urge regional planning, stakeholder input. FERC has set the 
table in order 890 for an open, transparent, transmission 
planning process in every part of the country. Now that they've 
set the table, we need to have the meat and potatoes to go 
along with it.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Hoecker follows:]

        Prepared Statement of James J. Hoecker, Counsel to WIRES

    Senator Bingaman and Honorable Members of the Committee, my name is 
Jim Hoecker. Thank you for the opportunity to testify this morning on 
the current status and future of the electric transmission system. I am 
especially honored to have the opportunity to return before this 
Committee for the first time since my service on the Federal Energy 
Regulatory Commission (``FERC'').
    Today I appear before you as Counsel to WIRES, the Working group on 
Investment in Reliable and Economic electric Systems. WIRES is a new 
national coalition of both publicly-owned, investor-owned, and 
cooperatively-owned transmission providers, customers, and services 
companies. To my knowledge, WIRES is the only private sector group 
exclusively dedicated to promoting investment in the electric 
transmission system and educating policymakers and the public on the 
benefits derived from the grid.
    WIRES was formed in part to remove electric transmission investment 
from the shadow cast by competitive markets and competitive generation 
over energy policy conversations and to emphasize that, even though 
transmission providers have been skilled in finding ways to serve 
larger and more distant loads utilizing their existing assets, the need 
for more transmission is real. When the transmission systems became 
more fully integrated a half century ago, we had no plasma TV's or 
energy-hungry computers; no one seriously conceived of the possibility 
that automobiles would be plugged into the electric system; large-scale 
regional bulk power markets were only a blip on the horizon; few people 
were concerned about the consequences of greenhouse gases in the 
atmosphere; and extensive deployment of ``location-constrained'' wind, 
solar, biomass, or geothermal technologies for electric generation--not 
to mention low-carbon forms of coal generation--was a fantasy.
    Transmission providers now find themselves playing catch-up. We do 
so while facing growing challenges: a level of competitive commerce 
that tests the limits of the grid's capabilities; persistent 
transmission constraints in many areas; a projected one-third increase 
in electricity demand by 2030, on top of a 34% increase in demand 
between 1992 and 2007; and the practical challenge of linking major 
renewable and low-carbon resources to consumers many hundreds of miles 
away. Transmission expansion has naturally become a priority for the 
renewable energy industry and for states with renewable portfolio 
standards. In addition, technologists have discovered transmission's 
critical importance. For instance, Andrew Grove, former CEO of Intel 
Corporation, recently observed that ``[m]ost everything runs on 
electricity. A big exception is the transportation sector. . . .If we 
don't convert a large portion of the transportation sector to 
electricity, we cannot make real progress toward energy resilience.'' 
Such a transformative switch to plug-in vehicles would compound the 
challenge of satisfying the consumers' escalating demand for 
electricity and necessitate a stronger transmission system to deliver 
power on demand. By expanding the high voltage ``backbone'' network and 
ensuring that it becomes a ``smart grid,'' we can empower consumers to 
control their own carbon footprint, enable companies to make optimal 
use of existing assets, and help drive energy efficiency and demand 
response.
    Mr. Chairman, we need a strong electric transmission grid to be on 
the Nation's list of top priorities for investment in infrastructure. I 
do not know whether commentators like David Brooks are right in 
anticipating that this will be an era of ``epic legislation,'' but I 
agree with him that energy and infrastructure must be two of our top 
national priorities. The future of the grid is an important part of 
that policy discussion. America's competitiveness and the success of 
public and private efforts to promote clean energy resources and curb 
greenhouse gas emissions will depend in part on upgrading and expanding 
the transmission grid. While the Energy Policy Act of 2005 provided a 
necessary push in the right direction in the form of financial 
incentives, infrastructure corridor designations, and regulatory 
coordination, Congress, federal and state regulators, and other 
policymakers must maintain this new focus on the state of the Nation's 
grid, which is after all among the most complex machines ever built and 
one on which the Nation depends every day.
    My testimony this morning describes WIRES' most recent work on 
transmission. Most notably, WIRES commissioned a ``White Paper'' from 
an independent Blue Ribbon Panel to ascertain what disinterested 
experts would find is the best way to determine who should pay for 
expansions of the grid in most circumstances. That paper is attached to 
my testimony.* WIRES also participated in the Department of Energy 
(``DOE'') proceedings that resulted in the first National Interest 
Electric Transmission Corridors (``NIETC''). I discuss our views in 
support of that initiative and our doubts about its long-term success. 
Finally, WIRES conducted a brief examination of the factors which are 
escalating the cost of developing new transmission facilities. It 
conveys the urgency of moving forward in developing the grid. It too is 
attached.*
---------------------------------------------------------------------------
    * Documents have been retained in committee files.
---------------------------------------------------------------------------
    I also wish to mention another WIRES report that will be 
forthcoming in about six weeks. It will identify the ``best practices'' 
for integrating location-constrained clean energy sources, especially 
wind power, into the grid. WIRES is currently examining how several 
states have gone about integrating wind and other location-constrained 
resources into the existing grid. The states of Texas, California, 
Colorado, Minnesota and others have developed and implemented renewable 
energy ``zones'' and operational and regulatory protocols for moving 
those resources to market. WIRES believes we will all learn from having 
this information and these experiences distilled in one place. We will 
ensure that you receive copies.

              WHO PAYS FOR REGIONAL TRANSMISSION PROJECTS?

    Transmission today operates in a new and challenging environment. 
The highly balkanized wholesale power markets of the past, which 
consisted of local monopolists that built facilities largely to serve 
customers within their service territories, has given way to broad 
regional markets that cross service territories and state boundaries. 
Where transmission investment was once only a candidate for monopoly 
rate base, today such costs can be allocated to users of regionally-
interconnected systems who can be very diverse. In both bilateral 
utility and organized (i.e., markets run by regional transmission 
organizations (``RTOs'')) markets, the disputes over cost allocation 
and cost recovery, and the procedural delays occasioned by these 
disputes, are legendary.
    There are numerous ways to allocate costs. At one end of a spectrum 
of approaches is so-called participant funding which seeks to allocate 
costs of a transmission upgrade or expansion to immediate ``cost 
causers'' such as interconnecting generators even if facilities may 
have regional reliability or economic benefits. At the other end of the 
spectrum is the ``socialization'' of costs, meaning a broad allocation 
of all project costs to the perceived beneficiaries of the project 
across the market or region served. Different perceptions of the 
equities and the reliability or economic benefits of a grid expansion 
have often chilled transmission investment. The debate over cost 
allocation remains largely unresolved.
    WIRES' Blue Ribbon Panel of five experts from academe, utility 
operations, and the economic consulting world produced a short but 
powerful analysis in October 2007. This ``White Paper'' is remarkable 
for its clarity and flexibility. It is attached to this testimony but 
let me summarize its main points.
    Rather than choose the best practice from among competing cost 
allocation approaches, the Blue Ribbon Panel ultimately decided to 
articulate fixed principles for determining the benefits of new 
transmission investments and for allocating the costs efficiently and 
equitably among those who benefit from a transmission enhancement. Such 
principles could be applied in all markets and in a variety of 
circumstances. The Panel's White Paper relies on regional transmission 
planning as the key and, if that process can be advanced either by 
states acting together or at the federal level, policy makers and grid 
operators should quickly find that regional transmission can be 
responsibly developed, states the Panel. The paper concludes that 
methods of allocating costs based on regional consensus or private 
settlement agreements, while expedient, may not support a sustainable 
and viable environment for attraction of capital into transmission 
projects. The White Paper also finds that the debates over cost 
allocations often simply serve as proxies for disagreements over other 
issues such as siting.
    At bottom, the Panel's paper concludes that a sound cost-recovery 
policy must have one critically important foundation or pre-condition: 
clear, consistent and principled regulatory policy and oversight. Good 
cost allocation, it asserts, should be based on: (1)establishing a 
credible process for deciding which transmission investment should 
proceed, with the process based on inclusiveness and transparency; 
(2)assuring that regulation provides an adequate definition of the 
geographic footprint(s) of physical, regional electricity market(s) to 
be served in the transmission planning and expansion policy; 
(3)establishing a credible and principled ``transaction chain'', 
linking those that ultimately benefit from open-access transmission--
e.g., customer loads--with the responsibility to pay for transmission 
investment; (4)using ``rules of thumb'' related to the size of the 
transmission asset(s) being proposed as the basis for presumptions 
about who should pay; and (5)clarifying the regulatory jurisdiction for 
recovery of transmission investment costs to ensure appropriate price 
signals and consistency with national policy for non-discriminatory 
access to transmission.
    The Panel thereby arrived at ten principles to guide the allocation 
of costs of new network transmission investment in all areas of the 
United States. Although admittedly favoring the broadest equitable 
allocation of costs among the regional beneficiaries of a project, the 
paper does not recommend a one-size-fits-all method of cost allocation.

          Principle 1.--All viable methods of allocating the costs of 
        new network transmission require a study of who benefits from, 
        and who should pay for, an upgrade or expansion of the grid, 
        unless regulators establish as policy that certain types of 
        facilities presumptively benefit the entire market or region. 
        In either case, sound planning processes are critical to that 
        determination.
          Principle 2.--Network transmission investments should be 
        analyzed using a single standard (or unit of measure) that 
        combines reliability and economic values without distinction, 
        as the basis for cost allocation..
          Principle 3.--The appropriate standard of measurement of the 
        benefits of transmission is aggregate societal benefits within 
        the geographic region being examined.
          Principle 4.--Sound transmission planning (to analyze 
        benefits and costs and the distribution of benefits for the 
        purpose of allocating costs) should incorporate a number of 
        features:

                  Principle 4A.--Transmission planning and analysis 
                should be done on a regional level--tending toward 
                larger regions as a general rule. While the overall 
                planning process must encompass a large region, the 
                planning studies cannot lose sight of the impacts on 
                sub-regions.
                  Principle 4B.--Transmission planning and analysis 
                should include all of the demand loads (existing and 
                anticipated) and all of the supply resources (existing 
                and anticipated) located within the geographic region 
                for which planning is taking place.
                  Principle 4C.--Transmission planning should occur in 
                a process that is open, transparent, and inclusive, and 
                conducted by a credible entity without particular 
                attachment to specific interests or market outcomes in 
                the region.

          Principle 5.--Transmission investments involving ``baskets'' 
        of projects that satisfy these standards and which emerge as a 
        net societal benefit (to either the region or sub-regions) 
        through the results of robust transmission planning processes 
        should presumptively be candidates for broad, or socialized, 
        cost recovery across the region benefiting from the project(s).
          Principle 6.--As a rebuttable presumption in transmission 
        planning exercises, the larger the size of a new facility, the 
        greater its potential to serve the broadest segment of 
        interstate commerce and therefore the larger the region that 
        should support it.
          Principle 7.--The costs of new investment should be allocated 
        to customers in the benefiting region.
          Principle 8.--New transmission investment should be supported 
        in federal or other wholesale rates, as appropriate, and not be 
        included in retail rate base subject to regulation by the 
        various states. To the extent that existing transmission assets 
        can be removed from retail rate base and transferred to federal 
        or wholesale rates in an orderly and coherent manner it would 
        be useful to do so.
          Principle 9.--On a going-forward basis only, cost allocations 
        for new transmission should be subject to periodic review to 
        determine whether beneficiaries from the investment have 
        changed in any major ways that distort cost responsibility. 
        Established transmission cost allocations should otherwise be 
        rebuttably presumed just and reasonable.
          Principle 10.--Free entry of transmission investment should 
        be permitted, to the extent that the proponents are willing to 
        pay for such investment and that such investment does not 
        adversely impact the network in ways that are not addressed by 
        the proponents.

    In sum, the White Paper sets forth the best way to decide who pays 
for transmission at all levels and in all markets and regions. It is 
necessary to identify beneficial transmission enhancements through 
thorough and open planning, to provide credible (if not precise) 
determinations of whom benefits from an investment, and to adhere to 
these principles for allocating costs when serving distinctly regional 
needs--irrespective of conflicting stakeholder interests or the 
political environment surrounding a specific project. If followed, the 
Panel's principles could significantly reduce litigation and other 
process impediments to new transmission.
    Policy makers agree. During the July 17, 2008 FERC open meeting, 
Commissioner Phillip Moeller recognized that such principles could be 
instrumental in timely planning of the grid in the Pacific Northwest 
and elsewhere. ``[C]ontroversial aspects of the [open access 
transmission] planning process, such as cost allocation, may delay the 
process since there is a misperception of winners and losers. While 
some think of cost allocation as a zero-sum game, I do not. Benefits 
greatly exceed the costs for the majority of participants in nearly all 
cases. The Blue Ribbon Panel Report . . . contained some excellent cost 
allocation principles and I remain interested in any feedback.''
facilities siting and national interest electric transmission corridors
    Facilities siting is an intractable problem that often leaves all 
parties dissatisfied and the long-term interests of electricity 
consumers ignored. Congress sought a balanced approach to siting 
transmission facilities when it adopted Section 216 of the Federal 
Power Act in 2005. That provision allows FERC to site transmission as a 
``back-stop'' to state procedures, and grant any necessary federal 
rights of eminent domain, ONLY (1) if the facilities are located within 
broadly-defined corridors designated by DOE as experiencing significant 
market inefficiency, high prices, and threats to reliability that 
should be resolved through enhancement of the transmission system; (2) 
after states have had the opportunity to consider a project under their 
traditional authority to site facilities (or lack of such authority) 
and have failed to act in a timely manner; and (3) pursuant to its own 
subsequent review, including environmental analysis under the National 
Environmental Policy Act and applicable laws, to ascertain what the 
public interest requires.
    The DOE carried out its responsibilities by designating two 
National Interest Electric Transmission Corridors (``NIETC'')--one in 
the Mid-Atlantic Area (Docket No. 2007-OE-01), and another in the 
Southwest Area (Docket No. 2007-OE-02). WIRES supports DOE's action. 
The NIETC process and these designations must be viewed in perspective. 
These designations provide a context within which states can engage 
with citizens and local or regional utilities in planning to meet our 
infrastructure needs. They do not site facilities. They are not 
determinative of the outcome of transmission siting or planning 
processes. They do not, and will not, take property. The process does 
not preempt or undermine protection of environmentally or culturally 
sensitive areas or assets. A designation does not pick winners and 
losers or specify a required route for any line. Any suggestion that 
designations should be made more specific would place DOE in the role 
of a ``super'' transmission planner, a role DOE is not prepared to 
fulfill by virtue of its expertise, resources, or legal authority.
    Regional planning of electric transmission is once again key to 
achieving sound decisions on the merits of individual lines. If that 
process can be advanced either by states acting together or at the 
federal level pursuant to FERC's Order No. 890, policy makers and grid 
operators will quickly find that regional transmission can be 
responsibly developed to achieve access to reasonably priced electric 
generation and to unlock the potential of the substantial new renewable 
and other resources that are located far from electricity customers.
    WIRES believes that the NIETC process as it now exists is not an 
adequate or complete answer to what ails transmission investment. While 
it is a valid attempt to address the obvious mismatch between the 
interstate operation of the grid at the high voltages and the exclusive 
authority of states to determine if such lines are to be constructed, 
the lead-time for planning and constructing transmission--which is 
already substantial--promises to remain so. For example, FERC recently 
received a first request for pre-filing consultation under its new 
back-stop siting rules after the states of Arizona and California 
reached an impasse, not about where facilities should be built or even 
about which state's ratepayers should bear the costs, but about the 
very desirability of exporting electricity in interstate commerce. 
FERC's careful process will add approximately two years or more to the 
already considerable time this case has taken at the state level. When 
and if FERC acts on a completed application, the matter will no doubt 
be appealed. Next month is the third anniversary of EPAct and the 
second anniversary of DOE's congestion study mandated by the Act. Any 
constructive impacts from the NIETC process are still relatively 
distant.
    The NIETC process may also fail to achieve its goals for two 
additional but related reasons. First, transmitting large amounts of 
remotely located renewable generation to load will unquestionably 
entail entirely new high-voltage network additions that will cross 
multiple jurisdictions in many circumstances. The need to take 
advantage of these domestic, ``location-constrained'' renewable and 
clean-coal resources will be central to any climate change and energy 
independence goals. Development of these generating facilities await 
some indication that transmission capacity will be available to them. 
Yet, DOE's focus in implementing NIETCs is transmission constraints and 
congestion that already exist. Thus, for good reason, the Western 
Governors have stepped up their efforts to identify renewable energy 
zones and use such determinations as the basis for planning 
transmission. However, these procedures represent potentially longer 
and more circuitous paths to developing a thoughtful regional 
transmission plan than FERC has already prescribed under Order No. 890. 
Second, upgrades or expansions to the grid may also be necessary to 
ensure electric reliability for our digital society, promote energy 
security, or meet economic development and demographic trends. Section 
1221 of EPAct permits DOE to take these forward-looking factors into 
account when designating corridors but it has largely chosen not to do 
so. I am unsure whether this reflects a reading of the law or a 
practical decision about the difficulties of formulating future plans 
for integrating alternative energy resources.
    In the final analysis, delay in selecting and building the right 
transmission in the right place to serve the right generation resources 
cannot be good for consumers.

                   THE CHALLENGE OF ESCALATING COSTS

    Transmission is generally the smallest component of the typical 
retail electric bill. Embedded transmission services may cost as little 
as a few mills in a 7-cent/kwh rate. This relative relationship is due 
to several factors, not the least of which is the high cost of most 
fuels and generation facilities and the large investment that 
integrated utilities routinely make in distribution facilities. 
Moreover, transmission infrastructure is aging and is often fully 
depreciated. The prospect of major new investments in the grid may not 
change this proportional relationship but it nevertheless represents a 
major, and in our minds necessary, future outlay of capital that must 
be recoverable.
    U.S. companies will have spent about $30 billion on transmission in 
the period 2006-2009, at a rate roughly double the annual expenditures 
at the beginning of the century. However, only 668 miles of high 
voltage transmission has been built across state lines since 2000. 
Economists project that we will need to spend well over $200 billion on 
new transmission by 2030. That compares to as much as $1 trillion that 
we will need to spend on distribution and new electrical generation in 
that time frame, however.
    The industry recognizes the potential impact on consumers of such 
expenditures. Those consumer impacts could be exacerbated by increases 
in the cost of materials and human resources. It is reasonable to 
expect that, as the Nation turns to the task of fixing many aspects of 
its basic infrastructure (water, roads, bridges, railways) over the 
next few years, the competition for materials, equipment, skilled 
labor, and capital to strengthen the grid will also strengthen. 
Investments in utility infrastructure internationally will place 
substantial additional pressure on the cost of these resources as well. 
WIRES therefore cannot emphasize strongly enough the need to plan grid 
expansions thoroughly and intelligently and to be as economically 
efficient as possible during the build-out. WIRES advocates taking 
maximum advantage of energy efficiency, demand response, and 
conservation to rationalize investments in the electrical system as a 
whole. Nonetheless, there is no substitute for having a reliable 
integrated high voltage system.
    I have also attached the WIRES study* illustrating the nature of 
the cost pressures currently on the transmission sector.
---------------------------------------------------------------------------
    * Document has been retained in committee files.
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    Thank you once again for your attention to this critical national 
priority.

    The Chairman. Thank you very much. Mr. Boston, go right 
ahead.

 STATEMENT OF TERRY BOSTON, PJM INTERCONNECTION, NORRISTOWN, PA

    Mr. Boston. Thank you, Mr. Chairman and members of the 
committee for the opportunity to testify today. PJM 
Interconnection is a regional transmission organization 
responsible for the reliability of the grid and operating a 
wholesale market that serves over 15 million Americans.
    Let me start with a simple premise as Chairman Bingaman did 
today that electricity is the lifeblood of our Nation's economy 
and the lifelines to our homes. On hot days like today it 
humbles me every time I think about that. Transmission is the 
enabler of virtually all of the energy solutions Congress may 
embrace to strive for energy independence and environmental 
protection.
    Those solutions will require transmission infrastructure 
whether it involves increasing renewable resources, using more 
nuclear power, shifting to clean coal technologies with carbon 
sequestering or relying on plug in hybrid vehicles for 
transportation. Wind power will be on distant mountain tops, 
offshore or as far away as the Dakotas bidding into the PJM 
capacity market. New nuclear units will be located as testified 
earlier, at the site of existing nuclear units primarily 
because it can be licensed much faster.
    Clean coal will be located in the coal seams and where the 
carbon sequestered geological conditions will allow them to 
capture the carbon. Of all of these examples, only the plug in 
hybrid vehicles will be located near our population centers and 
our load centers. To make these distant resources work a 
substantial investment in transmission will be required along 
with significant investment in the smart grid technologies such 
as phasor measurement units for the transmission level and on 
the distribution level, we need two way communication between 
the grid operators and the appliances in your home and those 
battery chargers in plug in vehicles.
    Unfortunately we continue to plow the same ground on 
debating the respective roles of the Federal Government and the 
State governments. But the more important task in my view in 
the future is to ensure the integration of new technology with 
the environmental and energy policy issues that you are already 
addressing. This hearing is being held almost as we mark the 
fifth anniversary of the blackout of August 14, 2003.
    We've come a long way since then. But there's still 
significant challenges that require new grid enhancement. As 
part of a 15-year--and I brought a copy to show the detail--
regional planning process at PJM we've identified potential 
overloads and voltage risks that threaten future reliability of 
the bulk transmission system.
    The transmission orders at PJM region have stepped up to 
the plate and proposed four significant new transmission 
projects. Each of these projects are critically important to 
maintain the reliability of the region. On the generation side, 
we currently have more than 90,000 megawatts of new generation 
in our grid connection queue. Of that 40,000 megawatts is wind. 
We have 1,100 megawatts already connected with, excuse me, with 
1,500 megawatts in various stages of construction.
    Both State renewable portfolio standards and climate change 
goals will require grid enhancements. Plug in electric hybrid 
vehicles represents an exciting new opportunity. However, if 
everyone comes home and plugs their car in at 5 p.m. while the 
air conditioners are still humming, we will not be better off.
    We need smart grid technologies for communication and 
control to drive customer behaviors. If done right, electric 
cars can make both the power system assets and the U.S. 
transportation system more efficient. Currently off peak market 
prices can provide the equivalent cost of gasoline at 60 cents 
per gallon on most nights.
    As you can see the grid of the future will be impacted by 
the policy choices you make. I hope I have demonstrated the 
importance of building new transmission and having a robust 
grid to serve our economy, to serve our customers and to 
provide the innovation and efficiency that power markets need 
to bring to this Nation. For a decade following the New York 
blackout of 1965 this Nation, this industry came together and 
built transmission that made the electric reliability here in 
the U.S. the envy of the world from the mid-1970s through the 
mid-1990s.
    To earn that status again we must take control of our own 
destiny on energy adequacy and reliability. By working together 
with the States we can do it again. Thank you for the 
opportunity to testify. I look forward to your questions.
    [The prepared statement of Mr. Boston follows:]

Prepared Statement of Terry Boston, PJM Interconnection, Norristown, PA

                           EXECUTIVE SUMMARY

    Transmission will play a critical role in enabling virtually any of 
the public policy goals the Congress may embrace to strive for energy 
independence and meet environmental goals, including renewable energy, 
nuclear energy, clean-coal technology or plug-in hybrid electric 
vehicles.
    To adopt some of the ambitious renewable energy and climate change 
goals that are being discussed will require a substantial investment in 
new transmission and new grid technology. The electricity industry can 
deliver, as it has done in the past, but only if we get beyond endless 
debate over yesterday's issues and instead partner with the states, the 
federal government, consumers and industry to focus on truly deploying 
the 21st century grid.
    PJM now has over 90,000 megawatts (MW) of new generation in our 
interconnection queue made up of a mix of resources, including more 
than 40,000 MW of wind generation. This level of new interest in 
generation in our region is a good sign and is most welcome. New 
generation is beneficial because it can meet load growth and displace 
older, more inefficient and in some cases environmentally challenged 
generation. We also have seen a 300 percent increase in demand response 
resources from 2006 to 2012.
    The development of renewable energy resources will require 
significantly more transmission investment than has been made since the 
construction peak in the mid 1970s. While other technologies are 
promising, the greatest promise for renewable energy in our region is 
wind generation. Additional long-haul interstate transmission will be 
needed to move these wind resources to load centers in the east.
    The grid of the future will be impacted by the policy choices you 
make in key areas such as climate change, energy independence and 
encouragement of plug-in hybrid electric vehicles and Smart Grid 
technology. PJM would like to encourage you in your deliberations to 
consider these principles:

   Focus on what's doable: It is important to take into account 
        the need for adequate time, R&D and resources to ensure that 
        the grid can serve that policy goal in a reliable and cost-
        effective fashion.
   Acknowledge the trade-offs: There have been several calls 
        for the adoption of ambitious renewable targets and mandates. 
        The development of renewable energy resources will require a 
        significant expansion of the grid, as well as a significant 
        increase in needed operating reserves given the intermittent 
        nature of wind and other resources.
   Understand the real-time impacts of policy decisions: We are 
        in the process of modeling the impact of various climate change 
        scenarios on power flows and system reliability. I urge you to 
        be open to information from PJM and others as you weigh these 
        difficult policy choices.
   Look forward not backwards: From a legislative viewpoint, I 
        would urge focus on the next generation of issues outlined 
        above since, if left unaddressed, they could rapidly overwhelm 
        the traditional issues that this industry has concentrated on 
        in years past.

    After the New York blackout of 1965, this nation and this industry 
came together and built transmission that made the electric reliability 
in the United States the envy of the world from the mid 1970s through 
the mid 1990s. We must work together to control our destiny on energy 
adequacy and reliability. We can do it again.
    Thank you for the opportunity to testify today. I am Terry Boston, 
President and CEO of PJM Interconnection. PJM is the regional 
transmission organization serving all or part of 13 states and the 
District of Columbia. Our job is to ensure reliability of the bulk 
power grid and operate a competitive wholesale market for electricity 
serving more than 50 million Americans. We do this by operating the 
grid to meet the highest level of reliability standards, administering 
a Day-Ahead and Real-Time Market for electricity, and planning the 
long-term adequacy of the bulk power system.
    This hearing is very timely as the industry must, more than ever, 
``connect the dots'' as to the critical role that transmission plays in 
meeting the public policy goals that are being debated in Washington 
D.C. and throughout the country. In a nutshell:

   If one is for renewable generation to power America's 
        economy, which I am, we need more transmission;
   If one is for more nuclear energy to power America's 
        economy, which I am, we need more transmission;
   If one is for the development of clean coal technology with 
        carbon sequestration, which I am, we need more transmission;
   If one is for the development of plug-in hybrid electric 
        vehicles that improve overall system efficiency and reduce oil 
        imports and carbon emissions, which I am, we need more 
        transmission.

    First we must understand that electricity is the common currency of 
many sources of energy. Transmission is the enabler of virtually any of 
the public policy goals the Congress may embrace striving for energy 
independence and meeting environmental goals. This focus on 
transmission does not mean that other resources, such as new 
generation, demand-side response and energy efficiency, are not also 
sorely needed to feed the nation's appetite for electricity, the fuel 
of our digital economy. In the U.S., the forecast for peak demand for 
power is expected to increase by over 135,000 megawatts (MW) or 17.7 
percent in the next ten years. (We generally estimate one megawatt of 
electricity is enough to power between 800 and 1,000 homes.)
    My second message is equally basic: We don't have the luxury of 
time for continuous debates over corridors, cost allocation or the 
respective role of the states and the federal government in these 
areas. Although enhancements can certainly be made to the statutory 
mechanisms you established in the Energy Policy Act of 2005 (EPACT 
2005) to address these issues, the more important task in my view is to 
focus on the future--ensuring a complementary integration of the next 
generation of technology with the next generation of issues you are 
already addressing, such as climate change and energy independence.
    The grid does not operate in a vacuum and there is no free lunch. 
To adopt some of the ambitious renewable energy and climate change 
goals that are being discussed will require a substantial investment in 
new transmission and new grid technology. It will require us to obtain 
additional operating reserves from fossil-based generation, at the very 
least, as an interim resource given the intermittent nature of wind 
generation and uncertainty of other alternative energy resources. And 
it will require rapid deployment of Smart Grid technologies. They 
include phasor measurement units at the transmission level and 
sophisticated two-way communication between the market and grid 
operator and appliances in the home as well as batteries in future 
plug-in hybrid electric vehicles--all of which will help to meet rising 
demand ia more fuel-efficient, environmentally responsible manner.
    As illustrated by a number of recent comments from both sides of 
the aisle, starting with Senator Lamar Alexander, we will need a 21st 
century ``Manhattan Project'' and an ambitious goal like putting a man 
on the moon combined to ensure we can solve our new energy and 
environmental public policy problems. I am confident that this industry 
can deliver, as it has done in the past, but only if we get beyond 
endless debate over yesterday's issues and instead partner with the 
states, the federal government, consumers and industry to focus on 
truly deploying and enhancing the 21st century grid.

                      THE STATE OF THE GRID TODAY

What We Have Achieved
    At the outset, I think it's important to paint an accurate picture 
of the grid today--both its strengths and weaknesses. Although grid 
reinforcement is clearly needed, I would not want the Committee to walk 
away with a one-sided picture. I am pleased to report that in the PJM 
region the system has been performing extremely well so far this summer 
as well as during the past few summers. To date, the summer of 2008 has 
been characterized by typical summer weather conditions. However, 
tornados caused line outages in early June in Virginia and Maryland and 
as far north as Michigan. This stressed the system and our members 
raced against the clock to restore transmission lines that allowed PJM 
to meet a peak load of 130,000 MW. These extreme conditions demonstrate 
the importance of a robust grid but also illustrate how increased 
demand is stressing the system.
    I don't want to ignore the fact that we are approaching the fifth 
anniversary of the blackout of August 14, 2003--a blackout caused by 
basic problems that have tripped up this industry before--lines sagging 
into trees, and inadequacies in operator training and communication and 
control systems. The industry has moved forward since then and your 
adoption [and the Federal Energy Regulatory Commission's (FERC) 
implementation] of laws establishing mandatory reliability standards 
has helped immensely. My thanks to this Committee for its leadership 
and to the FERC for its leadership in implementing those provisions of 
the EPACT 2005.
    It is often stated that the grid is being used in ways for which it 
was never originally designed. This statement, which you will 
inevitably hear again, is true but only tells half the story. We have 
far more sophisticated operations and market-based tools to manage 
flows on the grid than we have ever had. These tools include our state 
estimator which monitors and reports on the state of the system every 
two minutes. They include our ability to redispatch generation 
(achieved through sending locational price signals) which allows us to 
proactively clear congestion before reliability is threatened by 
overloads on a given line or set of lines. In short, we have been able 
to develop technology to help manage power flow.

                   FUTURE DRIVERS OF GRID ENHANCEMENT

    Although there is much that we have achieved, there are significant 
challenges facing us that require considerable grid improvements and 
deployment of advanced technology. To meet these challenges, there are 
three principle drivers, each of which affect the grid slightly 
differently but all of which must ultimately work in harmony and be 
rationalized through a transparent, robust regional planning process.

          1. Meeting reliability requirements is paramount: The North 
        American Electric Reliability Corporation (NERC) and regional 
        reliability entities establish reliability criteria, among 
        other things, how robust the system is to respond to the loss 
        of any given transmission line or generating unit. We analyze 
        flows on the system against the thermal ratings of each of the 
        transmission lines to test when the line might become 
        overloaded or reaches a voltage limit such that additional 
        transmission is needed to meet rising demand. Our planning 
        process looks forward 15 years to determine, for each line, 
        when that point is reached (and thus a reliability violation 
        triggered) based on projections of growth in customer usage of 
        electricity. As part of our ongoing assessment of the PJM 
        system, we have identified the need for significant 
        reinforcement of the bulk power grid in our region as a result 
        of forecasted overloads and violations of reliability criteria. 
        The following map* shows overloads that we would expect to see 
        on the major 500kV lines in the PJM region if the system is not 
        strengthened.
---------------------------------------------------------------------------
    * Graphics have been retained in committee files.
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            Our independent board reviews these findings, along with 
        the input from stakeholders through our open and transparent 
        regional planning process. Based on these reviews, we have 
        determined that significant new transmission investment will be 
        required to ensure future reliability. The transmission owners 
        in the PJM region have stepped up to the plate and proposed 
        significant new projects, some of which await siting approval 
        by the states in pending proceedings. The major lines 
        authorized to be built are the Trans-Allegheny Interstate Line 
        (TrAIL), which runs from Pennsylvania to West Virginia and to 
        northern Virginia; the Amos to Kemptown line connecting West 
        Virginia and Maryland, and the Susquehanna to Roseland line, 
        connecting northern Pennsylvania to northern New Jersey.
            Each of these projects, which are reliability-related, is 
        critically important to ensuring compliance with these 
        reliability standards and maintaining reliability for the 
        region. You are likely most familiar with TrAIL which has 
        received considerable media coverage in this area. This project 
        is the most advanced and we are hopeful our members building 
        this project receive favorable siting decisions from the 
        Virginia State Corporation Commission, the Pennsylvania Public 
        Utility Commission and the West Virginia Public Service 
        Commission so the very real-and near-time reliability 
        challenges outlined above can be adequately addressed.
          2. Strengthening the grid provides future value to customers: 
        In total, nearly $10 billion in new transmission has been 
        approved by the independent PJM Board since 2000, all of which 
        is in various stages of development. Part of this investment is 
        for the interconnection of new generation and part is for 
        addressing the reliability requirements of the region in light 
        of ever increasing growth in demand for electricity. Presently, 
        we have over 90,000 MW of new generation in our interconnection 
        queue made up of a mix of resources. Most notably, we presently 
        have almost 40,000 MW of wind generation in the queue.
            Recently, PJM proposed revisions to its process that would 
        expedite the review of interconnection of new generation 
        projects. Pending FERC approval, system impact studies for 
        certain similarly affected projects now will be reviewed as a 
        ``cluster.'' PJM will determine system upgrades required by 
        adding the entire group to the system, rather than looking at 
        each project incrementally, a process which will save time and 
        money.
            This level of new interest in generation in our regional 
        capacity market is a good sign and is most welcome. New 
        generation is beneficial because it can meet our load growth 
        and displace older more inefficient, and in some cases, 
        environmentally challenged generation. I am pleased to report 
        that with the support of the FERC, our members and 
        stakeholders, we are now implementing an economic planning 
        process which proactively identifies new transmission projects, 
        not just to meet reliability requirements, but also to reduce 
        customer congestion costs. This process will provide the 
        critical information that will empower states and customers to 
        build out the grid to meet their economic and reliability 
        needs.
          3. Strengthening the grid helps to meet energy and 
        environmental public policy goals: Both state Renewable 
        Portfolio Standard (RPS) requirements and climate change goals 
        have the potential to significantly add to the need for grid 
        enhancement. For example, the price of carbon allowances will 
        affect the marginal costs and thus the dispatch of different 
        resources and, as a result, change the dominant power flows 
        that have characterized the system to date. By the same token, 
        state RPS and regional greenhouse gas initiatives also work to 
        change the portfolio of what type of generation is built in the 
        future and where it is located.
            The development of renewable energy resources will require 
        significantly more transmission investment than has been made 
        in a long time. Although other technologies are promising, the 
        greatest promise for renewable energy in our region is wind 
        generation. The best opportunity for that development is often 
        off-shore or on mountain passes far from the major load 
        centers. If carbon prices curtail coal generation at the 
        margin, then the sources of generation become even farther away 
        from load centers as we begin to depend on more distant and 
        abundant wind resources, such as those projects being discussed 
        in the Dakotas, Iowa, Wisconsin and Minnesota. Additional 
        transmission, over and above the transmission to serve the 
        projects already in the queue, will be needed to move these 
        more abundant wind resources to load centers in the east.
            As I noted previously, wind is a resource that does not 
        blow steadily at the same rate throughout the day. In the long 
        run, storage technology, including plug-in hybrid electric 
        vehicles (PHEV)s, must be developed to take advantage of these 
        intermittent resources. However, they will be in service long 
        before storage of electricity in large quantities is 
        commercially viable. There will be significant operational 
        challenges that must be understood and overcome to maintain 
        reliability during this time period. Moreover, the best 
        location for storage could well be different and far removed 
        from the best location for wind and other intermittent 
        resources. In short, the transmission grid of the future will 
        need to be even more robust and flexible to handle the 
        variability of wind resources.

    LOOKING FORWARD: GETTING AHEAD OF THE NEXT GENERATION OF ISSUES
 
   For purposes of your deliberations, I would urge this Committee to 
focus on the next generation of issues that will impact the grid and 
make sure that your decisions are informed by the realities of what is 
doable within the timeframes you set. We face the following challenges:

   We face a welcome but difficult task regarding those 
        generation projects proposed for construction to the system. We 
        must complete studies of more than 90,000 MW of new generation, 
        including almost 40,000 MW of wind generation, pending in the 
        queue. The queue process provides reliability evaluations of 
        proposed generation projects.
   Overall demand for electricity continues to climb. The 
        average hourly load in PJM has increased nearly two and a half 
        percent each year from 2005 to 2006 and continues upward. We 
        have seen a jump start to demand response in the region since 
        instituting our new capacity market model but the industry and 
        customers still have a way to go until demand response and 
        energy efficiency can significantly impact the need for more 
        resources to meet this increasing load growth.
   Plug-in hybrid vehicles represent an exciting new 
        opportunity to provide both ancillary services to the grid and 
        utilize the power system assets more efficiently. If done 
        right, plug-in hybrid vehicles can enhance the efficiency of 
        the grid by shifting load to off-peak nighttime hours. On the 
        other hand, if everyone plugs in their car at 5 p.m. and there 
        are no economic incentives or communication and control 
        technology to drive different customer behavior, then we could 
        be worse off.
   The auto industry and the electric industry also must work 
        together to make the future PHEVs deliver on their potential to 
        reduce oil imports, to reduce carbon dioxide and to reduce the 
        cost of transportation.

                  DEVELOPING THE TOOLS FOR THE TOOLBOX

    There are a number of tools which are in various stages of 
development to meet these challenges:

   Smart Grid Deployment.--Deployment of Smart Grid technology, 
        a goal which you adopted in the 2007 Energy PAct (EPACT 2007), 
        will be a significant step forward. One of the main features of 
        the Smart Grid is two-way communication with active 
        participation by customers in controlling energy consumption. 
        This can be done through the development of ``smart'' 
        appliances that are pre-programmed by the consumer to respond 
        to market price and operational signals from the grid operator. 
        Deployment of the Smart Grid can be accelerated through 
        regulatory encouragement at the state level, accelerated 
        depreciation of Smart Grid investment, development of 
        interoperability protocols as you called for in EPACT 2007. 
        Consideration in any carbon legislation should also be given to 
        the development of a pool of allowances for the Smart Grid, 
        similar to what was done to jump start deployment of demand 
        side resources in the 1990 Clean Air Act (CAIR) amendments.
   Phasor Measurement Technology.--We also need to continue 
        research and deployment of phasor technology. In essence, 
        phasor technology allows more granular control of power flows 
        on the grid and more accurate determination of operating limits 
        in real time. PJM is working with our stakeholders and various 
        industry organizations to not only get more phasor measurement 
        units installed in the PJM footprint, but also to determine how 
        best to employ this data. It is very promising--seeing 30 
        samples of data per second versus three-second scan rate of 
        data through the Supervisory Control and Data Acquisition 
        (SCADA) is like comparing an MRI to an x-ray in the medical 
        field.
   Plug-In Hybrid Electric Vehicles.--If successfully deployed, 
        the dividends are substantial. For example, PJM's off-peak 
        market can provide the equivalent cost of gasoline at 60 cents 
        per gallon on most nights as highlighted in the chart below. 
        PJM has joined with the University of Delaware, Pepco Holdings 
        Inc. and its affiliate utilities, AC Propulsion, Comverge Inc. 
        and the Atlantic County Utilities Authority to form the Mid-
        Atlantic Grid Interactive Car (MAGIC) consortium. MAGIC is 
        demonstrating and evaluating vehicle-to-grid (V2G) technology 
        that allows plug-in, battery-operated vehicles to charge from 
        the grid and to discharge their stored power to the grid based 
        on regulation signals from PJM. PJM is participating in a 
        technology and information exchange with automotive and battery 
        manufacturers, energy storage companies and electric utilities 
        to understand the potential business opportunities, value 
        propositions and necessary standards to advance understanding 
        and support for PHEVs to participate in grid markets. We plan 
        to have another demonstration of the state of PHEV technology 
        on the PJM campus this fall. 
        
        
   Regional Planning.--We have a strong regional transmission 
        planning process in PJM, a process that analyzes both economic 
        upgrades, as well as reliability upgrades. We have developed 
        protocols with the Midwest ISO on joint planning and cost 
        allocation. We also have a joint TVA/MISO/PJM reliability 
        coordination agreement which expands that coordination of 
        planning over an even larger area. We are committed to 
        developing the same kind of regional planning arrangements, 
        with appropriate cost allocation, between PJM and New York and 
        other neighbors to recognize that planning of an interconnected 
        grid should not stop at a given regional transmission 
        organization border.
        the role of the policymaker: some recommended principles
    The grid of the future will be impacted by the policy choices you 
make in key areas such as climate change, energy independence and the 
encouragement of plug-in hybrid vehicles and Smart Grid technology. We 
at PJM are not policymakers, but can serve as a resource to this 
Committee and other state and federal policymakers, providing 
independent analysis of the impacts of potential decisions on the 
reliability of the grid and the economics of power supply to investors 
and wholesale consumers. In summary, I would like to leave you with a 
few recommended principles as you deliberate on these issues:

          Focus on what's doable: It is important that we all ensure 
        that adequate transmission infrastructure can be put in place 
        to meet the policy goals that the Congress sets. This does not 
        mean that you should accept the status quo--the industry should 
        be challenged to respond to meet these policy initiatives. But 
        it is important to make sure that any legislation takes into 
        account the need for adequate time, research and development 
        and resources to ensure that the grid can serve that policy 
        goal in a reliable and cost-effective fashion.
          Acknowledge the trade-offs: There have been several notable 
        calls for the adoption of ambitious renewable targets and 
        mandates. However, there is no free lunch--the development of 
        renewable energy resources will require a significant expansion 
        of the grid, as well as a significant increase in needed 
        operating reserves given the intermittent nature of wind and 
        other resources. There are a number of sources of operating 
        reserves, including demand response, but traditional fossil 
        fuel generation will remain one of the key sources in the near 
        future.
          Understand the real-time impacts of policy decisions: We at 
        PJM are in the process of modeling the impact of various 
        climate change scenarios on power flows and system reliability. 
        We are still working through the issues and assumptions in 
        undertaking this exercise. I urge you to be open to such 
        information from the PJM region and other regions so that you 
        have full, unbiased resources available to you as you weigh 
        these difficult policy choices. At the end of the day, Ohm's 
        and Kirkoff's laws of physics will govern the grid. It is 
        vitally important that we build transmission and have a robust 
        grid to protect our economy . . . to serve our customers. We 
        will be glad to model the impacts of policy changes and provide 
        information to this committee.
          Look forward not backwards: We are continuing to work with 
        our states and stakeholders on difficult issues such as cost 
        allocation and state siting of large interstate projects. We've 
        worked with this Committee to ensure that heritage area and 
        other land-use priorities are respected but also compatible 
        with the region's infrastructure needs. But in the transmission 
        area, it is easy to endlessly replow old ground on issues where 
        consensus has Energy and Natural Resources Committee proven 
        elusive. I have personally pledged to work with our states, 
        stakeholders and the FERC on these issues. But from a 
        legislative viewpoint, I would urge focus on the next 
        generation of issues outlined above since, if left unaddressed, 
        they could rapidly overwhelm the traditional issues that this 
        industry has concentrated on in years past. We need a new focus 
        for energy adequacy for the future.

    We can debate all day whether the solution is supply-side or 
demand-side, but as oilman T. Boone Pickens said last week, ``we cannot 
drill our way out of this problem'' nor, I might add, can we save our 
way out of our energy adequacy problem. We must work on both the 
supply-side and the demand-side of the problem.
    The societal cost is estimated at $6 billion per day for the August 
14, 2003 blackout. It is vitally important we build transmission and 
have a robust grid to protect our economy . . . to serve our customers 
. . . to provide the innovation and efficiency that power markets bring 
to the nation. But we also must recognize that without reliability, we 
shut down our economy . . . without reliability, we jeopardize our 
customers livelihood and sometimes even their . . . lives and without 
reliability, there can be no markets, electricity or otherwise.
    Following the New York blackout of 1965, this nation and this 
industry came together and built transmission that made the electric 
reliability in the U.S. the envy of the world from the mid 1970s 
through the mid 1990s. We must work together once again to control our 
own destiny on energy adequacy and reliability.
    Finally, let me extend an invitation to each of you and your staff 
to visit PJM, see the control room and observe how we manage this very 
large 13-state grid minute-by-minute, hour-by-hour on a 24/7 basis.
    I thank you for this opportunity to testify and look forward to 
your questions.

    The Chairman. Thank you very much.
    Mr. Whitley.

STATEMENT OF COLIN WHITLEY, REPRESENTING AMERICAN PUBLIC POWER 
                    ASSOCIATION, WICHITA, KS

    Mr. Whitley. Thank you, Mr. Chairman. APPA appreciates the 
opportunity to testify this morning about the state of electric 
transmission in the U.S. I'm Colin Whitley, CEO and general 
manager of the Kansas Power Pool. I serve on APPA's Board of 
Directors and I'm testifying on behalf of APPA.
    APPA represents the interest of more than 2,000 publicly 
owned electric utility systems across the country serving 
approximately 45 million Americans. The Kansas Power Pool 
consists of 42 cities in Kansas. The largest, who have 
populations of just over 10,000 people, while the smallest has 
a population of roughly 150.
    KPP supplies full requirement electric service to cities 
located within service territories of three different 
transmission owning electric utilities, all within the State of 
Kansas. KPP's total load of the RTO, known as the Southwest 
Power Pool is roughly 380 megawatts. The great majority of 
APPA's members, including the members of KPP are transmission 
dependent. This means that they must pay third parties for 
access to their bulk transmission systems to deliver their 
electricity to retail customers.
    There are however, a number of public power systems that 
own significant transmission facilities. Because the EIA 
stopped collecting transmission data from public power, from 
cooperatives and Federal utilities in recent years, 2003 data 
are the latest complete statistics available, based on that 
APPA estimates, 110 public power utilities or approximately 8 
percent of the Nation's transmission lines of 138kv or greater.
    Data collected for use in NERC's 2007 long term reliability 
assessment show that public power utilities account for about 
10 percent of the proposed new transmission lines, 230kv or 
greater for the years 2007 through 2016. There are a number of 
transmission related issues that are significant enough to 
merit their own hearings, RTO runs, centralized wholesale buyer 
markets, FERC's policy on transmission rate incentives, the 
Federal siting process to name a few. APPA urges the committee 
to hold such hearings.
    The bottom line is that the major impediment to getting new 
transmission built continues to be siting. I urge Congress to 
continue to support the Federal backstop siting authority 
included in EPACT 2005 and to support DOE and FERC as they 
implement this authority.
    Because of local and State opposition deciding transmission 
line as many industry participants as possible should be 
included in the regional transmission planning. Congress should 
encourage joint ownership of transmission facilities by public 
power systems and should eliminate financial barriers to such 
ownership like the private use restrictions for tax exempt 
financing. In addition existing transmission should be upgraded 
and maintained based on the requirement to serve load as 
opposed to the availability of incentives.
    Finally while RTOs have helped improve reasonable 
transmission system operations and planning their emphasis on 
developing and operating supply markets has distracted them 
from the core transmission functions. Other transmission 
planning models exist like the Columbia Grid and the Pacific 
Northwest that can provide similar operational benefits at less 
cost.
    I want to emphasize the following points in my testimony.
    First, transmission investment is needed. EPACT 2005 siting 
authorities are a major step forward and should be supported 
and protected from repeal. If new electric generation 
resources, especially renewables, are going to be brought to 
the market to meet increasing demand and to address climate 
concerns, substantial new transmission facilities are going to 
be needed.
    Some in the industry have quipped, ``If you're going to 
love renewables, you can't hate transmission.''
    Second point is RTOs have added cost but haven't to date 
fulfilled their promise of producing significant investments in 
transmission. APPA and its members have long expressed their 
disappointment with the current ``Day 2'' RTOs, primarily the 
high prices produced by the centralized markets. APPA does 
recognize RTOs have positive features such as administration of 
regional open access or non discriminary open access taxes, 
elimination of pancake transmission rates, strengthening of 
reasonable transmission planning processes.
    But these substantial accomplishments have been 
overshadowed by the cost of problems created by the centralized 
markets. APPA is concerned that the operation of these markets 
has distracted RTOs attention away from their core mission of 
ensuring adequate investment in the regional transmission 
system. RTOs in the past relied too much on the use of price 
signals such as locational pricing to achieve needed 
transmission investment.
    There's no real disagreement that the use of such pricings 
shows where the transmission facilities are needed rather the 
dispute has been over whether these price signals actually 
resulted in transmission investment where it is needed. 
Research shows that it does not.
    The third point is incentive ratings for investor owned 
utilities are being overused as a tool to entice new 
transmission investment. EPACT 2005 required FERC to establish 
incentive base rate treatments for transmission of by investor 
owned utilities. The purpose of the incentive is to ensure 
reliability and reduce cost of delivered power by reducing 
transmission congestion.
    But we believe when FERC implemented these incentives they 
actually offered a smorgasbord of different transmission rate 
incentives and currently that has become the focus of 
transmission owners rather than the need to build transmission.
    The fourth and the fifth points are reasonable transmission 
planning and cost allocation strategies are essential to 
getting more transmission built. Joint ownership, we believe, 
will spur additional transmission investment removing limits on 
the use of tax exempt financing is necessary to get more public 
power owned transmission built.
    Finally I just want to thank you for the opportunity to 
testify before your committee. We need to resolve these 
important transmission related issues if we're to meet the 
Nation's ongoing challenges. I'd be happy to answer any 
questions you might have.
    [The prepared statement of Mr. Whitley follows:]

Prepared Statement of Colin Whitley, Representing American Public Power 
                        Association, Wichita, KS

    APPA appreciates the opportunity to provide the following testimony 
for the Senate Energy and Natural Resources Committee's hearing to 
``examine the state of the nation's transmission grid, as well as the 
implementation of the 2005 Energy Policy Act transmission provisions, 
including reliability, siting and infrastructure investment.'' I am 
Colin Whitley, CEO and General Manager of the Kansas Power Pool. I 
serve on APPA's Board of Directors, and will testify on behalf of APPA.
    APPA represents the interests of more than 2,000 publicly-owned 
electric utility systems across the country, serving approximately 45 
million Americans. APPA member utilities include state public power 
agencies and municipal electric utilities that serve some of the 
nation's largest cities. However, the vast majority of these publicly-
owned electric utilities serve small and medium-sized communities in 49 
states, all but Hawaii. In fact, 70 percent of our member systems serve 
communities with populations of 10,000 people or less.
    The Kansas Power Pool consists of 42 cities in Kansas--the largest 
two have populations of just over 10,000 people, while the smallest has 
a population of roughly 150. One of our members, the City of Winfield, 
currently provides full utility service (including electric and natural 
gas) to Rubbermaid and the largest ``under roof'' facility Rubbermaid 
owns. Winfield is also renowned for the Walnut Valley Blue Grass 
Festival that attracts tourists nationwide. Another member city, 
Greensburg, KS, is home to the world's largest hand dug well, and also 
experienced significant devastation from a tornado in 2007. KPP's 
challenge today is to help the City of Greensburg achieve their goal of 
100% renewable resources supplying their future electrical needs. KPP 
applauds Greensburg's goal, and public power in Kansas will continue to 
support and expand delivery of electricity from renewable resources, 
including federal hydropower.
    The Kansas Power Pool supplies full requirement electric service to 
cities located within two control areas and transmission systems owned 
by three entities, all within the State of Kansas. KPP's total load in 
the Regional Transmission Organization (RTO) known as the Southwest 
Power Pool (SPP) is roughly 380 megawatts (MWs). This is small in 
comparison to the total SPP load, however in the State of Kansas, 
public power serves approximately 18 percent of the total load. Kansas 
is a small state, population-wise; however we have provided and will 
continue to provide a significant amount of the nation's energy supply, 
including electricity from renewables.
    Overall, public power systems' primary purpose is to provide 
reliable, efficient service to their local customers at the lowest 
possible cost, consistent with good environmental stewardship. Like 
hospitals, public schools, police and fire departments, and publicly-
owned water and waste-water utilities, public power systems are locally 
created governmental institutions that address a basic community need: 
they operate on a not-for-profit basis to provide an essential public 
service, reliably and efficiently, at a reasonable price.
    While the majority of KPP's members own and operate electric 
generating facilities, these generators are similar to the backup 
generators owned and operated by hospitals, public schools, etc. They 
own and operate them because of the need to ``keep the lights on.'' All 
of this generation is either fueled by natural gas or diesel. These 
same cities have depended on the regional transmission system to supply 
the lowest cost service, but due to the lack of transmission 
maintenance, upgrades and expansions, the back-up units mentioned above 
have been used as a reason to either delay or negate long-needed 
transmission improvements.
    The great majority of APPA's members, including the members of the 
KPP, are ``transmission dependent,'' meaning that they must pay third 
parties for access to the bulk transmission system in order to acquire 
electricity from power plants for distribution to their retail 
customers. There are, however, a number of public power systems that 
own a significant amount of bulk transmission facilities--including the 
Los Angeles Department of Water and Power (LADWP) and Nebraska Public 
Power District, among others.
    Because the Energy Information Administration (EIA) stopped 
collecting transmission data from public power, cooperative and federal 
utilities in recent years, 2003 data are the latest comprehensive 
statistics available by utility. Based on the 2003 data, APPA estimates 
that approximately 110 public power utilities own approximately eight 
percent of the nation's transmission lines of 138 kilovolts (kV) or 
greater. The North American Electric Reliability Corporation (NERC) 
collects information each year on planned transmission additions of 230 
kV or greater. Data collected for use in NERC's 2007 Long-Term 
Reliability Assessment show that public power utilities account for 
about 10 percent of the proposed new transmission miles for the years 
2007-2016.
    Because of EIA's decision to discontinue collecting data from the 
entire electric utility industry, the only up-to-date comprehensive 
information on existing transmission investment and ownership is NERC's 
data on total transmission miles of lines 230 kV or greater summarized 
by NERC regions and sub-regions. Other information sources only cover 
part of the industry (for example, the Federal Energy Regulatory 
Commission's (FERC) Form 1 transmission data covers only FERC-regulated 
``public utilities,'' primarily investor-owned utilities--not publicly-
owned and operated electric utilities collectively known as public 
power systems) or are published in inconsistent formats (for example, 
RTO or company announcements of billions of dollars in planned 
investments over a several year period). Consistent, industry-wide data 
would be very useful in assessing actual progress in getting needed new 
transmission facilities built.
    As will be evident from the testimony below, there are a number of 
issues encompassed by the broad topic of ``transmission'' that are 
significant enough to merit their own hearings--RTO-run centralized 
wholesale power markets, and the new federal backstop siting process 
for transmission, to name only two--and APPA would urge the committee 
to consider holding such hearings.
    APPA was also asked to discuss the implementation of transmission-
related provisions in the Energy Policy Act of 2005 (EPAct05). In 
relation to EPAct05 implementation, therefore, our testimony below 
focuses on: the FERC back-stop transmission siting authority and the 
related Department of Energy (DOE) process for designating National 
Interest Electric Transmission Corridors (NIETC); transmission rate 
incentives for FERC regulated public utilities; mandatory reliability 
standards; and transmission facilities cost allocation.

                   TRANSMISSION INVESTMENT IS NEEDED

    It is widely recognized that our current transmission system is 
insufficient and, in many regions, highly constrained. The weaknesses 
of the transmission grid not only threaten reliability, they undermine 
the ability of all types of generation, including renewable generation, 
to be developed and brought to market. Well-planned transmission 
improvements can increase the overall efficiency and reliability of the 
system. While improvements could increase the transmission rate paid by 
an end-user, the same end-user would benefit from increased 
reliability. Since generation and transmission are interdependent, the 
end-user could also benefit from lower-priced generation that would be 
made available with additional transmission access. As mentioned above, 
the ability of KPP cities' to use their local high cost diesel and 
natural gas generation is a reason that has been cited by transmission 
owners for not building needed transmission facilities. Currently, KPP 
member cities are generating only to maintain voltage or as a result of 
restrictions on the transmission system. Decisions to separate 
generation from transmission to develop a wholesale electric power 
market in the SPP have added to the problem of underinvestment in 
transmission improvements in the past few decades.
    Historically, the challenges to improving the transmission grid 
have been obtaining rights-of way, environmental and land use concerns 
about where the transmission lines are sited, and the sheer complexity 
of state and local siting procedures. While these challenges still 
exist, one major positive development has occurred in recent years--the 
enactment of federal ``back-stop'' siting authority for transmission 
lines. As the Committee well knows, this authority was granted in the 
Energy Policy Act of 2005 (EPAct05) in Section 1221, which added new 
Section 216 to the Federal Power Act (FPA). This section sets up a 
process under which: 1) DOE designates certain corridors where 
transmission is highly constrained or congested as NIETCs; 2) FERC can 
grant siting and construction permits employing federal eminent domain 
authority for transmission facilities in these NIETCs if, after a 
certain period passes, state authorities have withheld approval of such 
proposed transmission facilities, a state does not have the authority 
to approve the siting of such facilities or to consider the interstate 
benefits, or the applicant is a transmitting utility that does not 
serve end-use customers in the state where the project is proposed. 
FERC must take certain issues into consideration when using its 
backstop siting authority. It must find that the proposed facilities 
will: significantly reduce transmission congestion in interstate 
commerce; protect or benefit consumers; are consistent with the public 
interest; and enhance energy independence. The proposed construction or 
modification must also be consistent with sound national energy policy.
    DOE has now completed its first proceeding designating NIETCs, and 
FERC has finalized its backstop transmission siting regulations. Both 
DOE and FERC, however, are now embroiled in litigation with states, 
environmental groups, and landowner groups seeking to overturn their 
determinations and regulations. APPA is an intervenor in these legal 
proceedings, and is generally supporting DOE's and FERC's efforts to 
implement their legal authorities. The first request to FERC by a 
transmission owner (TO) to initiate a prefiling process (a precondition 
to seeking backstop siting authority) was filed in May, and it already 
appears that this proceeding will also be very contentious. APPA 
believes that the thoughtful use of DOE's and FERC's NIETC and backstop 
siting authorities will improve the bulk transmission grid over time. 
APPA is concerned that lengthy litigation will discourage DOE and FERC 
from using their statutory authorities as Congress intended. APPA is 
also disheartened that some in Congress have sought to repeal these 
authorities, but is encouraged that they have not been successful to 
date.
    If new electric generation resources, especially renewable 
resources, are going to be brought to market to meet increasing demand 
and to address climate-related concerns, substantial new transmission 
facilities are going to be required. Both the public and Congress must 
understand the need to balance the concerns of states, landowners and 
other groups opposing specific transmission projects against the larger 
public good. As some in the industry have quipped, ``if you are going 
to love renewables, you can't hate transmission.''
    While ``congestion'' may be the politically correct term to 
describe the need for transmission upgrades, at least in Kansas it 
provides little relief for the problems that we face. Even if these 
``congested'' transmission issues are corrected, they only provide 
partial benefits to the municipals in Kansas. The highest transmission 
voltage tied to any of our members is 69 kV. Building new 345 kV (or 
higher) voltage lines in Kansas will do little to solve the local 
delivery problems where the actual transmission service to KPP is at 
lower voltages, and no upgrades have been made to these facilities in 
decades. As I discuss below, even an offer by KPP members to help fund 
such upgrades, in return for joint transmission ownership rights, has 
not been sufficient to spur the construction of these needed lower-
voltage upgrades.

REGIONAL TRANSMISSION ORGANIZATIONS (RTOS) HAVE NOT SIGNIFICANTLY AIDED 
                      IN INFRASTRUCTURE INVESTMENT

    APPA and its members have long expressed their disappointment with 
the current ``Day 2'' RTOs, primarily the energy, ancillary services 
and locational capacity markets operated by these RTOs. While much of 
the attention on these markets has focused on high prices, other 
features of these markets adversely impact transmission expansion, as I 
discuss below.
    While expressing strong concerns with the centralized RTO-run ``Day 
2'' wholesale power supply markets, APPA does recognize that RTOs 
provide services that have substantial value. Such positive features 
include: administration of regional open access transmission tariffs 
(OATTs) on a non-discriminatory basis; elimination of pancaked 
transmission rates (allowing transactions to take place over a broader 
geographic area); and strengthening of regional transmission planning 
processes. But these substantial accomplishments have been overshadowed 
by the costs and problems created by the centralized day-ahead and 
real-time spot markets for energy, ancillary services, and capacity.
    APPA is concerned that the operation of such highly complex markets 
has distracted the RTOs' attention away from their core mission of 
ensuring adequate investment in the regional transmission system. RTOs 
have instead largely relied on the use of ``price signals,'' such as 
locational pricing, to achieve needed transmission investment. A 
central element of RTO-operated energy markets is ``locational marginal 
pricing'' (LMP), under which electricity prices set in the RTO's spot 
markets vary by system location. When demand for use of specific 
transmission facilities exceeds those facilities' physical capacity to 
move power (known as ``congestion''), it is not possible for 
electricity to reach every part of the system at the lowest overall 
cost. In the constrained portion of the grid, prices rise when only 
higher cost generators are able to deliver electricity to the customer, 
even if generators offering lower prices exist elsewhere in the RTO's 
footprint.
    Advocates of LMP, including the RTOs and FERC itself, argue that 
the higher costs charged when congestion occurs on the transmission 
system provide ``price signals'' to market participants to fund the 
construction of new generation and transmission facilities to alleviate 
transmission congestion. FERC stated over 10 years ago that LMP would 
``send price signals that are likely to encourage efficient location of 
new generating resources, dispatch of new and existing generating 
resources, and expansion of the transmission system.''\1\ (Emphasis 
added.)
---------------------------------------------------------------------------
    \1\ In its original November 25, 1997 order accepting the PJM 
Interconnection's (PJM) filing to restructure the PJM Pool to implement 
LMP, the Commission found: ``We believe that the LMP model will promote 
efficient trading and be compatible with competitive market mechanisms. 
In this regard, we find that the LMP approach will reflect the 
opportunity costs of using congested paths, encourage efficient use of 
the transmission system, and facilitate the development of competitive 
electricity markets. By pricing the use of constrained transmission 
capacity on the basis of opportunity costs, the proposal will also send 
price signals that are likely to encourage efficient location of new 
generating resources, dispatch of new and existing generating 
resources, and expansion of the transmission system.'' Pennsylvania-New 
Jersey-Maryland Interconnection, , 81 FERC  61,257 (1997) at p. 81, on 
rehearing, 92 FERC  61,282 (2000), vacated and remanded on other 
grounds, Atlantic City Electric Co., et al. v. FERC, 295 F. 3d 1 
(D.C.Cir. 2002), on remand, 101 FERC  61,138 (2002), on rehearing, 103 
FERC  61,170 (2003), on petitioners' petition to enforce mandate, 
Atlantic City Electric Co., et al. v. FERC, D.C.Cir. No. 97-1097 (May 
20,2003)
---------------------------------------------------------------------------
    To test this theory, Synapse Energy Economics, as part of a 2007 
study of LMP, examined at APPA's request, price trends and planned 
electricity infrastructure projects in the PJM Interconnection, a large 
RTO. Synapse found that the areas where LMP prices are the highest do 
not correspond to the areas of greatest spending on new generation and 
transmission facilities. The study concluded that there is no evidence 
that LMP has induced substantial investment in generation and 
transmission.\2\
---------------------------------------------------------------------------
    \2\ LMP Electricity Markets: Market Operations, Market Power, and 
Value for Consumers, Ezra Hausman, Robert Fagan, David White, Kenji 
Takahashi, and Alice Napoleon, Synapse Energy Economics, February 2007, 
at 17-33, available at http://appanet.org/files/PDFs/
SynapseLMPElectricityMarkets013107.pdf.
---------------------------------------------------------------------------
    The LMP system can in fact create financial incentives that 
interfere with the building of otherwise-needed new transmission 
capacity. Entities that own both transmission and generation facilities 
may have financial disincentives to construct or expand transmission to 
remediate congestion. The higher-priced generation located within 
constrained areas of the grid benefits financially by being dispatched 
at higher ``out-of-merit'' prices when lower-priced generators cannot 
deliver power because of transmission system limitations. In this 
scenario, the construction of transmission of facilities to relieve 
this transmission congestion would reduce the profits of the generation 
units located in the constrained areas. If both the transmission and 
generation facilities are owned by the same corporate entity (or 
different affiliates of the same corporate family) the disincentives to 
construct new transmission facilities are clear.
    The RTOs themselves make the claim that the markets produce 
``accurate price signals that reflect the value of electricity across 
time and place, revealing both resource scarcity and transmission 
congestion.''\3\ There is no real disagreement that the use of LMPs 
``reveals'' transmission congestion; rather, the dispute is over 
whether the use of LMP has actually spurred substantial new 
transmission facilities investments. When discussing actual 
transmission investments in their regions, RTOs attribute such 
investments to the success of their regional transmission planning 
processes\4\--processes that are not necessarily connected to or 
reliant on the LMP-based markets.
---------------------------------------------------------------------------
    \3\ Progress of Organized Wholesale Electricity Markets in North 
America, ISO/RTO Council, October 16, 2007, p. 4, http://
www.isorto.org/atf/cf/%7B5B4E85C6-7EAC40A08DC3003829518EBD%7D/
IRC_State_of_the_Markets_Report_103007.pdf
    \4\ ISO/RTO Council, October 16, 2007, section beginning on p. 5 
titled ``Regional System Planning Processes Are Producing Much-Needed 
Transmission Upgrades''
---------------------------------------------------------------------------
    Another claim regarding the benefits of LMP pricing for 
transmission congestion, recently made by the Compete Coalition, is 
that ''[a]ccurate and transparent price signals allow for better 
forecasting, thereby removing some of the uncertainties associated with 
investments in generation and transmission.''\5\ But pricing 
differentials produced in hourly spot markets, given their short-term 
nature and substantial volatility over time, are not necessarily the 
best guide to making very long-lived capital investments in 
transmission and generation. Other factors, including the regional mix 
of generation, estimated growth in demands, state renewable portfolio 
standards and utility resource plans, provide a better foundation for 
long-term investments.
---------------------------------------------------------------------------
    \5\ The Value of Competition and Markets, The Compete Coalition, 
May 21, 2008, http://www.competecoalition.com/files/
Value%20of%20Competition.pdf
---------------------------------------------------------------------------
    Market participants in certain regions without Day 2 RTO markets 
have implemented innovative regional approaches to transmission system 
management and planning. An example of a promising approach is the 
ColumbiaGrid in the Northwestern United States. This is a not-for-
profit membership corporation formed in 2006. ColumbiaGrid does not own 
transmission; its members and the parties to its agreements own and 
operate an extensive network of transmission facilities. ColumbiaGrid 
provides single-utility based transmission planning for the combined 
network of its participating utilities.\6\ In April 2007, FERC accepted 
ColumbiaGrid's proposal to coordinate transmission planning and 
expansion in the Pacific Northwest.\7\ While different models may be 
appropriate for different regions, new initiatives such as ColumbiaGrid 
demonstrate that there are effective and consumer-friendly alternatives 
to the use of RTO-based market regimes to manage regional grids.
---------------------------------------------------------------------------
    \6\ For more information on Columbia Grid, see www.columbiagrid.org
    \7\ http://www.ferc.gov/news/news-releases/2007/2007-1/04-03-
07.asp#skipnavsub
---------------------------------------------------------------------------
    APPA has advocated that FERC place a moratorium on the 
establishment of any new Day 2 RTOs and on the establishment of new 
RTO-run markets for additional products and services within existing 
RTOs, unless accompanied by a demonstration of net benefits to 
consumers from those new markets. APPA also recommends that the current 
Day 2 RTOs be restructured to focus more on transmission and 
reliability and less on the operation of markets. APPA believes that 
electricity should be bought and sold primarily through bilateral 
contracts, with spot markets being used primarily for balancing and 
optimization functions. Deemphasizing the operation of complex markets 
would allow RTOs to focus on their core transmission functions, 
including independent and collaborative regional transmission and 
generation interconnection facilities planning. Such planning should 
involve affected stakeholders, including state authorities, thus 
building the regional support required to get siting authority for 
needed new transmission facilities and upgrades.
    The Kansas Power Pool originally applied for network integration 
transmission service (NITS) from SPP in January of 2005. Roughly $50 
million of transmission upgrades were identified at that time before 
this transmission service could be provided. As of this writing, none 
of this needed transmission has been constructed, or is being 
constructed. The odd part to all of this is that several of our members 
have NITS. These are SPP NITS agreements, with no transmission upgrades 
needed based upon the municipal generation behind the meter being 
included as resources for that city. Again, this highlights the problem 
of existing TOs treating public power utilities as something other than 
transmission dependent utilities. In this instance, the public power 
system is billed for transmission service that, in fact, is not 
provided except on an ``as available'' basis.
    However, during this same time, SPP developed and implemented an 
energy imbalance market. It is odd that within an RTO, even with the 
implementation of the stakeholder process, and the separation of 
generation and transmission, the regional transmission organization 
operates more as a regional market organization. While I personally 
believe ``markets'' for electric energy are impractical, they certainly 
are unattainable without adequate transmission.

   TRANSMISSION INCENTIVES ARE BEING OVER-USED AS A TOOL TO SPUR NEW 
                        TRANSMISSION INVESTMENT

    New Section 219 of the FPA was added by Section 1241 of EPAct05. 
Section 219(a) required FERC to establish by rule incentive-based rate 
treatments for the transmission of electric energy in interstate 
commerce by FERC-regulated ``public utilities'' (this is a defined term 
under the FPA and generally covers investor-owned utilities, not 
publicly owned and operated public power systems). The purpose of the 
incentives is to ensure reliability and reduce the cost of delivered 
power by reducing transmission congestion. Section 219(d), however, 
made clear that these incentive rate treatments were to be subject to 
the requirements of FPA Sections 205 and 206 that rates be just, 
reasonable, and not unduly discriminatory.
    FERC in its Order Nos. 679 and 679-A\8\ fulfilled its statutory 
requirement to issue a rule regarding incentive-based rate treatments 
for public utility-owned transmission facilities. In so doing, however, 
it seemed to regard Section 219 as a statutory requirement to offer a 
smorgasbord of transmission rate incentives to public utility TOs, 
including rate of return on equity (ROE) adders, recovery of 
construction work in progress (CWIP), hypothetical capital structures, 
accelerated depreciation, and recovery of abandoned facilities costs. 
Despite the strong concerns expressed by APPA and other consumer-side 
interests regarding the potential adverse cumulative impact on 
consumers of offering all of these incentives, the Commission brushed 
aside such considerations, saying that an applicant would be required 
to demonstrate that the total package of incentives it sought were 
tailored to address the demonstrable risks faced by the applicant in 
undertaking the project.
---------------------------------------------------------------------------
    \8\ Promoting Transmission Investment through Pricing Reform, Order 
No. 679, 71 Fed. Reg. 43,294 (July 31, 2006), FERC Stats. and Regs.  
31,222 (2006); Order No. 679-A, 72 Fed. Reg. 1152 (January 10, 2007), 
FERC Stats. and Regs. 31, 236 (2007); Order on Rehearing, 119 FERC  
61,062 (2007).
---------------------------------------------------------------------------
    Unfortunately, it appears that public utility TOs are helping 
themselves to the incentives smorgasbord, and that the Commission has 
not taken a sufficiently-disciplined approach to awarding transmission 
rate incentives. In fact, two of the five current FERC Commissioners, 
Suedeen Kelly and Jon Wellinghoff, have issued a series of strong 
dissents to Commission orders granting transmission rate incentives for 
various transmission projects.\9\ In one of her dissents, Commissioner 
Kelly stated:
---------------------------------------------------------------------------
    \9\ See, for example, Baltimore Gas and Electric Co., 121 FERC  
61,167 (2007); PPL Electric Utilities Corporation, et al.,123 FERC  
61,068 (2008); Bangor Hydro-Electric Co., et al., 122 FERC  61,265 
(2008)

          Incentives are to be made available to those special projects 
        that face the types of unique or excessive risks or challenges 
        that incentives can address. [Footnote omitted.] If we award 
        incentives to projects indiscriminately, i.e. to projects that 
        do not face unique or excessive risks or challenges, then 
        ``incentive ratemaking'' just becomes the ``new, normal'' rate 
        recovery. I believe this would be unjust and unreasonable 
        because it would result in transmission customers having to pay 
        a premium for the type of service they would, and should, get 
        for their normal rates. Also it would ultimately destroy the 
        purpose of incentives, which is to provide a special spur to 
        bring about change that would likely not occur without 
        them.[\10\]
---------------------------------------------------------------------------
    \10\ Commonwealth Edison Co., et al., 122 FERC  61,037 (2008), 
Kelly dissent at 1.

    APPA believes that Commissioner Kelly has pinpointed the problem 
with the Commission's current approach to granting transmission rate 
incentives. Transmission rate incentives are becoming the ``new 
normal'' standard for transmission ratemaking at the Commission. She 
and Commissioner Wellinghoff should be commended for drawing attention 
to this problem, and this Committee should investigate FERC's 
ratemaking practices in this area.
    The federal government should consider the use of incentives when 
they would spur construction of facilities that will substantially 
enhance reliability or provide broad access to more economical power 
supplies not currently available to the market. If lower cost energy is 
not available on the regional grid, then the government should incent 
the construction of those facilities that would make that energy 
broadly available to end users. Regional assessments of needed new 
transmission facilities should consider both higher and lower voltage 
transmission requirements to ensure that reliable and economic power 
supplies in fact reach retail consumers.

     PROPOSALS TO MANDATE A LIMITATION ON THE TYPES OF ELECTRICITY 
GENERATION TO BE CARRIED OVER TRANSMISSION LINES FAIL TO RECOGNIZE THE 
 INTEGRATED NATURE OF THE GRID AND THE URGENT NECESSITY FOR ADDITIONAL 
            TRANSMISSION TO SUPPORT ALL TYPES OF GENERATION

    Until most non-hydropower renewable energy can be used reliably at 
anytime (as opposed to intermittently when the wind blows or the sun 
shines), base-load generating plants like those powered by large-scale 
hydropower, natural gas, nuclear energy, and coal must be used to 
produce electricity and to ``firm up'' the renewable resource. As the 
CEO of the North American Electric Reliability Corporation (NERC) 
recently remarked, renewables ``need a dance partner.''\11\ With that 
in mind, legislative initiatives that would mandate 75 percent 
renewable usage for a given bulk transmission line are not feasible 
from an operational or reliability standpoint. Furthermore, once these 
lines interconnect to the rest of the grid, such a requirement would be 
extremely hard to enforce. The laws of physics are such that electrons 
will flow where they will. Subsequent high voltage additions could well 
change transmission system configurations substantially, causing 
changed power flows--some of which would be non-renewable--that even 
the engineers did not anticipate in advance.
---------------------------------------------------------------------------
    \11\ Electric Utility Week, July 28, 2008 edition at 13 (reporting 
on Rick Sergel's July 20, 2008 presentation to the Collaborative of the 
National Association of Regulatory Utility Commissioners and FERC on 
Demand Response).
---------------------------------------------------------------------------
    In addition, the variability of generation availability and 
transmission assets from region to region dictates the need for 
regional, rather than national, solutions. Even the federal back-stop 
siting authority that APPA strongly supports as delineated above 
envisions extensive state and regional consideration before the federal 
government steps in using its backstop authority. Many of the witnesses 
at the hearing held by the Committee on this topic in June, including 
Steve Wright of Bonneville Power Administration (BPA), Rich Halvey of 
the Western Governors Association, and Bryce Freeman of the Wyoming 
Infrastructure Authority, provided excellent examples of significant 
initiatives to access renewable energy at the state and regional 
levels. APPA members have participated in and will continue to 
participate in the types of initiatives discussed by these witnesses, 
as well as others initiated by public power entities.
    APPA has strong concerns about congressional mandates to build 
transmission to support only certain types of generation sources when 
the focus should instead be on getting transmission built, period. We 
are especially concerned about imposing mandates on the federal 
transmitting entities, like BPA, the Western Area Power Administration, 
and the Southwestern Power Administration, as their 70 year mission and 
contractual obligation to their customers is to market federal 
hydropower--a mission that is difficult enough to perform on its own.

 REGIONAL PLANNING AND APPROPRIATE REGIONAL COST ALLOCATION STRATEGIES 
            ARE ESSENTIAL TO GETTING MORE TRANSMISSION BUILT

    As I have already discussed, transmission improvements will be made 
where there is the greatest benefit to the regional system as a whole. 
Because of the physical properties of electricity, an improvement at 
one point in the regional system can increase (or decrease) system 
efficiency in a different part of the region. Historically, utilities 
have made transmission-building decisions based on where the greatest 
benefits would occur, and these decisions typically have been made in 
consultation with other regional utilities. This is doubly true because 
of the substantial political and policy barriers to transmission 
siting. Successful regional planning has occurred throughout the 
country, but not at the pace or volume necessary to meet demand for 
electricity while maintaining high reliability.
    Regional planning and support from a broad array of stakeholders is 
equally important to siting transmission to renewable facilities as it 
is to traditional base-load power plants. The major difference between 
base-load power plants and some renewable generation facilities is that 
often renewable facilities, like wind projects, for example, must be 
sited remotely from population centers because that is where the 
resource is located. Hence, an added challenge to siting transmission 
lines to most renewable facilities is the length of the lines and the 
remoteness of the locations. Public power systems, like LADWP, have 
taken a lead role in promoting transmission projects to renewable 
facilities. Two LADWP transmission projects are in the planning phases 
that will enable southern California to access thousands of megawatts 
of new renewable generation capacity. One of these projects is a joint 
ownership arrangement as noted below:

          (1) Barren Ridge Renewable Transmission Project: This project 
        consists of construction of new 60 mile double-circuit 230 kV 
        from a newly constructed Barren Ridge substation to the 
        proposed new Haskell substation. The project also includes 
        reconductoring existing 230 kV line. This project will allow 
        access to over 1200 MW of wind and solar generation resources 
        in the Tehachapi and the high desert near Mohave. The project 
        is in the environmental and permitting process and the first 
        phase of the project is expected to be in-service in 2012.
          (2) Green Path North Project: This project consists of the 
        development of an approximately 100 mile high voltage 
        transmission line for the Coachella Valley area to the Hesperia 
        area in Southern California. The transmission system will be 
        interconnected to the Imperial Irrigation District (a public 
        power system), LADWP, and Southern California Edison (an 
        investor-owned utility). The purpose of the project is to 
        provide access to the vast geothermal and solar resource 
        potentials in the Imperial Valley. Development work including 
        preliminary engineering and environmental studies are underway. 
        Depending on various factors, the project is expected to be in-
        service by 2013.

    The manner in which transmission facilities costs are allocated 
among generators, transmission owners, transmission dependent utilities 
and other stakeholders should also be determined at the regional level. 
APPA, along with numerous other electricity stakeholders, strongly 
supported the language included in Section 1242 of EPAct05 that 
underscores FERC's flexibility in determining the appropriate 
transmission pricing methodology, and does not impose the one-size-
fits-all mandate that was considered during the lead-up to passage of 
the bill. While APPA does not always agree with the decisions made by 
FERC on transmission cost allocation issues, we continue to believe 
that Congress had it right in leaving these decisions, with appropriate 
stakeholder input, to FERC.
    A number of regions have made substantial steps forward in 
determining regional transmission cost allocations that will support 
new transmission construction. For example, in SPP, the SPP stakeholder 
process has identified the need to support transmission facilities that 
provide economic benefits to its members. The emergence of wind power 
in the Great Plains has spurred the need for significant upgrades of 
the transmission network in order to move this wind energy to market. 
As a result, a recommendation is being considered by SPP's Board of 
Directors to socialize the costs of all transmission above 230 kV in 
its footprint. In addition, a ``Balanced Portfolio,'' described as 
upgrades that in combination provide equal benefits to costs incurred, 
is being developed for implementation by SPP. These facilities will 
target getting renewable resources to market as well as providing the 
means to move the most economical energy to the end users.

         JOINT OWNERSHIP WOULD IMPROVE TRANSMISSION INVESTMENT

    Encouraging proportional joint ownership of transmission facilities 
by those load-serving entities, including public power utilities, 
providing electric service in a given region is another way to get more 
transmission built. If the responsibility for building and owning the 
transmission grid is spread more broadly among those entities serving 
loads (i.e. demand) in a region, then joint transmission planning will 
be facilitated, simply because there are more participants at the 
planning table supporting the needed projects. If NITS customers of a 
dominant regional transmission provider are encouraged to own their 
load ratio share of the transmission system, transmission usage and 
ownership will be more closely aligned, and the frictions between 
transmission-dependent utilities and transmission owners can be 
reduced.
    Public power utilities have participated in jointly-owned 
transmission arrangements for many years. One model of joint ownership 
that has worked for public power is investment in a transmission-only 
company. A second model is ownership in a shared transmission system. 
There are two transmission-only companies that are partially owned by 
public power utilities. These are the American Transmission Company in 
Wisconsin and the Vermont Electric Power Company. In shared or joint 
transmission systems, two or more load-serving utilities combine their 
transmission facilities into a single integrated system. Examples of 
public power participation in shared transmission systems are found in 
Indiana, Georgia, Minnesota, and the upper Midwest region.
    Unfortunately, not all investor-owned utilities see the benefits of 
jointly owning transmission facilities with other load-serving entities 
in their regions. KPP in the past has been asked by a transmission 
owner (TO) in SPP ``what's in it for [the TO]?'', and told ``we own the 
existing right-of-way'' when discussing the lack of progress on an 
existing Stipulation Agreement filed at the Kansas Corporation 
Commission signed by all of the TOs and SPP. KPP is still negotiating 
with Kansas TOs, and is hopeful that a final agreement to construct the 
needed facilities can be reached.
    One impediment to expansion of joint ownership is the ``private 
use'' restriction imposed on tax-exempt financing that I discuss in 
more detail below. While other types of financing mechanisms are used 
when private use restrictions apply, this situation is not ideal from a 
parity standpoint with investor-owned utilities that have federal 
financial incentives at their disposal for building new transmission 
facilities.

REMOVING LIMITS ON THE USE OF TAX-EXEMPT FINANCING WOULD HELP GET MORE 
                 PUBLIC POWER-OWNED TRANSMISSION BUILT

    Traditionally, our federalist system of government has respected 
the right of state and local governments to pursue activities that are 
in the public interest and the interest of the citizens they serve. 
Congress has promoted and protected the right of government to issue 
municipal bonds for ``government owned and operated projects and 
activities.'' Public power systems are just that--government-owned and 
-operated systems similar to other local infrastructure projects such 
as water systems, prisons, hospitals, and transportation lines.
    While outside the scope of this committee's jurisdiction, APPA 
believes and desires to emphasize that Congress should continue to 
recognize a basic tenet of the federal system of government--the 
constitutional doctrine of reciprocal immunity. Under this doctrine, 
the federal government cannot tax the interest on obligations issued by 
state and local governments for public purposes and state and local 
governments cannot tax the interest on federal obligations.
    In addition to continued access to tax-exempt bonds to finance 
electricity infrastructure, it is important that Congress provide 
adequate flexibility for public power utilities to partner with private 
entities in the financing and use of certain facilities, as is 
discussed above. Congress has recognized this necessary flexibility by 
allowing a certain amount of ``private use'' from output facilities 
financed with tax-exempt bonds. Prior to the 1986 Tax Reform Act, the 
limitation on private use was set at 25 percent for all governmental 
issuers. However, the 1986 legislation reduced the amount of private 
use to 10 percent. In addition to the reduction of the private use 
limitation from 25 percent, the federal tax code also provides that for 
certain output facilities--public power and public natural gas 
generation and transmission facilities--the private use limit is the 
lesser of 10 percent or $15 million. Private use restrictions limiting 
the benefits available to private entities from publicly financed 
facilities are based on sound and appropriate public policy 
considerations. However, the restrictions should apply equally to all 
governmentally financed and operated facilities.
    The special $15 million private-use limitation that applies only to 
publicly owned electric and gas facilities is not supported by any 
public policy justification. It may force local governments that 
provide transmitting facilities to have their surplus capacity sit idle 
rather than having it sold to others in order to avoid the private use 
limitation. This provision should be repealed because it is 
discriminatory and it encourages practices that are neither 
environmentally nor economically sound. It also discourages an 
expansion of the joint ownership model that has been so successful in 
some regions, and could be used to improve the bulk transmission system 
in others.

   IMPLEMENTATION OF THE MANDATORY RELIABILITY STANDARDS INCLUDED IN 
                EPACT05 (FEDERAL POWER ACT SECTION 215)

    Lastly, APPA was asked to address the new mandatory reliability 
standards regime required under EPAct05 in new FPA Section 215. The 
industry has made great strides since the passage of EPAct05 in 
implementing this new mandatory regime. NERC has been named the 
Electric Reliability Organization (ERO) by FERC in Order No. 672, as 
the statute contemplated. NERC then developed an initial slate of 
reliability standards, which were largely approved by FERC in March of 
2007 in Order No. 693. The industry is currently considering a 
substantial number of new and revised standards to continue the process 
of improving those standards, with the goal of enhancing the 
reliability and security of the bulk power system.
    NERC's reliability standards became mandatory in June of 2007. 
Those APPA members subject to the mandatory standards have spent 
considerable time and effort ensuring that they are in compliance with 
the standards, or that they have a plan approved by their regional 
entity (the entity charged with on-the-ground enforcement of NERC 
standards) to come into compliance in a timely fashion. Since 
violations of the standards can be penalized with substantial fines, 
concern is substantial that violations are not incurred, or, if they 
are, are corrected immediately. APPA for its part has expended 
considerable efforts in the areas of information sharing, member 
education, and training to ensure that its members are aware of their 
responsibilities and that they develop the necessary ``culture of 
compliance.''
    Ensuring reliability is not so much a one-time goal to be met as an 
ongoing process where continuous improvements need to be made. APPA 
supports the unique reliability regime adopted in FPA Section 215, 
where NERC, as the ERO, works with the help of its regional entities 
and volunteers in the industry to develop and apply reliability 
standards, with FERC in a strong oversight role. While there will 
inevitably be bumps in the road towards reliability assurance, APPA 
believes that great strides have already been made, and that process 
and substantive improvements will continue in the future.

                               CONCLUSION

    The major impediment to getting new transmission built continues to 
be siting, and I urge Congress to support the federal back-stop siting 
authority included in EPAct05, and to support DOE and FERC where 
possible as they continue to implement this authority. Because of the 
local and state opposition to siting transmission lines, as many 
regional electricity stakeholders as possible should be included in 
their planning and ownership. Congress should therefore encourage and 
support joint ownership of transmission and should eliminate financial 
barriers to such ownership like the private use restrictions for tax-
exempt financing. In addition, existing transmission must be upgraded 
and maintained based on the requirement to serve as opposed to the 
availability of incentives. Finally, the establishment of RTOs in 
certain regions has not resulted in substantial new transmission 
infrastructure investment, although RTOs have helped improve 
transmission systems from an operational standpoint. However, other 
models exist, like Columbia Grid, that promise to provide similar 
operational benefits.

    The Chairman. Thank you very much.
    Ms. Tomasky.

STATEMENT OF SUSAN TOMASKY, AMERICAN ELECTRIC POWER, COLUMBUS, 
                               OH

    Ms. Tomasky. Thank you, Senator. Senator, thank you so much 
for holding this hearing. Thank you in particular for inviting 
us, the American Electric Power Company, an opportunity to 
testify.
    My name is Susan Tomasky. I'm President of AEP 
Transmission. That's the organization within AEP that operates 
the Nation's largest electricity utility transmission system.
    Our system is a 39,000 mile network which crosses 11 
States. At its core we have 2,100 miles of 765 Kilovolt 
transmission, extra high voltage, transmission lines. Those 
lines in addition to serving our customers effectively for half 
a century are also now serve as one of the major backbones of 
the PJM system. We are also committed to the development of 
additional transmission that we think is necessary for the 
Nation's future.
    Mr. Chairman, you've heard a lot of testimony in this 
hearing and in your prior hearing about issues that you're 
facing. What I would like to do is mention what I think are 
three critical take a ways that from what we've heard that 
should serve as the foundation as you consider the role of 
EPACT 2005 going forward and what else needs to be done.
    The first is that today's transmission system although it 
was built for different purposes over quite a long time ago for 
the most part, has actually served our Nation pretty well. In 
fact it served it under very different conditions than it was 
originally built for. We obviously adjusted to the demands of a 
competitive market. That's actually required us to change a lot 
of the operational paradigms.
    Through incremental investment the system does reasonably 
well, particularly with the added requirements around 
reliability and the functioning of the RTOs such as PJM. 
Nevertheless we find ourselves in the need for significant 
additional investment going forward. The critical question is 
what will that investment be. What vision of the transmission 
future will we deploy as we make that investment?
    The second critical point I think we've learned is that our 
energy supply future is intimately tied to the future of the 
transmission system. We simply cannot hope for the large 
integration of new, cleaner resources unless our ambitions for 
the transmission system actually match our ambitions for that 
new energy supply. We need a system that deals, as has already 
been suggested, with the variability of wind and other 
renewables.
    Equally important we need a network that has the ability to 
support the intermittency of those renewables with additional 
base load capacity. As you go forward, you are going to be 
making some critically important decisions about what that 
supply is going to look like as you look at climate change 
legislation, as you look at renewables. It's extremely 
important as you do that that you not forget the importance of 
transmission to that future.
    The third point is that we have a great sense of urgency 
around these other issues. But we do not have the same sense of 
urgency around transmission. Unless we do the two together, 
it's not going to work.
    Senator Murkowski made a point that disappointed me when 
she said transmission isn't sexy. I actually told my mother 
when I took this job that it was. So if we could keep that in 
this room, I'd really appreciate it.
    [Laughter.]
    Ms. Tomasky. The reality is however, that it is a 
critically important part of our future. There are some things 
that aren't impediments to moving forward.
    One is that we actually have made huge progress in 
understanding how to plan these systems. The RTOs know a great 
deal. The utilities cooperate with that. States play an 
extremely important role in a lot of the regional planning 
activities.
    We also have excellent technology. We've included in our 
testimony the vision of an interstate system that is primarily 
based upon 765, which we think is clearly the most efficient 
technology for moving power over long distances and integrating 
a great deal of load, a great deal of sources. Whether we 
follow that concept or another concept we clearly need a vision 
of a system of transmission that is like the interstate highway 
system.
    It will be built over time. It will be done 
collaboratively. But we do have the ability to figure out how 
to do that.
    The other thing that we have is capital. Private capital 
will flow to this industry. Particularly in the regulatory 
framework that we've seen from FERC if the incentives are 
available to compensate for risk and the cost allocation issues 
that Chairman Hoecker talked about ultimately are resolved.
    What we really don't have is a process, is a workable, 
Federal process for bringing all these issues together and to 
resolve the conflicts that are going to inevitably arise when 
you make these very difficult decisions. This is not a problem 
with a lack of will for the most part in many States. It is a 
problem, as Chairman Kelliher has said, of the purpose. We have 
to recognize that we need a purpose, a national commitment to 
build this transmission system. We need a mechanism for dealing 
with the really important, underlying, conflicting issues.
    I'd like to close by pointing out that Senator Casey 
mentioned three things that he thought were incredibly 
important to be accomplished as we site lines going forward. 
While this is probably not the solution he would embrace, I 
actually think that a strengthened Federal siting authority 
actually provides the vehicle for addressing those things. He 
said it's important that we have substantial public meetings.
    If you look to the kind of process that happens in the 
natural gas act, that is precisely what occurs. We need to 
consider alternatives. Indeed when you use an environmental 
impact statement process which is part of the Federal siting 
process you look at all those alternatives.
    That we also need to think about renewables. As I've 
suggested earlier it is really only this major system that can 
introduce renewables on a large scale and connect to the load 
that will make a meaningful difference in the contribution of 
renewables and alternatives going forward.
    So with that I will close. I will say that we have the 
opportunity to do all this. This industry is certainly prepared 
to move as is our company. We simply ask for the best tools 
possible in which to get it done. Thank you.
    [The prepared statement of Ms. Tomasky follows:]

     Prepared Statement of Susan Tomasky, American Electric Power, 
                              Columbus, OH

    Good morning Chairman Bingaman, Senator Domenici and distinguished 
members of the Committee on Energy and Natural Resources.
    Thank you for holding this hearing today and allowing me the 
opportunity to offer the views of American Electric Power (AEP) on the 
state of the nation's transmission grid and the implementation of the 
2005 Energy Policy Act (EPA2005) transmission provisions.
    My name is Susan Tomasky and I am President of AEP Transmission, 
the organization within AEP whose 2,000 employees operate the nation's 
largest electricity transmission system. Three Regional Reliability 
Organizations oversee our vast system and we are members of three 
Regional Transmission Organizations (RTO). The AEP system is a 39,000 
mile network, integrating power delivery across 11 states. Our network 
includes over 8,000 miles of extra high voltage (EHV) lines. The core 
of our EHV system in the eastern United States is a system of 2,100 
miles of 765-kilovolt (kV) transmission lines, clearly the most 
efficient way to move power over long distances and integrate multiple 
power generation sources. This system now serves as a backbone of the 
PJM interconnection, fostering efficient power flow within that region 
and, through extension, linking our region to neighboring systems in 
all geographic directions. AEP's transmission system directly or 
indirectly serves about 10 percent of the electricity demand in the 
Eastern Interconnection, the interconnected transmission system that 
covers 38 eastern and central U.S. states and eastern Canada, and 
approximately 11 percent of the electricity demand in ERCOT, the 
transmission system that covers much of Texas.
    In today's hearing, we have been asked to help review the state of 
the nation's transmission grid and the effectiveness of EPA2005 in 
ensuring that the future system is adequate to meet the nation's energy 
needs going forward. It is our view that while the current system has 
served the nation well in the past, we face an urgent need for 
additional investment to create a robust and efficient grid that can 
integrate multiple new resources, including renewables, and deliver 
power across a broad geography. EPA2005 is a vital first step toward 
that end. But if we are to fulfill our emerging national vision of a 
more secure, environmentally sound electric power supply system, we 
need a workable and timely federal process that ensures that we can 
build a transmission system that meets the needs of our energy future. 
This means that the Federal Energy Regulatory Commission (FERC) should 
have meaningful authority to site extra high voltage transmission 
facilities and provide the financial basis, through incentives and 
broad cost allocation, to ensure that the system is built.

  THE NATION'S CURRENT TRANSMISSION SYSTEM CANNOT KEEP UP WITH FUTURE 
                                 NEEDS

    In our view, the nation's transmission system today is sound, but 
taxed, and very much in need of new investment. Today's system is, in 
fact, an interesting paradox: it was designed and built over the middle 
part of the last century, primarily to link generation resources and 
customer distribution systems over relatively small geographic areas 
with the goal of meeting the electricity needs of a particular utility, 
often within a particular state. Over time, we have seen broader 
integration of these resources and there are now some more robust 
systems that integrate resources within larger regions. We have also 
made huge advances in coordination of these systems to achieve, with 
some rare though noteworthy exceptions, a very high level of 
reliability.
    Although the transmission asset base has not changed much in recent 
years, the use of this system has changed a great deal. Of course, 
demand has grown steadily, and in some areas dramatically. As a nation, 
we have made public policy decisions to create wholesale power markets 
that force the system to be used more efficiently and to its maximum 
capacity in some instances. And, as electricity has become the 
lifeblood of our digital economy, we have pushed our expectations for 
reliability higher as the system grows older.
    All in all, the system built several decades ago has responded 
quite well to modern demands. However, there is no question that the 
existing transmission system is overloaded, with congestion losses 
increasing and reliability degraded in some locations during certain 
times. As an operator, we are seeing the need to replace major 
equipment. Supply chain lines are long (it can take several years to 
obtain certain kinds of critical equipment) and we are finding it 
difficult to take critical facilities out of service just to get the 
work done. Simply put, there is no question that new investment is 
needed and this very much has the industry's attention. From 2000 to 
2006, electric companies invested more than $37.8 billion in the 
nation's transmission system. Current estimates are that the utility 
industry will invest $31.5 billion in transmission facilities in the 
period of 2007--2010. [Edison Electric Institute website, Actual and 
Planned Transmission Investment by Shareholder-Owned Electric 
Companies].
    A piece of good news is that, even in these difficult financial 
times, there is a fair amount of capital available for regulated 
utilities wishing to make this investment. The challenge is that, as it 
stands today, most of this planned investment is what the industry 
would call ``reliability spend'', i.e., investment to make sure the 
current system works and meets ordinary growth in demand. While this 
investment is critical, it is also incremental. It won't be sufficient 
to meet the needs of our country's energy future.
    The job of our industry is to run the current system as reliably 
and efficiently as possible AND to build the system that meets the 
needs of our energy future--a future that meets growing demand for 
electricity while addressing the challenges of climate change and the 
need for greater energy independence. I expect that this Committee will 
find itself deep in debate over the coming months about how to meet 
those challenges. But whether the policy choices favor renewables, 
nuclear, advanced coal, natural gas or all of the above, we need a 
transmission system that integrates and interconnects these new, better 
power sources as efficiently as possible. In our view, this means that 
we must overlay our current transmission system with an extensive 
system of EHV transmission facilities. Such a system would be designed 
to bridge geographic distances (sometimes very long distances) with 
minimal lines losses so that wind resources, for example, could be made 
available to support load that is geographically remote. Properly 
designed, the system should provide maximum flexibility to bring on new 
sources and meet new load, and should complement and take maximum 
advantage of the underlying transmission resources already at our 
disposal.
    We believe that our national goal should be the development of an 
EHV interstate transmission system, along the lines of the interstate 
highway system that has fired the country's economic growth over the 
last 50 years. This system would build upon the EHV infrastructure and 
overlay the existing lower voltage transmission system, relieving major 
congestion, improving reliability and enabling the development of new 
resources. But to do this, we will need a firm national policy that 
supports and facilitates the timely planning and construction of a 
system that meets these multiple purposes.
    EPA2005 is an important step towards to this goal, but it falls 
short of providing the full scope of federal authority necessary to 
permit our industry to provide the country with the transmission system 
it clearly needs. I hope the Committee's review of this Act provides 
the foundation for strengthened federal authority to ensure that the 
transmission system of the future, and therefore the electric power 
system of the future, can become a reality.

    THE TRANSMISSION SYSTEM OF THE FUTURE MUST BE ABLE TO INTEGRATE 
 RENEWABLES AND OTHER NEW POWER SUPPLY SOURCES EFFICIENTLY AND RELIABLY

    One essential feature of electricity is that it moves at roughly 
the speed of light and therefore is consumed at almost the same instant 
it is produced. As a result, transmission of electric power is actually 
a kind of balancing act--power supply and consumption have to be in 
balance at all times, which means that the system must be designed and 
operated to deal instantaneously with changes in one or the other side 
of the equation. For all the environmental virtues of renewables, they 
do present some challenges when we seek to integrate them on a broad 
scale into the supply network. Wind for example, though available in 
large volumes in the central part of the country, is variable: it blows 
when it blows, which may or may not be when we need it. That 
variability challenges the balance of the simultaneous supply-demand 
equation. While a lot of work is being done to investigate the 
feasibility of large scale storage to address this issue, the fact is 
that for the foreseeable future integrating large quantities of wind 
will require significant additions to the existing network both to 
transport power over long distances and to provide support for the 
system as the wind comes and goes.
    AEP has studied this issue extensively, and in partnership with the 
American Wind Energy Association (AWEA), we have developed a conceptual 
plan to provide cost-effective connections from areas of high wind 
potential to major load centers using a 765 kV backbone system. The 
map* below shows the scale of transmission projects necessary to move 
electricity from our nation's vast wind resource to major load centers.
---------------------------------------------------------------------------
    * Map has been retained in committee files.
---------------------------------------------------------------------------
    In this study, we focused on EHV, primarily 765 kV transmission 
lines, as the solution of choice for meeting our nation's 
``superhighway'' transmission needs. EHV transmits large quantities of 
energy vast distances, with reduced loadings on lower voltage 
transmission and with significantly lower line losses. At the same 
time, it increases transmission performance and reliability for large 
geographic regions and across multiple states and regions. By 
establishing EHV as the backbone of the bulk power system, we will also 
enhance operational performance and reduce congestion, while enhancing 
fuel diversity and ultimately strengthening our energy security. In 
addition, 765 kV transmission requires significantly less right-of-way 
than is used to move comparable amounts of power at lower voltages, and 
it does so on a more cost effective basis.
    This conceptual plan is designed to permit wind to supply about 20% 
of the nation's electricity needs by the year 2030, at a cost of about 
$60 billion in today's dollars. Obviously, the system that is 
ultimately developed would move forward over many years, developed by 
many different transmission providers and guided by vigorous regulatory 
and planning processes. The costs would probably increase somewhat over 
time. Even with these uncertainties, however, we believe very strongly 
in the fundamental premise of this concept: that our nation can have an 
interstate transmission system that effectively integrates significant 
new, cleaner resources to meet our national energy policy goals. If it 
is urgent that we press forward with developing cleaner, more secure 
sources of power, then it is equally urgent that we build the 
transmission system that can deliver this power to customers. For that 
reason, we believe that this Committee should assess the EPA2005 by 
considering its effectiveness in helping us achieve these goals.
2005 energy and policy transmission provisions must be strengthened to 

     ENCOURAGE DEVELOPMENT OF A NATIONWIDE EHV TRANSMISSION NETWORK

    From the perspective of improving the nation's electric 
transmission grid, EPA2005 breaks some very important policy ground. It 
acknowledges that our bulk power system had evolved into a vibrant 
network connecting generation and consumers across many states. For the 
first time, electric reliability standards are mandatory, with FERC 
exercising jurisdiction over all users of the bulk power system. The 
Act is also important in recognizing that a federal approach to siting 
of new transmission is vital to the economic health of the nation. It 
gives the Department of Energy (DOE) some authority to identify high 
priority transmission lines--the ``Electric Transmission Corridors''--
and gives FERC backstop siting authority to facilitate the development 
of needed transmission facilities that are not moving forward within 
the framework of state siting laws. The Act also empowers FERC to 
ensure cost recovery and provide rate incentives to encourage the 
development of interstate transmission facilities.
    We are now three years from enactment of this historic legislation 
and the time is right to take stock of where we are today. There are 
some important items in the success column. DOE has acted to designate 
some national interest corridors, clearing the way eventually for 
federally-facilitated siting, if necessary. I would also highlight 
FERC's critical efforts to ensure transmission construction through 
incentives designed to compensate for the risk involved in multi-state 
transmission development and the technological innovation required to 
develop increasingly efficient delivery systems. As a result of those 
incentives, private capital is ready to flow to such projects, if there 
is a siting process that permits them to go forward.
    In those three years, we have also seen many transmission sponsors 
moving to propose the kind of projects we need to see. AEP is actively 
pursuing a number of major EHV projects with utility partners where new 
transmission is critically needed, either to enhance and expand the 
existing EHV system or to harvest wind resources. However, even as we 
talk about ever increasing congestion on the current system and the 
need for rapid deployment of renewables, there is little, if any, steel 
in the ground. In our view, this has a lot to do with the fact that, 
not withstanding FERC's backstop authority, we do not yet have a 
workable federal process for coordinating the development of 
transmission across regions and for ensuring the timely siting of the 
extra high voltage multi-state transmission system.
    There is such a process in place for natural gas pipelines, under 
the Natural Gas Act. Indeed, the natural gas pipeline network we have 
today that moves natural gas from the production areas to the 
distribution systems around the country was built because a federal 
process was available to sort through the many important competing 
local and national public policy issues and ultimately determine 
reasonable rules under which such facilities could be built. In our 
view, we need a similar process to facilitate the siting of EHV 
transmission facilities. We do not expect that such a process would be 
easy; these are important and difficult decisions and a wide range of 
issues must be taken into account to address legitimate landowner and 
environmental concerns. We also recognize that planning these 
facilities is complex and will require the coordinated effort of many 
parties, including state commissions, RTOs, reliability organizations 
and other affected utilities. However, it is hard to imagine that we 
will break through the logjam of competing interests if we don't have a 
federal forum at the FERC to resolve conflicts, with the express goal 
of ensuring that we can build the transmission we need to meet the 
nation's long term energy policy objectives.
    We also encourage the Committee to look at other issues necessary 
to ensure the successful build out of the transmission interstate 
superhighway. For example, it will be important to recognize that there 
is substantial work already being done across the country by individual 
utilities, state commissions, RTO's and reliability councils to plan 
the transmission system of the future. If FERC were empowered to make 
siting decisions, it could use the product of these collaborative 
planning efforts as a basis for expedited consideration. Similarly, if 
we are going to build an interstate transmission system that provides 
benefits across broad regions, it will be necessary to have in place 
relatively simple and predictable cost allocation policies that ensure 
that everyone who benefits from the system shares in the cost of its 
development. In addition to mitigating the cost per customer, 
principles that assure broadly defined cost responsibility will reduce 
the vigorous attempts to shift and re-shift costs among groups of 
customers that today are the hallmark of rate regulatory proceedings.
    The plea in this testimony is quite simple: we urge you and the 
Congress to recognize that we must take action, possibly very difficult 
action. This company and, I am quite confident, our industry as a 
whole, stand ready to commit the resources and talent necessary to 
build the interstate transmission system that we need to meet the 
complex demands of our nation's energy future. We strongly urge you to 
give us the tools we need to do it.
    Again, Chairman Bingaman, thank you for holding these hearings. We 
look forward to working with you and your Committee to find solutions 
that address the transmission needs of our country.
    I am happy to answer questions.

    The Chairman. Thank you very much.
    Mr. Loehr.

      STATEMENT OF GEORGE C. LOEHR, REPRESENTING PIEDMONT 
             ENVIRONMENTAL COUNCIL, ALBUQUERQUE, NM

    Mr. Loehr. Thank you, Senator. I think transmission is sexy 
too. I've spent more than 45 years of my life working in 
electric power transmission and bulk power system reliability. 
Now just to give you a rough idea of my background I worked 
with--I was Executive Director of the Northeast Power 
Coordinating Council until my early retirement 11 years ago.
    Now I'm an outside Director on the Board of the Georgia 
System Operations Corporation. I chair the New York State 
Reliability Council. I do consulting. I teach courses on power 
systems. I've written for most of the trade magazines and I 
occasionally give talks at conferences.
    A number of things--oh, I should also add that the opinions 
I express today are solely my own and don't reflect the 
opinions necessarily of any of my current clients or employers 
of the past or present.
    There are a number of effects came about because of the 
2003 blackout. Some have been mentioned already today. 
Personally the most important one to me is that it impelled me 
to write my novel, Blackout, which I did. But some people might 
think that the passage of the Energy Policy Act was actually 
more important than that.
    There are two aspects of EPACT that I think are important 
to us today.
    One is that it imposed mandatory standards on all 
participants in the electric power industry in the United 
States and Canada.
    The second is it led to the Department of Energy doing its 
2006 congestion study and come up with a corridor designations 
that we heard discussed from both sides today.
    A problem I have with this report is however, is that it 
focused almost exclusively on transmission. I'd like to point 
out that no kilowatt was ever generated by a transmission line. 
Transmission lines are designed to get kilowatts from where 
they're produced or manufactured in power plants to load 
centers and to customers. They don't produce electricity.
    More important though there seems to be a confusion in a 
lot of the work we do, both in the Federal Government, the 
States and in the industry itself between economics and 
reliability, between transmission that might be needed for 
economics and transmission that might be needed for 
reliability.
    Congestion, which is a term that we've heard often in these 
hearings, is an economic concept. It means that the cheapest 
generation from some power plants, sometimes of the day, or 
sometimes of the year, cannot find their way to the load 
centers where they're needed. So that perhaps more expensive 
generation has to be run.
    As long as there is more expensive generation closer to the 
load centers and that can be run to supply the load than this 
is not a reliability problem at all. It's strictly an economic 
problem. The focus on transmission is leading us perhaps to 
design long transmission lines which are not needed for 
reliability but may in the long run decrease our reliability.
    They can act as magnets to power plants to be located at 
remote locations from the load centers. When urban load centers 
are more dependent and have a higher percentage of their 
electrical requirements have to be supplied over long lines 
from power plants hundreds of miles away. That's an increased 
vulnerability to blackouts.
    It's also a national security issue potentially because 
that could be interrupted by terrorist attacks on the 
transmission grid. It would be like you had a toaster and 
instead of plugging it into your kitchen outlet you would run a 
long extension cord to your friend's house a block or two away 
and power it from there. It's just less reliable.
    To enhance reliability and security it's best to locate 
generating sources, the sources of power and other resources 
closer to the load. But that's not always practical. I'm 
talking about local generation distributed generation and DSM.
    Now some people would say that the addition into 
transmission will always increase reliability. But that's not 
true. It increases the transmission transfer capability of the 
system.
    It makes more power able to flow over the grid. But the 
only thing that will increase that will really improve 
reliability is to make more stringent standards. We have 
standards today if you wanted to make the grid really more 
reliable you would ask for more stringent standards.
    Reliability is a function of the standards used, not the 
amount of wire in the air. Adding transmission could actually 
weaken reliability because you would wind up with more 
generating plants further from the load instead of close by. 
The urban load centers would be dependent on long, hundreds of 
miles of transmission lines more than they are today.
    One of the problems I've seen in looking at some cases in 
recent, last few years, is that I see some people trying to 
prove the need for a new transmission line on a reliability 
basis when it's really needed for some other, or desired for 
some other purpose. One thing that's done is sometimes 
reliability standards have been misrepresented. Sometimes 
techniques that are permitted by the standards and widely used 
in the industry have been ignored. Sometimes blackouts scares 
have been used to try to frighten public officials or the 
public into approving things. These are wrong.
    Where do we go from here? Since the DOE congestion study is 
being redone as required by EPACT for 2009, we have a chance to 
get it right or at least get it better. I think we should 
address grid issues in a comprehensive manner, consider local 
distributor generation, DSM, and so on as well as transmission.
    We need to separate the reliability needs from the economic 
wants. If we're going to build a power plant, if we want to 
build transmission to go from coal fired plants in one part of 
the system to urban load centers in another, let's say that. 
Put it up front and let public officials and the general public 
decide that on merits.
    Same thing if we want to build a transmission line to 
deliver renewable energy. Say wind farms from a remote 
location. Let that be said up front. Let the people and their 
representatives decide that on its own merit.
    But when a facility is needed for reliability, let's say 
that. All the remedies need to be considered. We need to be, I 
think, up front in what the real needs are.
    I would like to close my comments with a citation of the 
18th century Anglo-Irish author and politician, Edmund Burke. 
``All that is necessary for the triumph of evil is for good men 
to do nothing.'' Let's resolve not to ``do nothing.'' But let's 
be sure that whatever we do, we do the right thing.
    Thank you very much. I appreciate the opportunity to 
address you. I want to particularly thank, as an adopted 
citizen of New Mexico for the last 11 years, I'd especially 
like to thank Senator Bingaman and Senator Domenici for their 
excellent representation of my new State in the U.S. Senate. 
Thank you.
    [The prepared statement of Mr. Loehr follows:]

     Prepared Statement of George C. Loehr, Representing Piedmont 
                 Environmental Council, Albuquerque, NM

    I wish to thank the members of the Energy and Natural Resources 
Committee for the privilege of speaking to you about several issues of 
great importance for the future of our nation, and of great concern to 
me personally. I especially want to express my thanks and appreciation 
to Senator Bingaman and Senator Dominici of my adopted state of New 
Mexico, and to Senator Casey of Pennsylvania--along with their staffs.
    My name is George C. Loehr, and I'm an engineer with more than 45 
years of experience in the electric power industry. My primary 
expertise is in bulk power transmission system planning and analysis, 
and electric power system reliability. I was deeply involved in various 
post-hoc studies following the major blackouts in 1965, 1977, and 2003.
    I worked as Executive Director of the Northeast Power Coordinating 
Council (NPCC) from 1989 to 1997, and was very active in regional, 
national and international activities. I took early retirement from 
NPCC in 1997, and now do management consulting, appear as an expert 
witness, write, and teach a variety of courses on power systems.
    I have been a Vice President and member of the Board of Directors 
of the American Education Institute (AEI), and a charter member of 
Power Engineers Supporting Truth (PEST). At present, I serve as Chair 
of the Executive Committee of the New York State Reliability Council 
(NYSRC), and as an Outside Director on the Board of Directors of the 
Georgia System Operations Corporation (GSOC).
    I hold an advanced degree in English Literature along with my 
Bachelors in Electrical Engineering, and have been deeply involved in 
the arts for most of my life; for example, I recently published my 
first novel, Blackout, available through .
    A one-page bio is appended to this statement.*
---------------------------------------------------------------------------
    * Document has been retained in committee files.
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    The opinions I express in my testimony are entirely my own, and do 
not necessarily reflect the views of any of my employers or clients, 
past or present.
    Arguably, nothing is more critical to the future of the United 
States and its citizens than a reliable electric power system. It can 
be said without exaggeration that electricity is the bloodstream that 
sustains our nation and allows it to live and prosper. As the major 
blackouts of the past have demonstrated, any interruption to power 
supply adversely affects our economy, our safety and comfort, and our 
national security. And the most vulnerable part of our power supply is 
the high voltage bulk power system--the grid. However, it is not the 
only critical part of a reliable electric system.
    Actually, there are three separate ``grids'' in the continental 
U.S.--four, if we consider Canada as well. The Eastern Interconnection 
is the largest, stretching from the Atlantic Coast roughly to eastern 
Montana, Wyoming, Colorado, and New Mexico. It includes the Canadian 
Maritime Provinces, as well as Ontario, Manitoba, and Saskatchewan. The 
Western Interconnection runs from there to the Pacific Coast, and 
includes the Canadian provinces of Alberta and British Columbia, as 
well as a small portion of the northern Baja in Mexico. The ERCOT 
Interconnection comprises approximately 85% of the state of Texas, and 
the Quebec Interconnection consists of that province in its entirety.
    The passage of the Energy Policy Act of 2005 (EPAct) was heralded 
as a major step forward in improving the grid and reducing the 
likelihood of large blackouts. One drawback, however, is its almost 
exclusive focus on transmission. It does not address generating 
capacity sited close to the load centers, or demand side management 
programs. These strategies are often preferable to transmission as a 
means of improving overall system reliability. They have the added 
benefit of adding to the system's installed reserve margin. My own 
experience over the years has indicated that a certain minimum amount 
of capacity--in the neighborhood of 80% of the peak demand--must be 
located within a load center to provide voltage/reactive power support, 
black start capability, network security, etc.
    If we wish to address electric power energy issues, we must address 
them in a more comprehensive manner. At present, the EPAct, and 
policies adopted thereunder, encourages the construction of new 
transmission not needed for reliability. It subsidizes remote 
generators, discriminates against local and distributed generation and 
demand side resources, forces many customers to pay for someone else's 
benefits, increases the likelihood of blackouts, and makes our grids 
more vulnerable to terrorist attack.
    I believe that decisions on whether particular transmission lines 
are needed for reliability are best addressed by the states and by the 
eight existing regional reliability councils. They have consistently 
done a good job on this in the past. I do not believe that either DOE 
or FERC has the experienced staff or other resources to do this as well 
as the regional reliability councils and the states.
    Since the passage of EPAct, some misguided proposals have been made 
to advance corporate agendas rather than serve the well-being of 
ordinary customers--mainly by trying to get proposed high voltage 
transmission lines approved as essential to reliability. The most 
significant are:

   The confusion of reliability with economics--of reliability 
        needs with economic wants;
   The assumption that the mere addition of transmission will 
        improve grid reliability. It won't. In fact, more transmission 
        can actually degrade reliability if it is used to accommodate 
        higher power transfers over long distances;
   The misapplication of national reliability standards 
        promulgated by the North American Electric Reliability Corp. 
        (NERC), the organization designated by the Federal Energy 
        Regulatory Commission (FERC) as the Electric Reliability 
        Organization (ERO) mandated by EPAct;
   Blackout ``scare tactics'' intended to frighten customers 
        and public officials, compelling them to endorse the 
        construction of facilities or implementation of policies which 
        are not required to preserve or enhance reliability.

    Because of the confusion between economics and reliability, 
officials often commingle both inappropriately. A prime example is the 
2006 Congestion Study conducted by the Department of Energy (DOE), as 
mandated by EPAct. [An updated 2009 Congestion Study is now under way.] 
As a result of its 2006 study, which did not properly consider non-
transmission alternatives, the Department designated certain National 
Interest Electric Transmission Corridors where, according to DOE, 
consumers were adversely affected by transmission congestion or 
constraints. But the DOE's failure to properly consider non-
transmission alternatives means that the congestion study has not even 
established economic congestion. In addition, congestion or constraints 
do not equal low reliability. Neither the 2006 study, nor the corridor 
designations, bear any resemblance to actual reliability problems. 
Economic wants were misrepresented as reliability needs. Reliability 
depends on standards, not the ability to move every megawatt from any 
generator anywhere on the system to any load center anywhere else on 
the system. Because the 2006 Congestion Study is fatally flawed, and 
does not draw a proper distinction between reliability and economics, 
it should not be used as the basis for approving new transmission lines 
that have been denied by the states.
    In the deregulated electric power industry, the cost of new bulk 
power transmission facilities is often ``socialized'' if it can be 
shown that these facilities are needed to maintain reliability--to 
satisfy NERC reliability standards. ``Socialization'' means that the 
cost will be proportionally distributed among all customers within an 
Independent System Operator (ISO) or Regional Transmission Organization 
(RTO). If a reliability need cannot be proven, the cost will usually be 
assigned to those entities which will gain from the new facility. For 
example, if a new line is desired to allow the construction of new 
generating plants far removed from the load centers, and facilitate the 
transfer of their electrical output to the load centers, then clearly 
those generators will gain. But, if a reliability ``need'' could 
somehow be proven, the cost of the line would be borne by all customers 
in the region--an indirect but very real subsidy to the remote 
generators. Further, the skewing of costs and benefits would penalize 
resources located close to the load centers. It would also encourage 
the development of remote generating resources and discourage the 
development of more local or distributed generation, or demand side 
management programs.
    The following points are generalizations derived from actual cases 
presented over the past several years.
    In order to ``prove'' a reliability ``need,'' some have 
misrepresented and misapplied the national reliability standards 
promulgated by NERC and supported by FERC. This misrepresentation 
sometimes involves ignoring key provisions of a national standard. For 
example, one of the key NERC planning standards calls for testing the 
system for the outage of a critical facility, allowing time for manual 
system readjustments to compensate for the outage, and then applying a 
second critical outage. The system must be designed to survive this 
sequence of events. However, some parties seem to have deliberately 
ignored the provision for manual system adjustments. This has the 
effect of greatly overstating the adverse consequences of the 
contingencies, in effect subjecting the system to two simultaneous 
contingencies. This, in turn, can indicate a failure to meet 
reliability standards--requiring a transmission reinforcement which is 
not really needed.
    An even simpler example is the manipulation of generating units in 
the ISO or RTO queue in such a way that some committed units are 
excluded from planning studies. In some cases, units well along in the 
process have been deliberately excluded from studies because they would 
solve a reliability problem, while others at the same place in the 
queue were included, precisely because they exacerbate a reliability 
problem. In my opinion, this makes absolutely no sense.
    Similarly, some have ignored readily available techniques permitted 
by the standards and widely utilized throughout the industry. They 
resist simple, straightforward fixes such as the addition of reactive 
power support, correction of minor limitations on lower voltage 
facilities, modification of outdated configurations, redispatch of 
generation, or manual load shedding following a contingency--all of 
which are permitted by the NERC standards and widely used in the 
industry.
    Another device used by some to allege a reliability need when none 
really exists is to base system simulation studies on extreme 
conditions vis-`-vis generation dispatch. They will stubbornly insist 
on economic dispatch as a kind of mantra, ignoring the simple expedient 
of transmission constrained dispatch--using ``out of merit'' 
generation--to essentially replace less expensive remote generation 
with generation or demand side resources closer to the load, in effect 
working around any alleged transmission bottleneck by replacing remote 
generation with slightly higher-priced local resources. Many U.S. 
systems routinely operate in this manner. But some who are intent on 
``proving'' a reliability need in their planning studies will refuse to 
make even minor adjustments to their initial dispatch in order to solve 
apparent reliability problems.
    Those who misapply the reliability standards will often argue that 
NERC standards require that each ISO, RTO and transmission owner 
establish procedures that ``stress'' the transmission system in its 
planning studies. That's correct. But NERC standards do not require 
that the ISOs, RTOs and transmission owners use unrealistic base 
conditions, dismiss simple and obvious solutions to reliability 
problems, or ignore important provisions of the standards like manual 
system adjustments.
    Some will maintain that the addition of new transmission facilities 
alone will inevitably increase reliability. This seems like common 
sense--but it's wrong. Addition of new transmission facilities will 
increase transfer capability, but reliability can only be improved by 
making the standards themselves more stringent. Reliability is a 
function of the standards used, not the amount of wire in the air. 
Further, transmission additions will not increase the reliability of 
the system if the increased transfer capability is used to accommodate 
increased power transfers. The same reliability standards would still 
be in place. The transmission transfer capabilities would be higher, 
but the higher transfer capability would simply be used to carry higher 
long-distance power flows.
    There's another factor to consider. If more generation is built in 
remote areas, and less generation and other resources are built close 
to load centers, then the load centers will be increasingly dependent 
on distant generating capacity--located perhaps hundreds of miles away. 
It would be like running a long extension cord to a friend's house a 
block or two away to power your toaster, instead of plugging it into an 
electric outlet right in your own kitchen. The more major cities depend 
on long transmission lines, the more subject they will be to power 
outages and blackouts due to major contingencies on the transmission 
system. Indeed, this constitutes a national security problem, since 
these urban areas would be more at risk from terrorist attacks on 
transmission facilities.
    Unfortunately, a lot of scare tactics have been used to justify 
proposed transmission lines. Perhaps the most egregious strategy used 
by those promoting new transmission when it really isn't needed for 
reliability involves raising the spectre of massive blackouts. The 
August 14, 2003 blackout has often been cited, for example. Even the 
California rotating blackouts of the 2000-2001 period have been 
mentioned. These incidents have no bearing on any of the cases I've 
seen. The 2003 blackout was the result of too many control areas (now 
known as ``balancing authorities'') in too small a geoelectrical area--
so small, in fact, that none of them realized that a series of 
unrelated contingencies across a wide area over a four hour period was 
leading to a major interruption. In California in 2000-2001, poor state 
regulations, unscrupulous market manipulation, and unethical (sometimes 
illegal) activities by companies like Enron, all combined to 
manufacture an apparent shortage of generating capacity. No capacity 
shortage existed--nor was there a ``blackout'' per se. Brownouts and 
rotating feeder outages were necessary because of the market 
manipulation, but no widespread cascading outages occurred.
    Let's think about how real-life systems would deal with situations 
involving overloaded transmission. System operators in real-time 
control centers act as balancing authorities over large geoelectrical 
areas, and would recognize any potential overload situation. More 
important, they would never operate the system in a mode where a first 
contingency would bring about overloads, low voltages, cascading 
outages, instability, system separation, or loss of firm customer load. 
That's the ``Prime Directive'' of every system operator. The bulk power 
system must always be operated such that, if any contingency specified 
in the applicable standards or criteria were to occur (e.g., a fault or 
short-circuit on a high voltage transmission line), the system would 
experience no overloads, low voltages, cascading outages, instability, 
system separations, or loss of firm customer load. In fact, to operate 
in any other way would be a violation or NERC's Operating Standards, 
subject to fines of up to $1 million per day.
    Blackouts are usually caused by contingencies more severe than 
standards/criteria, by equipment failures, control system problems, 
human error, or by some combination of these. They always involve a 
break-up of the bulk power transmission system. Blackouts are not 
caused by shortages of generating capacity. Nor are they caused by an 
inability to transfer as much power as some might wish from remote 
locations to load centers. Blackouts can rarely be anticipated. They 
are almost always unexpected, and can happen at any time--few have 
occurred at or near peak load, for example, or coincident with a 
shortage of generating capacity. They develop in seconds or fractions 
of seconds rather than hours or days.
    There's another important point. The mere fact of adding 
transmission does not of itself increase reliability. Consider two 
hypothetical transmission systems: one a system with a lot of 
transmission lines, but planned and operated to less stringent 
reliability standards; the other a system with very little 
transmission, but planned and operated to more stringent reliability 
standards. The first system would be less reliable than the second 
system, because it uses less stringent reliability standards. As I said 
earlier: Reliability is a function of the standards used, not the 
amount of wire in the air.
    Even if both systems were planned and operated to the same 
reliability standards, the system with more transmission lines might 
still be less reliable than one with less. This is because the addition 
of new transmission lowers the equivalent electrical impedance across 
the grid, in effect making it electrically smaller. Thus a given 
contingency could have a more widespread effect. For example, if 
Philadelphia is electrically closer to Chicago, a major disturbance on 
the grid in the Chicago area is more likely to cause outages in 
Philadelphia--and vice versa. This may help explain why the Aug. 14, 
2003 blackout affected a much larger area than the November 9, 1965 
blackout.
    Again, transmission additions will not increase the reliability of 
a system when the increased transfer capability is used to accommodate 
increased power transfers between remote generating units and load 
centers.
    To ensure reliability of the bulk power system, Congress would need 
to comprehensively address electric power supply issues. Congress would 
need to encourage local power generation and distributed generation 
close to the demand, and create incentives for conservation and demand 
side resources. Any consideration of transmission issues should make a 
clear distinction between facilities needed for reliability and those 
desired for economic reasons. In particular, economic wants should not 
be permitted to camouflage themselves as reliability needs. Such an 
approach would help avoid blackouts, and make our grids less vulnerable 
to terrorist attacks.
    However, as set forth above, I believe the states and the eight 
existing regional reliability councils are in the best position to 
ensure a reliable electrical grid.
    These are my major points. I would also like to briefly enumerate a 
few other problems I see, either on the horizon or already with us:

   The ``deregulation'' or ``restructuring'' of the electric 
        power industry is part of the problem. In essence, it greatly 
        increased the complexity of the power industry, and added 
        thousands of pages of new regulations. (As a matter of fact, 
        even the term ``deregulation'' itself is an Orwellian 
        misstatement.) Most important, though, it replaced the former 
        culture of coordination and cooperation with one of competition 
        and confrontation.
   In some parts of the country, there are what I would term 
        ``overlapping footprints'' among the various entities involved 
        in the planning and operation of both the physical power system 
        itself and its markets. This overlapping is a prescription for 
        blackouts.
   Some control areas, or balancing authorities, are too small. 
        As mentioned earlier, this was arguably the underlying cause of 
        the August 14, 2003 blackout.
   The present growth rate of electric power demand and 
        consumption is sometimes identified as the culprit. Actually, 
        there's nothing exceptional about present growth rates. The 
        NERC 2006 Long-Term Reliability Assessment (October 2006) 
        reported a forecast U.S. annual growth rate for the period 
        2006-2015 of 1.9%. This is quite low by historical standards--
        for example, in the early 1960s, when I began my career, peak 
        loads were growing nationally at a 7 to 7\1/2\% rate. That 
        wasn't a short-term phenomenon, either. According to U.S. 
        Energy Information Administration statistics, retail sales of 
        electricity in 1970 were five times higher than in 1950--a 
        compound annual growth rate in excess of 7%. It doubled again 
        between 1970 and 1990--approximately a 3% growth rate--despite 
        oil embargoes, hyper-inflation, recession, and conservation 
        efforts. The only thing unusual about today's growth rate is 
        that it's so low. This, I believe, reflects the efforts of many 
        people--dedicated environmentalists, government officials at 
        both the federal and state level, large commercial and 
        industrial customers, and the general public--to achieve higher 
        efficiencies and genuine conservation. We can all take credit 
        for this significant accomplishment. Bottom line: nothing about 
        current growth rates automatically requires a massive program 
        of new transmission construction.
   People are often told that one ``silver bullet'' or another 
        will solve all of our energy problems. Examples range from 
        capacity auctions to mandatory standards, from renewable 
        resources to the so-called ``smart grid.'' While some of these 
        may be valuable in their own right, none can be, as St. Paul 
        might say, ``All things to all men.'' Simply put, there is no 
        silver bullet.
   Technical expertise--or at least competent, objective 
        technical input--has become almost totally absent in decision 
        making. Decisions are most often made on the basis of economic 
        principles, with little or no consideration (or even knowledge) 
        of the scientific laws that govern electric power systems. The 
        Laws of Physics make electricity flow, not the Laws of 
        Economics. No rules, no regulations or procedures, and no 
        market protocols, can override Mother Nature and her laws. As I 
        tell the students who take one of my courses or workshops: When 
        the Laws of Physics and the Laws of Economics collide, Physics 
        wins . . . always.

    Where should we go from here? Frankly, I believe EPAct is in need 
of an overhaul. Congress needs to address energy issues--even those 
energy issues focused on electric power supply--in a more comprehensive 
manner. At present, EPAct encourages the siting of new transmission not 
needed for reliability. By doing so, it subsidizes remote generators, 
discriminates against local and distributed generation and demand side 
resources, forces many customers to pay for someone else's benefits, 
increases the likelihood of blackouts, and makes our grids more 
vulnerable to terrorist attack.
    I would like to conclude with a favorite and well-known quote from 
the 18th Century Anglo-Irish author, philosopher and politician, Edmund 
Burke: ``All that is necessary for the triumph of evil is for good men 
to do nothing.'' Let's resolve not to ``do nothing,'' but let's be sure 
that, whatever we do, we do the right thing.

    The Chairman. Thank you very much. Thank you for your 
testimony. Thank you all for your excellent testimony.
    Let me ask a couple of questions, and then defer to my 
colleagues here. Commissioner Hoecker, I believe you talked 
about how we need to figure out a way in our legislation to 
allow for looking forward rather than looking backward.
    That the congestion study, as I understand it, is really 
sort of a way of looking backward and trying to, you know, 
we've got to have a problem that has already presented itself 
in order to have the authority to act. Rather than Ms. Tomasky 
has this proposal for a 765 kilovolt backbone system which is 
very much the opposite. Looking forward and saying here's what 
the country needs.
    I gather that your point is that we don't have a law, the 
authority for anyone one to do what she is suggesting might be 
done. Is that accurate?
    Mr. Hoecker. Clearly the corridor process is not a planning 
device. It's a way of allocating jurisdiction to site 
particular project proposals. I think this committee and the 
Congress when they drafted--when they adopted 221 of EPACT, 
made clear that economic development, energy security, changes 
in demography, all those things that could affect the evolution 
of the grid and needed or could be taken into account by the 
Department when it made its designations.
    The Department really didn't do that. It looked at existing 
congestion on the system. Now in fairness to the DOE, they're 
not particularly well equipped by either expertise or resources 
to be a super planner of the transmission grid.
    That is something that needs to occur regionally in every 
part of the country. I mentioned Order 890 as requiring 
transmission to be planned in an open, transparent process. 
That involves, not only where transmission is needed, but also 
how costs are going to be allocated and so forth.
    We need to move ahead in that area. If the Congress were to 
look again at the corridor process it may want to make it more 
forward looking. But in any event, we need to make FERC's 
promise in Order 890 more real. We need to have real regional 
transmission planning that moves this process ahead in a very 
cooperative and open fashion.
    The Chairman. Ok. Ms. Tomasky, let me ask you about your 
backbone system here. Could you just explain how you came up 
with this proposed backbone system?
    You say you did this jointly with the Wind Power 
Association or Wind Energy Association. Is that a large enough 
universe of folks to be making these kinds of plans in a way 
that would get us to a good result or should there be a lot of 
other folks involved as well?
    Ms. Tomasky. When we sat down with the Wind Energy 
Association it really was to see if we could conceive of sort 
of the beginning of an answer to that question. Which is can 
you actually conceive of a system that would permit us to move 
vast quantities of wind from the place where mostly the wind 
blows to where the load centers are.
    We thought it was important to take the resource map of 
where wind is that we had developed and try to overlay that 
with what a transmission system would look like. That's really 
what that map is. You are absolutely correct to say that's not 
a plan.
    A plan happens when the regional transmission organization, 
the States, neighboring utilities and others critical to the 
process actually start taking this concept and imagining how 
it's going to look and what you're going to connect, in what 
order, to build transmission. To put that in practical terms, 
in the Southwest Power Pool, we have engaged in joint ventures 
with two other utilities to try to put together specific 
proposals to build pieces of this. It brings us in front of 
planning organizations. It raises issues about cost allocation.
    In the absence of a centralized way to look at that, that's 
the right way to go about it. So no, you can't make it happen 
by yourself. But you can generate the ideas.
    The Chairman. Thank you very much.
    Senator Bunning.
    Senator Bunning. Thank you.
    Mr. Whitley.
    Mr. Whitley. Yes.
    Senator Bunning. Thank you. In your testimony you describe 
the need for an increase in the use of renewable fuels. I agree 
with you.
    The difficulty with many renewable technologies is that 
they are not ready for large production. In other words, we 
can't produce an awful lot of power from renewable fuels 
presently. It often leads to an overinvestment in certain 
technologies while overlooking timely benefits from current 
technologies.
    With clean coal technologies proven to be production ready 
and environmentally responsible, clean coal. Do you agree that 
it's only logical to use these same aggressive incentives for 
its emergence that are used for renewable energy investments?
    Mr. Whitley. I testified quite a bit on the use of 
incentives. APPA's concern on incentives is that they be used 
appropriately. I'm not sure that we have a position on the use 
of incentives for renewables at this point.
    But we are opposed to using incentives as a kind of a 
smorgasbord way of trying to get things done.
    Senator Bunning [presiding]. Ok.
    Mrs. Tomasky.
    Ms. Tomasky. Yes, sir.
    Senator Bunning. Thank you. Who paid for your transmission 
lines since you are an investor owned utility?
    Ms. Tomasky. The transmission lines that we have, most of 
which were built in the 1950s, 1960s and 1970s, were paid 
through the regulated system that we have. Our shareholders 
made the investment and our State commissions gave us a 
reasonable return on that investment. Ultimately was paid by 
ratepayers.
    Senator Bunning. Ratepayers.
    Ms. Tomasky. Yes, sir.
    Senator Bunning. Ratepayers were the ones and not your 
investors?
    Ms. Tomasky. Our investors fronted the capital and we 
receive a return on that investment.
    Senator Bunning. So was built into your rate system?
    Ms. Tomasky. Yes, sir.
    Senator Bunning. Could you answer me the question of how 
much of your electricity is produced by coal?
    Ms. Tomasky. AEP across its system produces a little less 
than, about 65 percent of our electricity comes from coal 
today.
    Senator Bunning. Sixty-five percent. Mr. Boston, I have a 
question also for you. In the regional transmission authorities 
or RTOs, who pays for the new transmission lines that you need?
    Mr. Boston. The new transmission lines are approved by our 
independent board of directors and then investors, including 
public power entities that desire to build new transmission, 
investor owned utilities make the initial investment and----
    Senator Bunning. The ratepayers----
    Mr. Boston. The ratepayer returns on that investment and 
ultimately pays for the investment in that transmission.
    Senator Bunning. Do you, can you give me a mix of how much 
of your power is produced presently by coal?
    Mr. Boston. I cannot give you an exact mix, but I can say 
that coal----
    Senator Bunning. Approximately.
    Mr. Boston. Coal is on the margin in our system last year 
70 percent of the times.
    Senator Bunning. On the margin 70 percent.
    Mr. Boston. It set the marginal price.
    Senator Bunning. How do we--the question I have it's 
reasonable, I think, is how do we with wind and solar from 
where we produce it since our technologies are not good enough 
right now to store it? How do we get it from where we can 
produce online to where it's needed? That's, I know we can 
build transmission lines to the source.
    But what's the other alternatives? Anybody.
    Ms. Tomasky. Senator it's exactly the right question to be 
asking about renewables. Renewables are intermittent and one of 
the reasons that we proposed the network is because we think 
the solution for renewables is to integrate them into a larger 
system. Base load capacity does provide the underlying 
foundation to run the system.
    Solar is available when it's available. Wind is available 
when it's available. You can by having a network that 
integrates all the resources in the most efficient way possible 
bring renewables in.
    I do agree with you. If you simply try to do extension 
cords from a renewable source to a load----
    Senator Bunning. That's not the answer.
    Ms. Tomasky. That's not the answer.
    Senator Bunning. If we had something like we had with our 
pipelines, you can tap in and put it into the pipeline. Get it 
to the main source of need. But with renewables where they're 
at and how they're produced, we can't do that with transmission 
lines.
    Ms. Tomasky. That's right. I mean the network system, again 
if you think about a highway. We think about a lot of on and 
off ramps. The system we build, if we build something like this 
is going to be expensive. You want it to last for a long time.
    Renewables can be developed over time. New load will 
certainly grow over time. If you have the basic overlay of the 
system, you can connect and operate a very flexible system. So 
that you can bring those resources on when they're available 
and deal with new load as it comes on.
    Senator Bunning. As we want to plug in that car, we've got 
to have the ability to produce the power where it's needed.
    Mr. Boston. Let me add to that just a little. The Eastern 
Interconnection of the United States is the world's largest 
machine if you think from Ontario to Key West all the machines 
are turning in synchronous. We don't need dedicated facilities. 
We need an integrated grid with integrated resources.
    As you have pointed out wind and solar will be 
intermittent. The storage that I see that has the most promise 
because it has other benefits to society is the plug in hybrid 
vehicle. The integration of wind, all peat nuclear, coal all 
come together to help us build that technology.
    Senator Bunning. But will that technology? We have to have 
technology with batteries that would really have to improved a 
great deal.
    Mr. Boston. Technology is moving very quickly.
    Senator Bunning. Thank you very much, Mr. Chairman.
    The Chairman [presiding]. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. Thank you to 
all of the folks who have given their time here. Appreciate it. 
Interesting testimony.
    Interesting to learn that since the year 2000 we've only 
added about 900 miles of interstate transmission lines. You 
think about the energy consumption in this Nation. Boy, 900 
miles to me, doesn't seem like much. But I'm used to big open 
spaces up north.
    But, Mr. Whitley, you mentioned the comment that if you 
love renewables you can't hate transmission or something to 
that effect, as I recall. Would you all agree with that?
    Mr. Loehr, you were probably the odd man out on that. Can 
you speak a little bit more about that connection there?
    Mr. Loehr. Thank you, Senator. I was trying to get my hand 
up and I guess Senator Bunning didn't notice me. There's two 
points I'd like to make about renewables.
    No. 1 is renewables have two problems. One is that the wind 
usually blows best way far away from where the load is. The 
other thing is, in wind in particular, which is of course, very 
much a subject of attention right now.
    Wind of its nature is only, only has a probability of being 
available at the time of the system peak of around 8 or 10 
percent. Whereas thermal generation it's more like 90 percent. 
So it provides a lot of great energy.
    It's a great idea. The fuel cost is zero. The environmental 
effect in terms of the atmosphere is zero.
    But it's not there. You really can't count on too much of 
being there at the time of system peak. That's a question. Now 
there's two questions here. One is providing enough energy. The 
other is meeting the system peak.
    The other thing is, as Mr. Boston so well stated, we have 
to integrate these resources into a grid. Unlike pipelines, and 
one of the problems I've encountered in discussing these issues 
with people is that a lot of people come from the pipeline 
industry. They think in terms of well, you turn the valves and 
you make the gas or the oil flow that way.
    It doesn't work that way with electricity. You could 
rather--maybe a better way is thinking if the whole grid is 
vibrating and the generators wherever they are make the grid 
vibrate more strongly the load that the customers take off 
makes it vibrate less. You don't really have a line that 
connects a generator to a customer or even a couple of 
generators to a couple of customers. It has to be an integrated 
grid solution.
    That's why I say, I think, you know, I'm not against 
transmission. I've worked in transmission all my life. It's 
just that I wanted to do this--I want to see us go forward as a 
Nation on a comprehensive basis in evaluating our electrical 
energy needs and consider transmission in connection with 
whether it's going to be coal fired generation or renewable 
generation, nuclear, demand side management. All those things 
need to be considered. They all need to be considered together, 
not independently.
    Senator Murkowski. It's tough. You know, once you've got 
your regional network built. You know, you think about how we 
built the interstate highway system.
    We didn't say, ok, here's the plan from Maine to 
California. It kind of built over a period of years. As much as 
we'd like to have that one comprehensive, this is it plan, 
sometimes we recognize that it gets built. Sometimes it gets 
built more effectively than others.
    Mr. Whitley, my last question this afternoon. You had 
mentioned the incentives for transmissions a couple different 
times. You said, you've got no objection to them as long as 
they're appropriate.
    But you seem to suggest that these transmission rate 
incentives are the new normal, if you will. Can you explain 
just a little bit more where you're going with that?
    Mr. Whitley. Sure, I'd be happy to. The point I was trying 
to make was that FERC did issue a rule setting, incentive base 
rate treatments for transmission, but in doing so, as I said it 
offered that smorgasbord. The thing that we think is missing 
there is the fact that the Federal Power Act also said the 
incentives, that the rates had to proven to be just and 
reasonable. I don't think that's happening in all the cases.
    Senator Murkowski. You're just saying they're set out 
there. You choose from them.
    Mr. Whitley. We're saying transmission owners, trying to 
take advantage of it for every project. We had one transmission 
owner in the Southwest Power Pool actually apply to ask for the 
ability to apply the incentives to projects that they'd already 
constructed, after the fact. So that's why it's become a 
smorgasbord. When that happens it just slows down the whole 
process because entities like the Kansas Power Pool then oppose 
what they're doing at FERC. It just takes time for everything 
to happen. So----
    Senator Murkowski. Ok. Appreciate that. Thank you, Mr. 
Chairman. Thank you again for your testimony.
    The Chairman. Thank you all for your testimony. I think 
it's been a useful hearing. All of this testimony is useful to 
us in trying to understand what additional action we should try 
to take here in Congress.
    So thank you all very much, and we will adjourn the 
hearing.
    [Whereupon, at 12:20 p.m. the hearing was adjourned.]


                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

      Responses of Terry Boston to Questions From Senator Bingaman

    Question 1. You argue that we need to strengthen the transmission 
system. Do you believe that the NIETC, accompanied by a FERC backstop 
siting authority is sufficient to get that job done?
    Answer. At the outset, PJM wishes to underscore that it is 
committed to working with the states within its footprint to ensure 
that state siting concerns and issues are proactively addressed. PJM is 
heartened by the recent approval by the West Virginia PSC as well as a 
favorable ruling by a Virginia Corporation Commission Administrative 
Law Judge concerning the ``Trail'' line which will address local as 
well as regional reliability needs in the PJM footprint. PJM believes 
that as an initial matter, these issues are best addressed at the state 
level consistent with the statutory scheme established by the Congress 
in the Energy Policy Act of 2005. It is too soon to say whether the 
statutory scheme set forth in EPACT 2005 can work successfully to 
appropriately balance local, regional and national interests going 
forward, particularly as the pressure for new transmission to support 
renewable energy, as well as the overall demand for electricity, 
continues to grow. PJM feels it best that the Committee continue to 
monitor the agencies' implementation of the law and the time required 
to use the NIETC through future hearings. In addition, PJM pledges to 
report to the Committee on the results of its efforts and those of its 
transmission owners to implement the independent PJM regional 
transmission plan.
    Question 2. Describe PJM's cost allocation methodology. Does this 
adequately encourage construction of transmission in your region?
    Answer. The methodology for allocating costs of both new 
transmission projects as well as existing transmission investment has 
been extensively litigated before the Federal Energy Regulatory 
Commission. As a result of both that litigation and a number of 
settlements of outstanding issues, the cost allocation methodology used 
in the PJM footprint can be summarized as follows:

          Existing Transmission Investment: Existing transmission is 
        allocated based on a ``license plate'' methodology. Under this 
        methodology, customers using the transmission system pay, 
        through their wholesale and retail rates, a return on the 
        embedded cost of the transmission system within the service 
        territory of its local utility (i.e. the ``zone'' in which that 
        load is located). In return for that payment, customers in that 
        zone are entitled to utilize the entire transmission system 
        without respect to the source or location of generation. 
        License plate rates, among other things, ensure that customers 
        can purchase from a wide variety of resources throughout the 
        footprint irrespective of the location of that generation.
          New Transmission Investment: As a result of the Commission's 
        Opinion No. 494 in Docket No. EL05-121, investment in new 
        transmission facilities of 500kV and greater are socialized 
        among the PJM footprint. The Commission's rationale for such a 
        resolution included its determination that all users of the 
        grid benefit from a strong ``backbone'' transmission grid at 
        these voltage levels and that attempting to parse benefits for 
        the 500kV and above grid would prove extremely contentious and 
        judgmental. For new facilities below 500kV, the PJM market 
        participants have filed a settlement which awaits the 
        Commission's approval. This settlement authorizes the 
        allocation of such facilities based on a ``DFAX'' methodology 
        which measures the incremental power flows giving rise to the 
        need for construction of the new facility and assigns costs 
        accordingly to the loads causing the line to exceed its ratings 
        absent new construction.
            Cost allocation determinations are, by definition, ones 
        which involve the exercise of judgment. The Courts have long 
        described the allocation of costs leading to the design of 
        rates as ``an art not a science'' and have provided deference 
        to the regulator given the inherently judgmental nature of the 
        exercise. PJM believes that continual litigation and 
        uncertainty concerning cost allocation can be the greatest 
        impediment to the construction of new transmission. For this 
        reason, PJM did not propose a specific methodology to FERC in 
        Docket No. EL05-121 but did underscore the need for regulatory 
        certainty in this area. To the extent that cost allocation 
        methodologies differ radically among regions, and particularly 
        in states which are served by more than one Regional 
        Transmission Organization, the potential for litigation and 
        continual challenge to cost allocation is even greater. 
        Moreover, the patchwork of different allocation methodologies 
        across the country results in certain unintended consequences. 
        Specifically, the variety of methodologies (beneficiary pays, 
        socialization, license plate rates etc.) leads to and fairness 
        issues. In addition, the lack of uniformity fails to capture 
        and appropriately compensate for the impact of power flows 
        across regional planning boundaries.
            PJM has attempted to bring its states together to negotiate 
        a resolution of the cost allocation methodology and is 
        committed to continuing those efforts. However, at the end of 
        the day, certainty from the regulator in this area is needed. 
        The FERC's determinations in Order No. 494 and the settlement 
        reached by the parties in Docket No. EL05-121, although still 
        controversial, did assist in providing a degree of certainty 
        which can only be beneficial to the effort to attract 
        investment in needed new transmission in the PJM footprint. PJM 
        stands ready to work with its state commissions and members to 
        explore whether there are other less contentious means to 
        resolve these cost allocation issues.

    Question 3. You say that you are modeling the impact of various 
climate change proposals on power flows and reliability and offer to 
share the outcome of that exercise with the Committee. We would be 
happy to see the results.
    Answer. PJM is working on this modeling and expects to have results 
to share with the Committee in the fall.
      Responses of Terry Boston to Questions From Senator Domenici
    Question 1. What is the effect of a National Interest Electric 
Corridor designation? Does it usurp state authority to site 
transmission lines? Does it adversely affect historic, cultural, scenic 
or natural resources?
    Answer. There remains a great deal of confusion and misinformation 
concerning the effect of a national interest electric corridor 
designation. PJM believes that the Committee's oversight hearing was 
helpful to ``clear the air'' concerning issues as to what the 
designation actually does vs. what it does not do. As PJM understands 
the law, DOE is to review whether congestion on the bulk power grid in 
given areas rises to the level of implicating certain national interest 
concerns including, as enumerated in the law, national interest 
concerns in energy security, reliability and economic choices for 
consumers. DOE's designation essentially identifies whether congestion 
in certain areas of the grid triggers these national interest concerns. 
The designation does not pre-ordain solutions to that congestion, 
rather, the designation essentially highlights the problem and 
``screens'' congestion throughout the grid to determine which areas of 
congestion may implicate the national interest concerns enumerated in 
the law. Specific solutions are then proposed by market participants; 
these solutions can include demand response, generation or transmission 
solutions. The state siting process (and FERC backstop siting) is only 
triggered for transmission solutions and, in the case of FERC backstop 
siting, only if (1) the state has no jurisdiction to site; (2) has 
failed to site within one year of an application to do so; or (3) has 
imposed unreasonable terms and conditions on the siting of a 
transmission line. Thus, state siting authority is not usurped per se 
by the designation of a corridor. Because the statute refers to 
``geographic'' corridors, the designation does ultimately establish the 
boundaries of FERC's authority to site a line on a backstop basis if 
any of the conditions set forth above are triggered.
    A corridor designation does not adversely affect historic, 
cultural, scenic or natural resources. A review of the impacts of a 
given transmission line on historic, cultural, scenic and natural 
resources always has been, both at the state and federal level, a key 
component of the siting process. That process is unchanged as a result 
of corridor designation.
    Question 2. What are the implications for the grid if the U.S. 
changes climate change policy and commits to carbon reductions?
    Answer. PJM is studying this question and will shortly have 
additional information to share with the Committee concerning the short 
term impacts of potential climate change legislation on power flows on 
the grid within the PJM region. In the interim, PJM notes that 
depending on the particular timeline and level of compliance ordered, 
there could be impacts which will require changes to grid 
configuration. In the PJM region, fossil fuel remains the dominant fuel 
on the margins in over 65% of the total hours of the year. Although 
under a cap and trade system, allowance prices would, in the short run, 
have to be quite steep in order to displace coal with other sources of 
generation. CO2 allowance prices will impact generation 
dispatch consistent with security constrained economic dispatch. This 
in turn can affect power flows, which today are predominantly from the 
west to the east in PJM, and begin to affect the degree of congestion 
in certain areas, potentially increasing congestion in some areas and 
decreasing it in others. The planning process has already begun to 
analyze the impacts of various climate change scenarios however without 
greater certainty as to the regulatory structure and compliance 
requirements, it is difficult to predict the absolute effect on the 
grid with any degree of certainty.
    PJM does believe that development of the ``Smart Grid'' as 
envisioned in the Energy Independence and Security Act of 2007 can, 
when coupled with plug-in hybrid storage automobiles and advances in 
battery storage, play a significant role in affecting the grid of the 
21st century. Advances in these areas can allow for the more efficient 
dispatch of generation and the development of an array of back-up 
sources to accommodate the intermittent nature of various renewable 
resources, including wind and solar. For these reasons, PJM has 
partnered with the University of Delaware and PHI on development of a 
prototype which allows for vehicles to provide regulation service for 
the grid.
    Question 3. Do you agree that if you ``love renewables'' you cannot 
``hate transmission''?
    Answer. Yes. As PJM CEO Terry Boston testified in his pre-filed 
testimony, more transmission is needed to meet the growing demand for 
renewable resources. Whether one supports more nuclear power, clean 
coal generation or renewable resources, more transmission is needed to 
bring those resources to customers. By their very nature, wind 
resources need to be located in areas such as along mountain ridges, 
where the wind is both predictable and relatively steady. These areas 
are often distant from load centers. Moreover, wind resources are often 
dispersed with many wind turbines clustered in wind farms. Transmission 
is needed to interconnect these resources to the grid and ensure the 
delivery of generation from them to the load. High voltage lines are 
needed given these long distances in order to avoid line overloads and 
significant line losses and to ensure adequate support to link this 
distant generation to market. As a result, this is not an ``either/or'' 
situation . . . transmission is needed and its important role should be 
recognized and facilitated by proponents of renewable resources as well 
as by the public at large.
    Question 4. You testified that you have more than 40,000 MW of wind 
generation currently in the PJM queue. How are you able to handle grid 
reliability given the intermittent nature of wind resources? How can 
you ensure that a sudden drop in wind power won't lead to a grid 
emergency like what happened in Texas earlier this year?
    Answer. Given the size and diversity of the PJM footprint as well 
as the limited number of prime sites for wind resources within the PJM 
footprint, PJM should not experience the type of grid emergencies such 
as occurred in Texas. Because PJM is the largest centrally dispatched 
grid in the world, it is uniquely situated to deal with intermittent 
resources. The scale and diversity of the PJM generation allows the 
system to more readily absorb changes in wind power generation without 
needing to invoke emergency measures. PJM geography is also quite 
diverse, spanning an area from the Atlantic Ocean to the plains of the 
Midwest. This allows wind generation in the Midwest plains to be offset 
by wind generation in the Allegheny Mountains or off-shore in the 
Atlantic Ocean. Weather, particularly dramatic changes in wind, is 
usually a local event and having the wind generation spread out across 
the entire footprint significantly helps deal with the intermittent 
nature of wind. PJM's geography also does not lend itself to large 
pockets (in relationship to its size) of wind generation. While the 
ability of PJM to absorb wind generation is not limitless, it is in a 
better situation then most.
    Question 5. You noted that since 2000, the PJM Board has approved 
almost $10 billion in new transmission investment. Have any of these 
projects actually been built yet?
    Answer. Approximately $2.3 billion of new transmission approved in 
the Regional Transmission Plan has been built and placed into service. 
This includes $1.3 billion in baseline upgrades, $641 million in 
transmission owner identified upgrades and approximately $375 million 
in upgrades associated with interconnection of new generation as well 
as merchant transmission projects.
    Question 6. Please describe PJM's efforts on demand response and 
energy efficiency to help meet increasing growth.
    Answer. PJM and its stakeholders have focused extensively over the 
past several years to fully integrate demand response into the PJM 
wholesale electricity marketplace. The PJM market provides 
opportunities for demand resources to realize value for demand 
reductions in the Energy, Capacity, Synchronized Reserve, and 
Regulation markets. FERC authorized PJM to provide these opportunities 
as permanent features of these markets (as opposed to the earlier 
interim programs that had been in effect for some time) in early 2006. 
PJM completed the systems modifications required to enhance or 
implement these opportunities on June 1, 2006. This effort integrates 
demand response into the PJM wholesale market and provides symmetrical 
treatment for generation and demand resources. The following graphic, 
Figure 1,* illustrates the evolution of opportunities for demand 
response compared to generation resources in the PJM wholesale market. 
As illustrated in this figure, demand response has evolved over the 
past several years to provide opportunities for this service in the PJM 
market that are comparable to the revenue opportunities for generation 
resources. The successful incorporation of demand response has provided 
benefits to PJM customers by moderating prices and providing additional 
alternatives to consumption patterns.
---------------------------------------------------------------------------
    * Figures 1-4 have been retained in committee files.
---------------------------------------------------------------------------
                             ENERGY MARKET

    PJM Economic Load Response enables Demand Resources to voluntarily 
respond to PJM LMP prices by reducing consumption and receiving a 
payment for the reduction. The Day-Ahead alternative provides a 
mechanism by which any qualified market participant may offer Demand 
Resources the opportunity to reduce the load they draw from the PJM 
system in advance of real-time operations and receive payments based on 
day-ahead LMP for the reductions. The real-time alternative provides a 
mechanism by which any qualified market participant may offer Demand 
Resources the opportunity to commit to a reduction of their electric 
demand and receive payments based on LMP for the reductions. Economic 
Load Response provides direct access to the wholesale market to end-use 
customers through agent PJM members, Curtailment Service Providers 
(CSPs), to curtail consumption when PJM Locational Marginal Prices 
(LMPs) reach a level where its makes economic sense. Currently, 
Economic Load Response includes incentive payments designed to 
encourage demand reductions.
    The growth of participation by end-use customers since 2002 is 
significant. The graphic in figure 2 shows the increase in total MWh of 
demand response provided through CSPs from year to year.

                            CAPACITY MARKET

    With the implementation of the forward capacity market, the 
Reliability Pricing Model (RPM), demand customers can offer demand 
response as a forward capacity resource. Under this model, demand 
response providers can submit offers to provide a demand reduction as a 
capacity resource into the forward RPM auctions. This is an important 
development for demand response providers because it provides the 
opportunity for them to obtain a commitment for a forward revenue 
stream up to four years in advance. Thus, the RPM provides a forward 
guarantee for a revenue stream which will enhance the business and 
investment model for further development of demand response. This 
feature of RPM is not only beneficial to the demand response providers 
that clear in the auction, it also provides additional depth and 
efficiency to the forward auctions because the planned demand response 
can compete directly with planned and existing generation resources 
which should lower capacity prices over time. In the first five annual 
RPM auctions which were held over the past year, over 2000 MW of new 
demand response was offered.
    PJM is currently working with stakeholders to allow energy 
efficiency devices and processes to participate the capacity market 
auction. PJM expects to add this capability by the first quarter of 
2009 in time for the next RPM auction.

                      SYNCHRONIZED RESERVE MARKET

    The PJM synchronized reserve market provides PJM participants with 
a market-based system for purchase and sale of the synchronized reserve 
ancillary service. Synchronized reserve is a quick-response service 
that is deployed by PJM when necessary to maintain reliable grid 
operation consistent with NERC control performance standards. In May 
2006, PJM implemented changes to the reliability procedures and to the 
market rules to allow demand response to qualify as synchronized 
reserve. The synchronized reserve market provides a unique opportunity 
for competitive development and investment in demand response 
infrastructure. The payments to resources that clear in the 
synchronized reserve market are compensation for the resource to be 
available to respond within ten minutes. Therefore, while demand 
response resources must install infrastructure to allow them to curtail 
their consumption of electricity within ten minutes, they will only be 
requested to curtail when system conditions require the ten minute 
response. Since the PJM market operators have historically requested 
ten minute response, on average, once every six days, the demand 
response customer may provide the service with limited disruption to 
their business processes. Since the implementation of this market 
enhancement in June 2006, several PJM industrial customers have 
responded to the market incentive and have installed the infrastructure 
necessary to participate in the market. The volume of demand response 
participation in the synchronized reserve market is illustrated in 
figure 3. End-use sites that have qualified to provide synchronized 
reserve include not only large industrials but also colleges and a 
hospital complex.

              DEMAND RESPONSE BENEFITS DURING PEAK PERIODS

    Demand Resources demonstrated value during the heat waves 
experienced during summer 2006 and 2007. Demand reductions at time of 
peak electricity can significantly reduce wholesale power prices at 
times of peak usage. In addition, demand reductions displace fossil 
fuel consumption as illustrated below. PJM performed analysis to 
determine which generation would have been deployed in the real-time 
dispatch had the measured demand response not been present during the 
heat wave from July 31, 2006 through August 4, 2006. The analysis 
method was based on utilizing the PJM dispatch software, in offline 
mode, to determine which generating units would have been dispatched to 
meet the increased hourly demand requirement that would have existed 
had the actual demand response not been present in each hour. The fuel 
displacement was then calculated by determining the fuel consumption 
that each incrementally dispatched generator would have consumed based 
on the generator's characteristics and on the incrementally dispatched 
MWh for the generator from the offline simulation. Figure 4 illustrates 
the results of this analysis and it illustrates the fossil fuels 
displaced by demand response during the August heat wave.

                  ONGOING DEMAND RESPONSE DEVELOPMENT

    The Mid-Atlantic Distributed Resource Initiative (``MADRI'') began 
a regional effort to bridge the retail and wholesale aspects of demand 
response in June 2004. Sponsored by the Philadelphia office of the U.S. 
Department of Energy (``DOE'') and led by a steering committee composed 
of representatives of DOE, the regulatory commissions of New Jersey, 
Pennsylvania, Maryland, Delaware, and the District of Columbia, the 
U.S. Environmental Protection Agency and PJM, MADRI identified several 
needs of and barriers to greater deployment of demand resources in the 
MADRI region. These barriers included: need for tools to measure the 
value of region wide demand response, financial disincentives for 
electric distribution companies (``EDCs'') to strongly support demand 
response, lack of regional interconnection standards for distributed 
generation (``DG''), need for cost effective and timely access to end-
use customer hourly usage data, and need to measure effectiveness of 
new demand response (``DR'') technologies and advanced metering 
infrastructure (``AMI'')
    MADRI published a study, ``Quantifying Demand Response Benefits in 
PJM,'' in early 2007 that documented annual energy savings from a 3% 
demand reduction in the highest priced hours of the year. MADRI has 
also produced model DG interconnection standards, a model tariff for 
decoupling EDC throughput and revenue and a web-based AMI tool box. 
MADRI has a 3% regional demand response goal under consideration.
    The work of MADRI supports state regulatory DR efforts underway in 
Pennsylvania, New Jersey, and Maryland. Several state regulatory 
commissions in the PJM region are recognizing the critical role of AMI 
and new DR technologies to the bill management and consumption 
decisions of end-use customers. PJM is also, both independently and as 
a member of the Demand Response Coordinating Committee (DRCC), 
participating in the efforts of NERC and NAESB to develop better tools 
to measure the impact of demand response on a national level.
    In order to support our work through MADRI, PJM held a symposium on 
demand response in May, 2007 that was attended by a broad mix of 
stakeholders and subject matter experts.\1\ One of the most prominent 
themes to emerge from the symposium was the need for coordination 
between retail and wholesale markets in order to increase demand 
response participation in PJM's markets. The participants at the PJM 
Symposium on Demand Response identified nine ``top priority 
opportunities.'' These are shown in Table 1 below.
---------------------------------------------------------------------------
    \1\ Information regarding the PJM Symposium on Demand Response, 
including a link to the conference proceedings, is available on PJM's 
Web site at http://www.pjm.com/committees/stakeholders/drs/drs.html.


    The symposium participants also emphasized the need to properly 
allocate responsibility for addressing some of these opportunities. In 
essence, some are areas in which the retail market should take a 
leading role, some are areas in which the wholesale market must take 
the leading role and others required a joint retail/wholesale 
commitment. Following the symposium, PJM worked with stakeholders to 
develop a multi-year Demand Response roadmap. The roadmap represents 
almost a full year of work with stakeholders in identifying remaining 
impediments and how both wholesale and retail solutions must be linked 
together to overcome many of these obstacles. Both MADRI and the PJM 
Board have endorsed the Demand Response Roadmap and the work has been 
continued through a second symposium, on the Demand Response Roadmap 
action items, held in May 2008. The Demand Response roadmap is 
continuing to be used as a guide for addressing barriers to demand 
response growth. The roadmap is available on the PJM website.\2\
---------------------------------------------------------------------------
    \2\ http://www.pjm.com/committees/working-groups/dsrwg/postings/
demand-response-roadmap.pdf
---------------------------------------------------------------------------
                                 ______
                                 
     Responses of Colin Whitley to Questions From Senator Bingaman

    Question 1. You argue that locational marginal pricing does not 
provide proper price signals to get new transmission built to relieve 
congestion. If you were able to build to relieve congestion yourself, 
resulting in joint ownership of transmission systems, would LMP improve 
as a price signal?
    Answer. As I stated in my testimony, there is no real disagreement 
that the use of LMP reveals the existence of transmission congestion. 
The problem is that LMP is not effective as a price signal, because it 
generally does not lead in turn to substantial new investment in 
transmission facilities. This is the case for the reasons I described 
in my testimony (for example, building new transmission facilities can 
decrease the profits of generation owners--who are often also the 
dominant transmission provider--located in the congested area). 
Therefore, we do not need to improve the price signal, but rather to 
improve the transmission planning and construction processes that would 
overcome the shortcomings of RTOs' Day Two market regimes. One way to 
improve these processes is through the use of the joint transmission 
ownership model. Joint ownership is already used successfully in the 
transmission planning and construction processes in some regions; its 
broader use in other regions could be very helpful.
    In a report commissioned by APPA and released in February 2007, 
Synapse Energy Economics delved more deeply into, among other issues, 
the adequacy of LMP as a price signal for generation, transmission and 
generation. (LMP Electricity Markets: Market Operations, Market Power, 
and Value for Consumersprepared by Ezra Hausman, Robert Fagan, David 
White, Kenji Takahashi, and Alice Napoleon, Synapse Energy Economics. 
This report is attached.)
    Synapse reached the following conclusions regarding LMP and why it 
has not acted as an effective incentive for transmission construction 
and expansion:

   No merchant transmission has emerged.
   Many other factors besides pricing differentials play a role 
        in determining to build transmission, such as access to land, 
        and the prospect of local opposition.
   Short-term price signals are not adequate to support 
        projects that are capital intensive and require long-term 
        financing.
   Price signals provided by LMP can change as fuel costs 
        change. Because the prices are based on bids, not actual costs, 
        the resulting signals can be especially volatile as generator 
        offers change.

    Question 2. Does discrimination in the provision of transmission 
service still exist? Is it better or worse in RTO regions?
    Answer. The implementation of Open Access Transmission Tariffs 
(OATTs) as required in the Federal Energy Regulatory Commission's 
(FERC) Order No. 888 fundamentally changed the provision of interstate 
transmission service by public utilities as defined under the Federal 
Power Act (i.e., investor-owned utilities). The most overt forms of 
discrimination were greatly reduced by Order No. 888's requirement that 
transmission-owning utilities file OATTs with standardized terms and 
conditions. There remain, however, numerous opportunities for 
transmission owners to discriminate in more subtle ways.
    In the non-RTO regions, there is considerable variation in the 
extent to which OATT service actually provides a viable platform for 
competition. The variation is partly attributable to differing ``on the 
ground'' conditions, but it also is driven by whether the dominant 
utilities (which, in non-RTO regions, tend to be vertically integrated) 
favor or oppose the development of more competitive energy markets. 
Utilities that oppose greater competition have been ingenious in 
finding ways to discriminate in the provision of transmission service, 
even under the standardized terms of the OATT. For example, a crucial 
factor is how much transmission capacity a transmission owner decides 
is ``available'' to support requested OATT service. Through the various 
ways they can influence that calculation, transmission owners are able 
to make more or less service available to their competitors and other 
transmission customers. FERC in its Order No. 890 has taken this issue 
on, and the industry, through the North American Electric Reliability 
Corporation, is currently working on revising and standardizing methods 
of calculating such Available Transfer Capability (ATC).
    Although instances of discrimination still occur, APPA informs me 
that, overall, it receives fewer complaints from members regarding the 
provision of transmission service in non-RTO regions than it does from 
members in RTO regions. There is, however, one notable exception: APPA 
members taking transmission service from Entergy Corporation affiliates 
report systemic and continuing problems obtaining transmission service. 
These problems can be traced to Entergy's failure over many years to 
invest meaningfully in transmission upgrades on its very congested 
system. It is simply too soon to tell whether the OATT reforms ordered 
by FERC in its Order No. 890 series will result in Entergy's 
transmission customers receiving improved access to transmission on 
reasonable terms.
    In RTO regions, complaints by APPA members regarding transmission 
service generally do not involve allegations of discrimination by the 
RTO; more often, they arise from excessively long delays in processing 
generator interconnections and other service requests, volatile and 
unpredictable charges for transmission service (due to congestion-based 
pricing), inadequate financial transmission rights to hedge congestion 
costs, and inordinately complex and costly market structures. The 
service provided to all RTO transmission customers is generally the 
same; the problem is that the RTO transmission service paradigm is far 
more advantageous to traders and merchant generators than to those 
entities whose primary focus is serving their retail customers at the 
lowest cost. For example, public power systems generally hold (through 
ownership or contract) a portfolio of long-term power supply resources 
to meet their customers' needs. The financial rights-based transmission 
service that Day Two RTOs provide simply does not support public power 
systems' power supply portfolios or service obligations in the same way 
that the physical-rights transmission service provided under the Order 
No. 888 OATT did, especially where (as is all-too-often the case) the 
RTO's transmission grid is constrained.
    In the RTO serving the State of Kansas (the Southwest Power Pool), 
transmission improvements and upgrades are automatically assigned to 
the existing incumbent Transmission Owners (TOs), under a ``right of 
first refusal.'' Unfortunately, many of these TOs do not undertake the 
associated transmission facilities improvements in time to support the 
associated transmission service requests by third parties such as the 
Kansas Power Pool (KPP). They instead apply for transmission rate 
incentives for these transmission improvements and wait until they know 
if they will receive the incentives before venturing to build the 
facilities. ( I should note, however, that transmission improvements 
required by these TOs to provide transmission service to serve their 
own native loads have been initiated and constructed.) Otherwise, they 
request the transmission customers in question to agree to taking the 
entire financial ``risk'' associated with constructing the facilities. 
If the customers (in our case, public power communities) are expected 
to take the full financial risk of such projects, I think they should 
also be able to enjoy the associated rewards (and lower the total 
financing cost of the project) through the vehicle of joint 
transmission ownership.
    As I stated in my original testimony, transmission should be 
assigned and built based on an obligation to serve all loads in the 
RTOs' service area. I agree with Senator Bingaman that transmission is 
a highway. Everyone should be able to drive on it.
    Question 3. What can the government do to encourage joint ownership 
of transmission systems?
    Answer. APPA's resolution 06-11, adopted June 12, 2006, urges FERC 
to encourage and promote joint ownership of transmission in both RTO 
and non-RTO regions. It lays out five ways FERC can exercise its 
existing authorities under the Federal Power Act to promote joint 
transmission ownership by FERC-regulated public utilities and public 
power and other non-jurisdictional electric utilities: ``(i) approve 
reasonable rate incentives for jurisdictional transmission services; 
(ii) impose conditions on public utility mergers; (iii) ensure that all 
sellers authorized to charge market-based rates have mitigated their 
generation and transmission market power; (iv) enforce the joint 
planning and credits for customer-owned transmission requirements in 
the FERC pro forma open-access transmission tariff; and (v) other 
authorities granted to the Commission under the Energy Policy Act of 
2005, including, but not limited to, the designation and ownership of 
facilities within ``national interest electric transmission corridors 
and initiatives to ensure that load-serving entities are fully able to 
meet their native load service obligations.'' The resolution also urges 
Congress and other federal agencies to consider joint ownership of 
transmission as a possibility when allocating federal resources to help 
enhance the bulk transmission system or to rebuild or upgrade 
transmission lines.
    APPA has filed comments in several Commission rulemaking dockets 
suggesting just such measures to promote joint transmission ownership. 
For example, APPA filed extensive comments with FERC in the rulemaking 
that resulted in Order No. 890, which revised the landmark OATT first 
required in Order No. 888. APPA cited legal authorities that would 
support a tariff requirement that transmission owners offer joint 
ownership opportunities in developing transmission expansion plans. 
APPA also suggested that FERC make this a requirement in connection 
with the granting of market-based rate authority for dominant 
transmission providers, and in merger proceedings under FPA Section 
203. In addition, APPA suggested that FERC make the grant of 
transmission rate incentives to a ``public utility'' (i.e. investor-
owned utilities) transmission provider contingent upon that 
transmission provider offering joint ownership opportunities to its 
transmission customers. As APPA said in its comments in that docket: 
``Joint ownership can and does work, but in certain regions of the 
country, it will never be a reality unless the Commission does more 
than simply encourage it.''
    In Order No. 890, FERC said that it supported joint ownership, but 
declined to make any mandatory requirements for an ``open season'' or 
other mechanisms to allow opportunities for joint ownership. Excerpts 
from APPA's comments to FERC in the Order 890 docket are attached. 
Similarly, in other rulemaking dockets, FERC has noted that it supports 
the concept of joint transmission ownership, but has declined to take 
any concrete steps that would support that policy preference.
    As I also mentioned in my written and oral testimony at the 
hearing, Congress can support joint ownership by providing additional 
relief from certain ``private use'' restrictions that limit public 
power's ability to use tax-exempt financing for transmission lines.

     Responses of Colin Whitley to Questions From Senator Domenici
    Question 1. What is the effect of a National Interest Electric 
Corridor designation? Does it usurp state authority to site 
transmission lines? Does it adversely affect historic, cultural, scenic 
or natural resources?
    Answer. Under Section 216 of the Federal Power Act, which was 
established by Section 1221 of the Energy Policy Act of 2005, FERC 
siting authority is limited to electric transmission facilities in 
highly congested corridors designated by the Department of Energy 
(DOE). FERC can act only where states lack authority to act or have 
withheld approval of requested authority, which is why it has been 
called ``backstop'' authority. This section sets up a process under 
which: 1) DOE designates certain geographic areas where transmission is 
highly constrained or congested as NIETCs; 2) FERC can grant siting and 
construction permits employing federal eminent domain authority for 
transmission facilities in these NIETCs if, after a certain period 
passes, state authorities have withheld approval of such proposed 
transmission facilities, a state does not have the authority to approve 
the siting of such facilities or to consider the interstate benefits, 
or the applicant is a transmitting utility that does not serve end-use 
customers in the state where the project is proposed. FERC must take 
certain issues into consideration when using its backstop siting 
authority. It must find that the proposed facilities will: 
significantly reduce transmission congestion in interstate commerce; 
protect or benefit consumers; are consistent with the public interest; 
and enhance energy independence. The proposed construction or 
modification must also be consistent with sound national energy policy.
    Therefore, a designation of an NIETC by DOE is just that--a 
designation. State siting authority can and likely will still be 
invoked and exercised; review of the environmental issues and 
associated historic, cultural, scenic and natural resources will no 
doubt take place in the state proceedings, and if necessary, the 
federal backstop proceeding at FERC. All appropriate environmental and 
land use issues will be aired when actual siting applications are made. 
It would be both duplicative and wasteful to consider these issues in 
depth at the corridor designation stage; duplicative because these 
issues would then have to be reconsidered in actual siting proceedings, 
and wasteful because no follow-on applications for transmission 
facilities may in fact be filed.
    Question 2. What are the implications for the grid if the U.S. 
changes climate change policy and commits to carbon reductions?
    Answer. Emissions of greenhouse gases (GHGs) and the linkage of 
these emissions to global climate change is the most significant 
environmental issue facing the electric utility industry, and one of 
the most pressing environmental issues confronting the nation. 
Addressing this issue in an appropriate manner is, therefore, one of 
the highest priorities of the APPA. In June of 2006, the APPA Board of 
Directors established a CEO-level Climate Change Task Force to help 
APPA evaluate and ultimately develop policy recommendations on 
legislative proposals to reduce GHG emissions and to provide practical 
advice to APPA members on programs and activities they can pursue 
locally to reduce GHG emissions in their own communities.
    In 2007, APPA's membership approved a resolution sponsored by the 
CEO Climate Change Task Force (Resolution 07-03) that expresses support 
for congressional action to reduce greenhouse gas emissions in order to 
address climate change and sets out a series of principles to guide 
congressional consideration of related proposals. The resolution 
asserts that any federal program to address climate change must:

   Be economy wide;
   Consider the financial impact on consumers;
   Protect the ability of U.S. industries to compete in world 
        markets and must carefully consider the international 
        competitive impact on U.S. jobs;
   Allow credit for early actions taken to reduce greenhouse 
        gas emissions;
   Maintain reliability [emphasis added], protect national 
        security and avoid over-reliance on any single fuel by 
        recognizing the importance to the nation of preserving a 
        diverse mix of electricity generation fuels, including coal, 
        nuclear, natural gas, and all renewable energy sources 
        including hydro;
   Place an enhanced and immediate economy-wide focus on energy 
        efficiency for all energy uses;
   Ensure that tax-based or other incentives for the 
        development and deployment of renewable and clean energy 
        facilities and programs are provided on a comparable basis to 
        all electric industry sectors including public power;
   Recognize and address regional differences that could impact 
        the fairness and effectiveness of any program designed to 
        address greenhouse gas emissions;
   Include additional and expanded federal support for 
        research, development and deployment of cost-effective 
        technologies to reduce, capture, transform, transport or 
        sequester greenhouse gases from emission sources throughout the 
        national economy; and
   Ensure that any generation portfolio requirements allow all 
        low emission technologies.

    Since the adoption of Resolution 07-03, the attention on climate 
change has continued to increase in Congress, with a sharpening focus 
on establishment of a cap-and-trade program as the general approach to 
addressing the issue. Therefore, APPA adopted additional guidance in 
June of this year in Resolution 08-10, Principles for a Potential 
Federal Cap-and-Trade Program to Reduce Greenhouse Gas Emissions 
(attached). However, the general principles established in 2007 still 
apply, and APPA continues to view any climate change proposals by 
Congress and the Administration with these principles in mind.
    With regard to ensuring the maintenance of reliability, APPA 
submitted comments in July of this year to the North American Electric 
Reliability Corporation (NERC) on the potential impact of climate 
change on reliability. NERC had requested comments from the industry on 
this issue to assist it in carrying out its responsibilities to assess 
long-term adequacy and to examine policy issues that may affect the 
accuracy of its future adequacy assessments.
    In its comments, APPA expressed concern about the convergence of 
the numerous issues raised by climate change that create pressures to 
pick certain technology options and discard others prematurely before 
their operational and cost consequences are fully understood. APPA also 
said that it anticipates increased physical, economic and supply 
pressures in the competition for (relatively) cleaner energy sources 
and for access to related infrastructure such as local water supplies, 
gas pipeline capacity and rail transportation, that are needed for 
electric generation.
    APPA noted that these tensions could create increased risks to 
electric system supply adequacy and operational reliability in the 
following seven areas:

          1. The Dash for Gas and International Energy Demand 
        Pressures. The most immediate risk to reliability has been 
        called the ``dash for gas.'' Public policy decisions and market 
        forces will likely cause many companies to choose the ``quick 
        fix'' of fuel switching. These market forces include pressure 
        on company stock prices and bond prices if they do not mitigate 
        carbon risk in anticipation of public policy decisions by 
        ``going green'' now. The United States has adopted such coal/
        gas/coal/gas fuel switching policies several times before--and 
        each such switch has had unintended consequences. The dash for 
        gas in electric generation could create conflict with basic 
        manufacturing industries that need reliable natural gas 
        supplies as feed stocks and with widespread use of gas for 
        space heating. Further, increased domestic reliance on imported 
        liquefied natural gas (LNG) implies that U.S. natural gas 
        demand will increasingly be driven by international oil and gas 
        markets.
          2. Replacement of Generation Retired Due to Climate Change. 
        The second risk to reliability arises from the need to rapidly 
        replace the base-load power supplied from generating capacity 
        that is likely to be retired in the near future due to the 
        combined effects of equipment age and regulatory requirements 
        to reduce CO2 emissions. Continued reliance on coal 
        for power generation implies that the utility industry will 
        need to install over 100 GW (gigawatts) of new capacity to 
        replace existing conventional steam-electric capacity (with no 
        additional capacity to meet forecasted demand growth).
          3. Parasitic Losses from CO2 Capture and 
        Compression. The third reliability risk identified by APPA 
        results from the enormous parasitic energy demands associated 
        with CO2 capture and compression. Research sponsored 
        by APPA indicates that the nation will need to install as much 
        as 320 GW of additional generating capacity to meet the 
        parasitic losses associated with CO2 capture and 
        compression systems at existing coal-fired power plants. While 
        the loss factors for some new technologies may be as low as 
        30%, the parasitic losses associated with retrofitting existing 
        conventional coal-fired plants are as much as 50% of total 
        gross output. By way of comparison, roughly 100 GW of capacity 
        might be needed to meet the parasitic losses associated with 
        SO2 scrubbers and NOX selective catalytic 
        reduction systems under the Clean Air Interstate Rule (CAIR), 
        which was vacated by the United States Court of Appeals for the 
        District of Columbia Circuit.
          4. Generation Outages from Rapid Deployment of New 
        CO2 Control Technologies. The fourth risk to 
        reliability associated with climate change is the move to 
        CO2 control technologies that have not been fully 
        developed beyond small scale demonstration projects. Commercial 
        scale projects will undoubtedly raise numerous logistical, 
        technical and cost factors that are as yet not well understood. 
        Until shown otherwise, it is unreasonable to assume that 
        planned and forced outage frequencies and durations for new 
        generation and carbon control technologies are in any way 
        similar to the much lower outage rates for mature conventional 
        generation technologies. Particularly for coal-fired generation 
        in conjunction with CO2 capture, compression and 
        permanent storage, the critical skill sets and technology 
        requirements to permit, build, own, operate and maintain such a 
        facility are more similar to those required for a major 
        chemical plant than a conventional steam-electric power 
        station.
          5. Non-Electric Infrastructure Required for Large-Scale 
        Carbon Capture and Sequestration. All new technologies for 
        controlling CO2 for climate change purposes rely 
        heavily upon new non-electric infrastructure that must be built 
        in order to complete the process of safely injecting and 
        storing CO2 in geologic formations. An extensive 
        network of new pipelines and rail for transportation of 
        chemicals required for carbon capture, pressurization and 
        storage will be required. Nearly all existing coal-fired plants 
        and most new plants that intend to capture, pressurize and 
        inject CO2 into geologic formations will need to 
        transport such pressurized CO2 by pipeline to remote 
        locations.
          6. Heavy Reliance on Remote and Intermittent Renewable Energy 
        Sources. Heavy increased reliance in many regions of the United 
        States on renewable energy sources that are remote from load 
        centers and/or intermittent or variable in their output 
        characteristics may pose reliability risks. A major build-out 
        of EHV transmission is required to ensure the deliverability of 
        wind and other generation to major regional load centers. The 
        alternative, which entails extremely heavy reliance on 
        renewable generation in the sub-regions where it is produced, 
        is likely to introduce new operational problems for the 
        interconnected grid. System operators and renewable energy 
        operators may be forced to curtail significant amounts of 
        otherwise economic and environmentally beneficial generation in 
        source regions.
          7. Competition for Scarce Water Supplies. Population and 
        economic growth in more arid regions of the United States, 
        depletion of ground water supplies, and increased risk of 
        drought due to climate change all increase the general scarcity 
        of water. Further, new generation technologies may compound 
        these factors, by significantly increasing the per MWh 
        (megawatt-hour) water requirements for power generation. These 
        factors increase the difficulties encountered in siting of new 
        plants and meeting operating restrictions for existing plants. 
        APPA has developed a series of white papers to address some of 
        the technology, legal and public policy issues associated with 
        carbon capture and storage. (These APPA white papers are 
        attached.)

    Question 3. APPA does not believe that RTOs have aided in 
infrastructure investment and that the Locational Marginal Pricing 
measures are not working. Please elaborate.
    Answer. Please see our response to Chairman Bingaman's question 
number one above.

    [Reports, resolutions, and white papers have been retained in 
committee files.]

Attachment.--Excerpts from APPA's Comments on FERC's Proposed Revisions 
   to the OATT and Comments on Rehearing in the FERC Incentive Rates 
                                 Docket

    Longer term solutions require transmission expansion so that the 
transmission grid can support willing buyers and sellers who wish to 
make deals. The Commission should enforce the OATT requirement (Sec.  
28.2 and Preamble to Part III), as ultimately modified in the pending 
OATT NOPR, that the transmission owner plan the system to accommodate a 
network customer's existing and planned designated network resources. 
However, the Commission in appropriate cases should also tie the grant 
of MBR authority to a vertically-integrated transmission owner's 
demonstrated commitment to make specific transmission upgrades that 
would allow its wholesale customers cost-effective access to 
competitive alternatives. Cf. Okl. Gas & Elec. Co., 108 F.E.R.C.  
61,004 (construction of transmission ``bridge'' as remedy to market 
power concerns). It should tie the grant of MBR authority to the 
demonstrated willingness of such vertically-integrated transmission 
owners to jointly plan and construct transmission with their network 
customers, to participate with them in collaborative, open regional 
transmission planning processes, and to permit such customers to invest 
in the transmission system on a comparable basis. Customer investments 
must be treated comparably to the transmission provider's own, through 
mechanisms such as transmission credits and recovery of costs through 
the transmission owner's revenue requirement.
    In comments on the Notice of Proposed Rulemaking (NOPR) in this 
docket, APPA and NRECA suggested that the non-cost-based financial 
bonuses proposed in the NOPR were neither mandated by section 219 nor 
likely to promote transmission infrastructure investment consistent 
with the new statute. Such investment was not being limited by investor 
concerns about allowed equity returns or inadequate cash flows from 
monopoly transmission businesses. Rather, such investment could be 
better stimulated by requiring public utilities to engage in an open, 
regional transmission planning process that permits all load-serving 
entities--including public power--to participate on a comparable basis; 
by affording public-power entities the opportunity of joint ownership 
of new transmission facilities with public utilities; and by providing 
greater regulatory certainty and timeliness of cost recovery associated 
with major new transmission investment, thus reducing the associated 
riskto investors.
    APPA and NRECA have argued that a reasonable precondition to 
eligibility for incentive rate treatment would be a demonstration by 
the public utility that it has offered joint ownership opportunities 
for transmission upgrades and new transmission facilities, including 
third-party participation in the construction of such facilities, to 
other load-serving entities in the region, including cooperatives and 
public-power entities, on reasonable terms and conditions.
    There are many reasons why such a condition would make sense and 
would be consistent with Congress' objectives in section 219 and the 
Commission's objective in the Final Rule ``to benefit consumers by 
providing real incentives to encourage new infrastructure, not simply 
increasing rates in a manner that has no correlation to encouraging new 
investment.'' Because of their access to different capital markets and 
different capital structure, cooperative and public-power participation 
in future transmission projects could help ensure that needed 
facilities get built at the lowest overall cost. Moreover, cooperative 
and public-power participation could well reduce the need for incentive 
rate treatments by jurisdictional public utilities, e.g., by providing 
needed cash flow or reducing financial uncertainties. Indeed, if open, 
regional transmission planning was employed as also recommended by APPA 
and NRECA, then such joint ownership and construction could well become 
the norm. Congress clearly contemplated encouragement by the Commission 
of ownership of transmission facilities by a broader universe of 
entities than just public utilities, as section 219(b)(1) charges the 
Commission to promote capital investment in transmission, ``regardless 
of the ownership of the facilities.''
    Such a precondition would also comport with Congress' 
contemporaneous command in subsection 217(d)(4) of the FPA that the 
Commission ``shall exercise its authority under the [FPA] in a manner 
that facilitates the planning and expansion of transmission facilities 
to meet the reasonable needs of load-serving entities to satisfy the 
service obligations of the load-serving entities . . . .''
    Finally, for the reasons outlined in section B above, nothing in 
section 219 precludes such a reasonable precondition to the eligibility 
for incentive rate treatments. Indeed, such a precondition would 
further the express purposes of the Commission rule stated in section 
219--encouraging transmission infrastructure investment ``for the 
purpose of benefiting consumers,'' and ``promoting capital investment 
in the enlargement, improvement, maintenance, and operation of all 
facilities for the transmission of electric energy in interstate 
commerce, regardless of the ownership of the facilities.''
    The Commission acknowledges that ``public power participation can 
play an important role in the expansion of the transmission system'' 
and affirms its desire ``to encourage public power participation in new 
transmission projects.'' Indeed, the Commission correctly notes that 
``[e]ncouraging public power participation in such projects is 
consistent with the goals of section 219 by encouraging a deep pool of 
participants.''
    Nonetheless, the Final Rule declines to ``require public power or 
other joint participation in a transmission project in order for 
investment in a project to be eligible for incentives,'' because ``it 
is inappropriate to mandate a particular joint-structure be used in all 
cases.'' Similarly, while noting the ``value'' of a ``consortium 
approach'' built around an RTO planning process ``that includes public 
power and other new entities for new investment,'' and reiterating that 
the Commission ``encourage[s] participation by public power in meeting 
the transmission infrastructure provisions of section 219,'' the Final 
Rule does not ``require a consortium approach.'' The Final Rule 
concludes ``it is more appropriate for applicants to fashion proposals 
for new transmission infrastructure projects that are tailored to the 
specific circumstances and needs of a particular project.''
    The Final Rule's explanations do not hold up to scrutiny. APPA and 
NRECA absolutely do not propose that the Commission require joint 
participation--in the sense of joint ownership--as a condition for 
investment in a project to be eligible for incentives. Neither do they 
propose that ``a particular joint-structure be used in all cases.'' 
Rather, they propose that public utilities be required to offer joint 
ownership opportunities for transmission upgrades and new transmission 
facilities, including third-party participation in the construction of 
such facilities, to other load-serving entities in the region, 
including cooperatives and public-power entities, on reasonable terms 
and conditions, as a condition to receiving incentives. Simply put, 
incentives should not be offered to public facilities for upgrades or 
facilities that could be built for less through the willing joint 
participation of load serving entities. The Final Rule acknowledges the 
many advantages from public power participation but fails to explain 
why it rejects any reasonable conditions on incentive rates that are 
designed to achieve the acknowledged benefits to consumers arising from 
public power participation in transmission infrastructure investment. 
The Final Rule's treatment of this issue is arbitrary and capricious.
                                 ______
                                 
      Response of Susan Tomasky to Question From Senator Bingaman

    Question 1. Your vision of a national extra high voltage interstate 
transmission system is a dramatic one. How would the planning to 
coordinate development of such a system be carried out even if FERC had 
plenary siting authority?
    Answer. Thank you for the opportunity to expand on my testimony to 
address transmission planning in conjunction with the need for plenary 
federal transmission siting authority.
    We recognize that planning transmission facilities requires a 
coordinated effort with input from many parties, including state 
commissions, RTOs, reliability organizations, other affected utilities 
and landowners. While transmission siting generally is challenging, 
there is an added challenge when siting extra-high voltage (EHV) 
transmission lines since the lines typically cross multiple states and 
provide broader benefits than those where the line is being sited. This 
creates a significant impediment to the timely construction of needed 
facilities. Given these challenges, it is hard to imagine that we will 
break through the logjam of competing interests if we don't have a 
federal forum at the FERC. Its purpose: to resolve conflicts, with the 
express goal of ensuring that we can build the transmission we need to 
meet the nation's long-term energy policy objectives. (pages 10-11 of 
Testimony)
    To create this national transmission system, we need to overlay the 
existing grid, which was planned primarily to meet more local needs, 
with an extra-high voltage transmission system whose primary purpose is 
to integrate resources and load as efficiently as possible across large 
regions. That means that we need two things: first, we need a FERC 
siting process, akin to the Natural Gas Act certificate process that 
permits the siting of EHV transmission facilities on an expedited 
basis, and ultimately, we need a long term conceptual plan that 
identifies broad corridors for new EHV transmission development.
    To accomplish this, Congress would set out the vision, giving FERC 
the tools and responsibility to implement it. FERC would be directed to 
promulgate rules for considering applications for new EHV transmission 
lines, which in the near term could be product of coordinated planning 
efforts by existing planning groups including RTOs and utilities. These 
organizations do a very good job in addressing the thermal and 
reliability needs of their individual planning areas and they need to 
play a critical role in future planning activities.
    Ultimately, however, the national transmission system we have 
advocated will address national energy goals, and will therefore need 
to be based on a planning effort that takes into account the additional 
goals of ensuring efficient, environmentally sound electric power 
resource development across broad regions. We believe that the best way 
to coordinate planning of new EHV transmission is through a coordinated 
planning effort, overseen by FERC, taking all these reliability, 
efficiency and resource planning goals into account.
    One way to do this would be to require FERC to establish two 
regional planning efforts, one for the western and one for the eastern 
interconnection, with the goal of creating, within 2 years, an overlay 
plan for new EHV transmission in each of these areas. These planning 
efforts would follow procedures that ensure broad participation, and 
would take advantage of leadership and expertise already developed in 
RTOs, the states and other entities. The product would be a national 
transmission plan that would serve as a basis for future FERC siting 
decisions on specific projects. While FERC should not be precluded from 
using its authority for a wide range of proposals, projects that are 
consistent with the national transmission plan would be entitled to 
expedited consideration and would enjoy the benefit of a broad cost 
allocation and, where appropriate, incentive pricing.
    We recognize that this is an ambitious and resource-intensive 
undertaking. But the integration of new, environmentally sound 
resources will require extensive transmission construction on an 
interconnection wide scale. The sooner we plan it and begin putting 
steel in the ground, the quicker we can realize the benefits of 
renewables and cleaner technologies, and get down the path to a lower 
carbon future.

     Responses of Susan Tomasky to Questions From Senator Domenici

    Question 1. What is the effect of a National Interest Electric 
Corridor (Corridor) designation? Does it usurp state authority to site 
transmission lines? Does it adversely affect historic, cultural, scenic 
or natural resources?
    Answer. Under the Energy Policy Act of 2005, states retain their 
existing authority under state law to site transmission lines. The 
designation of a corridor by DOE is not a siting decision and does not 
in any way usurp state authority. By designating national interest 
corridors, DOE is only broadly identifying areas within which 
congestion issues should ultimately be addressed by the development of 
new transmission lines. Applicants are still subject, among other 
things, to requirements to follow RTO planning requirements and to 
environmental laws affecting protection of environmental, historic, 
cultural and scenic resources. DOE corridor designation also creates no 
right of eminent domain.
    If states fail to site a line that addresses issues identified in a 
DOE corridor designation, an applicant can then go to FERC seeking 
federal authority to move forward with that necessary project. The FERC 
process would include opportunity for public input and FERC would be 
required to follow federal environmental requirements addressing all 
the resource issues described above as well as landowner and other 
concerns.
    Question 2. What are the implications for the grid if the U.S. 
changes climate change policy and commits to carbon reductions?
    Answer. The implications for our transmission grid will be 
profound. Today's transmission system is heavily dependent on the 
location of the current generation fleet and the generation fleet of 
the future--in a carbon-constrained world--is likely to be located much 
differently. Historically, transmission has been the solution of last 
resort. As a result, the current system is simply not robust or 
flexible enough to handle a substantial shift from our current 
generation fleet to one that is more diverse in both fuel source and 
location.
    The choices we make about facilitating transmission will determine 
how quickly and efficiently we can bring lower carbon electricity to 
the nation's electric consumers. We need to think about ``transmission 
systems'' not transmission lines. AEP advocates the development of an 
extra high voltage transmission system, comparable to the interstate 
highway system that has fired the country's economic growth over the 
last 50 years. In particular, we see a significant technological 
advantage to developing higher voltage classes, including 765 kV 
technology. 765 kV transmission is the most efficient alternating 
current (AC) transmission voltage class in the country and is capable 
of transmitting large amounts of power over large distances. The higher 
the voltage, the more efficiently large amounts of power can be moved 
across large geographical areas. Given that there is a growing interest 
to harvest some of the wind rich areas of the country, an interstate 
transmission system will allow for the interconnection of large 
generation resources and transmit this energy in a highly efficient 
manner, while minimizing the amount of right of way.
    In the end, we firmly believe that our nation must have an 
interstate EHV transmission system that effectively integrates 
significant new, cleaner resources to meet our national energy policy 
goals. As noted in my testimony, to the extent that our national 
interests are to press forward with the development of cleaner, more 
secure sources of power, then it is equally urgent that we build the 
transmission system that can deliver this power to customers.
    Question 3. Do you agree that if you ``love renewables'' you cannot 
``hate transmission''?
    Answer. Yes, definitely.
    While some small installations of renewable power--agricultural 
wind turbines, solar panels on home roofs, etc.--do not require extra-
high voltage transmission, we must have EHV to harvest large-scale 
renewable generation needed to actually reduce the nation's carbon 
emissions. A nationwide EHV overlay, as advocated by AEP, achieves two 
purposes in this arena. It facilitates the large-scale renewables, as 
previously stated. It also relieves congestion on the existing lower 
voltage grid, allowing those lines to more readily accommodate the 
smaller installations.
    Many observers these days say ``there is no silver bullet'' to 
effectively deal with carbon emissions. That may very well be true. 
Certainly in our analysis, we see a variety of solutions needed to 
address our current and future challenges. Renewables, nuclear and 
clean coal generation should all play a role. Lower voltage AC lines 
and high voltage DC lines also will play a role. But beyond that, we do 
believe that the EHV overlay is the silver bullet: while it does not, 
in and of itself, solve all of our problems, none of our solutions can 
be implemented efficiently without it.
    Question 4. In your testimony, you note that from 2000 to 2006, 
electric companies invested more than $37.8 billion in transmission. 
Were these investments mainly for intrastate lines?
    Answer. By intrastate lines, we assume the committee is referring 
to lines developed largely to meet more localized resources 
requirements, rather than more regional facilities that address needs 
on a multi-state or regional basis. In that context, the answer is yes, 
the majority of these investments were intrastate rather than 
interstate transmission.
    According to a 2005 EEI report, NERC's Electric Supply and Demand 
Database shows that the average line length for the 470 projects in the 
database at the time (230 kV and above) was only 23 miles. This is 
clearly not characteristic of major interstate lines. In another 2005 
EEI report, approximately 50 percent of 2003 total transmission capital 
expenditures was invested in transmission station construction (e.g. 
transformers), and the other 50 percent was spent on transmission line 
equipment. This means that of the $37.8 billion investment, about half 
was spent on substation upgrades rather than actual transmission lines. 
The conclusion is that very little of the recent investment has been 
for true interstate transmission facilities, especially new lines. 
Today, new infrastructure is targeted to meet reliability needs only 
and is not focused on transmission expansion to secure development of a 
robust grid.
    Question 5. Do you believe that FERC's ability to site interstate 
gas pipelines is an effective model for increased federal authority 
over the siting of electric transmission lines?
    Answer. Yes. We agree with the testimony of Chairman Kelliher on 
this matter. The performance of an interstate transmission system is 
dependant on the availability of adequate infrastructure. While siting 
transmission is difficult in the best of circumstances, the challenges 
associated with EHV transmission are even greater. EHV transmission 
lines, by their nature, can be regional, interregional or national. 
Similar to interstate gas pipelines, the benefits associated with EHV 
lines are aligned with regional or national interests. State processes 
and state laws require the siting agency to evaluate the state need for 
the project, which becomes particularly challenging when we are asking 
a state to make a determination that requires them at times to weigh 
regional or national interests against state interests. In these 
situations, there is an inherent friction between state interests and 
regional/national interests. The challenge is compounded when an EHV 
line crosses state borders and both approvals are necessary to secure 
construction of the line. To ensure timely line construction, two or 
more states need to determine the need for and routing of the line. 
When each state is focused on its own individual interests and there is 
a need for coordination, inevitably there is a significant risk of 
delay.
    Question 6. AEP and the American Wind Energy Association recently 
partnered on a study showing the scale of transmission projects 
necessary to move electricity from our nation's wind resources to major 
load centers. You estimate the cost would be about $60 billion to 
permit wind to supply 20% of our nation's electricity needs by the year 
2030. How many miles of interstate transmission lines would we need to 
move all this wind power?
    Answer. The study performed by AEP estimates approximately 19,000 
miles of extra-high voltage (765 kV) lines would be required for a 
true, robust interstate overlay grid to harvest and deliver 20% wind 
energy by 2030. This map illustrates one configuration which would 
secure AWEA's goal of supplying 20% of the nation's energy demand from 
wind resources. AEP developed this conceptual EHV overlay to response 
to AWEA's request. The value of any robust EHV overlay is the ability 
to move power from large generation rich areas to the nation's load 
centers, as such, this is but one of many possible configurations that 
could work to satisfy the nation's long term energy needs. The actual 
mileage would be dependent on the technology used (i.e., using high 
capacity lines reduces the total mileage required), and the precise 
location of the generation. While done on a conceptual level, the 
configuration (shown on the map below)* is a system that would link 
areas of high wind resource potential with major transmission hubs 
across the country. The 19,000 miles can be used as a rough guide to 
the order of magnitude required.
---------------------------------------------------------------------------
    * Map has been retained in committee files.
---------------------------------------------------------------------------
    Question 7. Has AEP explored joint ownership arrangements with 
public power systems and rural electrical cooperatives in developing 
plans for new transmission lines?
    Answer. AEP is committed to the vision of a national EHV interstate 
transmission system and is actively pursuing the build-out of parts of 
that system. We have pursued targeted ventures based on the location of 
the projects and the desire to work with utilities where these 
facilities would need to interconnect. To date, we have not pursued 
joint ventures with public power systems and rural electrical 
cooperatives, however as we continue to identify opportunities for new 
projects it is probable that AEP will reach out to these entities.
                                 ______
                                 
    Responses of George C. Loehr to Questions From Senator Domenici

    Question 1. What is the effect of a National Interest Electric 
Corridor designation? Does it usurp state authority to site 
transmission lines? Does it adversely affect historic, cultural, scenic 
or natural resources?
    Answer. Designation makes the designated area subject to 
``backstop'' federal authority to site transmission, and confers on an 
applicant eminent domain authority. The scope of that authority is in 
dispute. Most agree that section 216 of the Federal Power Act (added by 
the Energy Policy Act of 2005) conferred on the Federal Energy 
Regulatory Commission (FERC) ``backstop'' siting and eminent domain 
authority in cases where the state or local entity does not have 
authority to site an interstate transmission line, or where that entity 
has not acted within one year of an application to site an interstate 
transmission line. For its part, FERC has interpreted section 216 more 
broadly to empower it to reverse state or local decisions that are 
timely made (i.e., within one year) to deny an application to site an 
interstate transmission line. Various state regulatory bodies and other 
interests have challenged this interpretation.
    The National Interest Electric Transmission Corridor designations 
made by the DOE as a supplement to its 2006 Congestion Study do, in my 
opinion, usurp the authority of states in the siting of electric power 
transmission lines. Also, they could undercut the efforts of the 
Regional Reliability Councils to coordinate the plans of the various 
RTOs, ISOs, transmission owners, generating companies, and Electric 
Service Providers operating within their defined geoelectrical areas.
    As I said in my July 31, 2008 Senate testimony: ``I believe that 
decisions on whether particular transmission lines are needed for 
reliability are best addressed by the states and by the eight existing 
regional reliability councils. They have consistently done a good job 
on this in the past. I do not believe that either DOE or FERC has the 
experienced staff or other resources to do this as well as the regional 
reliability councils and the states.''
    The designation of ``corridors'' which encompass some entire states 
and major portions of others seems to violate Webster's definition. In 
such huge areas, there are undoubtedly more ``historic, cultural, 
scenic or natural resources'' than could possibly be listed here.
    Question 2. What are the implications for the grid if the U.S. 
changes climate change policy and commits to carbon reductions?
    Answer. I do not have expertise in the areas of ``climate change 
policy'' and ``carbon reductions;'' hence I do not feel qualified to 
comment.
    Question 3. Does the Piedmont group support the development of 
renewable energy resources?
    Answer. As I stated in both my written and oral testimony, the 
opinions I expressed at the hearings were entirely my own. Although I 
was listed as representing Piedmont Environmental Council, I was not 
acting on their behalf. I assume that Piedmont was involved in 
obtaining my invitation to testify, but my written and oral comments do 
not necessarily represent their views. In fact, I have never been an 
employee of Piedmont or a consultant for them. I appeared at the Senate 
hearings on July 31, 2008 pro bono, and did not receive a fee from 
Piedmont or from anyone else. Therefore, I cannot speak for Piedmont on 
this issue.
    Question 4. Do you realize that in the east the most abundant 
renewable resource is wind power, located in West Virginia? How do you 
get that wind to load centers in DC, Philadelphia and New York without 
interstate transmission?
    Answer. I cannot judge the accuracy of the statement, ``in the east 
the most abundant renewable resource is wind power, located in West 
Virginia.'' But a casual glance at the Department of Energy's map of 
wind resources suggests, to my admittedly amateur eye, that it isn't. 
Rather, it appears that the East Coast from Maine to the Carolinas, 
Cape Cod and nearby islands, and the upper Great Lakes all have wind 
potential superior to West Virginia's.
    Wind generation has a low capacity factor (approximately 30%), and 
an even lower effective capacity, or probability of being available at 
the time of system peak (in the range of 8-11%). Hence the viability 
and cost-effectiveness of building long distance transmission to 
deliver wind energy to distant load centers--e.g., from West Virginia 
to DC, Philadelphia and New York--is highly problematic. There's also 
the question of Transmission I\2\R losses over such long distances, and 
the likely need for voltage/reactive support (VARs).
    In any case, this question appears to be based on the mistaken 
assumption that I am opposed to interstate transmission lines, or to 
bulk power transmission in general. This assumption is totally false. I 
do not automatically oppose transmission construction for any 
generating resources--wind, solar, geothermal, hydro, nuclear, oil, 
gas, or coal. Or solely for reliability. I believe that each case 
should be presented honestly, and judged on its own merits.
    At the July 31 hearings, in answering a question (I believe from 
Sen. Murkowski) during the Q&A, I said that, to me, the issue isn't 
whether or not we should add transmission infrastructure per se. It's 
really about considering all options--including transmission, local and 
distributed generation, and DSM. But, more important, it's about 
HONESTY, both in presenting the reasons for proposed transmission 
additions, and in applying standards and criteria. If we want to build 
transmission for new remote coal-fired generation, let's say that, and 
let the case be decided on its merits. Likewise, if we want to build 
transmission for renewables, let's say that, and let that case be 
decided on its merits. Finally, if we want to build transmission 
because it's needed to make the existing system reliable, let's say 
that, and let the case be decided on its merits. But let's not disguise 
what we want to build for coal or renewables or whatever as ``needed 
for the reliability'' of the existing system, if it really isn't. Let's 
not use blackout scare tactics for transmission additions that are 
really wanted so that new generation can be sited hundreds of miles 
from load centers. And, in our planning studies, let's apply standards 
and criteria correctly, not misrepresent them to indicate a 
``reliability violation'' when there really isn't one.
    Question 5. You appear to advocate building more generation close 
to load centers. What kind of generation do you realistically think can 
be built close to load centers today?
    Answer. As I said in both my written and oral testimony, all 
alternatives should be fully explored and carefully considered on a 
non-discriminatory basis--including local and distributed generation 
close to the load. Siting generation closer to the load centers it's 
intended to serve has the benefit of providing inherently higher 
reliability, greater protection from terrorist attack, as well as 
insuring local area protection, voltage support, and close-in black 
start capability.
    There's no inherent limitation on the types of generating 
facilities that could be built close to load centers, but the US 
already has gas, oil and nuclear plants so located. Certainly gas, and 
renewables such as solar, could be sited even within large metropolitan 
areas. Gas-fired combined-cycle units which have very low emissions, 
and efficiencies on the order of 60%, are now feasible. DSM, of course, 
is a ``natural'' as a resource located within load centers.
    Question 6. Can you provide specific examples of where a NERC 
Planning Standard was misapplied by not allowing time for system 
readjustments? Who, where, when?
    Answer. In my opinion, NERC Reliability Standard TPL-003, Category 
3 (C3), was misapplied by TrAILCo in proceedings before the 
Pennsylvania Public Utilities Commission in the application of Trans-
Allegheny Interstate Line Company (TrAILCo) regarding the proposed 
500kV TrAIL project and associated facilities. I came to this 
conclusion, and testified to that opinion, as an expert witness for the 
Energy Conservation Council, an intervener in the proceeding. This 
conclusion was based on my more than 45 years experience in bulk power 
system planning and reliability. (My bio is included with my written 
testimony.)
    The C3 standard, sometimes referred to as ``N-1-1,'' provides for 
imposition of a first contingency, followed by manual system 
adjustments, then imposition of a second contingency. The phrase 
``manual system adjustments'' allows for a wide variety of possible 
adjustments between the occurrences of the two contingencies; e.g., 
changing the outputs of generating units, modifying schedules, 
switching transmission lines, changing transformer and phase angle 
regulator taps, activating generating reserves, and any other actions 
feasible within a specified time frame (usually at least 10 minutes).
    A number of contingencies were cited by TrAILCo as violations of N-
1-1 testing under this standard, but ``manual system adjustments'' were 
not attempted between the first and second contingencies. In my view, 
this is an egregious error or misapplication; it applies a test to the 
system which is much more stringent than NERC Standards require, 
indicates a reliability violation where none exists, and implies the 
need for reinforcements which are not required to maintain reliability 
in accordance with national standards.
    Question 7. Can you provide specific examples of where a NERC 
Planning Standard was misapplied by manipulating generation through the 
exclusion of committed units? Who, where, when?
    Answer. I did not say in my testimony that ``a NERC Planning 
Standard was misapplied by manipulating generation through the 
exclusion of committed units.'' I did say the following: ``In some 
cases, units well along in the process have been deliberately excluded 
from studies because they would solve a reliability problem, while 
others at the same place in the queue were included, precisely because 
they exacerbate a reliability problem. In my opinion, this makes 
absolutely no sense.'' This approach was used by TrAILCo in the same 
Pennsylvania proceedings cited above. In my opinion, it violates the 
spirit of the NERC Standards process, and of the principle laid down by 
FERC, NERC, DOE and EPAct that all standards and criteria must be 
applied on a non-discriminatory basis.
    Interveners in the Virginia TrAILCo case have alleged that 
compliance with the NERC Planning Standards was tested using load flow 
simulations that excluded significant existing and planned generating 
stations (including the existing Mirant Potomac station, and Dominion's 
proposed Possum Point #7 and Warren stations); also, the studies 
assumed that no new plants, beyond those already possessing PJM 
interconnection service agreements, would ever be built in eastern PJM.
    Question 8. Generation re-dispatch is allowed under NERC Operating 
Standards. Are you claiming that generation re-dispatch should also be 
allowed under NERC Planning Standards? If so, doesn't this place the 
grid at greater reliability risk? If so, doesn't this take away one of 
the primary tools that transmission system operators now use when real-
time conditions may have 15 to 20 transmission lines and generators out 
of service?
    Answer. Generation re-dispatch is allowed under NERC Planning 
Standards. It is inconsistent and illogical for the initial dispatch, 
prior to the imposition of any contingencies, not to recognize the 
possibility that contingencies will occur. Sometimes system planners 
select initial dispatches which appear neutral but in fact bias the 
apparent vulnerability of the system.
    Many systems utilize re-dispatch in their planning studies. Not to 
do so, in my opinion, ignores one of the methods available to solve 
reliability problems. It also ignores the reality of how systems are 
actually operated--something for which system operators have castigated 
planners since I began my career in 1962! I personally believe that 
planning procedures, in general, should try to replicate how the system 
is actually operated in the real world.
    The underlying problem is how to determine the amount of 
transmission transfer capability needed in a system. In my opinion, a 
comprehensive planning procedure would use multi-area Loss of Load 
Expectation (LOLE) studies to determine required transfer capabilities 
for given installed generation assumptions. The result would not 
require that economic dispatch always be followed; rather, it would use 
probabilistic techniques to optimize the system and determine the 
minimum interface transfer capabilities necessary to meet an overall 
LOLE requirement of 1 day in 10 years. This would in turn suggest where 
reinforcements might be necessary.
    Adding transmission that really isn't needed for reliability acts 
as a magnet for remote generation. It's comparable to the way 
interstate highways radiating from an urban area attract new housing 
developments as each new section is opened. With interstates, housing 
developers are incented to build new subdivisions, and the ensuing 
growth often overwhelms the increased highway capacity. In power 
systems, generation developers are incented to locate generation more 
remote from load centers, making the system inherently less reliable. 
Adding transmission increases the transfer capability of the system, 
but does not in-and-of-itself enhance reliability. Reliability can only 
be improved by making the reliability standards themselves more 
stringent. As I said in my Senate testimony, Reliability is a function 
of the standards used, not the amount of wire in the air.
    More important, increasing the amount of remote generation creates 
a reliability problem and a potentially devastating national security 
risk. With more generation sited at locations far from urban centers, 
those metropolitan areas become increasingly dependent on remote 
generation, and hence on long transmission lines. This in turn makes 
them more susceptible to transmission contingencies which go beyond 
normal planning and operating standards, and increasingly vulnerable to 
terrorist attack.
    Question 9. If there is a risk of having rolling blackouts unless 
more electrical transmission is added, do you believe someone has a 
responsibility to communicate that risk to the public?
    Answer. This question presumes that ``rolling blackouts'' are the 
ipso facto consequence of not adding transmission. That simply is not 
the case. ``Reliability'' is of two types: ``adequacy'' (or ``resource 
adequacy''), which means the sufficiency of resources to serve load; 
and ``operating reliability'' (a.k.a. ``transmission reliability'') 
which means the ability of the synchronous interconnection or ``grid'' 
to survive sudden contingencies without dire consequences--overloads, 
low voltages, cascading outages, instability, system separation, or 
loss of firm customer load. So-called ``rolling blackouts'' refer to 
the former, not the latter.
    ``Rolling blackouts'' are not blackouts in the sense of November 9, 
1965, or August 14, 2003. They involve rotating feeder outages, voltage 
reductions (``brownouts''), and public appeals; they do not involve 
instability, system separations, and total loss of power supply over 
large geoelectrical areas. Also, ``rolling blackouts'' are caused by 
inadequate generating and related resources (DSM etc.), not by a lack 
of transmission. Of course, insufficient transmission can sometimes 
contribute to a resource availability problem, but in recent years I 
have seen very few examples. Multi-area LOLE studies which include 
transmission constraints between the specified areas, as described in 
my answer to Question #8 above, are the most effective way to determine 
if this is the case. Unfortunately, these are not frequently performed 
nowadays. The TrAILCo application before the Pennsylvania PUC, for 
example, never mentioned them.
    On a related subject, NERC Standards permit controlled load 
shedding for unlikely combinations of contingencies and operating 
conditions. Some refer to these as ``rolling blackouts,'' a scare 
technique. The significant difference between controlled load shedding 
and a cascading failure (blackout) is that controlled load shedding is 
normally done for only short periods, after which service is restored. 
Restoration of service after a blackout, on the other hand, may take 
days.
    I do believe that we all have an obligation to warn the public when 
there is a risk to power system reliability and national security for 
any reason--that is precisely what I intended to accomplish in my 
testimony before the Senate Committee on Energy and Natural Resources.
    Question 10. Do you oppose market-based generation dispatch (de-
regulation)? Do you believe de-regulation financially benefits 
consumers or financially hurts consumers?
    Answer. I have no objection to ``market-based generation dispatch'' 
in principle. However, in my view, the manner in which ``de-
regulation'' was accomplished has greatly compromised the reliability 
of the bulk power systems in the US, as well as financially harming 
consumers. My views are well-represented in trade press articles I've 
written over the past ten years, as well as in the reports I've co-
authored as a charter member of Power Engineers Supporting Truth 
(PEST). These may be viewed on the PEST web site at http://www.pest-
03.org. Interestingly, our views were shared by the majority of the 
invited papers presented at the panel sessions in Washington and 
Toronto co-sponsored by the DOE and the National Energy Board of Canada 
during 2005.
    One problem I've noted is that, under de-regulation, far fewer 
interregional studies have been performed. For example, a number of 
major 500kV transmission additions have been proposed within the PJM 
(ReliabilityFirst) area, but to my knowledge no comprehensive studies 
have been performed to assess their potential effect on the Ontario and 
New York (NPCC) systems, or vice versa. Such studies were routinely 
performed before ``de-regulation.'' In fact, I was personally involved 
in many of them, serving on the MAAC-ECAR-NPCC (MEN) Study Committee 
and the Joint Interregional Review Committee.
    History has shown that developments within one regional reliability 
council, RTO or ISO can have a profound effect on neighboring systems. 
For example, as early as the late 1960s, it was found that more than 
40% of any transfer from the Ontario portion of NPCC to the southeast 
New York portion of NPCC would flow counterclockwise around Lake Erie, 
through Michigan, and then through PJM before entering New York from 
the south. It was a classic example of the laws of physics--Kirchhoff's 
Voltage Law, to be specific. Even a significant percentage of transfers 
from upstate New York to the New York City area were found to flow 
through PJM. This situation had become critical by the late 1970s, and 
the New York and PJM Power Pools finally agreed on a number of fixes.
    In the 1980s, Hydro-Quebec and New England (both parts of NPCC) 
planned to build a 2,000 MW HVDC line between James Bay and the Boston 
area. A special MEN study was conducted; it determined that loss of the 
line could have a significant adverse impact on both PJM and New York. 
This led to an agreement whereby the capacity of the line was reduced, 
and its substation arrangements modified. More important, it was agreed 
that operation of the line (and the operation of all HVDC ties between 
Hydro-Quebec and its neighbors) would be coordinated with west-to-east 
power flows across both the PJM and New York systems.
    These are just two examples of the importance of interregional 
studies--studies which have been conspicuous mostly by their absence in 
the post-deregulation industry.
    Question 11. Do you believe that more electrical transmission 
creates a less reliable grid?
    Answer. There is no simple or generic answer to this question. But, 
all else being equal, a grid that increases reliance on remote sources 
of power generation is inherently less reliable than a grid that 
connects load to proximate local generation.
    Sometimes a transmission addition will enhance the reliability of 
the grid, as when it is truly needed for reliability. Other times, a 
transmission addition will exacerbate an existing problem or lower 
reliability, as when the increased transfer capability it provides will 
be used to increase long-distance power transfers across the grid. As I 
said in my Senate testimony: ``Addition of new transmission facilities 
will increase transfer capability, but reliability can only be improved 
by making the standards themselves more stringent. Reliability is a 
function of the standards used, not the amount of wire in the air. 
Further, transmission additions will not increase the reliability of 
the system if the increased transfer capability is used to accommodate 
increased power transfers. The same reliability standards would still 
be in place. The transmission transfer capabilities would be higher, 
but the higher transfer capability would simply be used to carry higher 
long-distance power flows.''
    Further, there's a national security risk. Quoting again from my 
testimony: ``If more generation is built in remote areas, and less 
generation and other resources are built close to load centers, then 
the load centers will be increasingly dependent on distant generating 
capacity--located perhaps hundreds of miles away. It would be like 
running a long extension cord to a friend's house a block or two away 
to power your toaster, instead of plugging it into an electric outlet 
right in your own kitchen. The more major cities depend on long 
transmission lines, the more subject they will be to power outages and 
blackouts due to major contingencies on the transmission system. 
Indeed, this constitutes a national security problem, since these urban 
areas would be more at risk from terrorist attacks on transmission 
facilities.''
                                 ______
                                 
    Responses of James J. Hoecker to Questions From Senator Bingaman

    Question 1. The study of cost allocation by the blue ribbon panel 
lists recommendations that seem to tend towards greater socialization 
of costs as opposed to greater use of participant funding. The 
conclusion would seem to be that this is the better way to encourage 
construction of transmission. A number of regions seem to depart from 
these principles in their cost allocation regimes that have been 
approved by the FERC. For example, the Midwest ISO allocates 20% of 
costs to customers of the ISO broadly and 80% more narrowly. Does this 
kind of formula result in transmission actually getting built?
    Answer. If the Blue Ribbon Panel's analysis and findings were 
reducible to a single idea it would be that all regional cost 
allocation processes should be subject to ``clear, consistent and 
principled regulatory policy and oversight.'' The panel believes that, 
because such guidance and limitations do not exist, transmission cost 
allocation determinations have been made in vastly different ways, 
using procedures that are not always transparent or respectful of all 
stakeholders, and often subject to parochial economic and even 
political interests. Each cost allocation process has therefore become 
an opportunity for every competing interest and interest group to 
reduce or eliminate its obligation to pay for the share of network it 
uses. The result is considerable uncertainty.
    In the view of these experts, regional consensus about cost 
allocations may be desirable from the standpoint of avoiding contention 
among stakeholders but such processes should not be relied on blindly 
by economic regulators for purposes of deciding who pays for expansion 
of the grid. The parties to regional processes such as the one you have 
cited were not guided or governed in their decision making by express 
standards or principles. FERC therefore acted to approve regional cost 
allocations in many instances based, not on a record, but on the 
absence of opposition. The Commission made a practical decision to 
accede to these outcomes rather than to engage in lengthy examination 
of whether there were better alternatives available. Arguably, this 
makes any judgment about what is ``just and reasonable'' more tenuous. 
The Panel therefore expressed a strong preference that federal 
regulators insist that cost allocation proposals be based on 
identifiable principles and that they exercise authority over all 
transmission rates, which they effectively do not do at present.
    I agree with you that the Panel's White Paper trends toward support 
for spreading the costs of grid upgrades and expansion more, rather 
than less, widely. I think the Panel would argue that in most cases 
involving extra high voltage projects, broader cost allocation is 
fairer and provides greater assurance of cost recovery.
    Yet, the Panel does not contend that ``socialization'' is 
appropriate in all instances or that participant funding is 
inappropriate where the benefits are clearly limited to specific market 
participants. The White Paper simply recognizes that the highly 
integrated nature of the interstate transmission system and the large 
regional markets they now serve means that beneficiaries of a 
transmission project are more numerous and more widely dispersed than 
ever before. Given the dynamic nature of modern grid operations, there 
is increased likelihood that spreading the costs broadly rather than 
dividing costs among local or sub-regional loads will produce more 
equitable and economically efficient results and greater assurance of 
cost recovery.
    MISO's parceling out of the costs of the grid may not stifle 
investment or allocate costs to loads that do not benefit from a 
transmission investment. However, other regions and jurisdictions have 
chosen very different approaches. While differences among regional 
markets and infrastructures need to be accommodated and may partly 
explain the disparities, ratemaking seldom leads to such divergent 
outcomes. The Panel believes the absence of principles that guide all 
regional cost allocations will deter or delay transmission investment, 
especially as these allocations and the proposed facilities that they 
might otherwise support interact across state and regional boundaries.
    Question 2. You criticize the NIETC process as being inadequate to 
ensure that sufficient transmission gets built. Would you support a 
greater role for FERC in siting transmission?
    Answer. Traditional state involvement in determining the need for, 
and siting of, individual parts of the high voltage system represents a 
mismatch of regulatory authority and the operation of what has become 
an integrated multi-state grid. Like Congress in EPAct 2005, WIRES 
would prefer a balance of state and federal interests in siting 
transmission. The NIETC process as it exists could be strengthened by 
ensuring that corridors for transmission are designated, not just 
retrospectively to address existing patterns of congestion, but also 
for important economic development, energy security, clean energy, and 
other forward-looking reasons. Potentially, this could lead to a 
greater role for FERC in grid expansion. Even with such improvements, 
however, the procedural delays inherent in the NIETC process and the 
fact that such an evaluative process imposes resource demands that the 
Department of Energy is ill-equipped to meet may nevertheless argue for 
its elimination in favor of a federal siting regime. In either case, it 
is useful to remember that FERC has authorized and sited interstate 
natural gas pipelines for over a half century with great success, 
timeliness, and a high level of sensitivity to local concerns. I have 
no reason to think it could not perform equally well if given the 
authority to site transmission.

    Responses of James J. Hoecker to Questions From Senator Domenici
    Question 1. What is the effect of a National Interest Electric 
Corridor designation? Does it usurp state authority to site 
transmission lines? Does it adversely affect historic, cultural, scenic 
or natural resources?
    Answer. The designation of a corridor pursuant to EPAct 2005 does 
not constitute a decision to site a specific transmission line. The 
corridor is not a right of way. A corridor designation does not take 
property. In fact, it does not immediately affect the authority of the 
state(s) in which the facility would be located to determine its 
location, to require permits, or to impose conditions on its 
construction and operation insofar as cultural, scenic, or natural 
resources are concerned. Our experience with corridor designations thus 
far seems to indicate that they do not make the construction of new 
transmission lines more or less likely. Such a designation, however, 
does perform the valuable service of highlighting the congested areas 
of the existing transmission system which could cost consumers money or 
threaten reliable service if not alleviated.
    Question 2. What are the implications for the grid if the U.S. 
changes climate change policy and commits to carbon reductions?
    Answer. I do not believe that climate change initiatives can 
succeed unless the need for upgrading the transmission system is fully 
taken into account. Let me identify three reasons for this.
    First, transmission is the principal means by which electricity 
from new clean energy resources such as wind, solar, geothermal, and 
biomass can be made available to the majority of American consumers. 
This is equally true for other low-carbon resources such as nuclear 
power and potential low-carbon coal generation. All of these resources 
are ``location constrained'' by their very nature and existing 
transmission infrastructure is inadequate to serve both the growth in 
traditional demand and development of these new generation resources.
    Second, the transmission system must be made ``smarter'' as well as 
larger and stronger. By expanding the high voltage ``backbone'' network 
and ensuring that it becomes a ``smart grid'', we can empower consumers 
to control their own carbon footprint, enable companies to make optimal 
use of existing assets, and turn the grid into a driver of energy 
efficiency and demand response.
    Third, transmission ensures fuel diversity and provides the needed 
market access for new technologies like carbon capture and 
sequestration, wind power, and solar generation. Deployment of new 
transportation technologies like plug-in hybrid vehicles will 
necessitate a more uniformly strong transmission system to deliver 
power on demand.
    Electric transmission therefore has a major role to play in 
addressing climate change. However, after a significant period of 
underinvestment, the grid is already challenged to meet traditional 
demand growth and expanding markets for electricity. Climate change 
initiatives will necessitate further investment in the transmission 
system.
    Question 3. Do you agree that if you ``love renewables'' you cannot 
``hate transmission''?
    Answer. I subscribe to that sentiment, although there appear to be 
many Americans who continue to hold fast to the notion that clean 
energy resources can satisfy most electrical demand without reliance on 
the grid. Electric transmission that is well-planned and efficiently 
operated can provide important environmental benefits for the consumer 
and the renewable energy industry that is typically building generation 
far from load.
    Question 4. What transmission improvements are we going to need to 
make to accommodate the expected use of plug-in-vehicles?
    Answer. A large-scale transition from gas-powered to electric-
powered vehicles, in particular plug-in hybrid electric vehicles or 
PHEVs, would require continued high levels of service capability from 
all elements of the industry. The extent of the transmission 
improvements that would be needed depends on the level of market 
penetration that plug-in vehicles could achieve in the future and the 
ways in which consumers would use the electric system to ``refuel'' 
their cars. These determinants will dramatically affect the types of 
new facilities that would be needed to sustain this new mode of 
transportation.
    The impacts on transmission may be modest, at least for the first 
decade or two in which PHEVs are commercial viable. For example, if a 
PHEV typically driven 20 or 30 miles on electricity consumes 2,400 kWh 
per year, one million such PHEVs would add 2,400 GWh of load, or a 500 
MW plant operating at a medium (around 50%) capacity factor. To put it 
another way, some experts estimate that 100,000 PHEVs charging 
simultaneously would consume the output of one 220 MW generating plant. 
These do not appear to constitute a significant additional load on the 
system, especially if most charging were done overnight (i.e., in off-
peak periods). PHEV advocates would also hasten to add that the battery 
storage capacity of each PHEV could be used to supplement system supply 
if dispatched in coordinated fashion during on-peak periods and that 
PHEVs would probably diminish the gap between on-peak and off-peak 
periods of utility operations, arguably leading to more efficient use 
of generating and transmission capacity.
    At this juncture, we have a lot to learn about the impacts that 
large numbers of PHEVs would have on transmission. It matters a great 
deal when (i.e., what time of day) cars are re-charged and where this 
new PHEV load will materialize. If PHEVs add significantly to on-peak 
load, then additional transmission and control equipment would likely 
be needed to support that load increase. One may argue that some 
regulation of the interface between the transportation and utility 
sectors could promote greater efficiency.
    Question 5. You noted that EPAct was a step in the right direction 
but that you have doubts about its long-term success. Please elaborate.
    Answer. I believe I expressed the greatest skepticism about the 
long-term success of the transmission corridor designation process, 
which in my view has proven cumbersome, controversial, and uncertain in 
producing results. In a larger sense, however, Congress has been timely 
in helping facilitate the transformative changes that the electricity 
system is undergoing, both in terms of its operational capabilities and 
the public interest objectives it is increasingly expected to serve. I 
believe EPAct supported the competitive market model, energy 
efficiency, incentives for transmission investment, and regional 
transmission organizations. These represent important if incremental 
steps toward a modern Twenty-First Century grid.
    The principal challenge today is to avert having a perfect storm 
converge on the existing transmission network through the combined 
pressures of escalating electrical demand and generation investment, 
interconnection of location-constrained clean energy resources, aging 
transmission infrastructure, the complexities of integrated bulk power 
markets, potential electrification of the transportation sector, and 
the need to deliver demand responsiveness and energy efficiency. 
Moreover, the role of the transmission system in any successful climate 
change initiative or in meeting renewable portfolio standards is just 
beginning to be fully understood.
    Basically, WIRES believes that substantial additional investment in 
the transmission system will be required during the next quarter 
century. Current estimates run as high as $230 billion nationally. Many 
of these new facilities will represent major expansions of the grid, 
well in excess of the important reliability reinforcements that 
industry has invested in during the last six years. However, as long as 
the regulatory and institutional background of high voltage 
transmission operations reflect the balkanized legal and operational 
realities of the past instead of the increasingly integrated bulk power 
markets of today, uncertainty will slow investment and the procedural 
complexities in siting projects and allocating costs will delay or 
deter construction of new facilities. In other words, the support and 
guidance of the Congress will continue to be important to achieving the 
strongest electric system possible consistent with long-term consumer 
benefits and expectations.
    Question 6. I understand WIRES has another transmission study 
coming out shortly. Can you give us a preview of that study?
    Answer. Gladly. I expect that, when finished, the paper will 
provide a valuable review of ``best practices'' that have been adopted 
throughout the United States by utilities, regulators, politicians, and 
markets to facilitate expansion of the transmission network in order to 
accommodate location-constrained electric generation. This is the first 
time that this information is assembled in one place for the use of 
policymakers and industry.
    Location-constrained generation refers to power production that 
faces limitations on geographical placement due to i) inputs; ii) 
technology; or iii) outputs. Most generation faces siting limitations 
for one or more of these reasons. Renewables that have the most 
significant locational constraints include wind, solar, and geothermal 
resources that is most efficient in areas far away from load centers 
and carbon capture and storage (CCS) technologies that requires 
specific geological formations for its outputs. These renewable 
resources also are intermittent, creating operational challenges for 
the transmission networks to which they connect. As investments in 
these new technologies increase due to the prospect of a carbon-
constrained world, transmission systems must adapt. The report will 
focus on commercial, regulatory and technical implications of these 
locational constraints on transmission investment and siting decisions.
                                 ______
                                 
   Responses of Joseph T. Kelliher to Questions From Senator Bingaman

    Question 1. You say in your testimony that the section 215 
authority is adequate to protect the bulk power system from most 
reliability threats. It has always struck me that the system of remands 
and the appeals system in that section are enormously cumbersome and 
time consuming. Have you had to use that remand authority yet, and do 
you find it to provide timely resolution of reliability concerns?
    Answer. As of this time, FERC has not used the remand authority to 
reject a proposed standard from the Electric Reliability Organization 
(ERO). To-date. FERC has approved 107 of 140 (filed as of 8/21/2008) 
proposed reliability standards. FERC found that these 107 reliability 
standards meet the statutory standard for approval, i.e., just, 
reasonable, not unduly discriminatory or preferential and in the public 
interest. While these reliability standards satisfy the statutory 
criteria for approval, FERC also identified concerns and areas for 
improvement. On that basis, FERC also exercised its separate authority 
pursuant to section 215(d)(5) of the Federal Power Act (EPA) to direct 
the ERO to submit to FERC ``a proposed reliability standard or a 
modification to a reliability standard that addresses a specific 
matter... .'' by directing that major modifications be made to 75 of 
the 107 approved standards. FERC found that 25 of the proposed 
standards were incomplete and were therefore ``set aside'' until the 
ERO modifies the standards by providing sufficient detail for the 
standards to be effectively implemented. These standards were not 
approved or remanded.
    A primary consideration when selecting these courses of action is 
that the ERO standards development process takes, on-average, 
approximately 4 years to produce a proposed standard. FERC's course of 
action to approve a proposed standard while immediately directing that 
modifications be made to improve the standard, enables both incremental 
and interim protection of the reliability of the bulk power system 
during the time that it takes to develop a new standard. If FERC used 
its remand authority instead, protection would be delayed until the 
standards development process returned an acceptable standard which 
could take years.
    There is a single instance however, in which FERC used its remand 
authority to reject a definition proposed by the ERO. In Order No. 705, 
issued in December 2007, FERC remanded the ERO's proposed definition of 
the term ``cascading outage'' due to an unacceptable amount of 
ambiguity in the proposed definition and the fact that ``cascading'' 
already appeared in the glossary of defined terms and appeared to be 
adequate. In a June 30, 2008 filing, the ERO proposed several revisions 
to the three reliability standards approved in Order No. 705. In 
addition, the ERO indicated that, rather than revising the definition 
of ``cascading outage,'' it removed the definition as redundant from 
its ``glossary of terms'' since the glossary includes a previously-
approved definition of ``cascading.'' The June 30 filing is pending 
before FERC.
    Thus, in this instance, the time from FERC's order until a revised 
ERO filing was six months. This is much more than the period. e.g., 30 
days, allowed by FERC in its ratemaking proceedings. As explained 
previously, remands of reliability standards (instead of just a 
definition) may take much longer than six months.
    In July 2008, FERC approved revised reliability standards that 
represent the first occasion in which the ERO made improvements to 
mandatory reliability standards pursuant to FERC's directive. Thus, the 
remand process has not impeded FERC's efforts to date, but the approach 
of approving reliability standards and concurrently requiring 
submission of modifications may not work well in all circumstances.
    Question 2. Do you believe that the system for siting of 
transmission facilities, relying as it does, primarily on state 
authority except within the NIETC corridors, is adequate to meet the 
needs of growing and increasingly regional electricity markets?
    Answer. I believe the current siting process will prove inadequate 
to meet the needs of the Nation for a robust transmission grid that can 
support competitive wholesale power markets, assure just and reasonable 
rates, protect reliability, and meet the climate change challenge. The 
transmission grid in this country is interstate in nature, yet we 
continue to rely on state siting for expansion of this interstate and 
international network. In some states there is no state body to make 
siting decisions, so these decisions devolve to local officials. 
Decisions about grid expansion necessarily involve hard choices, 
weighing the regional benefits that flow from expansion against local 
impacts. I believe the federal government is in the best position to 
balance these interests. As a general matter, state and local officials 
cannot properly weigh regional benefits, in part because they have no 
duty beyond their individual state or municipality. By contrast, FERC 
can weigh these regional benefits and has demonstrated its ability to 
fairly weigh local impacts in a host of hydropower and natural gas 
pipeline licensing cases stretching back decades.
    Congress recognized this problem three years ago, when it concluded 
the transmission siting process was not working well and rewrote 
transmission siting law to establish--for the first time--a federal 
transmission siting process, albeit a limited process. I believe that 
conclusion was correct, but that the limited role Congress provided 
will not prove adequate over time. State and local siting is simply 
inconsistent with the interstate and international nature of the North 
American power grid. The end result will likely be a weaker power grid 
than the Nation needs in the future.
    I have great respect for state regulators, and intend no criticism 
of my state colleagues. State siting is simply inapposite with the 
nature of the power grid, which is regional and international. State 
regulators take an oath of office to look out for the interests of 
consumers in a particular state, not a region. indeed, a state 
regulator that approved a transmission project that benefited a region 
at the expense of his or her state would arguably violate their oath of 
office.
    Increasing FERC's siting authority beyond National Corridors would 
further the commitment toward infrastructure development and grid 
reliability that is needed to develop a truly national grid. The 
transmission siting authority offered in Energy Policy Act of 2005 
(EPAct 2005) is a start, but to effectively treat a national concern, 
there needs to be a national solution. The clearest answer is to have 
federal jurisdiction over the siting of interstate electric 
transmission facilities. As we have seen with natural gas facilities, 
federal siting offers an efficient and timely remedy to meet energy 
demands while, Mlle same time, protecting our environment and offering 
multiple opportunities for public input.
    FERC's process for authorizing pipelines under the Natural Gas Act 
takes, on average, less than a year from the tiling of an application. 
As a result, markets can be served quickly as demand arises. In our 
process, developers of a pipeline project come directly to FERC to 
pursue their project. Applicants are required, under the National 
Environmental Policy Act, to consult with appropriate federal, state, 
and local agencies (i.e., U.S. Fish and Wildlife Service, U.S. Army 
Corps of Engineers, and State Historic Preservations Offices) with 
regard to endangered species, wetlands, and archeological sites. 
Applicants must follow all applicable laws and regulations to avoid or 
minimize impacts to these resources. While other entities (federal, 
state, local) have input to a project, a developer is not required to 
get approval from those other entities prior to applying for a 
certificate with FERC. FERC is the single lead agency for the applicant 
and all stakeholders to develop a public record to ensure a decision 
which is legally sustainable. The process is thorough and transparent. 
All due process is accorded within a satisfactory timetable for all 
participating stakeholders.
    Question 3. Do you believe that the backstop authority can work 
well enough inside the NIETC corridors?
    Answer. I believe that the limited transmission siting authority 
granted to FERC by the Energy Policy Act of 2005 inside National 
Corridors is an improvement to the status quo ante, but only a modest 
improvement.
    Some of the limits to the new federal siting process relate to the 
way the statute is drafted. For example, it is not clear on its face 
whether the U.S. Department of Energy (DOE) can designate National 
Corridors to facilitate the development of untapped renewable energy 
potential and other electricity generation capacity in areas that arc 
not now experiencing persistent congestion. One interpretation is that 
DOE can only designate a National Corridor to relieve existing 
congestion, rather than to prevent congestion from arising in the first 
place. To be clear, I do not agree with that interpretation. But if 
that is the prevailing view, then the benefit of the transmission 
siting provisions of the EPAct 2005 may be short-lived, serving to 
alleviate only the manifest congestion in certain regions that existed 
on the date of enactment of law rather than to accommodate development 
of new electricity generation and prevent congestion from arising in 
the future.
    The National Corridors extend only to a portion of the country in 
need of transmission expansion. Currently congested areas should have a 
priority, but this type of hierarchy will leave the nation at a 
disadvantage for its future electricity needs. As an example, 
transmission lines needed to deliver power from regions in the country 
that are rich in wind or solar power to areas of growing demand are 
generally not within National Corridors. To the extent that the siting 
of these transmission lines will require federal assistance they will 
have to await corridor designation and then the attempt to site the 
lines through multiple state proceedings--a process that could take 
years. Therefore, while FERC will continue to make the backstop 
authority work well within the defined National Corridors, the lack of 
a national solution (see answer to Ringaman question 2) will stifle the 
timely development of a national grid.
    FERC is committed to making the new federal transmission siting 
process work as well as possible. Through the development of its 
Prefiling Process, FERC works with all participants to resolve issues 
at the earliest stages of project development before positions become 
calcified and the parties intractable. This expedites the development 
of needed energy infrastructure that is found through FERC's process to 
be in the public interest. The new process should work reasonably well 
inside the National Corridors, but it will not be sufficient to ensure 
that all necessary additions are made to the transmission grid in time 
to meet the nation's growing electricity needs.
    Question 4. Do you believe that there is still significant residual 
discrimination in the provision of transmission service?
    Answer. I believe the potential for undue discrimination and 
preference in transmission service has been sharply reduced. FERC 
recently completed a multi-year review of its transmission service 
policies, culminating in the issuance of Order No. 890 in February 
2007. There FERC found that flaws in the pro forma Open Access 
Transmission Tariff resulted in transmission providers having an 
opportunity to engage in undue discrimination in the provision of 
transmission service. To remedy that potential for undue 
discrimination, FERC reformed the pro forma tariff in a number of ways, 
including: implementation of open, coordinated and transparent planning 
on both a local and regional level; imposition of requirements 
regarding greater consistency and transparency in the calculation of 
the transmission capacity available for use by customers; adoption of a 
``conditional firm'' component to long-term point-to-point service, 
expanding the service options available to customers; and, adoption of 
less stringent penalties for imbalances created by intermittent 
resources, such as wind turbines and solar power. At the same time. 
FERC retained core elements of Order No. 888, such as the comparability 
requirement, protection of native load, and state jurisdiction over 
bundled retail load.
    FERC identified these particular areas of reform based on comments 
received in response to a Notice of Inquiry (NO1) issued in September 
2005, followed by a Notice of Proposed Rulemaking (NOPR) issued in May 
2006. FERC received approximately 10,000 pages of comments from 
hundreds of parties in response to the NOI and NOPR. The comments 
helped FERC identify those areas in which transmission providers 
continued to have the ability to exercise undue discrimination 
notwithstanding the long-standing obligation to provide open access 
transmission service. The reforms adopted in Order No. 890 
individually, and taken as a whole, were designed to eliminate this 
remaining potential for undue discrimination in the provision of 
transmission service.
    Most of these reforms were implemented by transmission providers 
through compliance filings submitted last year, although two important 
matters remain subject to on-going development. First, transmission 
providers continue to develop and refine their transmission planning 
processes in response to Order No. 890. Second, enforceable standards 
governing the calculation of available transmission capacity are being 
developed by the National Electric Reliability Corporation and North 
American Energy Standards Board. Although progress has been made in 
each of these areas, FERC will remain vigilant to ensure fall 
compliance with Order No. 890 and, in turn, that residual opportunities 
for discrimination in transmission service are eliminated.
    Question 5. Are RTO regions better at eliminating discrimination 
than non-RTO regions?
    Answer. In my view, there is less potential for undue 
discrimination and preference in transmission service in areas where 
the grid is operated by regional transmission organizations (RTOs) and 
independent system operators (ISOs) (collectively, RTOs) than other 
areas. Most transmission in the U.S. is owned by vertically integrated 
utilities, whether they are investor-owned utilities, state and 
municipal utilities, or federal utilities. Where there is vertical 
integration there is the prospect of vertical market power exercise. 
However, in RTO and ISO regions there is a separation between ownership 
and control, greatly limiting the potential for vertical market power 
exercise. RTOs are independent operators of the transmission grid and 
of organized markets. RTOs do not engage in wholesale power sales. 
Because they are not competing with their own transmission customers, 
they have no incentive to discriminate against them. Moreover, because 
RIOs are not operated for profit, their customers have no reason to 
suspect that an RIO's decisions are made to favor the organization's 
own sales and purchases or its bottom line.
    Several of the RTOs were formed in response to FERC's efforts to 
eliminate undue discrimination in our landmark open access rule, Order 
No. 888. Under Order No. 888 any eligible customer may qualify to be a 
transmission customer and move power anywhere within, out of, into, or 
through the RTO region at the same fixed transmission rate, without 
having to pay separate, additive transmission charges to each of the 
transmission-owning members of the organization. Further, independent 
generators may seek to interconnect with the RTO's transmission grid 
without concern that the interconnection process may be frustrated by 
the business interests of the transmissionand-generation owners of that 
grid.
    Orders No. 888 and No. 2000 led to ISOs with independent 
transmission systems and to the replacement of several of the former 
``power pools'' operated for the benefit of pool members with organized 
energy markets open to all qualified buyers and sellers on a 
nondiscriminatory basis. Any wholesale seller or buyer may transact 
through organized markets of an RTO. RTOs provide nondiscriminatory 
access to many buyers and sellers trading standardized products over a 
large region. An RTO also provides more open and nondiscriminatory 
access to information in that all market participants have open access 
to a considerable amount of publicly available market information, 
often in real time or near real time. In addition, an independent 
market monitor oversees the market for discriminatory practices or 
violations of other transmission and market rules, and produces 
periodic informational reports and analyses.
    As an example of RTOs providing more desirable transmission and 
market services with reduced concerns over discrimination, the American 
Wind Energy Association reports that RTOs host nearly three-quarters of 
all U.S. installed wind capacity despite having only 44 percent of U.S. 
wind energy potential and only 53 percent of electric demand.

   Responses of Joseph T. Kelliher to Questions From Senator Domenici
    Question 1. What is the effect of a National Interest Electric 
Corridor designation? Does it usurp state authority to site 
transmission lines? Does it adversely affect historic, cultural, scenic 
or natural resources?
    Answer. Based upon the 2006 congestion study mandated by EPAct 
2005, DOE has designated two geographic areas that are experiencing 
constraints and congestion that adversely affect consumers, as National 
Interest Electric Transmission Corridor s (NIETCs) or National 
Corridors. The designation of a National Corridor neither proposes nor 
approves or supports any particular project(s). Rather, electric 
transmission facilities that are proposed to be located in these 
corridors are potentially eligible for the FERC permit process.
    The designation of a National Corridor has no effect on state 
authority. National Corridor designation creates the possibility of 
federal transmission siting by FERC. If proposed electric transmission 
facilities are located in a state that has authority to approve the 
siting of the facilities and to consider its interstate benefits, the 
applicant must file an application with that state. Further, an 
applicant must be engaged in the state process for one year prior to 
initiating pre-filing with FERC. I emphasize that this one year 
limitation of initiating pre-filing was a discretionary act on behalf 
of FERC, and is not required by the transmission siting provisions of 
EPAct 2005. In Order No. 689, FERC stated its belief that EPAct 2005 
clearly permitted parallel FERC-State proceedings; however, by giving 
the states a full year to process an application without any 
intervening federal proceedings, FERC adopted a position that was more 
fully respectful of state jurisdiction. I see no reason why FERC should 
seek to exercise its full transmission siting authority and authorize 
parallel siting proceedings at this time.
    The mere designation of a National Corridor has no adverse 
environmental impacts and does not represent major federal action. As 
stated above, the designation of a corridor does not propose or approve 
a project; therefore, there is no need to conduct a NEPA analysis with 
the requisite studies of impacts upon historic, cultural, scenic or 
natural resources. However, if a qualified sponsor of electric 
transmission facilities enters into our pre-filing process to site 
electric transmission facilities in a National Corridor, they arc 
required under NEPA to consult with the appropriate federal, state, and 
local agencies (i.e., U.S. Fish and Wildlife Service, U.S. Army Corps 
of Engineers, and State Historic Preservation Offices) in regard to 
endangered species, wetlands, and archeological sites. They must follow 
all applicable laws and regulations to avoid or to minimize impacts to 
these resources.
    Question 2. What are the implications for the grid if the U.S. 
changes climate change policy and commits to carbon reductions?
    Answer. A carbon reduction policy will have immediate implications 
for the national grid. Such a policy will shift the U.S. electricity 
supply mix from a heavy reliance on coal to generation sources that 
have lower emissions, such as natural gas, or no emissions, such as 
renewables and nuclear energy. In 2007, coal was the fuel for 
approximately half of U.S. electric generation. Uncertainty over coal 
plant emissions regulations has caused thousands of megawatts of 
planned coal generation to be cancelled or put on hold. According to 
the Environmental Protection Agency's analysis of the Lieberman--Warner 
(S. 2191) proposed legislation, approximately 36,000 MW of current coal 
capacity would he retired by 2015 as a result of the legislation. To 
the extent climate change policy changes the U.S. electricity supply 
mix, different demands will be placed on the interstate transmission 
grid. Simply stated, we would need a very different power grid to 
transmit an electricity supply mix that has a much larger share of 
renewable energy and nuclear generation than today's U.S. electricity 
supply mix.
    Climate change legislation also is expected to reduce the 
efficiency and increase the costs of new coal plants if they install 
the principal ``carbon capture'' technology currently available (the 
``monoethanolamine'' process). A 2000 Electric Power Research 
Institute-Department of Energy study concluded that the energy needed 
by this process would reduce a generator's net power output by 29 
percent and raise the production cost of electricity by 65 percent. 
Moreover, significant questions are unresolved about when carbon 
capture and storage (CCS) technology will be ready for wide-scale, 
commercial deployment. If CCS technology is not ready for such 
deployment on the timeline assumed in climate change legislation, the 
need fix reliable baseload electricity facilities may require even 
greater dependence on natural gas (or the technologies discussed 
below).
    Consideration of climate change legislation comes at a time when we 
are already facing a major challenge in ensuring an adequate and 
deliverable power supply. According to an October 2007 report from the 
North American Electric Reliability Corporation (NERC), long-term 
capacity margins (the margins of power supply over demand) are 
inadequate. NERC states that projected increases in peak demands exceed 
projected committed resources after just the first few years of a ten-
year planning horizon. According to NERC, some regions of the country, 
including California, New England and Texas, fall below target capacity 
margin levels as early as 2009-2011, even when including uncommitted 
generation resources.
    As a result, even without climate change legislation, our Nation's 
reliance on natural gas as a fuel for electricity generation may 
increase significantly in the near-term, to the possible detriment of 
diversity in our fuel mix. NERC projects that, from 2005 to 2016, the 
portion of our power supply fueled by natural gas is expected to 
increase from 19 percent to 22 percent. NERC also reports that 
dependence on natural gas is particularly high in Florida. the 
Northeast, Southern California and Texas, with the latter expected to 
reach 58 percent by 2016.
    Climate change legislation also is expected to increase our 
reliance on nuclear power and renewable energy. According to the Energy 
Information Administration's (EIA) April 2008 analysis of S. 2191 
(specifically, comparing EIA's ``core case'' analysis to its 
``reference case''), the amount of generation (in megawatthours) from 
nuclear power and renewable energy would be about 210 percent and 40 
percent higher in 2030 under the core case. The core case envisions the 
addition of 268 gigawatts of nuclear capacity and 112 gigawatts of 
renewable capacity by 2030.
    Increased reliance on nuclear and renewable technologies will raise 
reliability issues. The variability of wind and solar energy requires 
system operators to have adequate ancillary services such as voltage 
support, frequency control, increased base-load unit dispatch 
flexibility, and spinning reserves. Also. the output of wind and solar 
facilities at times of peak needs may be significantly less than their 
maximum possible output and are therefore not an acceptable substitute 
for cancelled and displaced baseload generation plants. These factors 
must be addressed to ensure reliable and effective integration of 
renewables into the electric grid. Further, the large size of nuclear 
units often requires significant investment in transmission facilities 
to deliver the output of those units and ensure reliability if reactors 
trip ``off-line.'' Transmission expansions must be planned and built 
sufficiently far enough in advance to be operational when the new 
nuclear units arc ready to generate power.
    In order to shift to new ``clean'' generation sources, the nation 
will need to have a buildup of new transmission facilities, 
particularly from the sources of nuclear and renewable energy to the 
market for the energy. Such new sources of energy are not expected to 
he located near the market area and will require significant 
transmission expansion, which to date has been a lengthy process, and 
in some cases, has taken more than a decade to site and build major 
projects.
    Given the above, the nation could find itself caught in a 
predicament in that large amounts of nuclear and renewable-sourced 
electricity will need to be transmitted long distances across state 
lines to replace some of the coal-fired generation lost due to a carbon 
reduction policy. As discussed above, the country could suffer from a 
mismatch between the need for regional grid expansion and the lack of 
an adequate siting regime.
    These uncertainties and expected lead times mean that in order to 
meet our demand for electricity, we can expect a new build out of gas-
fired generation serving as a backup to the intermittence of renewable 
generation. According to NERC's projection from 2005 to 2016, our 
nation's reliance on natural gas for power generation, even without 
climate change commitment, is expected to increase from 19 to 22 
percent. More gas-fired generation, in turn, will increase the nation's 
demand For natural gas which will further increase the need for gas 
infrastructure and, most likely, increase natural gas imports in the 
form of liquefied natural gas. Fortunately, we have a federal process 
for siting natural gas infrastructure which offers an efficient and 
timely remedy to meet energy demands while, at the same time, protects 
our environment and offers multiple opportunities for public input.
    Question 3. One of the goals of EPAct was boosting transmission 
investment. You testified that since EPAct's enactment, investment has 
increased with $6.3 billion invested in 2005 and $6.9 billion in 2006. 
What role have incentives played in the trend of increasing 
transmission investment?
    Answer. I believe FERC transmission incentives policy has played a 
critical role in reversing sustained underinvestment in the U.S. 
transmission system and putting grid investment on the right track for 
the Nation. Since the enactment of EPAct 2005, a number of transmission 
developers have applied for and received approval for a wide range of 
incentives made available by FERC in Order No. 679 and 679-A. Many 
oldie incentives reduce risks for new transmission projects that are 
typically characterized by high costs and long lead-times and allow for 
more timely recovery of investment costs before service commences. 
These incentives include recovery of 100 percent of construction work-
in-progress, recovery of pre-commercial expenses, such as regulatory 
permitting, and recovery of prudently-incurred transmission plant that 
must be abandoned for reasons beyond the control of the project 
sponsor. Transmission developers have also applied for and received 
approval for the return on equity incentive in Order No. 679 that 
allows project developers to receive a return on equity in the upper 
range of the zone of reasonableness for projects that meet the 
requirements of EPAct 2005 to ensure reliability or reduce the cost of 
delivered power by reducing congestion. This incentive is intended to 
attract new investment in transmission facilities and can provide 
certainty for project developers since FERC may make its determination 
on the appropriate return on equity at the time of the initial 
application. In my view, if we want to maintain and increase U.S. grid 
investment, it is critical that we continue current policy on 
incentives. In particular, if FERC were to reverse itself and cut 
approved returns on equity, the likely result will be lower grid 
investment, forfeiting the gains of recent years.
    Question 4. To date, FERC has not used the back-stop siting 
authority granted to it by EPAct. However, I understand that Southern 
California Edison Company has started pre-filing activities with the 
Commission after the State of Arizona denied the company's request to 
site a transmission line. What can you tell us about this proceeding?
    Answer. Southern California Edison's (SCE) Devers-Palo Verde No. 2 
project (DPV2) is a 267-mile 500 kV transmission line from California 
to Arizona (97 miles in Arizona). The proposed project consists of two 
segments: the Revers-Harquahala Line (225 miles) and the Devers-Valley 
No. 2 Line (42 miles). DPV2 would run adjacent to the existing 500 kV 
DPV I line and would be located entirely within DOE's Southwest 
National Interest Electric Transmission Corridor (NIETC).
    SCE submitted applications to the California Public Utility 
Commission (CPUC) in April 2005 and the Arizona Corporation Commission 
(ACC) in May 2006. The CPUC approved the California portion in January 
2007, and the ACC denied the Arizona portion in June 2007. SCE appealed 
the ACC decision in August 2007 and subsequently filed a joint request 
with the ACC to stay the appeal in order to continue working towards a 
resolution.
    SCE has entered FERC's transmission line siting pre-filing process 
for DPV2. During this process. FERC staff has and will continue to work 
with SCE to make sure that all interested stakeholders, including the 
ACC, have been made aware of the proposed project and have had the 
opportunity for their views and recommendations to be considered. 
Milestones reached in the pre-filing process are listed below.

   SCE initiated consultation with the Office of Energy 
        Projects (OEP) on February 25, 2008
   SCE filed a pre-filing request on May 16, 2008
   OEP Director approved SCE's pre-filing request on May 30. 
        2008
   Commission issued the Notice of Intent (N01) to prepare a 
        draft EIS on June 17, 2008 (comment period on NOI ended August 
        1, 2008)
   Commission staff held two scoping meetings in Arizona, July 
        8-9, 2008

    FERC's permit review process for DPV2 will be limited solely to 
facilities located in Arizona; however, our NEPA review will include 
Arizona and California facilities. Commission staff has commenced 
review of SCE's data submissions and intend to prepare a draft EIS upon 
completion of this review. The draft EIS will be made available for 
public comment.
    On August 14, FERC denied the ACC's request to intervene and to 
stay the proceeding. FERC's regulations do not allow interventions 
during the pre-filing process. FERC dismissed the motion for stay 
because FERC does not automatically stop processing case when relevant 
regulations are under review. With respect to the denial of the motion 
to intervene, the pre-filing process is not a formal proceeding before 
FERC. Unlike the application process, the pre-filing process does not 
result in any formal Commission declaration that could be subject to 
rehearing or appeal. Therefore, there is no need for formal party 
status in the pre-filing process.
    FERC staff is currently engaged in developing approaches for 
appropriately addressing a number of challenges posed by DPV2. These 
include among others:

   Congestion evaluation (what is a significant reduction in 
        congestion)
   Analysis of reasonable alternatives (wire and non-wire 
        alternatives)
   Environmental impacts (particularly direct impacts to Kofa 
        National Wildlife Refuge)
   Cumulative environmental impacts (incorporating current 
        concerns on climate change and role of carbon dioxide 
        emissions)

    Question 5. Some have charged that FERC's transmission rate 
incentives, promulgated pursuant to EPAct 2005, arc becoming the ``new 
normal'' standard for transmission ratemaking at FERC. Please respond.
    Answer. Every transmission incentive request has been decided in a 
manner consistent with Order No. 679, which was approved unanimously by 
the Commission. It is important to recognize that not all requests for 
incentives have been granted. Those requests that were determined to be 
inconsistent with Order No. 679 were rejected. If rate incentives were 
the new normal'' standard, presumably every request would have been 
granted, and incentives would also have been extended to existing 
facilities. In my view, FERC implementation of the transmission 
incentives provisions of EPAct 2005 has been completely consistent with 
the statute and Congressional intent. The object of section 219 was 
securing greater grid investment. Congress recognized that rate 
incentives, including higher returns. are a proven means of securing 
greater investment by regulated utilities. We issued an incentive rule 
and have been consistently applying that rule. The end result is grid 
investment has roughly doubled and major backbone transmission projects 
are being proposed in many regions of the country.
    Question 6. Do you agree that if you ``love renewables'' you cannot 
``hate transmission''?
    Answer. The lack of adequate transmission infrastructure is a 
barrier to increased development and use of renewable energy. Much of 
the renewable energy potential (geothermal, wind and solar resources) 
in the United States is located in areas that are remote from the 
transmission grid. FERC has recognized the urgent need for proactive 
transmission development to access renewable resources. In an attempt 
to resolve this issue, FERC is acting to encourage increased grid 
investment, improve regional transmission planning, and remove 
regulatory barriers at the wholesale level to address development of 
renewable energy.
    For renewable energy to develop smoothly and efficiently there not 
only should be clear and equitable power transmission system rules and 
cost allocation methods. but also a federal electric transmission 
siting reaime that resembles the successful siting program for 
interstate natural gas facilities. The fundamental principle that 
allows for the efficient authorization of natural gas pipelines is the 
Natural Gas Act's exclusive authority for FERC to site and establish 
rates, terms and conditions for these projects. Further, with a 
determination by FERC that a specific project is in the public 
convenience and necessity, the right to acquire lands necessary for the 
construction of that project attaches to the certificate. This does not 
mean; however, that other federal statues such as the Clean Water Act 
or the Endangered Species Act do not apply. All relevant statutes must 
be complied with and are included within the process established by 
FERC. As a result, and as an example. during 2007 approximately 2,700 
miles of high pressure, large diameter, natural gas pipelines were 
authorized by FERC.
                                 ______
                                 
    Responses of Marsha H. Smith to Questions From Senator Bingaman

    Question 1. You suggest that States should have the primary role in 
siting decisions and that such decisions should be regionalized, not 
nationalized. Can you describe existing or developing regional 
authorities that might be able to carry out such functions?
    Answer. In 2002, Western Governors and four federal agencies (DOE, 
DOI, USDA, and CEO) signed a Western Transmission Permitting Protocol. 
See http://www.westgov.org/wieb/electric/Transmission%20Protocol/9-
5wtp.pdf. (The Premier of Alberta subsequently joined the protocol.) 
The Protocol has not been tested yet. It is unclear how the 
coordination under the Protocol comports with the federal interagency 
coordination required, but not yet achieved, under Section 1221(h) of 
EPAct. It is also unclear what effect, if any, the federal interagency 
MOU executed under Section 1221(h) has had in practice.
    With regard to the Organization of MISO States (OMS), it is our 
understanding that the 14 State commission members have a number of 
activities at several levels. The OMS Transmission Planning and Siting 
Work Group participates continuously in the Midwest ISO's planning 
process, providing a link between the regional planning process and the 
individual State commissions in that region that will process specific 
project applications. This linkage provides an awareness of the 
planning process and access to the information used in it. In addition, 
the Midwest ISO's process allows States to comment individually or 
through OMS.
    Five States within this region undertook an explicit comparison of 
their siting processes. Its report of completed tasks is published at 
http://www.misostates.org/
NWSubgroupConsolidatedTasks1through3FinalReport08172006.pdf. Besides 
the formal report, we have been told by those who worked on this 
project that they were able to develop an understanding of the siting 
process in neighboring States and now have easy access to counterpart 
staff members. This particular process has established a general sense 
that applications can be coordinated informally among any two or three 
States affected by a multi-State project.
    The OMS is also observing the Joint Combined System Plan (JCSP) 
being developed by the Midwest ISO, PJM, other RTOs, and other 
transmission providers in the Eastern Interconnection. Participating in 
this economic and engineering planning exercise gives State commissions 
an insight into the elements considered in the planning.
    While the collaborative work done through the OMS greatly assists 
State commissioners and their staff with a deeper appreciation of the 
regional factors that inform their work, OMS has no decisional 
authority of its own. That responsibility rests with State and federal 
agencies as provided by their respective statutes.
    Question 2. Cost allocation also seems to be difficult if left to 
single States. How can disputes about cost allocation be made across a 
multi-State region encompassing both suppliers and potential customers?
    Answer. The allocation of costs of transmission projects to improve 
system reliability has not been a problem. Many of these projects are 
local in nature. The cost allocation issue is typically raised in the 
context of decisions to build transmission to reach new generating 
resources.
    Generally in the West, the allocation of the cost of transmission 
to reach new generation will likely be addressed in the same way as in 
the past. That is, when a buyer (e.g., load serving entity) decides 
that it wants to acquire power at the other end of a proposed 
transmission line, it will agree to pay for a share of the cost of the 
line equal to the share of capacity on the line it receives. As has 
happened in the West in the past, multiple LSEs will likely collaborate 
in buying shares of a line to a specific generating resource area. In 
reviewing a proposed cost allocation, PUCs will typically compare their 
company's share of the cost of the proposed line plus the cost of the 
power that would be carried over the line against alternative supply 
and demand side resources. If the delivered price of power is 
attractive, they will approve their company's share of the cost of the 
line. The new challenge to this historical way of allocating costs is 
how to address the ``supersizing'' of lines to renewable resource rich 
areas, where no single or group of LSEs needs the power in the 
immediate future, but where there would be substantial economies of 
scale if the line was sized larger than needed in the immediate future. 
The federal government has an important role to play in financing the 
supersizing of new transmission to areas rich in low carbon, location-
constrained generating resources.
    A prime example of States working together on cost allocation of 
new transmission lines is the Northern Tier Transmission Group (NTTG) 
formed in 2007. Currently, proposed transmission projects in the NTTG 
footprint total approximately $10 billion. NTTG is guided by a Steering 
Committee consisting of transmission providers, State regulators, and 
State consumer advocates working together to develop and encourage the 
implementation of a transmission expansion plan for an area including 
Oregon, Idaho, Utah, Wyoming, and Montana. NTTG created a Cost 
Allocation Committee, consisting of State regulatory and consumer 
advocate staff and of public and member-owned NTTG members, to work 
alongside the NTTG Planning Committee in the development of 
transmission expansion plans every two years. The planning and cost 
allocation processes invite input from generation suppliers and 
transmission customers in open stakeholder meetings conducted 
throughout the planning process. Recommendations on cost allocation 
accompany the transmission expansion plan to the NTTG Steering 
Committee for action. Ultimately, the NTTG Steering Committee will 
forward an approved plan with recommended cost allocations to affected 
State agencies. Finally, the NTTG Steering Committee charter provides a 
dispute resolution process available to any supplier, customer, or 
other party that includes negotiation, mediation, and arbitration.

    Responses of Marsha H. Smith to Questions From Senator Domenici
    Question 1. What is the effect of a National Interest Electric 
Corridor designation? Does it usurp State authority to site 
transmission lines? Does it adversely affect historic, cultural, scenic 
or natural resources?
    Answer. Thus far, the designation of NIETCs has been counter-
productive and triggered new State/federal conflicts. Yes, FERC pre-
emption of State siting decisions on projects within NIETCs would usurp 
State siting authority even where States have made timely permitting 
decisions. The impact federal pre-emption of the States on historic, 
cultural, scenic or natural resources is unclear. There would be no 
effect on such resources on federal lands or State-owned lands because 
FERC's eminent domain authority only extends to private lands. It is 
not known whether FERC would be required to protect historic, cultural, 
scenic or natural resources on private lands.
    Question 2. What are the implications for the grid if the U.S. 
changes climate change policy and commits to carbon reductions?
    Answer. The impacts on the grid would be substantial. For example, 
in the West, many of the best renewable resources are in areas without 
a large transmission network. The impacts on the grid from adding 
nuclear power plants or coal plants with carbon capture and storage are 
less clear since there is greater flexibility in the siting of those 
resources than in the siting of most renewable generation.
    Question 3. At last month's transmission hearing, South Dakota 
Commissioner Hanson noted that ``it seems fairly certain that State-by-
State siting authority will not yield any near-term results for rapid 
expansion of the transmission system'' and that ``Federal authority 
with State assistance appears to be a must if we are to move forward in 
developing a robust interstate grid for renewable energy.'' NARUC does 
not appear to have a consistent position on this siting issue. How do 
you respond?
    Answer. In July of 1995, NARUC adopted a policy resolution 
supporting State jurisdiction over the siting of electric transmission 
facilities. Since that time NARUC has consistently opposed legislative 
provisions proposing federal siting for transmission facilities. With 
regard to communicating our opposition to federal siting provisions to 
the members of the Senate Energy and Natural Resources Committee, 
beginning with a May 2000 letter sent to Senator Frank Murkowski, then 
Chairman of this Committee, and in numerous testimony before this 
committee since 2001, NARUC has repeatedly reiterated this position. 
Additionally, NARUC submitted Op-Ed pieces to the USA TODAY and the 
Washington Post as early as June of 2001 expressing opposition to 
federal siting.
    In all national organizations there will be members who, for 
situations that are unique and/or important to a particular State or 
region, must take a position that does not agree in all respects with 
the sentiments of the organization as a whole. It must be noted that 
Commissioner Hanson did not represent his position as that of NARUC and 
that he was not appearing on behalf of NARUC. NARUC has always 
encouraged its members to participate in the legislative process, first 
for the betterment of their respective State, and second for the 
organization.
    Further, NARUC made a deliberate decision to work constructively 
and cooperatively with both DOE and FERC to implement the process that 
was established by the Energy Policy Act of 2005 with regard to federal 
siting authority, notwithstanding our consistent and strong opposition 
to enactment of legislation that pre-empted State jurisdiction in this 
area.
    Question 4. You testified that federal agencies are the major cause 
of delay in transmission permitting in the West. Please elaborate. Has 
there been no improvement in this area since the enactment of EPAct?
    Answer. To my knowledge, no survey of federal agency permitting 
delays has been conducted. Such a survey of federal agency permitting 
delays would be useful. Anecdotal information suggests that the pre-
EPAct problems in securing timely action by federal agencies remain.
    For example, in 2002 the Arizona Corporation Commission issued 
Tucson Electric Power (TEP) a permit to build a 345kV transmission line 
from Tucson to Nogales. Relative to a portion of the line that would be 
on U. S. Forest service land TEP went through an EIS process which 
resulted in a Forest Service position that the route approved by the 
ACC was unacceptable. TEP pursued all avenues provided at the Federal 
level (including a filing under rule 216H) to try and expedite the 
decision process but ended up slogging through a four year process 
before being told ``no'' relative to the route approved by the ACC. In 
February 2006, TEP filed a request for federal agency action on the 
permit application under the Energy Policy Act Section 1221(h). 
Subsequently, TEP has met with the local Forest Supervisor to discuss 
possible routes that would be acceptable to the Forest for the TEP 
project. A tentative agreement has been reached on a ``hybrid'' route 
that uses a portion of the route approved by the ACC and uses a portion 
of the route favored by the Forest Service on Forest land. TEP has also 
been discussing with DOE what next steps would be required to obtain 
Federal approvals for the hybrid route. Once there is a better 
understanding of the Federal process to move forward, TEP will likely 
file with the Corporation Commission for a reconsideration of their 
approved route for the hybrid route. See: http://www.tep.com/Company/
News/TransLine/index.asp
    Question 5. Is Idaho participating in the DOE/Western Governors 
Association's collaborative process for regional transmission 
facilities? If so, what has been your experience with that new process?
    Answer. Idaho is a signatory to the WGA Transmission Permitting 
Protocol, but as noted above the Protocol has not been tested yet. 
Idaho is also participating in the new WGA Western Renewable Energy 
Zone (WREZ) project that was launched at the end of May. It is too 
early know the effect of the WREZ process on collaboration to build new 
regional transmission. Idaho also actively participates in the Northern 
Tier Transmission Group which has a process for addressing cost 
allocation among States for new regional transmission.
    Question 6. Do you agree that if you ``love renewables'' you cannot 
``hate transmission''?
    Answer. If you want reliable and affordable electricity, you must 
support adequate transmission facilities. In addition, transmission is 
essential for utility-scale wind, solar, and geothermal generation. 
Other renewables, such as photovoltaics, land fill gas, and biomass do 
not require as much transmission. If widespread deployment of renewable 
energy is the goal, new transmission is needed in the right areas and 
of the right size to minimize costs and environmental impacts.
                                 ______
                                 
    Responses of Kevin M. Kolevar to Questions From Senator Bingaman

    Question 1. Do you believe that your authority to designate 
corridors of national interest is limited to areas that are identified 
in the congestion reports as having significant congestion? If not, 
what other criteria would allow you to make designations?
    Answer. In the published May 7, 2007, notice responding to comments 
received on the 2006 National Electric Transmission Congestion Study 
and asking for comment on two draft national interest electric 
transmission corridors (National Corridors), the Department noted that 
EPAct 2005 explicitly authorizes the designation of a corridor in ``any 
geographic area experiencing electric energy transmission constraints 
or congestion that adversely affects consumers'' [16 U.S. C. 
824p(a)(2)]. Accordingly, the Department stated its conclusion that it 
may designate a corridor in an area in which existing constraints would 
create congestion adversely affecting consumers if additional 
generation were developed without simultaneous development of 
associated transmission capacity.
    In the Department's Report and Order of October 5, 2007, in which 
it designated the two National Corridors, it reaffirmed this 
conclusion. However, because the problems that led to the designation 
of these corridors involved existing, rather than prospective, 
congestion, the Department did not rely on the authority discussed 
above in making these designations.
    Question 2. Is the reliability system being developed under sec. 
215 adequate to protect the bulk power system?
    Answer. We defer to the Federal Energy Regulatory Commission (FERC) 
Chairman Joseph Kelliher's address of this issue in his July 31, 2008 
testimony to the Committee.
    Question 3. With regard to the West Wide Energy Corridor, I am 
concerned with the location of the proposed corridor through the 
Sevilleta National Wildlife Refuge in New Mexico. In particular, I 
would like to know why the proposal does not follow an existing Right-
Of-Way through the Refuge, of which there are two, and instead upgrade 
one of the existing transmission lines? My understanding is the current 
proposal would place new transmission lines through sensitive wetland 
areas near the Rio Grande instead of along the dry desert uplands. In 
addition, this may jeopardize the Federal Government's ownership of the 
Refuge. I am told that the original transfer agreement with The Nature 
Conservancy stated that if the land is used for a commercial purpose, 
then the ownership of the land will revert to The Nature Conservancy. 
Have you considered these issues?
    Answer. First, it is important to note that the agencies 
undertaking implementation of Section 368 will not be designating a 
corridor through the Sevilleta Wildlife Refuge. The PEIS only 
identifies a potential route for future, specific rights of way. Any 
future development through the Refuge will need to comply with the 
provisions of the National Wildlife Refuge System Improvement Act of 
1997 (PL 105-57) and take into account the provisions of the transfer 
agreement with the Nature Conservancy. The Fish and Wildlife Service 
advised the agencies that it would address any requirements, such as 
agreements with a previous owner over land use, during its 
compatibility determination when, and if, specific projects are 
proposed.
    The agencies are aware of the issues raised. They identified this 
potential route only after consideration of all other alternatives, and 
with recognition of the difficulty of any future development. There is 
no alternative route around the refuge, which is constrained on the 
east by White Sands Missile Range and on the west by a wilderness area. 
The proposed route through the Sevilleta National Wildlife Refuge was 
selected after a search of alternate routes around the refuge was 
unsuccessful, and it was selected to minimize the length of the Refuge 
that could be crossed by an energy transport project.
    Early in the corridor siting process, the Agencies did consider 
following the existing electric transmission line right of ways (ROW) 
through the refuge (located west of the 1-25 ROW), but each of these 
would have resulted in future ROW crossing the Refuge that would be 
almost four times greater in length (about 14 miles) than the proposed 
route. The route through Sevilleta National Wildlife Refuge is 
identified in the PEIS because it is the route with the least impact to 
resources for energy transport facilities connecting sources of 
generation and areas of demand through this part of New Mexico.
    Question 4. What consultation have you had with local governments 
and state land offices about local land use plans and priorities? For 
example in Dona Ana County, New Mexico, the proposed route will go 
through the USDA-NM State University Jornada Experimental Range in 
addition to lands near the Organ Mountains that I am considering 
offering legislation to designate as a National Conservation Area. The 
community of Las Cruces will also likely have concerns about negative 
impacts on its viewshed of the Organ Mountains Wilderness Study Area.
    Answer. We undertook an extensive effort to consult with State, 
regional, and local offices throughout the preparation of the Draft 
Programmatic Environmental Impact Statement (PEIS). Please see the 
attachment entitled ``State and Local Government Consultations'' for a 
detailed list of these efforts. As a result of their involvement, these 
offices have incorporated discussion of the project with their 
constituents as part of their routine engagement with their 
stakeholders. The project has benefited significantly from the high 
level of public engagement.
    In the Draft PEIS, Corridor 81-272's original route intersected the 
BLMadministered Areas of Critical Environmental Concern (ACEC) in the 
Organ/Franklin Mountains. In response to comments received on the Draft 
PEIS from citizens and environmental groups in New Mexico, the corridor 
was revised and no longer crosses the ACEC. Corridor 81-272 now passes 
south and west of the Range following an existing 345-kV transmission 
line.
    The proposed corridor, located about 5 miles west of Organ 
Mountains Wilderness Study Area, does not in and of itself authorize 
any projects. Applicants seeking authorization within the corridor 
would be required to address visual impacts associated with the 
proposed project.
    Question 5. How are you going to account for the connectivity of 
the West Wide Energy Corridor with private and state lands that are 
currently not included the proposal? What are the steps you intend to 
take to make this corridor functional and operative given the current 
corridor is composed of unconnected segments? If this is not a 
streamlined process, what is the incentive for utilities to use these 
corridors?
    Answer. The implementation procedures that will be part of the 
agency decisions designating corridors will include processes for 
considering and designating future corridors under Section 368(d). The 
land management agencies will be able use these procedures to work with 
project right-of-way applicants and with tribal, State and local 
government officials as the need arises to accommodate future projects 
that cannot be planned for today, given the uncertainty of the energy 
needs of the region.
    Authorization of projects to cross non-Federal lands is at the 
discretion of the appropriate Tribal, State, and local authorities, and 
is beyond the authorities given to the Agencies by Congress under 
Section 368. Projects crossing non-Federal lands will be subject to the 
regulations as well as any stipulations required by the applicable 
State and/or local authorizing agency.
    The Programmatic Environmental Impact Statement provides advantages 
to project proponents for using the corridors by providing an 
integrated set of compliance measures across administrative boundaries 
and by a siting the proposed corridors using a process that has avoided 
many of the major land-use conflicts inherent in project development.

    Responses of Kevin M. Kolevar to Questions From Senator Domenici
    Question 1. What is the effect of a National Interest Electric 
Corridor designation? Does it usurp state authority to site 
transmission lines? Does it adversely affect historic, cultural, 
scenic, or natural resources?
    Answer. The effect of a National Corridor designation is to 
delineate geographic areas within which, under certain circumstances, 
the Federal Energy Regulatory Commission (FERC) may issue permits for 
``the construction or modification of electric transmission 
facilities'' [FPA section 216(b), 16 U.S.C. 824p(b)], if certain 
conditions exist. The states, however, retain authority for approval of 
the siting of transmission facilities. Designation of a National 
Corridor does not affect legal protections granted to historic, 
cultural, scenic, or natural resources that may be within the bounds of 
the corridor.
    Question 2. What are the implications for the grid if the U.S. 
changes climate change policy and commits to carbon reductions?
    Answer. In general, policy reducing carbon emissions would have 
important implications for the Nation's transmission grids, and the 
magnitude of those implications would be directly related to the extent 
and timing of the reductions being sought. Over time, a carbon 
reduction policy would affect the technological composition of our 
generation capacity, and the locations and relative economics of that 
capacity. Inevitably, this would lead to changes in the pattern of 
regional and interregional flows of electricity from generators to 
urban areas. In order to accommodate large-scale renewable generation 
and other sources such as clean coal with carbon capture and 
sequestration technology and nuclear power plants, substantial amounts 
of new generation capacity would need to be developed in relatively 
unpopulated areas, and large amounts of additional transmission 
capacity would be required to bring this power to load centers. Thus, 
expanding and modernizing the grids would be essential to the success 
of a carbon reduction strategy.
    Question 3. As written, EPAct directs DOE to study the existing 
constraints and congestion on the nation's grid. What about the lack of 
transmission adequacy? Can that be viewed as a ``constraint'' for 
purposes of the Department's transmission study and Corridor 
designation process?
    Answer. On May 7, 2007, the Department published a notice in which 
it responded to comments received on its 2006 National Electric 
Transmission Congestion Study, and asked for comment on two draft 
national interest electric transmission corridors (National Corridors). 
In this notice, the Department responded to commenters who took diverse 
positions on the question of whether the Energy Policy Act of 2005 
authorized the Department to designate a corridor in an area in which 
congestion was only prospective, rather than already in existence. The 
Department noted that the Act explicitly authorizes the designation of 
a corridor in ``any geographic area experiencing electric energy 
transmission constraints or congestion that adversely affects 
consumers'' [16 U.S. C. 824p(a)(2)].
    Accordingly, the Department stated its conclusion that it may 
designate a corridor in an area in which existing constraints would 
create congestion adversely affecting consumers if additional 
generation were developed without simultaneous development of 
associated transmission capacity.
    In the Report and Order.the Department issued on October 5, 2007, 
in which it designated the two National Corridors, DOE reaffirmed this 
conclusion. However, because the problems that led to the designation 
of these corridors involved existing, rather than prospective, 
congestion, the Department did not rely on the authority discussed 
above in making these designations.
    Question 4. Why are the geographic boundaries for each national 
corridor so broad?
    Answer. In each of the two National Corridors, the areas 
experiencing the adverse effects of congestion are very large, and 
there are numerous existing or potential generation sources that might 
be tapped to better serve these areas, if additional transmission 
capacity were to be developed.
    The Department could have designated much smaller or narrower 
corridors if it had been prepared to identify certain generation 
sources as especially suitable or appropriate, and then identify routes 
for transmission lines that would deliver the electricity to drop-off 
points near or within the congested areas. In the Department's view, 
this was a much more expansive and intrusive role for DOE than the 
Congress had intended, because it would preempt decisions that should 
be made by industry or by agencies with explicit siting authority.
    The Department concluded that to deal with congestion problems in 
these particular areas, it was best to designate broad areas that 
encompassed diverse generation options, and let industry participants, 
state regulators, and, if appropriate, the Federal Energy Regulatory 
Commission, determine which facilities should be developed (if any) and 
where they should be sited.
    Question 5. I understand that DOE is now beginning the process of 
developing its 2009 Congestion Study as required by EPAct. How is the 
Department approaching this task?
    Answer. By mid-September 2008, the Department will have hosted six 
regional workshops in various cities across the country in which we 
have asked stakeholders from the region to give us their ideas about 
how to shape and focus the 2009 Congestion Study to maximize its value. 
We have also invited participants in the workshops to give us their 
suggestions for improving the process for the study, and for citations 
to appropriate data sources and existing or in-process studies by 
States, regional transmission organizations (RTOs), regional 
reliability organizations, utilities, or other entities. Where 
possible, the workshops have been co-located with the annual meetings 
of regional organizations of state regulatory officials, to make it 
easier for them to participate in the workshops. The workshops have 
also been webcast, to make them available to individuals who are 
interested but unable to attend in person.
    At each of these workshops, we have reserved time for bilateral 
meetings with State officials or other stakeholders who wish to discuss 
congestion matters with us in a bilateral setting. We have also 
emphasized that until such time as a near-final version of the 2009 
Study is under review at the Department, we will maintain an ``open-
door'' policy and meet with any individuals or organizations that wish 
to discuss matters related to congestion with us.
    In the Western Interconnection, we are working collaboratively with 
the Western Electricity Coordinating Council's (WECC) Transmission 
Expansion Policy Planning Committee (TEPPC). At our request, TEPPC has 
undertaken a review of recent subregional transmission planning studies 
and a review of recent historical data concerning electricity flows and 
transmission congestion in the West, and will make these products 
available to us as inputs to the 2009 Study.
    In the Eastern Interconnection, at our request the Lawrence 
Berkeley National Laboratory has engaged Open Access Technology 
International (OATI) to conduct somewhat similar studies of historical 
electricity flows and congestion patterns. DOE intends to host a public 
technical conference in January 2009 at which analysts from TEPPC and 
OATI will present their findings and discuss them with affected 
stakeholders.
    Question 6. Why did EIA stop collecting transmission data from 
public power, cooperatives, and federal utilities in recent years? 
Won't this leave a significant gap in the data?
    Answer. EIA collected transmission data for approximately 500 
publicly-owned utilities (mainly municipals and Federal utilities such 
as the Tennessee Valley Authority) on the Form EIA-412, Annual Electric 
Industry Financial Report, from 1980 through 2004. These data included 
accounting information such as electric balance sheets, income 
statements, sales of electricity for resale, electric operations and 
maintenance expenses, and purchased power and power exchanges, as well 
as information on the existing and projected transmission system.
    EIA terminated its collection of public power and Federal utility 
transmission data in 2004. The decision reflected EIA's need to 
prioritize its budget in light of new requirements for data collection 
activities related to other domestic energy markets, notably the need 
for the better data on natural gas production and renewable fuels. This 
decision created a gap in the data, when measured in transmission line-
miles, equal to about 20 percent of the total transmission system.
    EIA did not collect data from cooperatives. Some of that data is 
collected by the Rural Utilities Service (RUS) from electric 
cooperatives participating in RUS lending programs. Once their 
financial obligations to RUS are satisfied in full, 
however,cooperatives are no longer required to file with RUS, although 
some are required to file some line-specific transmission data with the 
Federal Energy Regulatory Commission, through its FERC Form-1 (``Annual 
Electric Utility Report'').
    Question 7. Do you agree that if you ``love renewables'' you cannot 
``hate transmission''?
    Answer. In broad terms, the Department agrees with this statement. 
Large fractions of the Nation's most economically attractive potential 
wind, solar, geothermal, and hydro-kinetic resources are located in 
geographic areas that are distant from urban centers and where existing 
transmission capacity is very limited or non-existent. Despite their 
distant locations, these are the renewable resources that appear most 
likely to make major contributions over the next two decades or so to 
meeting urban electricity demand. Development of this capacity to any 
significant extent will be infeasible without associated transmission 
development.
    However there are uncertainties about the likely long-term 
contributions from photovoltaic systems, small-scale wind generators, 
etc. installed on or near urban consumers' premises. Large-scale 
development of such systems would presumably reduce the need for 
electricity supplies from distant sources via transmission.

     Response of Kevin M. Kolevar to Question From Senator Menendez
    Question 1. During questioning from Senator Menendez, Assistant 
Secretary Kolevar stated he would provide the Committee with a written 
explanation of the Department's consideration of ``alternatives'' in 
the determination to designate two National Interest Electric 
Transmission Corridors in October 2007.
    Answer. In its National Electric Transmission Congestion Report and 
Order (72 FR 56992, Oct. 5, 2007), the Department addressed the 
requirement in FPA section 216(a)(2) that calls for the Secretary to 
consider ``alternatives and recommendations from interested parties'' 
before making a National Corridor designation.
    The Department concluded that, given the overall statutory 
framework, the term ``alternatives'' in section 216(a)(2) was intended 
to refer to comments suggesting National Corridor designations for 
different congestion or constraint problems, comments suggesting 
alternative boundaries for specific National Corridors, and comments 
suggesting that the Department refrain from designating a National 
Corridor. A detailed discussion of the Department's reasoning for this 
interpretation can be found in the Report and Order at 72 FR 57010. 
This specific text is on the attached sheet. Although this discussion 
is in response to comments on the designation of the Mid-Atlantic Area 
National Corridor, the Department also applies this reasoning when 
responding to comments on the designation of the Southwest Area 
National Corridor at 72 FR 57018.

         ATTACHMENT.--STATE AND LOCAL GOVERNMENT CONSULTATIONS

    Governors/States: The project team engaged states and state 
agencies in the early process

   Two states Cooperating Agencies (CA, WY)
   Early contact (2005/2006) with all governors; meetings, 
        briefings, phone
   Consultation throughout; meetings with state agencies, 
        staffs
   Outreach during the comment period on the Draft Programmatic 
        Environmental Impact Statement (PEIS) with in-person 
        consultation as state officials desired
   Comments on draft from every state with multiple state 
        agencies often responding

    County and Local Government:

   Fall 2005: Template letter to Bureau of Land Management 
        (BLM) State Directors, to invite Counties and others to engage 
        as Cooperating Agencies
   National Association of Counties (NACo)
    --Outreach through NACo via BLM's NACo coordinator throughout 
            process
    --Fall 2007: Outreach through NACo to notice counties on up-coming 
            release of draft and invitation to comment
    --Winter 2008: Update to NACo meeting in Washington D.C.
   Four counties as Cooperating Agencies
   Intensive siting work with counties in areas of concern 
        (e.g. Clark County, Nevada; Millard County, Utah; San Miguel 
        County, Colorado)

    Resource Advisory Councils (RACs): RACs include local governments 
and other constituents. BLM and U.S. Forest Service field staff meet 
with RACs regularly to provide updates on agency business; briefings on 
the PEIS were a normal part of business.

   Fall 2007: Outreach notification through BLM national RAC 
        coordinator to alert RACs and RAC coordinators of up-coming 
        release of the Draft PEIS and opportunities to comment, 
        including local hearings in all 11 states.


                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

                                 State of New York,
                  Department of Environmental Conservation,
                                        Albany, NY, August 8, 2008.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, SD-
        304 Dirksen Senate Office Bldg, Washington, DC.
Hon. Pete V. Domenici,
Ranking Minority Member, Committee on Energy and Natural Resources, 
        U.S. Senate, SD-304 Dirksen Senate Office Bldg, Washington, DC.
    Dear Senators Bingaman and Domenici: On July 31, 2008, the Senate 
Energy and Natural Resources Committee (Committee) held a hearing on 
the state of the nation's transmission grid and the implementation of 
the 2005 Energy Policy Act's (``EPAct'') transmission provisions. As 
part of this hearing, the Committee is providing interested persons 
with an opportunity to submit written testimony.
    I appreciate the Committee's willingness to hear New York's 
concerns with respect to the National Interest Electric Transmission 
Corridors authorized under Section 1221 of the Energy Policy Act of 
2005 and, on behalf of the New York State Department of Environmental 
Conservation (NYSDEC), I submit the following testimony for the hearing 
record. I am also enclosing the comments that NYSDEC submitted to the 
United States Department of Energy (DOE) in connection with the 
designation of the Mid Atlantic National Interest Electric Transmission 
Corridor (Docket No. 2007-0E-01) for the Committee's information and 
for inclusion in the hearing record.*
---------------------------------------------------------------------------
    * Document has been retained in committee files.
---------------------------------------------------------------------------
                              INTRODUCTION

    NYSDEC is responsible for conserving, improving and protecting New 
York's natural resources and environment, and preventing, abating and 
controlling water, land, and air pollution to enhance the health, 
safety and welfare of the people of the state and their overall 
economic and social well-being. Forty-seven counties, or nearly two-
thirds of the state, are included within the recently designated Mid 
Atlantic National Interest Electric Transmission Corridor (MA NIETC). 
These areas could be subjected to drastic and irreversible changes to 
the environment and natural resources as a result of the implementation 
of EPAct and the siting of long-haul transmission lines.
    As discussed below, the implementation of EPAct thus far has proved 
problematic on many levels. It has not proceeded in a manner that 
instills confidence in me that New York's concerns are and will be 
accorded due consideration by DOE. NYSDEC has a vested interest in the 
development of our nation's energy policy and ensuring that its 
implementation is protective of our environment and natural resources. 
The purpose of my testimony is to highlight those issues that are 
especially important to New Yorkers. I thank the Committee for the 
opportunity to discuss these issues and respectfully request that the 
Committee initiate appropriate action to address our legitimate 
concerns.

                               DISCUSSION

NEPA
    Decision-making by federal agencies, particularly in connection 
with major federal actions, should be guided by the goals and 
objectives of the National Environmental Policy Act (``NEPA''). 
Unfortunately, DOE's implementation of EPAct falls well short of 
meeting NEPA's most basic requirements and frustrates the legislative 
goals Congress set out to achieve in NEPA.
    NEPA was enacted to ensure that agency decision-makers use all 
practical means to improve and coordinate Federal actions with 
environmental principles. The goals of NEPA are simple but far 
reaching: to ensure that the Federal government is a trustee of the 
environment for future generations, that all Americans enjoy safe, 
healthy, productive and aesthetically and culturally pleasing 
surroundings, that the environment be enjoyed to its fullest extent 
without degradation, that our national heritage be preserved, and that 
our environment be maintained in a manner which cupports diversity and 
a variety of individual choices. New York's State Environmental Quality 
Review Act is patterned after NEPA and espouses a similar mandate.
    There is no doubt that the MA NIETC designation has the clear 
potential to significantly affect the quality of the human environment 
and that DOE, acting responsibly, should have prepared an Environmental 
Impact Statement. Long haul transmission lines require significant 
amounts of land and the clearing and potential blasting of hundreds 
(even thousands) of acres of vegetation and fragile habitat for 
construction and access. Indeed, that portion of the MA NIETC located 
in New York encompasses portions of the Adirondack and Catskill parks, 
pristine forested wetlands, protected streams, state forest lands and 
reforestation areas, wildlife management areas, wild and scenic rivers, 
agricultural resources, historical and cultural resources, and known 
habitat for threatened and endangered species.
    Here, DOE failed to take the preliminary, but necessary, step of 
preparing an environmental assessment to document the pntential for 
cionificant adverse impacts to human health and the environment. DOE 
further failed to properly articulate, as required by NEPA, that the 
NIETC designations would have no significant impact.
    NYSDEC's comments to DOE in connection with the MA NIETC raised 
these issues and asked DOE to undertake an Environmental Impact Study 
to fully evaluate the potential impacts of the MA NIETC designation. 
DOE declined to do so, instead proceeding with the MA NIETC designation 
on an incomplete and inadequate administrative record. As you know, 
proceeding with a program of such extensive scope and significance, 
without an appropriately documented public environmental record, would 
constitute a fundamental flaw. The NIETC designation must be halted 
until a proper administrative review has been conducted.

Usurpation of State Authority
    EPAct represents a fundamental shift in the balance of power 
between the Federal government and the States. Prior to the EPAct, or 
in the absence of a Federal National Corridor designation, transmission 
line siting was and remains a matter almost entirely within the purview 
of the States, who could review proposed projects in accordance with 
State law and policy and companion FERC regulations, unfettered by 
Federal constraints. EPAct jeopardizes the review process in New York 
State in several respects.
    Under New York State Public Service Law, the New York State Public 
Service Commission, which has jurisdiction over the siting of major gas 
and electric transmission facilities, must uphold the State's 
environmental laws. At this point, there is no clear indication whether 
the Federal Energy Regulatory Commission (FERC) will do the same.
    EPAct places time constraints on and erodes State review in 
National Corridor areas. States must complete their review within a 
year or potentially cede their role to FERC. New York's experience 
demonstrates that large-scale transmission projects often require more 
time for a meaningful and comprehensive assessment of public need and 
environmental compatibility. We should not be forced to accept projects 
that do not meet these objectives, or relinquish otherwise valid 
jurisdiction merely to satisfy fast-track time frames.
    As a result of the MA NIETC designation, the Federal government is 
positioned to override the authority of eight States and the District 
of Columbia in the interest of furthering a Federal policy of siting 
more transmission facilities even if additional transmission capacity 
or a particular project is not in the State's best interest. Additional 
safeguards must be enacted to ensure that State concerns are taken into 
account in Federal decision-making.

A Sound National Energy Policy
    EPAct underscores the need to develop and implement a comprehensive 
national energy policy that promotes energy conservation and the use of 
renewable energy resources, reduces reliance on fossil fuel based power 
generation, particularly from high greenhouse gas emitting sources, and 
provides incentives to ensure those goals are achieved. EPAct's 
aggressive encouragement of transmission line siting frustrates these 
objectives.
    As the New York Public Service Commission stated in its comments to 
DOE, the designation of a NIETC favors transmission solutions to the 
problem of grid congestion and will inevitably lead to the siting of 
long-haul transmission projects that move power from remote generating 
sources in upstate New York to load centers in downstate areas. In its 
response to comments DOE acknowledged that the MA NIETC is intended to 
facilitate the transmission of lower-cost energy from the western part 
of the State into congested downstate areas and to increase the 
diversity of fuel, including coal, used in the production of 
electricity.
    Coal-fired energy sources, however, have higher emissions and, due 
to their age, are often subject to less regulation than other sources. 
Expanding the use of these energy sources in New York State is not 
compatible with the State's goals of maintaining and improving air 
quality, improving the health of its citizens, and reducing greenhouse 
gas emissions. By design, EPAct promotes transmission line development. 
What is missing in this effort is a framework for the Federal 
government to consider State energy and environmental policy 
objectives, which are likely to be overlooked in the Federal siting 
process.

                               CONCLUSION

    In conclusion, EPAct has proven problematic on many levels, both as 
to its nature and its scope, and is in need of amendment. From a policy 
perspective, EPAct clearly focuses too much attention on transmission 
development to the exclusion of other strategies to meet our nation's 
energy needs. From the standpoint of implementation, EPAct vests too 
much authority in the Federal government to the exclusion of legitimate 
State concerns, including whether transmission line development is the 
best solution to address our energy needs and is compatible with the 
environment and serves the public need.
    New York stands to be directly and significantly impacted by EPAct 
and its citizens deserve to be heard on the issues I raise to the 
Committee. Thank you for the opportunity to present our concerns and I 
look forward to working with you to address them.
            Sincerely,
                                      Alexander B. Grannis,
                                                      Commissioner.
                                 ______
                                 
                                 State of New York,
                            Office of the Attorney General,
                                   New York, NY, September 5, 2008.
Hon.  Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, SD-
        304 Dirksen Senate Office Bldg, Washington, DC.
Hon. Pete V. Domenici,
Ranking Minority Member, Committee on Energy and Natural Resources, 
        U.S. Senate, SD-304 Dirksen Senate Office Bldg, Washington, DC.
    Dear Senators Bingaman and Domenici: Thank you for the opportunity 
to submit written testimony to supplement the record of the July 31, 
2008 Senate Energy and Natural Resources Committee (``Committee'') 
hearing on the implementation of the 2005 Energy Policy Act's 
(``EPAct'') provisions with respect to electric transmission lines.

                              INTRODUCTION

    I have many serious concerns with respect to the National Interest 
Electric Transmission Corridors (``NIETC'') authorized under Section 
1221 of the Energy Policy Act of 2005, and in particular, the U.S. 
Department of Energy's (``DOE'') designation of the Mid Atlantic 
National Interest Electric Transmission Corridor, which includes 47 
counties in across New York. This designation, if upheld by the courts, 
could facilitate the siting of the proposed New York Regional 
Interconnect (``NYRI'') transmission line, which would run from Utica 
to Orange County, extending nearly 200 miles through 43 towns and 
cities in New York.
    As proposed, the NYRI transmission line will run through several 
State parks, forestland, and historic sites, protected wetlands and 
streams, and the habitat of endangered and threatened species. The 
project also intends to utilize the eminent domain powers granted to 
public utilities under the Transportation Corporations Law to site 
transmission lines and towers. Because of these and other issues, 
including economic concerns about the project's impact on private 
property and electric rates, area municipalities, residents and 
businesses have expressed grave opposition to this proposed project.
    DOE's NIETC designation would give the Federal Energy Regulatory 
Commission (``FERC'') ``backstop'' siting authority with respect to the 
proposed NYRI line, as well as the power to preempt New York's 
traditional approval authority over the siting of transmission lines if 
New York does not act within a specified time frame. Because of both my 
concerns about usurpation of state authority by the federal government 
and the concerns raised by many New Yorkers about the potential adverse 
environmental and economic impacts of the proposed NYRI line, my office 
has challenged DOE's Corridor designation in federal court. I have also 
filed extensive comments with both DOE and FERC in their administrative 
proceedings concerning the Corridor designation and the implementation 
of EPAct. For the Committee's convenience, my office's comments are 
enclosed.
    DOE's October 2007 National Interest Electric Transmission Corridor 
Order (``Designation Order''), ostensibly issued pursuant to its 
authority under Section 216(b) of EPAct, is fatally flawed from both a 
legal and policy perspective. DOE exceeded the specific and limited 
statutory authority granted by Congress under EPAct, and has violated 
established administrative and environmental laws in the process. 
Congress should revisit EPAct in order to limit the excesses of DOE, 
especially where the agencies' actions threaten State regulatory 
authority and sovereignty and are tainted with industry favoritism.

                 MECHANICS OF EPACT'S RELEVANT SECTIONS

    EPAct Sec.  216(b) changed the traditional State police powers 
related to siting and approval of energy transmission lines. Section 
216(a) provides that within one year of EPAct's passage, and every 
three years thereafter, DOE shall conduct a study of electric 
transmission congestion (``Congestion Study'') in consultation with 
affected states. 16 U.S.C. Sec.  824p(a). Section 216(a) further 
provides that after considering alternatives and providing an 
opportunity for public comment, DOE shall issue a report based on the 
Congestion Study that may designate as a NIETC any geographic area 
experiencing electric energy transmission capacity constraints or 
congestion that adversely affects consumers. Id. After DOE's 
designation of a Corridor, Section 216(a) provides that FERC may then 
assert federal siting and permitting jurisdiction over electric 
transmission projects located within the Corridor under certain 
circumstances, including if a state fails to act on a project 
application within one year. FERC may authorize the construction and 
operation of transmission facilities, which may include the exercise of 
eminent domain, even if such projects are located wholly within a 
state. See Id. Sec.  824p(b).

         DOE HAS VIOLATED ADMINISTRATIVE AND ENVIRONMENTAL LAWS

    As my office has pointed out to DOE, the agency's administrative 
review process leading up to the designation exceeded its authority 
under Section 216. At the same time, DOE violated long-standing federal 
laws.
    The Administrative Procedure Act (``APA''), 5 U.S.C. Sec. Sec.  
553, 554, 556 and 557, prescribes the procedural requirements that must 
be followed by federal agencies in the issuance of regulations and 
adjudicatory orders. The APA requires a formal administrative process 
for the type of factual findings and rulemaking imposed by DOE.
    The National Environmental Policy Act (``NEPA''), 42 U.S.C. 
Sec. Sec.  4331, et seq., sets forth the policy of the United States to 
protect the environment and prescribes the procedural and substantive 
requirements that each federal agency must follow when taking any 
action, including those involving the issuance of an order or the 
promulgation of a regulation.
    The Endangered Species Act (``ESA''), 16 U.S.C. Sec. Sec.  1531, et 
seq., provides for the protection of endangered and threatened species. 
In so doing, it requires that each federal agency undertaking an 
action, including issuance of an order or promulgation of a regulation, 
consult with other federal agencies having jurisdiction to insure that 
the action is not likely to jeopardize the continued existence of any 
species.
    Finally, the National Heritage Act (``NHA''), 16 U.S.C. Sec.  461, 
et seq., designates areas of New York State as National Heritage Areas, 
three of which are directly affected by DOE's Designation Order: 1) the 
Hudson River Valley National Heritage Area, a three million-acre area 
in New York's Hudson River Valley; 2) the Erie Canalway National 
Heritage Area; and 3) the Champlain Valley National Heritage 
Partnership. The designation of National Heritage Areas requires 
preparation of a resource-protective Management Plan, and that any 
federal agency conaucting or supporting an activity tnat may arrect tne 
aesignatea area consult wan tne Department of Interior and State 
entities to evaluate alternatives to the proposed action and 
consistency with the Management Plan.
    DOE essentially disregarded and marginalized the mandatory 
procedural and planning requirements imposed by Congress in each of 
these statutes to the detriment of the States, as well as its own 
credibility and authority.

     DOE DISREGARDED SUBSTANTIAL STATE AND PUBLIC INPUT DURING THE 
                        DESIGNATION OF THE NIETC

    In August 2006, DOE issued its ``National Electric Transmission 
Congestion Study,'' which proposed to designate a massive geographic 
area in New York and several other States as an area purportedly 
``experiencing electric energy transmission capacity constraints or 
congestion that adversely affects consumers'' within the meaning of 
F.P.A. Section 216(a). 71 Fed. Reg. 45,047 (2006). Comments from the 
State of New York, including the New York Public Service Commission, 
the New York State Department of Environmental Conservation, and the 
Governor asserted:

          1) the Congestion Study underlying the proposed Corridors was 
        flawed:

                  --there were unexplained discrepancies between the 
                data utilized in the Congestion Study and prior 
                findings of the New York Independent System Operator 
                (``NYISO'');
                  --inconsistent methodologies utilized in the 
                Congestion Study skewed its results to favor an 
                unreasonably broad Corridor designation.

          2) any action designating a NIETC required consultation with 
        states and other federal agencies, and extensive environmental 
        review:

                  --the inclusion of 47 counties in New York would have 
                adverse environmental impacts on numerous protected 
                natural, cultural and historic resources, as well as 
                the State's economic resources and energy policy;
                  --technical consultation with the State and 
                additional studies were necessary prior to DOE's 
                designation of a NIETC in New York;
                  --the Study failed to consider and analyze 
                alternatives such as new generation and transmission 
                upgrades;
                  --the Study failed to consider new and proposed 
                generation projects that could be more cost effective 
                than transmission lines;
                  --the Study failed to consider adverse economic 
                impacts on energy markets from the Corridor 
                designation; and
                  --DOE, failed to compiy with NEPA, ESA, and -NHA in 
                designating the Corridor, which represented the first 
                step to implementation of a federal program for the 
                development of transmission lines in the State.

          3) DOE inclusion of New York in any NIETC was unwarranted:

                  --DOE's action usurped traditional State authority 
                and imposed aging, dirty power sources on New York; and
                  --there is no need for federal jurisdiction, and New 
                York should be excluded from the Corridor because New 
                York has an effective transmission facility siting law, 
                Public Service Law, Article VII, and has taken steps to 
                foster reliability.

    DOE conducted a limited number of public information hearings on 
the proposed Corridor designations at which interested stakeholders 
submitted hundreds of comments to DOE expressing widespread opposition 
to the proposed Corridor Designation Report.
    In October 2007, DOE issued a final order designating two NIET 
Corridors exactly as it had proposed them (Designation Order), one in 
the Mid-Atlantic Corridor and the other in the Southwestern Area. 72 
Fed. Reg. 56,992 (2007). The Mid-Atlantic Corridor included 47 counties 
in upstate New York, large portions of Pennsylvania, Ohio, Virginia and 
West Virginia, and all of New Jersey, Delaware, Maryland, the District 
of Columbia. My office sought reconsideration of the Designation Order, 
which was granted, but DOE then issued a final rule to the same affect 
in March 2008. My office then challenged the rule. This challenge, 
together with those brought by other states and entities, are now 
pending before the U.S. Court of Appeals for the Ninth Circuit.

             THE DESIGNATION OF THE NIETC IS LEGALLY FLAWED

a) DOE exceeded its statutory authority
    In Section 216(a), Congress did not provide DOE with the authority 
to issue an adjudicatory order or rule like the Designation Order 
issued here. The Designation Order is binding on affected states and 
makes factual findings related to congestion and adverse impacts on 
consumers. As explained in filings with the DOE, and in subsequent 
court documents, DOE has discretion to perform regulatory functions 
pursuant to Section 309. Niagara Mohawk Power Corporation v. Federal 
Power Commission, 379 F.2d 153, 159 (D.C. Cir. 1967). However, the 
fact-finding, which underlies the Designation Order, coupled with its 
binding affect on the states, is functionally an adjudication. As such, 
it may not be ``informal'' as DOE claims. See 72 Fed. Reg. at 57,001 
(2007). In passing Section 216(a), Congress did not direct DOE to 
adjudicate anything, nor did it allow DOE to unilaterally abrogate the 
APA's adjudicatory hearing and due process requirements. See 5U U.S.C. 
Sec. Sec.  554, 556-557 (1966). Had Congress intended to give DOE the 
authority under the APA to issue either an adjudicatory order 
containing factual findings or a rulemaking, both of which would bind 
the States for a period of 12 years, it would have expressly stated as 
much in Section 216. Thus, the Designation Order is beyond DOE's 
authority under Section 216 and violates the procedural requirements of 
the APA.
b) The Designation Order is fundamentally flawed
    DOE's Designation Order relies heavily upon its 2006 Congestion 
Study, which fails to meet the statutory criteria for designation in 
Section 216(a)(2). In order to designate a NIETC, DOE must find that a 
geographic area is experiencing electric energy transmission capacity 
constraints or congestion. Second, those constraints or congestion must 
be adversely affecting consumers in those areas. Sec.  824p(a). DOE 
must find both criteria met before including a geographic area as part 
of a NIETC. Id. DOE's Designation Order purports to make factual 
findings of capacity constraints and adverse affects on consumers, but 
lacks proper support in the record for those findings.
    DOE has included parts of New York in the Corridor that are simply 
not currently congested. Indeed, DOE included areas in the Mid-Atlantic 
Corridor that may have congestion less than five percent of the time, 
the threshold set forth in the Designation Order. 72 Fed. Reg. at 
57,005 (2007). The magnitude of DOE's error is illustrated by the sheer 
size of the geographic area included within the Corridor that 
encompasses some of the least populated and least congested counties in 
New York.
    While DOE claims that the boundaries of the Corridor ``are not 
based on any proposed transmission project,'' Id. at 56,999 (2007), an 
objective review demonstrates that such is not the case. Well before 
DOE issued the Congestion Study, at least one New York transmission 
line developer requested that DOE designate a specific and extensive 
area as part of the Corridor. In a March 6, 2006 letter, the New York 
Regional Interconnect, Inc. (``NYRI'') requested that DOE designate 
approximately 190 miles as a transmission Corridor, running from the 
Edic substation in the Town of Marcy, Oneida County, to the Rock Tavern 
substation in New Windsor, Orange County, just outside the New York 
City metropolitan area. With apparently no information related to 
actual adverse impacts on consumers in that 190-mile area, DOE simply 
incorporated NYRI's requested designation in the Congestion Report, Id. 
at 25,838, 25,860 (2007), clearing the way for the exercise of FERC 
jurisdiction--and likely approval--of the project if the State does not 
act on the project within one year of the application. Sec.  824p(b). 
Furthermore, it is not clear that the NYRI project, as proposed, will 
actually relieve congestion in the areas of New York with the most 
significant congestion. The efficacy of the NYRI project remains at 
best a significant open question that will be resolved by the New York 
State Public Service Commission (``NYSPSC''), should the NYRI 
application be deemed complete and sufficient for review.
    The Designation Order summarily claims that because there may be 
congestion as little as five percent of the time, consumers are 
adversely impacted. 72 Fed.Reg. at 57,005 (2007). There simply is no 
evidence in the record that all consumers throughout the massive 
geographic area designated as the Mid-Atlantic Corridor are adversely 
impacted. DOE merely speculates and theorizes that congestion must 
cause adverse impacts. Id. at 57,007. DOE's result-oriented speculation 
is insufficient to support DOE's finding that such an enormous 
geographic area is both constrained and adversely affected. Section 
216(a) requires a finding of adverse impact, not speculation, in order 
for a geographic area to be designated as part of the Corridor.
    DOE's use of the overbroad ``source and sink'' approach is contrary 
to the express language of Section 216(a), which directs DOE to include 
in the Corridor only those geographic areas found to be experiencing 
constraints that adversely affect consumers in the retail consumer end 
markets or ``sinks'' of congestion. 16 U.S.C. Sec.  824p(a)(2) and 
(a)(4)(A). Included within the Corridor are both the ``sources'' of 
electric power generation and the ``sinks'' representing the end-use 
consumers that presumably are constrained and affected. The inclusion 
of ``sources'' and all the areas in between is simply not authorized by 
Section 216(a). Invoking the statute's supposed ``ambiguity,'' DOE has 
gone well beyond the scope of authority granted by Congress and seeks 
to insulate its overreaching abuse of regulatory discretion from more 
probing judicial review under Chevron U.S.A., Inc. v. Natural Resources 
Defense Council, Inc., 467 U.S. 837 (1984). The language of Section 
216(a) is not ambiguous and focuses on consumers, not on power 
generators. See New England Power Company v. Federal Power Commission, 
467 F. 2d 425, 429 (D.C. Cir. 1972), aff'd sub nom, 415 U.S. 345 (1974) 
(FPC's purpose in regulation of power is to benefit the public and 
there is ``something fundamentally wrong'' in regulating to benefit the 
industry).
    The Designation Order is factually flawed and does not make 
credible or supportable findings of fact on transmission congestion and 
related adverse impact on consumers. To justify the Designation, DOE 
adopted wholesale the data and report of its consultants, CRA 
International, Inc. DOE did not question CRA's report, despite the 
specific factual and technical objections to the Congestion Report 
asserted by numerous commentators, including the NYSPSC, that called 
the Report into question.\1\ It is clear that DOE failed to conduct any 
independent verification of the information on which it relied, nor did 
the agency adequately address the apparent conflicts and 
inconsistencies within the Designation Order.
---------------------------------------------------------------------------
    \1\ See NYSPSC's October 2006 Comments related to the Congestion 
Report.
---------------------------------------------------------------------------
    DOE's approach fails to consider relevant economic factors, 
including whether new transmission will cost consumers more. This 
approach is entirely inconsistent with objectives of the Federal Power 
Act, which is designed to favor the consumer. New York is keenly aware 
of its own energy needs and is in the best position to determine a 
State energy policy after balancing a number of relevant factors. The 
Designation Order improperly encroaches on the State's right to 
determine and implement a balanced energy policy with appropriate 
solutions to energy needs, including those related to congestion.
    Section 216(a) required DOE to formally consult with affected 
states in the proposed designated Corridor. Sec.  824p(a). When 
Congress included the consultation requirement in Section 216(a), it 
intended a far more meaningful role for the states in the Corridor 
designation process than the limited one that DOE has afforded. Rather 
than undertake a formal consultation process in which the states could 
pursue a dialogue about the Corridor, DOE relied on informal 
communications with affected States in which no real dialogue or 
substantive consideration of issues took place. Moreover, DOE 
disregarded the positions offered by affected states, including New 
York, in their comments submitted in opposition to both the Congestion 
Study and the Corridor designation. For example, DOE entirely ignored 
the NYISO conclusion that there is no need for a Corridor designation 
from a reliability standpoint. 72 Fed. Reg. at 25,858-25,860 (2007).\2\ 
Indeed, DOE never changed its position throughout the Cooridor review 
and designation process on any issue as a result of a state's comments. 
This is not ``consultation'' within the meaning or intent of Section 
216(a).
---------------------------------------------------------------------------
    \2\ NYISO's Reliability Needs Assessment states that ``there is no 
need for a National Corridor [in New York] from a reliability 
standpoint.''
---------------------------------------------------------------------------
    DOE's 2006 Congestion Report, which purported to make the requisite 
congestion and consumer cost findings which EPAct required before 
designation could occur, is based in large part on a private study 
compiled by CRA International, a consulting engineering firm used by 
the power industry, including but not limited to New York Regional 
Interconnect, an entity seeking to site a 190-mile long transmission 
line in upstate New York. As we have come to find out, the CRA Report 
was neither scientific nor reliable and served in large part to parrot 
the ``wants'' of the industry, as opposed to the actual needs and 
circumstances on the ground. DOE failed to objectively review the CRA 
report, failed to consider well-founded comments critical of the 
assumptions and conclusions of the CRA report, based its designation on 
the CRA report, and then--remarkably--has refused to provide that 
report to the public, as required by the Freedom of Information Act, 
claiming that it is ``confidential business information.'' The fact 
that NYRI's planned transmission line was included in the NIETC is 
hardly a coincidence and evidences the taint in the study and the DOE 
designation process.
c) DOE's administrative process leading to the Designation Order was 
        deficient
    DOE failed to comply with both the procedural framework of Section 
216(a) prior to issuing the Designation Order and the basic, long-
standing requirements of the APA. Additionally, DOE chose to view its 
Designation Order as a benign administrative undertaking that had no 
real effects, creating a fiction that allowed it to sidestep its duties 
under NEPA, ESA and NHA. Respectfully, Congress did not intend that DOE 
disregard the established and protective environmental safeguards in 
furthering energy reliability under EPAct.
    DOE characterizes the requirement in EPAct Section 216(a) as 
``ambiguous'' that they consider alternatives to designation of NIETCs, 
72 Fed.Reg. at 57,010 (2007), again in a veiled attempt to insulate its 
actions under Chevron. DOE resorts to fictional ``ambiguity'' to avoid 
proper review, including the ``alternatives,'' under NEPA, which was 
clearly not the result intended by Congress. See 42 U.S.C. Sec.  
4332(2)(C)(iii) (all agencies of the Federal Government shall ... 
include ... a detailed statement by the responsible official on ... 
alternatives to the proposed action...). In fact, Section 216 requires 
DOE to consider alternatives to the size and location of the Corridor 
and to review other solutions to capacity constraints, other than new 
transmission lines, such as transmission line upgrades, local 
distribution, new generation, and other technologies. Sec.  824p(a). In 
refusing to consider and evaluate alternatives, particularly to this 
clearly major federal action, DOE has failed to comply with the letter 
and spirit of both Section 216(a) and NEPA. See also Letter from 
Commissioner Alexander Grannis of the Department of Environmental 
Conservation, to Senators Bingaman and Domenici of the United States 
Senate (August 13, 2008).
    DOE attempts to justify its finding that the Designation Order is 
not a ``major federal action'' by stating that the Corridor designation 
has no environmental impact and that should specific transmission 
projects be proposed in the future, FERC will review the environmental 
impacts of those projects under NEPA. 72 Fed. Reg. at. 57,021-23 
(2007). DOE ignores the continuing nature of Section 216's scheme to 
develop transmission in the Corridor. Sec.  824p(a) and (b). In 
addition to ignoring its own NEPA obligations, DOE disregards the 
anticipated development of transmission lines expected as a result of 
the Designation Order and the unavoidable cumulative environmental 
impacts that flow from that development. The Designation Order states 
that it is ``the first step in the process of determining whether to 
provide a potential Federal forum that would examine whether addressing 
congestion through transmission expansion is in the public interest.'' 
72 Fed.Reg. at 57,004 (2007).\3\
---------------------------------------------------------------------------
    \3\ Similarly, in the Congestion Report, DOE characterizes the 
Designation Order as a ``necessary first step'' in siting transmission 
lines in the Corridor. See DOE ``National Electric Transmission 
Congestion Report and Final National Corridor Designations, Frequently 
Asked Questions,'' p.1, Sec.  2 (October 2, 2007).
---------------------------------------------------------------------------
    Just as DOE violated NEPA, it wholly disregarded its duties to 
undertake a formal consultation with other federal agencies and the 
states imposed by Congress under ESA and NHA when it issued its 
Designation Order. See Endangered Species Act, 16 U.S.C. Sec.  
1536(a)(3); 50 C.F.R. Sec. Sec.  402.10-402.16; National Heritage Act, 
16 U.S.C. Sec.  461, et seq.\4\ (Hudson River Valley National Heritage 
Area, Erie Canalway National Heritage Area and the Champlain Valley 
National Heritage Partnership included in the Designation Order).
---------------------------------------------------------------------------
    \4\ Pub. No. 105-83, Title III, Sec. Sec.  317 and 324, 111 Stat 
1595, 1597 (1997); Pub. L. No. 106-176, Sec.  206, 114 Stat. 23 (2000). 
See NYSDEC November 2, 2007 Petition for Rehearing, pp 16-17; 20-22.
---------------------------------------------------------------------------
                               CONCLUSION

    DOE's Designation Order establishing the Mid-Atlantic NIETC exceeds 
its statutory authority under Section 216 of EPAct. The Designation 
Order is itself factually flawed, in that it does not make the required 
findings of actionable congestion and consumer impacts. To the extent 
that it purports to make such findings, they are unsupported by the 
record, as evidenced by DOE's reliance upon the tainted CRA Congestion 
Study Report. Finally, DOE's administrative process in reaching its 
Designation Order failed to comply with applicable federal laws and did 
not meaningfully involve the states. While this office is seeking to 
address these deficiencies in the courts, it is critical that Congress 
revisit EPAct, review DOE's actions and expressly direct a process 
which complies with established law in order to achieve the desired 
result of energy reliability and consumer and environmental protection.
    Thank you again for the opportunity to present this testimony on 
behalf of the people of the State of New York.
            Respectfully Submitted,
                                           Andrew M. Cuomo,
                                                  Attorney General.
                                 ______
                                 
                                 State of New York,
                            Office of the Attorney General,
                                      Albany, NY, January 31, 2008.

Office of Electricity Delivery and Energy Reliability, OE-20, U.S. 
        Department of Energy, 1000 Independence Avenue, S.W., 
        Washington, DC.
RE: National Interest Electric Transmission Corridor Designation Order, 
Mid-Atlantic Area (Docket No. 2007-OE-01)

    Dear Sir or Madame: Please accept this letter as a supplement to 
the New York Attorney General's November 5, 2007 Petition for Rehearing 
and Motion to Intervene filed in the above captioned proceeding. This 
supplement is necessitated because we believe that the facts set forth 
below should be considered by the Department of Energy (``DOE'') in the 
context of rehearing this matter.
    In a March 6, 2006 letter to DOE, transmission line developer New 
York Regional Interconnect, Inc. (``NYRI'') requested that DOE 
designate a 200 mile long area from the Town of Marcy to the Town of 
New Windsor, New York, as part of the Mid-Atlantic Corridor (Exhibit 
A). NYRI requested ``early'' designation of its project area in the 
Corridor. Although DOE did not designate NYRI's project early in the 
process, the entire project area was later included in DOE's Corridor 
designation, as NYRI had requested (See August 2006 National Electric 
Transmission Congestion Study, pp. 39-41 and Figure 5-1).
    In May 2006, NYRI submitted documents to the New York State Public 
Service Commission (``PSC'') reflecting its intention to develop the 
200 mile long transmission project in New York. On February 1, 2007, 
NYRI brought an action against certain State officials in the United 
States District Court for the Northern District of New York challenging 
the constitutionality of the New York Transportation Corporation Law 
insofar as it relates to the transmission project. (See NYRI v. Pataki, 
Civil Action No. 07-0122). The State moved to dismiss the NYRI 
complaint on various grounds. In opposition to the State's motion, NYRI 
submitted a September 5, 2007 expert report prepared by James H. 
Drzemiecki of CRA International (``CRA'') (Exhibit B). On November 8, 
2007, the court dismissed NYRI's complaint. Nevertheless, it is clear 
that at some point, NYRI retained CRA as its expert in litigation 
related to its transmission project.
    On December 10, 2007, NYRI submitted to the PSC a petition for a 
declaratory ruling that the same State law challenged in the dismissed 
federal court action was either not applicable to NYRI or was 
unconstitutional (Exhibit C). In support of its petition, NYRI 
submitted the same CRA expert report that had been submitted in the 
federal court action.\1\
---------------------------------------------------------------------------
    \1\ The report was authored by James H. Drzemiecki, a vice 
president of CRA.
---------------------------------------------------------------------------
    On January 8, 2007, NYRI and representatives of CRA met with 
representatives from the New York State Department of Public Service 
and Department of Environmental Conservation to discuss NYRI's proposed 
transmission project in New York. CRA vice president Aleksandr 
Rudkevich and CRA associate T. Bruce Tsuchida attended that meeting. It 
is therefore clear that NYRI has also retained CRA as its consultants 
in matters before the PSC related to its transmission project.
    Notably, both Mr. Rudkevich and Mr. Tsuchida were members of the 
CRA Project Team that DOE retained to draft the July 2006 Report 
``Congestion Analysis of the Eastern Interconnection'' (Exhibit C: 
``Congestion Analysis, Task 2: Eastern Interconnection Modeling,'' p. 
1). The Congestion Analysis Report was prepared by CRA for DOE, as was 
the bulk the August 2006 Congestion Study Report.\2\ CRA's Congestion 
Analysis appears to assume that NYRI's proposed project will be built 
and will constitute new generation in New York (Exhibit C, Congestion 
Analysis, Task 2, p. 12). Both Reports form the primary basis for DOE's 
October 5, 2007 order designating the Mid-Atlantic Corridor 
(``Designation Order''), which includes all of NYRI's proposed project 
area.
---------------------------------------------------------------------------
    \2\ The Congestion Analysis and Congestion Study were prepared by 
CRA and DOE pursuant to Section 216 of the Energy Policy Act of 2005 in 
order to designate the Mid-Atlantic Corridor.
---------------------------------------------------------------------------
    NYRI's retention of CRA as its consultants raises questions about 
the independence of the work performed for DOE. NYRI stands to benefit 
from the CRA's work on the Congestion Study and from the wholesale 
inclusion of its proposed project area as part of the Corridor. 
Moreover, because we believe that the inclusion of the entire NYRI 
project in the Corridor lacks the requisite proof of congestion that 
adversely impacts consumers, DOE's designation of that portion of the 
Corridor in New York is unsupported and therefore in error.
    DOE's regulations governing the retention of consultants defines a 
conflict of interest to mean ``that because of other activities or 
relationships with other persons, a person is unable or potentially 
unable to render impartial assistance or advice to the Government, or 
the person's objectivity in performing the contract work is or might be 
otherwise impaired, or a person has an unfair competitive advantage.'' 
9 C.F.R. Sec.  952.209-8(a). These regulations have disclosure 
requirements and provide that a successful bidder such as CRA submit a 
statement to DOE disclosing ``any past (within the past twelve months), 
present, or currently planned financial, contractual, organizational, 
or other interests relating to the performance of the statement of 
work,'' along with an identification of the client and the services 
rendered. 9 C.F.R. Sec.  952.209-8(c)(1). Sufficient information must 
be provided by the contractor to DOE in order ``to allow a meaningful 
evaluation of the potential effect'' of the contractor's interests on 
the performance of the work to be performed for DOE. Id. A statement 
must also be submitted that no actual or potential conflict of interest 
or unfair competitive advantage exists with respect to the services to 
be provided to DOE. 9 C.F.R. Sec.  952.209-8(c)(2).
    The purpose of DOE's regulations is to ensure that the contractor 
(1) is not biased because of its financial, contractual, 
organizational, or other interests which relate to the work under the 
contract, and (2) does not obtain any unfair competitive advantage over 
other parties by virtue of its performance under the contract. See 9 
C.F.R. Sec.  952.209-72.
    Under Section 515 of the Treasury and General Government 
Appropriations Act of 2001, federal agencies are required to draft 
policy and procedural guidelines that ``provide for the quality, 
objectivity, utility and integrity of information disseminated to the 
public.'' Under both the Office of Management and Budget guidelines, 
(67 Fed. Reg. 8452), and the DOE guidelines, (67 Fed. Reg. 62,446), 
data and information on which DOE relies must be unbiased and capable 
of being substantially reproduced with respect to analytical results by 
a qualified individual outside of the agency. These guidelines apply to 
third party contractors who provide information relied upon or endorsed 
by DOE (67 Fed. Reg. At 62, 446).
    In light of the foregoing, we request that DOE consider within the 
pending rehearing the question of CRA's compliance with 9 C.F.R. Part 
952 and the OMB and DOE guidelines. In addition, we request that the 
Congestion Analysis and Congestion Study be subjected to independent 
peer review. CRA's relationship to NYRI and other transmission 
developers who will benefit from the assumptions and conclusions in the 
Congestion Analysis and Congestion Study, as well as from DOE's Mid-
Atlantic Corridor designation, should be subject to further inquiry as 
part of the rehearing.

             NEW YORK'S FREEDOM OF INFORMATION ACT REQUEST

    In a December 17, 2007 e-mail to DOE, we requested the 2004 CRA 
Report ``Grounded in Reality: Eastern Interconnection'' pursuant to the 
Freedom of Information Act (``FOIA''), 5 U.S.C Sec.  552. DOE reviewed 
this Report and included it in the Congestion Study as part of the 
administrative record before the agency when it issued the Designation 
Order (See Congestion Study, Appendix I). We therefore believe that 
this Report falls within the purview of FOIA. In the FOIA demand, we 
also requested DOE's disclosure of documents and communications between 
and among DOE, CRA and transmission developers, utilities, and other 
industry stakeholders. On January 28, 2008, our FOIA demand was 
repeated in an e-mail to DOE's FOIA office.
    These documents are not available on DOE's web page, and apparently 
are not otherwise being made easily available to the public. The 
Attorney General's ability to fully understand the actions of DOE and 
its contractors during the corridor designation process has been 
hampered by DOE's failure to respond to the FOIA demand and make 
relevant information available. In the absence of prompt and full 
disclosure of the record documents before DOE when it issued the 
Designation Order, we have been prejudiced in fully protecting the 
State's rights in this proceeding.
    As you are aware, the Attorney General's Office has already agreed 
to pay reasonable fees for disclosure. To date, DOE has not disclosed 
the requested records nor provided an estimate of the fees for 
disclosure. This is a violation of FOIA's requirement that DOE respond 
to a FOIA request within 20 days and that the records be disclosed 
promptly. We ask that DOE promptly provide an estimate of the cost of 
disclosure and immediately disclose the documents we have requested.

                   STAY OF CORRIDOR DESIGNATION ORDER

    On December 4, 2007, DOE issued an order granting rehearing on the 
October 5, 2007 Corridor Designation Order. We understand from DOE 
staff that a ruling is expected within 90 to 120 days of the order 
granting rehearing (or by March 4 to April 4, 2008). We urge DOE to 
stay the Designation Order pending review of the issues set forth above 
as well as those in the rehearing petitions. As previously noted, NYRI 
has submitted documents to the New York PSC reflecting an intention to 
apply for approval of its proposed project. The statutory deadline in 
the Energy Policy Act that requires the PSC to address transmission 
project applications within one year--or face federal approval--cannot 
begin to run while these important issues about CRA and the Corridor 
designation remain outstanding and the rehearing proceeding remains 
open. A stay is therefore appropriate.
    Should you have any questions regarding the foregoing, kindly feel 
free to telephone me.
            Very truly yours,
                                          Maureen F. Leary,
                                        Assistant Attorney General.
                                 ______
                                 
                          Department of Energy

  NATIONAL INTEREST ELECTRIC TRANSMISSION CORRIDOR, MID-ATLANTIC AREA
                         DOCKET NO. 2007-OE-01

            PETITION FOR REHEARING BY THE STATE OF NEW YORK
    Pursuant to the Federal Power Act (``FPA'') Section 313, 16 U.S.C. 
Sec.  825l, the State of New York hereby petitions for rehearing of the 
October 5, 2007 Order designating the Mid-Atlantic Area National 
Interest Electric Transmission (``NIET'') Corridor (hereinafter 
``Designation Order''). For the reasons set forth below, rehearing 
should be granted and the Designation Order should be vacated.

                         A. NEW YORK'S INTEREST

    New York's interest in this proceeding is set above in its motion 
to intervene in this proceeding, and is incorporated here. See Attorney 
General's November 5, 2007 Motion to Intervene.

                   B. APPLICABLE STATUTORY PROVISIONS

    The FPA, as amended by the Energy Policy Act of 2005 (``EPAct''), 
changed the balance of power between State and Federal jurisdiction in 
the field of energy transmission. FPA Section 216, 16 U.S.C. Sec.  
824p, creates a new scheme of federal regulation over traditionally-
exercised State authority related to the siting and approval of 
electric transmission lines, including those located wholly within a 
State. Section 216(a) provides that within one year of EPAct's passage, 
and every three years thereafter, DOE shall conduct a study of electric 
transmission congestion (``Congestion Study'') in consultation with 
affected States. 16 U.S.C. Sec.  824p(a). Section 216(a) further 
provides that after considering alternatives and providing an 
opportunity for public comment, DOE shall issue a report based on the 
Congestion Study that may designate as a NIET Corridor any geographic 
area experiencing electric energy transmission capacity constraints or 
congestion that adversely affects consumers. 16 U.S.C. Sec.  824p(a).
    Following DOE's corridor designation, Section 216(a) provides that 
FERC then may assert federal siting and permitting jurisdiction over 
electric transmission projects located within the Corridor under 
certain circumstances, including if a State fails to act on a project 
application within one year. FERC may authorize the construction and 
operation of transmission facilities, even if such projects are located 
wholly within a State. See 16 U.S.C. Sec.  824p(b).
    The Administrative Procedure Act (``APA''), 5 U.S.C. Sec.  553, 
554, 556 and 557, prescribes the procedural requirements that must be 
followed by federal agencies in the issuance of regulations and 
adjudicatory orders. These procedures are mandatory and govern all 
federal actions.
    The National Environmental Policy Act (``NEPA''), 42 U.S.C. Sec.  
4331 et seq., sets forth the policy of the United States with respect 
to protection of the environment, and prescribes the procedural and 
substantive requirements that each federal agency must follow when 
taking any action, including those involving the issuance of an order 
or the promulgation of a regulation. These procedures are mandatory and 
govern all federal actions that may affect the environment. 42 U.S.C. 
Sec.  4332.
    The Endangered Species Act (``ESA''), 16 U.S.C. Sec.  1531, et 
seq., sets forth the policy of the United States to protect endangered 
and threatened species, and requires that each federal agency 
undertaking an action, including those involving issuance of an order 
or promulgation of a regulation, consult with other federal agencies 
having jurisdiction under the ESA to insure that the action is not 
likely to jeopardize the continued existence of any endangered or 
threatened species. The ESA's consultation requirement is mandatory and 
applies to all federal actions that may adversely impact protected 
species. 16 U.S.C. Sec.  1536.
    The Hudson River Valley National Heritage Area Act of 1996 
(``HRVNHA''), Section 908, designates a three million-acre area in New 
York's Hudson River Valley as a National Heritage Area. The designation 
requires preparation of a Management Plan, which is designed to protect 
the natural, cultural, historic and recreational resources of the Area. 
Section 908 of the HRVNHA requires any federal agency conducting or 
supporting an activity that may affect the designated area to consult 
with the Department of Interior and certain other State entities with 
respect to the proposed activity, to evaluate alternatives, and to 
ensure that the activity is consistent with the Management Plan. The 
consultation requirement is mandatory and applies to all Federal 
activities affecting the HRVNHA. P.L. 104-333, Division II, Sec.  908, 
110 Stat. 4275 (1996).

                             C. BACKGROUND

    In August 2006, DOE issued its ``National Electric Transmission 
Congestion Study,'' which proposed to designate a massive geographic 
area in New York and several other States as an area purportedly 
``experiencing electric energy transmission capacity constraints or 
congestion that adversely affects consumers'' within the meaning of FPA 
Section 216(a). 71 Fed. Reg. 45,047 (August 8, 2006). DOE solicited 
comments on the Congestion Study from interested parties.
    On October 6, 2006, the NYSPSC submitted comments on the Congestion 
Study, asserting that there were unexplained discrepancies between the 
data utilized in the Congestion Study and prior findings of the New 
York Independent System Operator (``NYISO''); that inconsistent 
methodologies utilized in the Study skewed its results to favor an 
unreasonably broad Corridor designation; that the Study failed to 
consider new and proposed generation projects that could be more cost 
effective than transmission lines; that the Study had failed to 
consider and analyze alternatives such as new generation and 
transmission upgrades; that the Study had not considered adverse 
economic impacts on energy markets from the Corridor designation; and 
that technical consultation with the State and additional studies were 
necessary prior to DOE's designation of a NIET Corridor in New York.
    In May 2007, DOE issued a notice and opportunity to comment on the 
draft Corridor Designation Report that established two NIET Corridors, 
one in the Mid-Atlantic Area and the other in the Southwestern Area. 72 
Fed. Reg. 25,838 (May 7, 2007). DOE conducted a limited number of 
public informational hearings on the proposed Corridor designations. 
Interested stakeholders submitted hundreds of comments to DOE 
expressing widespread opposition to the proposed Corridor Designation 
Report.
    On June 8, 2007, New York Governor Eliot Spitzer submitted comments 
to DOE opposing the proposed designation on the grounds that there is 
no need for the designation or the exercise of federal jurisdiction 
because New York has an effective transmission facility siting law, 
Public Service Law, Article VII. The Governor recited the NYSPSC's 
efficient approval of numerous transmission projects under the State 
siting law and the efforts undertaken to improve reliability. The 
Governor urged DOE to exclude New York from the NIET Corridor.
    On July 6, 2007, the NYSPSC submitted formal comments on the 
proposed Corridor Designation Report and also challenged the inclusion 
of New York in the proposed Mid-Atlantic Corridor. NYSPSC reiterated 
its earlier comments on the Congestion Study, disputed certain factual 
findings in the Report, challenged the legal basis of the Corridor 
Designation under FPA Section 216(a), asserted that the Designation is 
contrary to established economic principles, and confirmed New York's 
primary jurisdictional authority over the siting and construction of 
transmission lines.
    On July 3, 2007, the NYSDEC submitted formal comments on the 
Corridor Designation Report, asserting that the inclusion of most of 
New York would have adverse environmental impacts on numerous protected 
natural, cultural and historic resources. The NYSDEC detailed the 
adverse impacts of the action on the State's economic resources and 
energy policy. The NYSDEC asserted that DOE's action usurped 
traditional State authority and promoted the use of aging, dirty power 
sources. The NYSDEC also asserted that DOE had failed to comply with 
NEPA in designating the Corridor, which represented the first step to 
implementation of a federal program for the development of transmission 
lines in the State. NYSDEC also asserted that DOE had failed to consult 
with appropriate agencies under the ESA.
    In October 2007, DOE issued the final Order designating two NIET 
Corridors (``Designation Order''), one in the Mid-Atlantic Area and the 
other in the Southwestern Area. 72 Fed. Reg. 56,992 (October 5, 2007). 
The Mid-Atlantic Corridor includes 47 counties in New York, all of New 
Jersey, Delaware, Maryland, and the District of Columbia, and large 
portions of Pennsylvania, Ohio, Virginia and West Virginia.
    Prior to issuing the Designation Order, DOE did not prepare or 
issue for public notice and comment an environmental assessment 
(``EA'') describing the proposed designation as required by its own 
NEPA regulations, 10 C.F.R. Sec.  1021.320. Nor did DOE prepare an 
environmental impact statement (``EIS'') as required by NEPA and its 
own regulations. 42 U.S.C. Sec.  4332; 10 C.F.R. Sec.  1021.310. DOE 
did not conduct any NEPA review prior to issuance of the Designation 
Order, nor did it consult with other federal agencies having 
jurisdiction over endangered and threatened species and National 
Heritage Area preservation.
d. statement of the issues, specification of errors, and legal argument
    The State joins in the petitions for rehearing submitted by the 
NYSDEC and NYSPSC, and hereby incorporates the issues, arguments, 
factual assertions, and specification of errors set forth therein. In 
addition, pursuant to Section 313 of the FPA, 16 U.S.C. Sec.  825l, the 
State seeks rehearing and consideration of the following issues and 
specifies the following additional errors of law in DOE's issuance of 
the Designation Order.

          1. DOE lacks the authority under Section 216 and the APA to 
        issue an adjudicatory order or a rule designating the NIET 
        Corridor.

    FPA Section 216(a) contains clear and unambiguous language 
requiring DOE to conduct a study and issue a report on electric 
transmission congestion.

          (1)...[T]he Secretary of Energy..., in consultation with 
        affected States, shall conduct a study of electric transmission 
        congestion.
          (2) After considering alternatives and recommendations from 
        interested parties, ... the Secretary shall issue a report, 
        based on the study, which may designate any geographic area 
        experiencing electric energy transmission capacity constraints 
        or congestion that adversely affects consumers as a national 
        interest electric transmission corridor.

    FPA 216(a), 16 U.S.C. 824p(a) (emphasis added). Section 216(a) does 
not provide DOE with the authority to issue an adjudicatory order or 
rule like the Designation Order issued here, which makes factual 
findings related to congestion and adverse impacts on consumers and is 
binding on affected States. FPA Section 309, 16 U.S.C. Sec.  824h, also 
does not provide DOE with the authority to issue the Designation Order 
at issue here. Although DOE has some latitude and discretion in 
performing its regulatory functions pursuant to Section 309, (Niagara 
Mohawk Power Corporation v. Federal Power Commission, 379 F.2d 153, 159 
(D.C. Cir. 1967)), the fact finding function underlying the Designation 
Order and its binding affect on the States stands in a different light. 
The APA, 5 U.S.C. Sec. Sec.  554, 556 and 557, does not authorize DOE's 
issuance of the Designation Order, nor the ``informal'' process DOE 
followed in issuing it. The APA requires clear notice of the 
administrative action being taken, whether by adjudication or 
rulemaking, and strict compliance with detailed procedural 
requirements. Thus, the Designation Order is beyond DOE's authority 
under Section 216 and the APA.
    DOE characterizes the Designation Order as an ``informal 
adjudication under the APA.'' 72 Fed Reg. at 57,001. In passing Section 
216(a), Congress did not direct DOE to adjudicate anything. Nor did 
Congress in Section 216 allow DOE to unilaterally abrogate the APA's 
adjudicatory hearing and due process requirements. 5 U.S.C. Sec. Sec.  
554, 556-557.
    Under the APA, an adjudicatory order is significantly different 
than the Congestion Study and Designation Report authorized by Section 
216(a). An adjudicatory order adjudicates contested issues after an 
evidentiary hearing, contains factual findings, and is binding on 
affected parties. An adjudicatory order therefore carries far greater 
weight and effect than a study or report. Such an order is issued only 
after a formal hearing process that comports with the APA's due process 
requirements. If DOE intended to issue an adjudicatory order, even a 
so-called ``informal'' one like the Designation Order here, it was 
required to comply with the APA's hearing requirements, 5 U.S.C. Sec.  
554, as well as its own hearing regulations, 10 C.F.R. Sec.  385.501 et 
seq. DOE did not conduct such an adjudicatory hearing here. The record 
contains no statutory or factual basis to support DOE's ``informal'' 
adjudicatory Designation Order.\1\
---------------------------------------------------------------------------
    \1\ There also is no statutory differentiation between ``formal'' 
and ``informal'' orders under the APA to support DOE's 
characterization. It is unclear from the Designation Order itself what 
the term ``informal'' means and whether DOE intends by the lack of 
formality not to bind the States affected by the Corridor.
---------------------------------------------------------------------------
    The Designation Order alternatively may be reviewed as the 
equivalent of a rule making within the meaning of APA 5 U.S.C. Sec.  
553, particularly since DOE intends to bind the States to the Corridor 
established in the Order for a period of 12 years. DOE did not comply 
with the APA's procedural requirements and, in fact, never notified the 
States that it intended to promulgate a functional rule establishing 
the Corridor, rather than issuing a report recommending the Corridor, 
as Section 216(a) envisions.
    In making its findings of fact on transmission congestion and 
related adverse impact on consumers in the Designation Order, DOE 
relied on the Congestion Report. DOE seems to adopt wholesale the 
underlying data and report of its consultants, CRA International, Inc. 
DOE did not question CRA's report, despite the specific factual and 
technical objections to the Congestion Report asserted by numerous 
commentators, including the NYSPSC, that called the Report into 
question.\2\ When the NYSPSC credibly challenged the data, information 
and assumptions contained in the Congestion Report, DOE had a duty to 
independently verify the factual basis on which it was relying. See 
Sierra Club v. Flowers, 423 F.Supp. 2d 1273, 1338 (D. Fla. 2006) (Corps 
of Engineers reliance on applicant's reports during NEPA review was 
erroneous; once credibly challenged as inaccurate, Corps was required 
to investigate and to subject reports to independent verification); see 
also 40 C.F.R. Sec.  1506.5(a); Sierra Club v. Sigler, 695 F.2d 957, 
979 (5th Cir. 1983) (NEPA requires objective analysis and independent 
verification of information federal agency relies upon); Sierra Club v. 
Marsh, 701 F.Supp. 886, 912 (D. Me. 1988) appeal dismissed, 907 F.2d 
210 (1990) (same). The record does not reflect that DOE conducted any 
independent verification of the information on which it relied, nor did 
DOE adequately address the apparent conflicts in the Designation Order.
---------------------------------------------------------------------------
    \2\ See NYSPSC's October 2006 Comments related to the Congestion 
Report.
---------------------------------------------------------------------------
    DOE's approach fails to consider relevant economic factors, 
including whether new transmission will cost consumers more. This 
approach is entirely inconsistent with objectives of the FPA, which are 
designed to favor the consumer. The Designation Order binds New York to 
an energy plan that is contrary to the State's approach with respect to 
capacity. See NYSPSC November 2, 2007 Petition for Rehearing. New York 
is keenly aware of its own energy needs and is in the best position to 
determine a State energy policy after balancing a number of relevant 
factors. The Designation Order improperly encroaches on the State's 
right to determine and implement a balanced energy policy with 
appropriate solutions to energy needs, including those related to 
congestion.
    Had Congress intended to give DOE the authority under the FPA to 
issue either an adjudicatory order containing factual findings or a 
rulemaking, both of which would bind the States for a period of 12 
years, it would have expressly stated as much in Section 216. Congress 
did not. Even if Congress intended DOE to issue a binding adjudicatory 
order or a rule, DOE was required to comply with the procedural 
requirements of the APA , and to make clear to States the precise 
action it was taking. Consequently, DOE lacks the authority to issue 
the Designation Order at issue here.

          2. DOE improperly included areas in the NIET Corridor that do 
        not meet the criteria of Section 216.

    FPA Section 216(a)(2) sets forth the criteria that DOE must meet in 
order to include a geographic area as part of the designated NIET 
Corridor. First, DOE must find that a geographic area is experiencing 
electric energy transmission capacity constraints or congestion. 
Second, the constraints or congestion must be adversely affecting 
consumers in those areas. 16 U.S.C. Sec.  824p(a). DOE must find both 
criteria met before including a geographic area as part of the NIET 
Corridor. 16 U.S.C. Sec.  824p(a). DOE's Designation Order purports to 
make factual findings of capacity constraints and adverse affects on 
consumers, but lacks proper support in the record for those findings.

                  a. There is nothing in the record to support DOE's 
                factual finding that consumers in the Corridor are 
                adversely affected within the meaning of Section 
                216(a).

    The Designation Order summarily claims that simply because there 
may be congestion as little as 5% of the time, consumers are adversely 
impacted. 72 Fed.Reg. at 57,005. DOE assumes adverse effects on 
consumers without a factual basis showing such effects. There simply is 
no evidence in the record that all consumers throughout the massive 
geographic area designated as the Mid-Atlantic Corridor are adversely 
impacted. DOE merely speculates and theorizes that congestion must 
cause adverse impacts. 72 Fed. Reg. at 57,007. DOE's result-oriented 
speculation is insufficient to support DOE's finding that such an 
enormous geographic area is both constrained and adversely affected. 
Section 216(a) requires a finding of adverse impacts, not speculation, 
in order for a geographic area to be designated as part of the 
Corridor.
    DOE improperly uses the so-called ``source and sink'' approach to 
the Corridor designation. 72 Fed. Reg. at 57,007. Under this approach, 
DOE has included in the Corridor both the ``sources'' of electric power 
generation and the ``sinks'' representing the end-use consumers that 
presumably are constrained and affected. This approach is contrary to 
the express language of Section 216(a), which directs DOE to include in 
the Corridor only those geographic areas found to be experiencing 
constraints that adversely affect consumers in the retail consumer end 
markets or ``sinks'' of congestion. 16 U.S.C. Sec.  824p(a)(2) and 
(a)(4)(A). Inclusion of ``sources'' and all the areas in between is 
simply not authorized by Section 216(a).
    DOE justifies its ``source/sink'' approach by characterizing as 
ambiguous Congress' use of the words ``... any geographic area 
experiencing electric transmission capacity constraints or congestion 
that adversely affects consumers....'' 16 U.S.C. Sec.  824p(a). This 
characterization is DOE's veiled attempt to insulate its regulatory 
action from more probing judicial review under Chevron U.S.A., Inc. v. 
Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The 
language of Section 216(a) is not ambiguous and focuses on consumers, 
not on power generators. This reading of Section 216(a) is consistent 
with the FPA's objectives, which are to protect the consumer, not the 
power industry. See New England Power Company v. Federal Power 
Commission, 467 F. 2d 425, 429 (D.C. Cir. 1972), aff'd sub nom, 415 
U.S. 345 (1974) (FPA's purpose in regulation of power is to benefit the 
public and there is ``something fundamentally wrong'' in regulating to 
benefit the industry).
    DOE also fails to provide a basis in the record for setting the 
boundaries of the Corridor. DOE reasons that in setting the boundaries 
of the Corridor by using existing county borders, the Order provides 
``certainty.'' 72 Fed.Reg. at 57,008. DOE's does not provide any other 
basis for the boundaries. This too is not consistent with either the 
plain language of Section 216(a).

                  b. DOE included areas in the NIET Corridor that are 
                not currently experiencing more than minimal 
                transmission constraints or congestion.

    DOE has included parts of New York in the Corridor that are simply 
not currently congested. Indeed, DOE included areas in the Mid-Atlantic 
Corridor that may have congestion less than 5% of the time, since that 
is the threshold in the Order. 72 Fed. Reg. at 57,005. The sheer size 
of the geographic area included in the Corridor, which covers some of 
the least populated areas of New York where there simply is no real 
congestion, graphically illustrates DOE's error.
    DOE also asserts that the boundaries of the Corridor ``are not 
based on any proposed transmission project.'' 72 Fed. Reg. at 56,999. 
This is not necessarily the case, however. Well before DOE issued the 
Congestion Study, at least one New York transmission line developer 
requested that DOE designate a specific and extensive area as part of 
the Corridor. In a March 6, 2006 letter, the New York Regional 
Interconnect, Inc. (``NYRI'') requested that DOE designate 
approximately 190 miles as a transmission corridor, running from the 
Edic substation in the Town of Marcy, Oneida County, to the Rock Tavern 
substation in New Windsor, Orange County. With apparently no 
information related to actual adverse impacts on consumers in that 190-
mile area, DOE simply incorporated NYRI's requested designation in the 
Congestion Report, (72 Fed. Reg. 25,838, 25,860), clearing the way for 
the exercise of FERC jurisdiction--and likely approval--of the project 
if the State does not act on the project within one year of the 
application. 16 U.S.C. Sec.  824p(b). The NYSPSC will review and 
determine NYRI's application once it is complete. It is not clear that 
the NYRI project as proposed will actually relieve congestion in the 
areas in New York with the most significant constraints. The efficacy 
of the NYRI project remains at best a significant open question that 
will be resolved by the NYSPSC.

          3. DOE violated the requirements of FPA Section 216(a) in 
        failing to conduct a meaningful consultation with affected 
        States.

    Pursuant to Section 216(a), DOE was required to formally consult 
with affected States in the proposed designated Corridor. 16 U.S.C. 
Sec.  824p(a). The requirement to consult triggers a greater obligation 
than simply providing notice in the Federal Register with an 
opportunity to submit comments. Consultation envisions a formal process 
in which affected States are heard on a wide range of issues (e.g., 
congestion, costs, environmental impacts, transmission line siting, and 
other technical, and policy issues)\3\ When Congress included the 
consultation requirement in Section 216(a), it intended a far more 
meaningful role for the States in the Corridor designation process than 
the one DOE has afforded here.
---------------------------------------------------------------------------
    \3\ There are formal consultation processes established under 
numerous federal laws. See, e.g., USFWS Consultation Handbook: 
Procedures for Conducting Consultation and Conference Activities Under 
Section 7 of the Endangered Species Act (March 1998).
---------------------------------------------------------------------------
    DOE failed to initially create a formal consultation process in 
which the States could pursue a dialogue about the Corridor. Instead, 
DOE relied on informal communications with affected States in which no 
real dialogue or substantive consideration of issues took place. Most 
importantly, DOE disregarded the positions offered by affected States, 
including New York, in their comments submitted in opposition to both 
the Congestion Study and the Corridor designation. For example, DOE 
entirely ignored the NYISO conclusion that there is no need for a 
Corridor designation from a reliability standpoint. 72 Fed.Reg. at 
25,858-25,860.\4\ Indeed, DOE never changed its position on any issue 
as a result of a State's comments. This is not ``consultation'' within 
the meaning or intent of Section 216(a).
---------------------------------------------------------------------------
    \4\ NYISO's Reliability Needs Assessment states that ``there is no 
need for a National Corridor [in New York] from a reliability 
standpoint.''
---------------------------------------------------------------------------
    DOE attempts to excuse its failure to consult with States by 
stating that ``there are practical difficulties in conducting the level 
of consultation that some may prefer....'' 72 Fed. Reg. at 57,002. DOE 
also points to the magnitude of the Congestion Study and the 
statutorily mandated deadlines as further reason why it failed to 
meaningfully consult with the States. 72 Fed. Reg. at 57,002. DOE 
essentially excuses its failure in this regard by stating that it 
``tried'' to consult. In failing to properly consult with affected 
States, DOE has failed to comply with the Congressional mandate in 
Section 216(a).

          4. DOE has violated the requirement of FPA Section 216(a) to 
        consider alternatives to the transmission corridor, including 
        other solutions to capacity constraints, upgrades to existing 
        transmission lines, new generation, and a smaller or alternate 
        geographic area for the Corridor.

    DOE states that the requirement in FPA Section 216(a) to consider 
alternatives is ``ambiguous'' (72 Fed.Reg. at 57,010), again in a 
veiled attempt to insulate its actions under Chevron. DOE then 
interprets the term to mean that it is not required to consider any 
alternatives to the Corridor designation or any other solutions to the 
problem of congestion. 72 Fed.Reg. at 57,010. This position is entirely 
inconsistent with the plain language of Section 216(a), with 
Congressional intent in using the term ``alternatives,'' and with the 
use of that term of art in other federal laws and regulations. The term 
simply is not ambiguous and requires an evaluation of other options to 
the action.
    In using the term ``alternatives,'' Congress obviously intended 
that NEPA would guide DOE's consideration of the Corridor designation. 
The mandate to consider alternatives is an reference to NEPA's 
identical mandate that all Federal agencies consider alternatives when 
undertaking an action. See 42 U.S.C. Sec.  4332(2)(C)(iii) (all 
agencies of the Federal Government shall ... include ... a detailed 
statement by the responsible official on--... alternatives to the 
proposed action...). DOE's position is without merit in light of 
Congress' clear mandate in NEPA that all Federal laws ``shall be 
interpreted and administered in accordance with the policies set forth 
in this chapter.'' 42 U.S.C. 4332(1); see also 40 C.F.R. Sec.  1506.5. 
The term ``alternatives'' in Section 216 is not subject to any other 
interpretation.
    Contrary to DOE's position, Section 216 requires DOE to consider 
alternatives, for example, to the size and location of the Corridor, 
and to review other solutions to capacity constraints besides new 
transmission lines, such as transmission line upgrades, local 
distribution, new generation, and other technologies. 16 U.S.C. Sec.  
824p(a). In refusing to consider and evaluate alternatives, DOE has 
failed to comply with the letter and spirit of both Section 216(a) and 
NEPA.

          5. DOE violated NEPA and its own NEPA-implementing 
        regulations in finding that the Designation Order did not 
        constitute a ``major federal action'' subject to environmental 
        review.

    DOE states that the Designation Order does not constitute a ``major 
federal action'' subject to NEPA because ``national corridor 
designations have no environmental impact'' and ``are only designations 
of geographic areas in which DOE has identified electrical congestion 
or constraint problems.'' 72 Fed.Reg. at 56,992. DOE mischaracterizes 
the adjudicatory nature and affect of the Designation Order, and 
ignores the express language of Section 216, NEPA and its own 
regulations. DOE also disregards the anticipated future federal action 
by FERC.
    NEPA broadly defines ``major federal actions'' to include those 
that may be subject to Federal control and responsibility, as well as 
actions that are ``new and continuing activities, including projects 
and programs entirely or partly financed, assisted, conducted, 
regulated, or approved by federal agencies; new or revised agency 
rules, regulations, plans, policies or procedures; and legislative 
proposals. 40 C.F.R. 1508.18(a).\5\ NEPA specifies actions that are 
subject to NEPA, including the ``[a]doption of programs, such as a 
group of concerted actions to implement a specific policy or plan;'' 
and ``...connected agency decisions allocating agency resources to 
implement a specific statutory program....'' 40 C.F.R. 1508.18(b)(3). 
The entire scheme of Section 216 is such a program, plan or policy.
---------------------------------------------------------------------------
    \5\ The NEPA regulations, promulgated by the Council on 
Environmental Quality, govern all federal agencies. 40 C.F.R. Sec.  
1501 et seq.
---------------------------------------------------------------------------
    DOE's own NEPA regulations incorporate the definition of ``major 
federal action'' that is forth in the main NEPA regulations, 40 C.F.R. 
1508.18, and similarly define an ``action'' to include ``a project, 
program, plan, or policy ... that is subject to DOE's control and 
responsibility.'' 10 C.F.R. Sec.  1021.104. DOE's regulations also 
contain a mandatory requirement to prepare an EA for purposes of 
determining whether the action is a ``major federal action'' See 10 
C.F.R. Sec.  1021.320 (``DOE shall prepare and circulate EAs ... in 
accordance with the requirements of the CEQ regulations.''). DOE did 
not prepare an EA here. Once it prepares an EA, DOE then must determine 
whether the action is a major federal action. If it is, DOE then must 
determine whether the action will have a significant affect on the 
quality of the human environment warranting preparation of an EIS. 10 
C.F.R. Sec.  1021.320. DOE's regulations require a determination of the 
level of NEPA review and whether an EIS will be prepared ``as soon as 
possible'' after DOE proposes an action. 10 C.F.R. Sec.  1021.200(b) 
and (c). DOE did not follow its own regulations in issuing the 
Designation Order.
    The Congestion Report and the Designation Order here represent the 
commencement of a ``project, program, plan or policy'' that is ``under 
DOE's control and responsibility'' within the meaning of NEPA and DOE's 
regulations. See 10 C.F.R. Sec.  1021.104 and 40 C.F.R. Sec.  1508.18 
(both broadly defining ``major federal action''). Thus, the Designation 
Order constitutes a major federal action is because it sets the 
foundation for anticipated--and continuing--energy development in the 
NIET Corridor through the construction and operation of electric 
transmission lines, either under FERC's or a State's permitting 
authority. See 16 U.S.C. Sec.  824p(a) and (b).
    DOE attempts to justify its finding that the Designation Order is 
not a ``major federal action'' by stating that the Corridor designation 
itself has no environmental impact and that when specific transmission 
projects are proposed in the future, FERC will review the environmental 
impacts of those projects at that time under NEPA. 72 Fed. Reg. at. 
57,021-23. DOE ignores the continuing nature of Section 216's scheme to 
develop transmission in the Corridor. 16 U.S.C. Sec.  824p(a) and (b). 
In doing so, DOE also ignores its own NEPA obligations. DOE disregards 
the anticipated development of transmission lines expected as a result 
of the Designation Order, and the unavoidable cumulative environmental 
impacts that flow from that development. Even though DOE concedes that 
FERC or the States will issue construction permits for major 
transmission projects in the Corridor, which are likely to have a 
significant adverse impacts on the environment, it nevertheless states 
that the necessary environmental review will be conducted at a later 
time. 72 Fed. Reg. at. 57,021-23. DOE's deferral of its own NEPA 
obligation is contrary to the statute and to the practices of other 
federal agencies. See, e.g., Arkansas Wildlife Federation v. United 
States Army Corps of Engineers, 431 F.3d 1096 (8th Cir. 2005) (EIS for 
Demonstration Project properly included cumulative impact review of 
four existing projects, two pending projects, three unauthorized and 
unfunded projects, five other projects, and several potential projects 
which were not reasonably foreseeable).
    The Designation Order itself states that it is ``the first step in 
the process of determining whether to provide a potential Federal forum 
that would examine whether addressing congestion through transmission 
expansion is in the public interest.'' 72 Fed.Reg. at 57,004.\6\ The 
Order clearly contemplates subsequent federal action as a result of 
DOE's Corridor designation. Congress designed NEPA to reach exactly 
this type of regulatory ``first step'' that the Designation Order 
represents, namely, the beginning of federal transmission siting 
authority within the Corridor under Section 216(b). 16 U.S.C. Sec.  
824p(b). NEPA requires federal agencies to apply NEPA at the earliest 
possible time and not wait for later review. Port of Astoria v. Hodel, 
595 F.2d 467, 478 (9th Cir. 1979) (federal agency's execution of power 
supply contract was ``major federal action'' under NEPA because it 
entailed further major federal actions, including construction of 
generation facility and transmission lines); Environmental Protection 
Information Center v. United States Forest Service, 2003 U.S.Dist. 
LEXIS 18241 (N.D.Ca. 2003) (Forest Service fire management plan 
covering one million acres of forest land was a decisionmaking document 
that determined rights and obligations and had legal consequences, and 
was therefore subject to NEPA's requirements to prepare as EA and EIS). 
DOE's finding that its Designation Order is not an action subject to 
NEPA because FERC may apply NEPA at a later time violates the letter 
and spirit of NEPA and is contrary to DOE's implementing regulations.
---------------------------------------------------------------------------
    \6\ Similarly, in the Congestion Report, DOE characterizes the 
Designation Order as a ``necessary first step'' in siting transmission 
lines in the Corridor. See DOE ``National Electric Transmission 
Congestion Report and Final National Corridor Designations, Frequently 
Asked Questions,'' p.1, Sec.  2 (October 2, 2007).
---------------------------------------------------------------------------
    DOE's mischaracterization of the Congestion Study and Designation 
Order disregards settled case law in construing NEPA when an agency 
anticipates further federal actions. See Port of Astoria, Oregon v. 
Hodel, 595 F.2d at 477-78; see also Environmental Defense Fund v. 
Higginson, 655 F.2d 1244, (D.C. Cir. 1981) (Department of Interior may 
not delay NEPA review of its region-wide plan for numerous federal 
water projects until specific project is proposed). It is plain that 
where, as here, a federal agency proposes a regional plan of 
development of electric transmission lines such as the NIET Corridor, 
that action is subject to NEPA. Kleppe v. Sierra Club, 427 U.S. 390, 
401 (1976). DOE cannot avoid its NEPA objections by relying on another 
federal agency's future actions.
    NEPA Section 102 does not permit delaying assessment of 
environmental impacts even if such impacts will be evaluated later in 
the context of a site-specific proposal. 42 U.S.C. Sec.  4332; Kern v. 
United States Bureau of Land Management, 284 F.3d 1062, 1072 (9th Cir. 
2002) (guidelines incorporated into regional plan was a major federal 
action requiring an EIS); Port of Astoria v. Hodel, 595 F.2d at 477-78. 
Only when a federal agency considers the environmental consequences of 
a potential series of future federal actions at the earliest possible 
time, can those actions be adequately evaluated at the point when 
alternatives are still available. See Kleppe v. Sierra Club, 427 U.S. 
at 401-02; see also Norton v. Southern Utah Wilderness Alliance, 542 
U.S. 55, 69-70 (2004) (federal land use plan of immense scope is a 
major federal action subject to NEPA when it is a preliminary step in 
the overall agency planning process that guides but not prescribe 
future action.
    In determining whether to prepare an EIS, DOE is also required to 
consider the degree to which the Designation Order is highly 
controversial. 40 C.F.R. Sec.  1508.27(b)(2). Where there is a 
substantial dispute regarding the size, nature or effect of the action, 
it is considered ``major.'' See, Cold Mountain v. Garber, 375 F.3d 884, 
893 (9th Cir 2004); Hanley v. Kleindienst, 471 F.2d 823, 830-31 (2nd 
Cir. 1972). With more than 2000 comments submitted in this proceeding, 
many vigorously disputing the factual and legal basis of the Order and 
questioning the sheer size of the Corridor, the highly controversial 
nature of DOE's action cannot seriously be disputed.
    NEPA also requires DOE to assess whether the Designation Order 
establishes a precedent for further federal action with significant 
effects. 40 C.F.R. Sec.  1508.27(b)(3). NEPA requires DOE to evaluate 
whether the action is related to other actions which may have 
cumulative impacts. 40 C.F.R. Sec.  1508.27(b)(4).
    DOE has violated both the statutory mandate in NEPA Section 102 and 
its own regulations in issuing the Designation Order, and has no 
support in the record for its claim that the Corridor designation is 
not ``major federal actions.''

          6. DOE has violated the ESA and the HRVNHA in failing to 
        conduct the statutorily required consultation with appropriate 
        federal agencies, in cooperation with the States, prior to 
        issuance of the Designation Order.

                  a. The ESA

    DOE erred in issuing the Designation Order without first consulting 
with the United States Fish and Wildlife Service (``USFWS'') with 
respect to the threatened and endangered species found within the 
Corridor. The ESA requires federal agencies to conserve and protect 
these species, and to ``insure that any action authorized, funded, or 
carried out by such agency . . . is not likely to jeopardize the 
continued existence of any endangered species or threatened species or 
result in the destruction or adverse modification of [designated 
critical] habitat . . . .'' 16 U.S.C. 1536(a)(2). The ESA imposes a 
strict procedural consultation duty whenever a federal action may 
affect an ESA-listed species. National Association of Homebuilders v. 
Defenders of Wildlife,----U.S.----; 127 S. Ct. 2518, 2526; 168 L. Ed. 
2d 467, 478 (2007); Thomas v. Peterson, 753 F.2d 754, 763 (9th Cir. 
1985). States are integrally involved in this process when species 
within the State will be affected by the federal action.\7\
---------------------------------------------------------------------------
    \7\ See NYSDEC Petition for Rehearing, Nye Affidavit,  6.
---------------------------------------------------------------------------
    The ESA applies to any ``action'' by a federal agency, is broadly 
defined to include ``all activities or programs of any kind authorized, 
funded or carried out, in whole or in part, by Federal agencies in the 
United States. 50 C.F.R. Sec.  402.02. The federal agency undertaking 
the action must consult with appropriate other agencies to ascertain 
whether the action will jeopardize the continued existence of 
endangered or threatened species. 16 U.S.C. Sec.  1536(a)(3); 50 C.F.R. 
Sec. Sec.  402.10-402.16. The agency undertaking the action initiates 
the consultation process by a formal written request to the consulting 
agency. After consultation, investigation, and analysis, the consulting 
agency then prepares a biological opinion and may make a ``jeopardy 
determination'' that the species will or will not be harmed by the 
action\8\ National Association of Homebuilders,----U.S.------; 127 S. 
Ct. at 2526; 168 L. Ed. 2d at 478. ESA compliance, including 
consultation, is not optional. National Wildlife Federation v. National 
Marine Fisheries Service, 481 F.3d 1224, 1235 (9th Cir. 2007).
---------------------------------------------------------------------------
    \8\ The consulting agency evaluates the effects of the proposed 
action on the survival of species and any potential destruction or 
adverse modification of critical habitat in a biological opinion, based 
on ``the best scientific and commercial data available,'' 16 U.S.C. 
Sec.  1536(a)(2) and (b). The biological opinion includes a summary of 
the information upon which the opinion is based, a discussion of the 
effects of the action on listed species or critical habitat, and the 
consulting agency's opinion on ``whether the action is likely to 
jeopardize the continued existence of a listed species or result in the 
destruction or adverse modification of critical habitat . . . .'' 50 
C.F.R.Sec.  402.14(h)(3).
---------------------------------------------------------------------------
    DOE was required to consult with the USFWS because of the presence 
of endangered and threatened species throughout the Corridor.\9\ The 
USFWS and its State counterpart, the NYSDEC, were entitled to the 
opportunity to independently evaluate DOE's Corridor designation action 
to determine if it could impact protected species. DOE's failure to 
consult with USFWS, or even notify it of the proposed Corridor 
designation is a clear violation of the ESA.
---------------------------------------------------------------------------
    \9\ See NYSDEC November 2, 2007 Petition for Rehearing, pp. 17-18 
and Affidavit of Peter Nye listing the endangered and threatened 
species found in the New York portion of the Corridor.

---------------------------------------------------------------------------
                  b. The HRVNHA

    DOE also erred in issuing the Designation Order including over the 
area in the Hudson River Valley National Heritage Area, without first 
consulting with the Secretary of the Department of the Interior and the 
appropriate State entities,\10\ as required by the HRVNHA. In addition 
to the Hudson River Valley Area, the Designation Order also includes 
the Erie Canalway National Heritage Area and the Champlain Valley 
National Heritage Partnership, both of which are also protected under 
the National Heritage Act, 16 U.S.C. Sec.  461, et seq.\11\ Congress 
has declared that the national policy is to preserve and protect sites 
of national historical and cultural significance. 16 U.S.C. Sec.  461. 
DOE's failure to comply with this policy through consultation is 
inconsistent with this policy.
---------------------------------------------------------------------------
    \10\ The State entities with jurisdiction under the Management Plan 
to consult with any federal agency proposing an activity in the 
designated Hudson River Valley National Heritage Area are the Hudson 
River Greenway Council and the Greenway Conservancy for the Hudson 
River Valley.
    \11\ Pub. No. 105-83, Title III, Sec. Sec.  317 and 324, 111 Stat 
1595, 1597 (1997); Pub. L. No. 106-176, Sec.  206, 114 Stat. 23 (2000). 
See NYSDEC November 2, 2007 Petition for Rehearing, pp 16-17; 20-22.
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    The HRVNHA expressly requires consultation prior to a federal 
agency undertaking any activity that may affect the Hudson River Valley 
National Heritage Area. P.L. 104-333, Sec.  908(b)(1) and (2). The 
geographic scope of the Order includes the more than three million-
acres designated as protected by Congress in the HRVNHA and subjects to 
a management plan that both federal and state agencies formulated. The 
Designation Order plainly affects it. Moreover, the HRVNHA requires the 
consultation process to include an evaluation of alternatives to the 
activity, or a determination that there is ``no practicable 
alternative'' to the activity.\12\ This requirement is consistent with 
Section 216's mandate to consider alternatives, as well as with NEPA's 
similar mandate. DOE ignored the special protection afforded the Hudson 
River Valley National Heritage Area in not consulting with proper 
Federal and State entities, and in failing to consider alternatives to 
the inclusion of the Area in the Designation Order.
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    \12\ The Department of Transportation must make a similar finding 
of ``no prudent or feasible alternative'' to using publicly owned 
parkland or historic sites for a transportation project, and requires 
``all possible planning'' to minimize and mitigate harm to the 
resource. See Transportation Law Sec.  4(f), 49 U.S.C. Sec.  303(c); 
see also, Stewart Park & Preserve Coalition, Inc. v. Slater, 352 F.3d 
543 (2d Cir. 2003).
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                               conclusion
    DOE's Designation is contrary to law and is otherwise arbitrary, 
capricious, an abuse of discretion, and without basis in the record. 
For the reasons set forth above, rehearing should be granted and the 
Designation Order should be vacated.

            Date: November 5, 2007.
                                           Andrew M. Cuomo,
                                                  Attorney General.
                                          Maureen F. Leary,
                                        Assistant Attorney General.
                                 ______
                                 
 Statement of Tyrone J. Christy, Pennsylvania Public Utility Commission
    I am Tyrone J. Christy, one of the five Commissioners of the 
Pennsylvania Public Utility Commission (PAPUC). I am submitting the 
following written testimony, on behalf of the majority of the PAPUC, in 
lieu of presenting formal testimony to the Senate Energy and Natural 
Resources Committee in its hearings scheduled to occur on July 31, 
2008.\1\ This testimony addresses the implementation of Section 1221 of 
the Energy Policy Act of 2005, specifically with regard to the 
statutory provisions governing designation of National Interest 
Electric Transmission Corridors (NIETCs).
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    \1\ Commissioner Powelson did not concur in this Testimony.
---------------------------------------------------------------------------
    We believe that both the statutory provisions of Section 1221 and 
the implementation of those provisions by the U.S. Department of Energy 
(``DOE'') and the Federal Energy Regulatory Commission (``FERC'') are 
flawed. The statute is flawed because it is based upon the unproven 
assumption that State commissions and State judicial systems cannot be 
trusted to properly review transmission siting applications and that 
federal oversight is needed over all State siting proceedings. 
Additionally, Section 1221 gives transmission project owners nearly 
unfettered discretion to pursue their interests either in State courts 
or at FERC, while giving other parties no choice of forum at all. This 
open invitation to forum shop is contrary to traditional notions of 
justice and due process. The federal agencies have converted a statute 
meant to encourage the speedy resolution of State transmission siting 
applications into a vastly greater preemption of State police powers 
that have been properly exercised by the states from the earliest days 
of the development of the interstate electric transmission grid. The 
implementation of Section 1221 is flawed because DOE has ignored or 
given short shrift to Congress's required findings of National 
interest, actual congestion and severe economic loss as a necessary 
predicate to the establishment of NIETCs.
    Moreover, Section 1221 has allowed the FERC to expand its 
jurisdiction over the siting application review process to include not 
only those State proceedings that are delayed by more than one year or 
approved subject to burdensome conditions, but additionally to those 
State transmission siting proceedings that result in the rejection of a 
transmission siting application.
    As background, I would note that the PAPUC is a State 
administrative agency created by the General Assembly of the 
Commonwealth of Pennsylvania and is charged with the regulation of 
rates and service for electric distribution utilities within the 
Commonwealth and the licensing of generation suppliers within the 
Commonwealth. Pennsylvania is also served by transmission companies 
belonging to the PJM Interconnection, LLC (PJM) and the Midwest ISO 
(MISO). Major portions of the Commonwealth (approximately 52 of 67 
counties) have been designated as being within the DOE's initial 
designation of the Mid-Atlantic NIETC corridor in its order issued 
October 5, 2007. This designation constitutes three quarters of the 
Commonwealth, and includes many State parks and game lands, historical 
and archeological sites and areas of the State where no significant 
transmission exists today. Pennsylvania is not unique in the Mid-
Atlantic region. Equally large portions of our neighboring states were 
also identified within the Mid-Atlantic NIETC including New York, New 
Jersey, Delaware, Maryland, Virginia and West Virginia. In fact, there 
is relatively little area in the Mid-Atlantic region that is not 
encompassed within the Mid-Atlantic NIETC. Oddly, DOE's designation 
stops at the border between New York and New England, even though there 
is substantial transmission congestion in that region.
    The purpose of my statement is to express our essential 
disagreement with DOE's implementation of the transmission provisions 
of the Energy Policy Act of 2005 (EPAct of 2005). My comments address 
the following general concerns:

          (1) Section 1221 of EPAct of 2005 unambiguously directed the 
        DOE to consider a number of listed factors in its designation 
        of NIETC corridors. The DOE did not, in fact, adequately 
        consider those factors in any meaningful way, such that its 
        ultimate interpretation and implementation of Section 1221 is 
        inconsistent with the Congressional intent behind EPAct of 
        2005.
          (2) The process followed by DOE, in its corridor designation 
        process, was both seriously flawed and overbroad in that DOE 
        has designated a ``transmission park'' not a ``transmission 
        corridor'' or series of corridors, as Congress intended.
          (3) The process followed by DOE in its corridor designation 
        failed to adhere to Congress's limited grant of authority and 
        therefore unlawfully pre-empted State authority and State 
        police powers to review and approve siting of transmission 
        projects within State boundaries.
          (4) The overly expansive interpretation and administration of 
        Section 1221 by DOE and FERC have rendered most State 
        transmission siting review proceedings within Pennsylvania to 
        be subject to review by the FERC, an administrative agency that 
        routinely disposes of important matters summarily without 
        hearing. The federal ``back-stop'' process delegated to the 
        FERC has been interpreted by that agency in a manner that 
        renders State review essentially as a formality.

    DOE was directed, pursuant to Section 1221(a), to consider five 
factors in whether to designate a NIETC.
    In determining whether to designate a National interest electric 
corridor under paragraph (2), the Secretary may consider whether:

          (1) The economic vitality and development of the corridor or 
        the end markets served by the corridor may be constrained by 
        the lack of adequate or reasonably priced electricity;
          (2) Economic growth in the corridor or the end markets served 
        by the corridor may be jeopardized by reliance on limited 
        sources of energy and whether a diversification of supply is 
        warranted;
          (3) The energy independence of the U.S. would be served by 
        the designation;
          (4) The designation would be in the interest of National 
        energy policy;
          (5) The designation would enhance National defense and 
        homeland security.

    The DOE designation of the Mid-Atlantic corridor failed to 
adequately consider any of the foregoing factors to any significant 
degree. One significant flaw was DOE's failure to adequately address 
the existence of end-markets that are defined to be the areas where 
electric load is the greatest and where the greatest consumption of 
electricity will occur. Despite the clear enumeration of these factors 
in Section 1221, the DOE implementation Order of October 5, 2008 did 
not examine or even explain the effect of corridor designation on ``end 
markets.'' ``End-markets'' are defined to be the area where electricity 
is delivered for ultimate consumption. The DOE Order did not identify 
``end markets'' nor did DOE associate any generation source with such 
``end markets.'' The DOE Order did not address how the economic 
vitality, growth or the development of the corridor would be affected 
by lack of reasonably-priced electricity as mentioned in Section 1221 
(a)(4)(A) and (B). Little or no consideration of diversification of 
supply was apparent in the Order (Section 1221(a)(4)(B)). Other notable 
deficiencies include DOE's failure to explain how the corridor 
designation would contribute to the energy independence of the U.S. and 
DOE's failure to identify any particular energy policy or how such an 
energy policy would be advanced by this NIETC designation. (Section 
1221(a)(4)(C)). There was no analysis of the effect of corridor 
designation on National defense or homeland security. (Section 
1221(a)(4)(D)). These deficiencies are not minor. Section 1221 
requires, by Congress's own express terms, the designation of National 
Interest Electric Transmission Corridors. The obvious failure of DOE to 
identify or discuss in any clear way the impact of its designation 
positively or negatively on the National interest, economic vitality, 
development and growth of the corridor or end-markets represents a 
fundamental flaw in DOE's implementation of this provision.
    The DOE's methodology for drawing the geographic boundaries was to 
compile a list of major ``underused'' generation facilities and wind 
facilities, compile another list of transmission ``sinks'' (load or 
demand areas) and then draw a boundary line around those facilities, 
including every county even if only a small portion of that county was 
touched by the boundary line. DOE's own NIETC Report notes that 
political boundaries located within the ``source and sink'' designation 
would have no impact on the design of the electricity transmission 
facilities yet county boundaries are the building blocks of the DOE's 
corridor. The DOE failed to designate the starting points and the 
ending points of any particular congestion path that it seeks to 
ameliorate through this designation that would have been a more 
rational methodology than the method so employed.
    A corridor has a starting point and an ending point and a defined 
path between the two points. DOE's designation might have been easy to 
execute, but satisfies none of the characteristics of a corridor and 
vastly over-designates portions of the Mid-Atlantic region subject to 
federalized siting procedures. This DOE designation may rightfully be 
termed a ``transmission park'' painted with a broad brush. By its 
action, DOE has opened up large regions of the Mid-Atlantic region to 
transmission developers seeking to take advantage of DOE's expansive 
designation.
    In Pennsylvania's case, this designation means that all 
transmission project owners in three quarters of the State will have 
the ability to remove their projects from Commonwealth jurisdiction 
without a showing that any of these projects actually relieve any 
congestion, contribute to fuel diversity, provide any reliability 
benefit or meet any of the Congressional goals in the passage of this 
provision of EPAct 2005.
    Traditionally, the state, as sovereign, has been the sole source of 
the eminent domain power exercised by public utilities subject to State 
police power regulation. Because of the permanently disruptive effect 
that transmission line construction has on the populace along the route 
of the line (as well as the permanent impact on the environment, and on 
cultural and archeological resources), the PAPUC has promulgated 
detailed regulations and hearing procedures designed to fully examine, 
on the record, the reasons and justification for the transmission line, 
available alternative routes and other relevant considerations. 
Landowners that might be subject to a potential taking are provided an 
opportunity to appear in the proceeding and actively participate. This 
procedure has worked well for many years. Other affected states have 
similar procedures. The preemption of State authority by a separate 
FERC siting procedure, if left unchecked, will freeze many interested 
participants out of the process, and leave the vindication of State 
environmental, cultural, archeological and aesthetic concerns to the 
discretion of a federal agency far removed from the local, 
environmental, historical, cultural and aesthetic issues involved in 
every siting proceeding.
    This federal assumption of power does not only apply to a few big 
project proposals. Because of DOE's overdesignation, in Pennsylvania's 
case, virtually every transmission siting case would be subject to the 
FERC permitting process if the PAPUC did not act on a siting 
application within a year or ``withheld approval'' of a project. While 
DOE and FERC may believe that Federal agencies can always do a better 
job of transmission siting than any state, a recent minor and typical 
transmission siting application case before the PAPUC illustrates the 
problem. The siting application involved a 138 kV transmission line 
spanning three townships in a single county and took 11 months to 
process--only one month short of the required one-year timeframe. Small 
cases are not necessarily quicker to process than large cases. Most 
transmission project filings that come before the PAPUC and other State 
siting agencies consist of relatively local transmission facility 
upgrades that play no substantial role in the relief of interstate 
transmission or constraints. But DOE's very expansive interpretation of 
Section 1221 and the NIETC designation process do not prevent such 
minor or wholly intrastate transmission projects from seeking FERC 
review. Any transmission project within the DOE NIETC may apply. It is 
little comfort that FERC might assure your Committee that it may decide 
that such projects aren't worthy of its review. FERC's interpretation 
of its discretion under its current rules is broadly expansive and does 
not comport with the explicit statutory standards imposed on FERC. 
State siting authorities and citizens should not be required to go to 
Washington to preserve the integrity of State siting proceedings which 
Congress did not intend to extinguish.
    Indeed, as reflected in FERC's regulation at 18 C.F.R. Section 
50.6, that agency's interpretation of the statutory phrase ``fails to 
act'' suggests that the State has no real option other than to approve 
(or approved with limited conditions) a proposed transmission line that 
lies in a NIETC corridor, regardless of whether the line meets State 
law standards. If this interpretation is correct, State proceedings 
become, in large measure, a formality. While Congress may have a 
legitimate interest in making sure that State transmission siting cases 
are not unreasonably delayed, FERC's interpretation appears to go well 
beyond that goal, nearly to the extent of wholly preempting state 
transmission siting jurisdiction.\2\
---------------------------------------------------------------------------
    \2\ See FERC Order at Docket RM06-12-000 at p. 129.
---------------------------------------------------------------------------
    There is a relatively simple solution to this dilemma--DOE must 
more narrowly define NIETCs as true corridors. Corridors have an entry 
point at the source, an exit point at the load and a congestion 
interface across which the transmission project crosses and where the 
congestion occurs. By defining corridors in this way, the ability of 
competing solutions (increased generation, transmission or load 
response) to resolve the congestion issue would be greatly enhanced. As 
we interpret it, that would properly effectuate the true intent of the 
Section 1221, promote needed National interest transmission capacity 
and preserve the critical role of the PAPUC and other State siting 
authorities in exercising their siting duties. Our Constitution 
recognizes, in its creation of the federal system with the 
complementary roles of State and National authority, that it is not 
wise to centralize every function of government. Most transmission 
siting cases are local or regional in scope, have little or no impact 
on interstate commerce and the broad National interest and are best 
handled at the State level in a manner respectful of State police 
powers and State interests.
    The current expansive implementation of Section 1221 by DOE and 
FERC does not respect such State interests, burdens State jurisdiction 
and resources, and threatens to render every State transmission siting 
proceeding as an empty prelude to the initiation of the Federal 
transmission siting process. Our Nation's federal system of government 
was prescribed in the Constitution because experience has repeatedly 
shown that it is not wise to centralize all decision making at the 
National level--local and regional issues are more effectively and 
efficiently decided on a local or regional basis. This concludes my 
testimony. I appreciate the opportunity to file this testimony with the 
Committee.
                                 ______
                                 
      Statement of Peter Benson, Member of Drop the Lines, Inc., 
                            Danielsville, PA

    I am a citizen of the United States of America, a resident, a 
taxpayer and registered voter in Pennsylvania. I am also a member of 
Drop The Lines, Inc a citizens action group formed to encourage the 
responsible development of transmission lines in Pennsylvania.
    In accordance with section 216(a) of the Federal Power Act, the 
U.S. Department of Energy (DOE) issued an order on October 2, 2007, for 
two National Interest Electric Transmission Corridor (National 
Corridor) designations. The mid-Atlantic corridor covers over half of 
the state of Pennsylvania and includes my home in Northampton County.
    No one can dispute that as a nation we require a safe and efficient 
source of power and it is the role and responsibility of our government 
to ensure, through fiscal incentives and regulation, that the goal is 
accomplished in a fair and just manner.
    We must however also recognize that for profit organizations exist 
solely to maximize shareholder value. It is wrong to expect a 
corporation to gratuitously act in the national interest or to have a 
social conscious; these are not within their nature. This is not a 
reflection of the organizations or the individuals that manage them but 
a reality of the purpose for which for profit corporations are 
organized. A shareholder would rightly have cause to sue any 
corporation that dispersed funds in any activity that could not be 
shown to further its stated mission. That is not to say that 
corporation do not support environmental or national causes, they do, 
but only when such action furthers their goals of increasing revenue 
(customer perception leading to a willingness to spend) or decreasing 
costs (voluntary compliance is less expensive than regulatory 
compliance). This is not a cynical view of corporations but simply the 
reality of the corporate framework.
    We have seen and we can expect the electricity transmission 
companies to pursue the solution that provides them with the highest 
return on their investment. It is the role of government to ensure that 
there is an adequate regulatory and legislative framework that protects 
the interests of those impacted by the transmission corridors, this 
does not currently exist.
    The DOE in its use of the Federal Power Act to designate 
transmission corridors effectively diminished if not destroyed 
individual property rights and environmental responsibility. While they 
did so in the national interest it will be implemented by corporations 
solely in the interest of shareholder value.
    The for profit energy generation, transmission and distribution 
companies have clearly demonstrated that it is a better use of their 
funds to purchase back their shares than to invest in their aging 
infrastructure. The NIETC simply give them the opportunity to acquire 
new assets cheaply rather than use the ones they have more efficiently.
    In Pennsylvania we will bear the burden of new and bigger power 
lines destroying our beautiful landscape as older lines fall into 
disuse and become blighted towers of rust.
    The committee has within its power to correct this problem by 
recommending the appropriate use of fiscal incentives and regulations 
to ensure there is a fair balance between shareholder value and the 
national interest. Some suggestions are as follows:

          1. Recommend an energy export tax: The purpose of the tax 
        would be to encourage local production of energy. Energy 
        generation and energy transmission companies would be taxed on 
        the net energy exported or transmitted through a local area 
        (State or County). The tax would have the added benefit of 
        compensating the residents of a local area where energy is 
        being generated in or transmitted through. The response of the 
        power generation and transmission companies would be to adjust 
        their pricing accordingly, lowering the price in the producing 
        or transmission area and increasing the price in the area of 
        the consumption making local production such as residential or 
        commercial solar more attractive.
          2. Right of way compensation: In addition to the fair value 
        of the real estate, compensation for a right of way should 
        include an ongoing payment based on a percentage of the value 
        derived from the right of way. Such a payment would ensure 
        visibility of the true value derived from right of way and 
        ensure fair compensation to those who lost ``their'' rights in 
        the national interest.
          3. To ensure more efficient use of existing infrastructure 1 
        and 2 above should apply to ``new'' infrastructure. Based on 
        the example of PPL here in Pennsylvania it is clearly cheaper 
        to put in a new line than to upgrade an older line and doubly 
        so if the new line brings with it the potential of new 
        customers.

    Finally in a world of rapidly advancing technology we can expect 
that the unit price of Photovoltaic cells (PV) will continue to 
decrease as their efficiency increases just as we have seen with 
computer memory. This emerging trend will increasingly become apparent 
over the next few years and it is highly possible that before the new 
gigantic towers designed to transmit power from one side of the county 
to another are completed, they will be obsolete. Consideration should 
therefore be given to the restitution of rights of way and the removal 
of the power transmission lines other than through the use of the 
Superfund.
                                 ______
                                 
  Statement of Marjorie (Maggie) Muller, Member of Drop the Lines, Inc

    I am a citizen of the United States of America and a resident and 
taxpayer and registered voter in Pennsylvania. I am also an active 
member of Drop The Lines, Inc.
    My name is Marjorie (Maggie) Muller. On June 17, 2008 my life 
changed. I learned about PPL and their proposed 3 routes for power 
lines across PA, the Susquehanna Roseland Project, for energy needed 
for New Jersey. I learned that a big company could make a lot of money 
by ripping up Pennsylvania under the cover of the NIETC (including the 
use of eminent domain). I learned about the NIETC, the National 
Interest Electricity Transmission Corridor.
    I love where I live. I love that I live at the base of this 
beautiful pristine Blue Mountain, right below the Appalachian Trail. 
Governor Rendell recently, so brilliantly signed legislature to protect 
this historic trail. My husband has lovingly cared for this beautiful 
property of ours adjoining state game lands, right below the 
AppalachianTrail, for 23 years. Our many neighbors have land that has 
been passed down from generation to generation. We, my husband and 
I,put all of our money into this beautiful location and property, just 
recently adding an addition to our home,so we can survive our senior 
years. It is our retirement. Who would have ever thought that anything 
next to state game lands at the base of a mountain in PA would ever be 
destroyed? Why would anyone want to rape Pennsylvania, for the power 
needs of a state (NJ)that refuses to take care of their own needs, by 
outlawing Nuclear Plants and Coal fired plants or not researching other 
avenues of energy production?
    And, we in Pennsylvania,are a Commonwealth. That means that the 
people have a say. Does that not trump big business and the easy way 
out, in hopes that no one would care?
    On a practical note, the erosion problem from power lines along 
this mountain would be devastating, (it is already an issue) and the 
water contamination effecting three headwaters trickling over 
herbicides used to control vegetation for many many miles, would be 
inhumane.
    Speaking of inhumane, a friend told me of a friend of hers that got 
a great deal on a home that was under a power line. Her friend had 2 
conceptions resulting in Tourette's syndrome and her friendchose to 
abort the third conceived child because it was so deformed that she 
elected to not bring it into this world.
    I would like to point out (as stated in the previously submitted 
testimony of Andrew M. Loza, Executive Director of PA Land Trust Assoc. 
on 7/31/08) that there are numerous other ways to provide energythat 
were not considered before the 2005 Energy Policy Act (which 
established the NIETC) was passed, and that may meet the NIETC 
requirements, rather than ripping up pristine areas and homesof the 
Commonwealth of Pennsylvania, for 500 KVolt power lines. I don't 
believe that all manners of securing national energy requirements were 
adequately investigated before the passing of the NIETC. And, as 
pointed out in the previously mentioned testimony, the massive use of 
high energy power lines is more of a danger to our national security 
than a help. A target.
    Also, does this not monetarily benefit a big corporation as well? 
Their name is PPL, and they are not Pennsylvania friendly as their name 
would imply. Our rates go up, NJ gets relatively inexpensive power, and 
we, residents of the Commonwealth of Pennsylvania,do not benefit. No 
one has responded to our request for proof that this is needed to help 
Pennsylvanians who they want to sacrifice for New Jersey.
    What is the compensation to the homeowners whose property value is 
destroyed?
    Thank you for your time and consideration in this matter of great 
concern.
                                 ______
                                 
                 Citizen Petition of 4,511 signatures*
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    * Signatures have been retained in committee files.
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     STOP PENNSYLVANIA FROM BECOMING AN ELECTRIC TRANSMISSION LINE 
                              SUPERHIGHWAY

    We reject a one-size-fits-all program dictated from Washington to 
site electric transmission lines. We want a process for siting 
transmission lines that: includes full and open public hearing, good-
faith consideration of public comments, alternative methods of 
relieving electricity congestion, locally-sited power generation, and 
balances potential impacts to state renewable electricity and global 
warming initiatives.
    We need a program to secure clean and reliable energy, not a 
narrow-minded program that ignores the will of the people. The answer 
is not the National Interest Electric Transmission Corridors program.

