[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
         OVERSIGHT OF THE FEDERAL ENERGY REGULATORY COMMISSION

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 23, 2010

                               __________

                           Serial No. 111-107


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov


                  U.S. GOVERNMENT PRINTING OFFICE
76-019                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


                    COMMITTEE ON ENERGY AND COMMERCE

                 HENRY A. WAXMAN, California, Chairman
JOHN D. DINGELL, Michigan            JOE BARTON, Texas
  Chairman Emeritus                    Ranking Member
EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
RICK BOUCHER, Virginia               FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
BART GORDON, Tennessee               NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
GENE GREEN, Texas                    STEVE BUYER, Indiana
DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
  Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California               MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
JANE HARMAN, California              LEE TERRY, Nebraska
TOM ALLEN, Maine                     MIKE ROGERS, Michigan
JANICE D. SCHAKOWSKY, Illinois       SUE WILKINS MYRICK, North Carolina
CHARLES A. GONZALEZ, Texas           JOHN SULLIVAN, Oklahoma
JAY INSLEE, Washington               TIM MURPHY, Pennsylvania
TAMMY BALDWIN, Wisconsin             MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas                  MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York          PHIL GINGREY, Georgia
JIM MATHESON, Utah                   STEVE SCALISE, Louisiana
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin 
    Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont
                 Subcommittee on Energy and Environment

               EDWARD J. MARKEY, Massachusetts, Chairman
MICHAEL F. DOYLE, Pennsylvania       RALPH M. HALL, Texas
JAY INSLEE, Washington               FRED UPTON, Michigan
G.K. BUTTERFIELD, North Carolina     ED WHITFIELD, Kentucky
CHARLIE MELANCON, Louisiana          JOHN SHIMKUS, Illinois
BARON HILL, Indiana                  JOHN B. SHADEGG, Arizona
DORIS O. MATSUI, California          STEVE BUYER, Indiana
JERRY McNERNEY, California           GREG WALDEN, Oregon
PETER WELCH, Vermont                 SUE WILKINS MYRICK, North Carolina
JOHN D. DINGELL, Michigan            JOHN SULLIVAN, Oklahoma
RICK BOUCHER, Virginia               MICHAEL C. BURGESS, Texas
FRANK PALLONE, Jr., New Jersey
ELIOT ENGEL, New York
GENE GREEN, Texas
LOIS CAPPS, California
JANE HARMAN, California
CHARLES A. GONZALEZ, Texas
TAMMY BALDWIN, Wisconsin
MIKE ROSS, Arkansas
JIM MATHESON, Utah
JOHN BARROW, Georgia
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, opening statement...............     1
Hon. Ed Whitfield, a Representative in Congress from the 
  Commonwealth of Kentucky, opening statement....................     3
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     3
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     4
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, prepared statement................................    48
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, prepared statement......................................    61
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, prepared statement......................................    63

                               Witnesses

Jon Wellinghoff, Chairman, Federal Energy Regulatory Commission..     5
    Prepared statement...........................................     8
    Answers to submitted questions...............................    69
Marc Spitzer, Commissioner, Federal Energy Regulatory Commission.    22
    Prepared statement...........................................    24
John Norris, Commissioner, Federal Energy Regulatory Commission..    29
    Prepared statement...........................................    31
Philip D. Moeller, Commissioner, Federal Energy Regulatory 
  Commission, prepared statement.................................    39

                           Submitted Material

Letter of March 16, 2010, from the National Association of 
  Regulatory Utility Commissioners to Members of the United 
  States Senate, submitted by Ms. Baldwin........................    66


         OVERSIGHT OF THE FEDERAL ENERGY REGULATORY COMMISSION

                              ----------                              


                        TUESDAY, MARCH 23, 2010

                  House of Representatives,
            Subcommittee on Energy and Environment,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:08 p.m., in 
Room 2123 of the Rayburn House Office Building, Hon. Edward J. 
Markey [Chairman of the Subcommittee] presiding.
    Members present: Representatives Markey, Butterfield, 
Welch, Dingell, Baldwin, Barrow, Whitfield, Pitts, Burgess, 
Griffith, and Barton (ex officio).
    Staff present: John Jimison, Senior Counsel; Jeff Baran, 
Counsel; Joel Beauvais, Counsel; Melissa Cheatham, Professional 
Staff Member; Caitlin Haberman, Special Assistant; Lindsay 
Vidal, Special Assistant; Mitchell Smiley, Special Assistant; 
Aaron Cutler, Minority Professional Staff; Andrea Spring, 
Minority Professional Staff; Mary Neumayr, Minority Counsel; 
and Garrett Goulding, Minority Legislative Analyst.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Ladies and gentlemen, we welcome you to the 
Subcommittee on Energy and Environment. We have had a very 
interesting, momentous day so far. Many of the Democratic 
members of our committee were down at the White House for the 
signing of the Health Care Bill which is why this hearing was 
postponed from the morning until the afternoon, and we 
apologize for the inconvenience that it presented to all of our 
witnesses and to everyone else that has a great interest in 
this subject. So welcome to this important hearing on Oversight 
of the Federal Energy Regulatory Commission or the FERC, as it 
is affectionately known around here.
    This is the first time in over a decade that all of the 
FERC commissioners have testified before a House committee, all 
of them, together once in one place. We are glad to have you 
here and look forward to making this a more regular occurrence. 
You know, FERC kind of reminds me of Northern Iowa's basketball 
team. It is probably one of the least well-known teams in the 
Federal Government but it is right in the thick of things and 
can be surprisingly powerful when it needs to be.
    Among FERC's many roles, there may be none more timely and 
important to discuss today than its frontline position in the 
battle to protect America's grid. Threats to the grid from 
terrorists and hostile countries represent one of the single 
most critical national security concerns facing our country. 
Every one of our Nation's critical systems, water, health care, 
telecommunications, transportation, law enforcement, financial 
services depends on the grid. The commercially operated grid 
provides 99 percent of the electricity used to power our 
critical defense facilities.
    This past weekend, a New York Times article reported on the 
work of Chinese researchers studying what type of cyber attacks 
could bring down the U.S. grid. That is just the latest in a 
wave of alarming news on this front. Over 2 years ago, the 
Department of Homeland Security revealed the so-called Aurora 
Vulnerability, through which hackers could use communications 
networks to physically destroy power plants. The intelligence 
community has made clear that the cyber systems controlling the 
grid are continuously probed by outside parties looking for 
weaknesses. FERC must be given the authority necessary to 
combat these growing threats.
    After a subcommittee hearing, a classified briefing for 
members and months of discussions between my staff, the staff 
of the Ranking Member Upton, Ranking Member Barton and Chairman 
Waxman, we recently released bipartisan legislation that will 
give FERC the tools it needs to protect America's grid. I am 
proud and pleased to report that this committee will markup 
that legislation tomorrow, a crucial first step in safeguarding 
the grid.
    In addition to FERC's emerging role in defending the grid, 
the Commission must also be a partner in addressing the massive 
energy challenges facing America. FERC is developing the rules 
to our energy road that will help America reach its clean 
energy and in energy independence goals. The energy sector, 
long the bastion of antiquated technology and entrenched 
business models is finally entering the innovation age. Wind, 
solar and other renewable technologies are providing an ever 
greater share of our electricity at competitive prices and with 
zero carbon emissions.
    Last year alone, using market incentives, customers reached 
peak electricity demand by the equivalent of the output of 50 
power plants. As smart grid technologies continue to penetrate 
the market, consumers will be able to turn their heat up on the 
way home from work, schedule their dishwasher to run when 
electricity is the cheapest and fuel their vehicles using 
clean, low-cost, American-made electricity instead of expensive 
OPEC oil. At the same time, a technology revolution in 
production of natural gas from deep shale formations has 
increased America's natural gas reserves by over 30 percent, 
giving us nearly a century long supply at current production 
rates.
    Each of us these clean energy innovations brings with it 
significant challenges but more importantly, tremendous 
opportunities. FERC will be at the forefront of the effort to 
grapple with these challenges and seize these opportunities. We 
don't know yet who the starting five will be on our clean 
energy all-star team but if the team is going to be successful, 
it is going to need strong coaching and refereeing from the 
FERC.
    I thank the commissioners for their work on these important 
issues to date and I look forward to hearing their views on how 
to best achieve our clean energy and energy security goals. 
That completes the opening statement of the chair.
    And I will turn to our ranking member, the gentleman from 
Kentucky, Mr. Whitfield, for his opening statement.

  OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

    Mr. Whitfield. Mr. Chairman, thank you very much.
    We look forward to this oversight hearing on the Federal 
Energy Regulatory Commission. I also would like to extend a 
warm welcome to all of the commissioners. It is seldom that we 
have them all here and we do look forward to working with you 
today on the many issues facing all of us.
    I look forward to hearing also from the panel as to how 
they intend to ensure that all sources of generation, including 
coal, nuclear, renewables, natural gas have access to 
electricity transmission and markets. FERC obviously has broad 
authority over the electricity infrastructure, as well as 
natural gas pipelines, and must make certain that FERC is 
helping provide safe and reliable energy while ensuring rates 
are competitive and fair.
    The Energy Policy Act of 2005 gave FERC new authority 
against energy market manipulation, including civil and 
criminal penalty authority. I would like to hear how FERC has 
been using that authority and what its future plans on this 
subject are. I am also concerned that the financial services 
legislation which Congress is currently considering could limit 
FERC authority by failing to protect FERC's jurisdiction from 
encroachment by the CFTC.
    Obviously, there are many issues before us today dealing 
with making sure that our electricity grid and natural gas 
pipelines are safe and reliable. Our subcommittee plans to 
consider electric cyber security legislation tomorrow and I 
hope that the witnesses will expound on why they believe 
additional authority to protect our grid from cyber terrorists 
and cyber warfare is necessary.
    We look forward to your testimony. Thank you again for 
being here and I yield back the balance of my time.
    Mr. Markey. Great, we thank the gentleman very much.
    We are awaiting as well the arrival of Fred Upton from 
Michigan along with Mr. Barton and Mr. Waxman. There are three 
roll calls on the House floor and what we could do right now is 
we could recognize members to try to squeeze in their opening 
statements and then with a little bit of luck we could then 
recess.
    Yes, excuse me, the gentlelady from Wisconsin.
    Ms. Baldwin. I could make it even easier. I welcome our 
witnesses and I waive my opening statement.
    Mr. Markey. That is a gesture that is well received by the 
chair and we welcome all of the witnesses and we turn now and 
recognize the gentleman from Pennsylvania, Mr. Pitts.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Pitts. Thank you, Mr. Chairman, I will be brief. Thank 
you for holding this hearing on FERC oversight.
    There are many issues I hope we explore today, including 
the implementation of the Energy Policy Act of 2005, market 
oversight, electric service security, transmission policy and 
cost allocation. The list is long.
    As I understand it, FERC has asked Congress to work on 
legislation regarding cyber security which I think is of 
critical importance. In recent years it has become apparent 
that our electric grid is vulnerable to cyber attack by 
terrorists or other nations and as we move towards marking up a 
bill to protect our bulk power system, I am interested in 
hearing the panel's thoughts on how best to protect our grid 
from malicious intent.
    In addition to cyber security, I think we must also focus 
on transmission policy here in the United States. The official 
report of the 2003 northeastern blackout concluded that, ``As 
evidenced by the absence of major transmission projects 
undertaken in North America over the past 10 to 15 years, 
utilities have found ways to increase the utilization of their 
existing facilities to meet increasing demands without adding 
significant high-voltage equipment.'' Clearly, there is a 
significant need for an increase in transmission capacity and 
this need is amplified as we consider adding more and more 
renewable energy to the grid. However, my district includes 
some of the most pristine historic landscape in the Middle 
Atlantic. My district also has some of the most productive 
farmland in the U.S. and while I am supportive of adding more 
transmission capacity, I believe we do need to keep in mind the 
legitimate desires of localities to preserve green spaces and 
historic sites and the same can be said of the siting of 
natural gas pipelines.
    Finally, I am interested in hearing the panel's thoughts on 
the regulation of over-the-counter derivatives. As you know, in 
my State of Pennsylvania, electric and natural gas companies 
use derivatives to hedge or lock prices of commodities they 
plan to use or sell in the future, and the Pennsylvania PUC has 
stated that mandatory, centralized clearing or exchange trading 
for all OTC transactions would needlessly increase expenses 
associated with the hedging and risk management activity, so 
important issues.
    I look forward to hearing our witnesses and yield back.
    Mr. Markey. We thank the gentleman very much.
    Our time is running down here and we have 3 minutes left to 
go before we have to be on the floor. We will recognize the 
gentleman from Texas, Mr. Burgess, for an opening statement.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Thank you, Mr. Chairman. I am also pleased we 
are having the hearing today to discuss with the full 
Commission the issues before the Federal Energy Regulatory 
Commission.
    We are all well-aware of the expansion of infrastructure 
for electricity is critical as is the infrastructure for 
natural gas. In communities across this country, the electric 
grid is at or near capacity. With the price of oil fluctuating 
daily, it will likely increase again as it always does with the 
summer months. The demand for natural gas, a cheap and 
abundantly available energy source, may likewise increase.
    The need for a strong infrastructure for natural gas is 
evident in my own backyard. My district is home to the Barnett 
Shale, which is one of several sources of natural gas 
throughout the country which thanks to new technologies and 
techniques in gas retrieval is providing both energy and 
economic opportunities in north Texas.
    Beyond natural gas, Texas has been a leader in renewable 
energy as the leading State in wind power. Advances to the 
electric grid will enable increased uses of renewable energy as 
electricity from renewable sources is able to travel further in 
more advanced power lines, but we are all aware that renewable 
energy alone will not meet this country's needs, which is why 
new sources of energy from nuclear power are critical if we are 
serious about a cleaner energy portfolio.
    I hope today's discussion will be productive in moving us 
toward a stronger infrastructure that will provide consistent 
power to every sector of our economy, and I yield back.
    Mr. Markey. Great, the gentleman yields back. We thank the 
gentleman.
    All time for opening statements by members has been 
completed unless Mr. Waxman or Mr. Barton shows up. And as a 
result, when we come back we will be recognizing you, Mr. 
Chairman, as the first order of business but you can expect 
that to occur in about 20 minutes. OK, so with that the 
subcommittee stands in recess.
    [Recess.]
    Mr. Markey. So the Subcommittee on Energy and Environment 
is called back into order and we welcome you all again, and now 
we are ready for testimony from our very distinguished panel. 
Our first witness today is the Chairman of the Federal Energy 
Regulatory Commission, Jon Wellinghoff. At FERC, Mr. 
Wellinghoff works to open wholesale electric markets to 
renewable resources and promote greater efficiency in the 
Nation's energy infrastructure. We look forward to hearing your 
testimony, Mr. Wellinghoff. You may proceed.

    STATEMENTS OF JON WELLINGHOFF, CHAIRMAN, FEDERAL ENERGY 
  REGULATORY COMMISSION; MARC SPITZER, COMMISSIONER, FEDERAL 
 ENERGY REGULATORY COMMISSION; AND JOHN NORRIS, COMMISSIONER, 
              FEDERAL ENERGY REGULATORY COMMISSION

                  STATEMENT OF JON WELLINGHOFF

    Mr. Wellinghoff. Thank you, Mr. Chairman.
    Mr. Markey. Could you move that microphone in a little bit 
closer, please?
    Mr. Wellinghoff. Thank you, Mr. Chairman, Ranking Member 
Whitfield, member of the subcommittee. I thank you for the 
opportunity to appear before you today to discuss the Federal 
Energy Regulatory Commission's work on critical energy issues 
now facing our Nation. I will summarize my testimony but I 
request that my full written remarks please be included in the 
record.
    Mr. Markey. Without objection, so ordered.
    Mr. Wellinghoff. First, I want to convey to this 
subcommittee that it is my privilege and honor to serve as the 
head of, in my opinion, one of the most extraordinary agencies 
in the Federal Government. We have over 1,400 dedicated, 
highly-skilled and extremely competent employees who come to 
work with the intent of making energy delivery system in this 
country work better to the benefit of consumers. Those 
employees are focused on FERC's mission as stated in the FERC's 
strategic plan that I provided to Congress last fall. The 
Commission's mission is to assist consumers in obtaining 
reliable, efficient and sustainable energy services at a 
reasonable cost through appropriate regulatory and market 
means. Our employees work to fulfill this mission every day and 
I am so proud to work with them.
    Fulfilling our mission involves two primary goals. First, 
promoting the development of safe, reliable and efficient 
energy infrastructure that serves the public interest, and 
second, overseeing rates, terms and conditions for wholesale 
sales and transmission of electric energy and natural gas in 
interstate commerce. I would like to highlight some of the 
steps the Commission is taking in pursuit of each of those 
goals.
    To promote the development of safe, reliable and efficient 
energy infrastructure, the Commission is among other actions 
siting natural gas pipelines to bring new, low-cost gas 
supplies to markets to serve consumers' needs. Siting 
hydropower projects to increase energy supply in markets, 
reviewing transmission planning cost allocation interconnection 
processes for the electric grid so that new resources of supply 
can be efficiently and economically delivered to markets to 
serve consumers. Using incentive-based rate treatments in 
appropriate circumstances to encourage investment in 
transmission infrastructure, including advanced transmission 
technologies and facilities designed to connect location 
constrained renewable energy resources to load centers. 
Protecting the reliability of the grid and facilitating the 
development of smart grid technology and standards that will 
increase efficiency, reliability and flexibility of the 
electric system.
    In addition to overseeing rates, terms, and conditions for 
the Commission on Jurisdictional Services, the Commission is, 
among other actions, implementing Congressional policy that 
wholesale competition can provide benefits to consumers in all 
regions while respecting regional differences. Instituting 
improvements to organize wholesale electric markets including 
enabling a wider range of resources to compete thus delivering 
benefits to consumers, developing a national action plan on 
demand response that builds on the national assessment of 
demand response potential and will encourage the use of 
additional resources for the benefit of consumers, and pursuing 
a balanced approach to oversight and enforcement, including 
attention deterring market manipulation and promoting 
compliance with mandatory reliability standards for the bulk 
power system.
    Each of my fellow commissioners will briefly discuss some 
of these important issues. First, I want to indicate for the 
committee my apology, Commissioner Moeller left. He had to 
leave. Apparently, there is a personal issue that has to deal 
with his house is on fire, is what he indicated to us so he 
literally has an emergency, and I will do Commissioner 
Moeller's section with respect to hydropower and natural gas 
infrastructure.
    Commissioner Spitzer will discuss the operation of the 
organized wholesale electric markets and corresponding benefits 
for consumers, as well as other competitive markets subject to 
Commission's jurisdiction. Commissioner Norris will discuss our 
Nation's potential for demand response and that progress being 
made in some organized wholesale electric markets to harness 
that potential.
    I truly enjoy working with my fellow commissioners. They 
too, like our FERC staff, are dedicated to FERC's mission. The 
Commission's work is vital to achieving our Nation's energy 
goals, including the need for energy security and the 
availability to consumers of clean, affordable energy for our 
Nation's economic revitalization. My colleagues and I, and each 
and every FERC professional and administrative staff member are 
committed to our agency' mission and to ensuring that 
consumers' have access to those clean, affordable, reliable 
energy supplies they deserve.
    Thank you for the opportunity to appear before you. I will 
be happy to answer any questions.
    [The prepared statement of Mr. Wellinghoff follows:]

    [GRAPHIC] [TIFF OMITTED] T6019A.001
    
    [GRAPHIC] [TIFF OMITTED] T6019A.002
    
    [GRAPHIC] [TIFF OMITTED] T6019A.003
    
    [GRAPHIC] [TIFF OMITTED] T6019A.004
    
    [GRAPHIC] [TIFF OMITTED] T6019A.005
    
    [GRAPHIC] [TIFF OMITTED] T6019A.006
    
    [GRAPHIC] [TIFF OMITTED] T6019A.007
    
    [GRAPHIC] [TIFF OMITTED] T6019A.008
    
    [GRAPHIC] [TIFF OMITTED] T6019A.009
    
    [GRAPHIC] [TIFF OMITTED] T6019A.010
    
    [GRAPHIC] [TIFF OMITTED] T6019A.011
    
    [GRAPHIC] [TIFF OMITTED] T6019A.012
    
    [GRAPHIC] [TIFF OMITTED] T6019A.013
    
    [GRAPHIC] [TIFF OMITTED] T6019A.014
    
    Mr. Markey. Thank you, Mr. Chairman, very much.
    Our next witness is Commissioner Marc Spitzer. He is an 
experienced regulator who chaired the Arizona Corporation 
Commission before coming to the FERC. He has focused on 
expansion of natural gas infrastructure, demand-side 
management, and renewable energy policies.
    We look forward to hearing your testimony, Mr. Spitzer. 
Whenever you are ready, please begin.

                   STATEMENT OF MARC SPITZER

    Mr. Spitzer. Thank you very much, Mr. Chairman, and after 
your opening remarks, I was tempted to merely say I agree but I 
think you want me to say something.
    Mr. Markey. But that is a good start.
    Mr. Spitzer. It is hard to muzzle a lawyer.
    Mr. Markey. Yes, I like testimony that starts that way.
    Mr. Spitzer. Thank you. Mr. Chairman, I submitted written 
testimony that I will summarize.
    Mr. Markey. And without objection, your testimony will be 
included in the record in its entirety as will Mr. Norris' and 
Mr. Moeller.
    Mr. Spitzer. Thank you, Mr. Chairman.
    FERC is endeavoring to combine the best of competitive 
markets with appropriate regulation so competitive market 
forces interact with consumer protection through appropriate 
regulatory oversight, and if I could illustrate. The chair 
alluded to my tenure in the Arizona Commission. In August, 
2005, in the wake of Hurricane Katrina, the consumers of 
Arizona were faced with a horrendous burden when natural gas 
prices spiked to $15 per MMBTU so the gas distribution 
companies as well as the power plants using natural gas to run 
electricity were first to go on the market and purchase gas 
that was spiked due to the shut-in of gas supply in the Gulf 
Coast. The Arizona consumers lacked natural gas storage. There 
was only one pipeline system and the consumers were greatly 
burdened. A price spike up to $15 has long term, negative 
ramifications for consumers. Well, shortly thereafter, the 
Energy Policy Act was signed into law and Arizona consumers as 
well as regulators could look to Washington, D.C. for relief.
    If you consider and the members have alluded to the 
phenomenon of greater production of shale gas, this is a 
phenomenon where competition through technology was spurred and 
improved by regulatory support so that the markets did, in 
fact, work. Pipelines were constructed. Storage facilities were 
constructed. This country now has a much greater diversity of 
energy supply specifically with natural gas then existed only a 
few short years ago.
    Similarly, FERC has endeavored to pursue fair energy 
markets with appropriate oversight. We have brought a small 
number of manipulation cases that are very important to deter 
those who would seek to manipulate America's energy markets. We 
brought enforcement proceedings, similarly to ensure that the 
prices are fair.
    The chairman alluded to the smart grid and I think the 
smart grid is a wonderful opportunity to pursue demand 
response, energy efficiency, and as the chair alluded, go to a 
twenty-first century grid. We have seen the emergence of smart 
meters but I think that it is very important that we have smart 
prices to go along with those smart meters so that the 
ratepayers of the United States can fully derive the benefit 
from the smart grid.
    On the area of cyber security, I would note the proposed 
legislation for markup with the observation that the Section 
215, Federal Power Act process, is very ill-suited to deal with 
emerging cyber vulnerabilities. And I think that the proposed 
legislation should be seen as in partnership with the existing 
law under Section 215 to deal with reliability of the grid.
    And then I guess finally, I want to thank the chairman for 
his efforts as well as my colleagues, Commissioner Norris and 
Commissioner Moeller, and since I arrived at FERC, I was also 
able to work with former Commissioner Kelly and former Chairman 
Kelleher in a way to provide for a reliable supply of energy at 
reasonable prices. It was truly a bipartisan and team effort, 
and we will work as very hard as possible to continue the 
efforts at FERC on behalf of the ratepayers of the United 
States.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Spitzer follows:]

    [GRAPHIC] [TIFF OMITTED] T6019A.015
    
    [GRAPHIC] [TIFF OMITTED] T6019A.016
    
    [GRAPHIC] [TIFF OMITTED] T6019A.017
    
    [GRAPHIC] [TIFF OMITTED] T6019A.018
    
    [GRAPHIC] [TIFF OMITTED] T6019A.019
    
    Mr. Markey. Thank you, Commissioner Spitzer, very much.
    And our final witness is John Norris. He has years of 
experience in energy policy and regulatory affairs as a lawyer, 
a top official at the Department of Agriculture, and Chairman 
of the Iowa Utilities Board.
    We thank you for joining us, Mr. Norris. Whenever you are 
ready, please begin.

                    STATEMENT OF JOHN NORRIS

    Mr. Norris. Thank you, Chairman Markey. Good afternoon and 
thank you, members of the committee, for inviting me here 
today. I have only been on the Commission for a couple of 
months now so I appreciate this chance to get my feet wet with 
the subcommittee here.
    I also have consulted my colleagues yet but I like the 
metaphor of Northern Iowa as for FERC's role for going forward 
and I can--being an Iowan, I can assure you for both us and 
Northern Iowa, our best days are yet to come.
    Mr. Markey. And as you know very well because we have seen 
each other in Iowa many times and as a former future cabinet 
officer in the Kennedy, Dukakis, Gore and Kerry 
Administrations, I have spent a lot of time in Dubuque in my 
life. I could very comfortably run for city councilman in 
Dubuque. That is where they always send the Irish guy from 
Boston, to Dubuque. That is where the Catholics are in Iowa and 
so when Boston College actually played Northern Iowa this year 
and got crushed, there was a very good bet from me in my pool. 
I mean no money exchanging hands, of course, but I did select 
Northern Iowa to go a lot further than I would have if again, 
it was another experience of Boston College going to Iowa and 
learning some things about not just politics but basketball, so 
none of that is going to come off of your time. If we could go 
back to 5 minutes for the Commissioner, please again begin, 
welcome.
    Mr. Norris. Thank you. We do take great pride in our 
Panther basketball.
    Well, let me just give an overview of my written comments 
which largely pertain to the demand side of resources and 
demand response. If there is one most important takeaway from 
those comments, it is that our best energy outlook for the 
future includes an efficient mix of both demand-side resources 
and supply-side resources. By providing a level playing field 
and the opportunity for the demand-side of resources to 
participate on a comparable basis to traditional supply-side 
resources, we could make a positive difference for our markets 
and our consumers by allowing innovation, ingenuity and 
competition, and customer choice to foster competition.
    Let me briefly review what has evolved so far. The 
Commission has allowed demand response resources to be used to 
comply with certain reliability standards and has required that 
such resources be considered as a solution in utilities 
transmission planning processes. In the organized markets, the 
Commission has gone further, requiring ISOs and RTOs to accept 
bids from demand response resources in their ancillary services 
markets and enable aggregators to bid demand response on behalf 
of retail customers, and we are beginning to see results. The 
most recent Commission survey results for demand response 
showed a total potential peak load reduction across the Nation 
of 35 gigawatts, which is up 26 percent from the 2006 
Commission survey results, and represents approximately five 
percent of the total forecasted U.S. peak demand for the summer 
of 2008, but there still remains a tremendous untapped 
reservoir. Last summer's national assessment of demand response 
potential projected through 2019 that the potential for peak 
electricity demand reductions across the country is up to 188 
gigawatts or up to 20 percent of our national peak demand.
    So where will the changes occur? Well, existing reliability 
and market rules and structures were developed around the needs 
and operating characteristics of traditional generation 
resources. There is not always consensus as to how and whether 
specific rules and structures should be modified to create a 
level playing field for demand response resources, but my 
expectation is that as we gain additional experience, the 
Commission will continue to modify and shape demand response 
policies. Just last week, the Commission issued a notice of 
proposed rulemaking to address compensation of demand response 
resources. The notice proposes and seeks comment on requiring 
RTOs and ISOs in which demand response resources participate at 
a resource to pay demand response providers the market price 
for energy for reducing consumption below their expected 
levels.
    In June of this year, the Commission will issue the 
National Action Plan for Demand Response which will identify 
communication strategies, technical assistance to States and 
tools necessary to achieve the potential identified in that 
assessment. FERC also remains engaged with the States in the 
demand response collaborative. We are mindful that States have 
a large role in shaping the policies that affect demand 
response participation in electricity markets and we continue 
to work closely with our State colleagues on the FERC demand 
response collaborative to ensure that our efforts are 
coordinated and achieve the greatest impact.
    There are remaining barriers such as the measurement and 
verification of demand response that are yet to be finalized or 
agreed upon. The rules and software that the system operators 
use in organized markets to schedule and dispatch resources 
were developed around the needs and operating characteristics 
of traditional generation resources, and may pose a barrier to 
a demand response in other resources, and the market rules and 
business practices are yet unclear as to how they are to apply 
to demand response. The Commission is analyzing these and other 
issues and if appropriate, may conduct one or more rulemakings 
to help further eliminate barriers to a demand response.
    Thanks again for the opportunity to be here. I look forward 
to meeting the challenges of diversifying our electricity 
market in the future and I think the Commission is well-
positioned to help lead the country in that effort.
    [The prepared statement of Mr. Norris follows:]

    [GRAPHIC] [TIFF OMITTED] T6019A.020
    
    [GRAPHIC] [TIFF OMITTED] T6019A.021
    
    [GRAPHIC] [TIFF OMITTED] T6019A.022
    
    [GRAPHIC] [TIFF OMITTED] T6019A.023
    
    [GRAPHIC] [TIFF OMITTED] T6019A.024
    
    [GRAPHIC] [TIFF OMITTED] T6019A.025
    
    [GRAPHIC] [TIFF OMITTED] T6019A.026
    
    Mr. Markey. Thank you, Commissioner Norris, very much.
    Can I just very briefly, Mr. Chairman, in terms of 
Commissioner Moeller's testimony, should I make a unanimous 
consent request that that be included in the record in its 
entirety?
    Mr. Wellinghoff. Please, we would appreciate that.
    Mr. Markey. OK, without objection, so ordered.
    [The prepared statement of Mr. Moeller follows:]

    [GRAPHIC] [TIFF OMITTED] T6019A.027
    
    [GRAPHIC] [TIFF OMITTED] T6019A.028
    
    [GRAPHIC] [TIFF OMITTED] T6019A.029
    
    [GRAPHIC] [TIFF OMITTED] T6019A.030
    
    [GRAPHIC] [TIFF OMITTED] T6019A.031
    
    Mr. Markey. So the chair will now recognize himself for a 
round of questions.
    As you know, tomorrow this subcommittee will markup 
legislation giving FERC new authorities to protect the U.S. 
electric grid against attack. How serious in your view is the 
threat to the grid from cyber and other threats, and how 
serious are the consequences if we don't protect the grid from 
those threats?
    Mr. Wellinghoff. Mr. Chairman, in my opinion, the threat is 
extremely serious. I know that members of this committee have 
had classified briefings with respect to the issues that we are 
facing. I believe that it is critical that we address this 
threat as quickly as possible. It is something that FERC has 
been concerned about for a number of years and I know has been 
working with Congress to try to get a piece of legislation 
together that would do the job of actually the threats and I 
believe the legislation that you have, I haven't seen the 
latest draft. I have seen some earlier drafts but I believe 
that it really does fully look at not only threats but 
vulnerabilities as well which I think is important. I 
understand that there may be some issues that DOD still has 
that would like to discuss with you but other than that from 
what I have seen so far, I think that the legislation will 
provide FERC the tools that we need to ensure that cyber 
security is not an issue for this country with respect to the 
grid.
    Mr. Markey. Thank you, Mr. Chairman.
    Now, there are some industry stakeholders who take the view 
that although there may be a need for new Federal authority to 
react to a grid security emergency, that the current system of 
industry standard-setting through the NERC is adequate to 
defend the grid against attack by terrorists or of hostile 
nation states. What in your view are the limitations in the 
current system and why should we give the FERC the authority to 
establish interim requirements if you determine that NERC 
standards haven't addressed a critical weakness to attack?
    Mr. Wellinghoff. Mr. Chairman, currently under the NERC-
FERC reliability process, we have I believe it is eight cyber 
security standards that we have approved but those standards 
came to us through a process where FERC takes to its 
stakeholder group these proposals. The proposals are discussed 
over a period of time. They are voted upon and then they are 
ultimately submitted to us. That process, I believe, is not 
expeditious enough to deal with threats certainly, where we 
have an immediate threat that is identified by the President or 
really to deal with vulnerabilities in a really effective 
manner. Number one, we still don't have a process where we can 
provide information to the utilities on a confidential basis 
which is a real gap, I believe, because we certainly don't want 
the fixes to get out to the opposition with respect to these 
cyber security threats. And we also don't have the ability to 
immediately send out a fix to the proper entities who need to 
be identified when we determine that there is a threat that 
exists. So I believe that that the current process has allowed 
us to go so far but as far as we have gone it doesn't take us 
all the way that we need to go to close off the threat.
    Mr. Markey. Let me ask one final question on this round and 
this is for any of the commissioners. There have been concerns 
that a recent FERC decision could negatively impact deployment 
of renewable energy. As I understand it, the decision involving 
the Kansas Utility Westar could disadvantage renewal energy 
projects because they would be forced to pay for the 
variability of their power generation. Are there options that 
we could pursue to include additional factors in calculating 
the cost of this variability? As I understand it, wind and 
solar variability goes down considerably if the grid is able to 
dispatch generation more quickly and schedule generators more 
frequently, Mr. Chairman.
    Mr. Wellinghoff. Mr. Chairman, the Westar decision is 
currently pending rehearing so I can't discuss the decision 
specifically but I can talk in general terms about your 
question. Are there other ways we can look at how to allocate 
these costs relative to I believe it is regulation service for 
the grid that under that particular decision is being, wind is 
being asked to pay some portion of. I think we really do need 
to examine how those costs are allocated and look at very 
carefully how loads are involved in posing those costs on the 
grid versus how resources like wind are. So I am very open with 
respect to the rehearing as to what we might be able to look at 
there but again I can't talk specifically about the particular 
case given it is pending for rehearing.
    Mr. Markey. OK, Commissioner Spitzer.
    Mr. Spitzer. Thank you, Mr. Chairman, and again without 
discussing the specific Westar case, as is the case in many 
regulatory environments, we need to balance competing interests 
and the overarching goal is just and reasonable rates. If you 
look at the Commission's generator interconnection rules and 
the changes thereto to accommodate wind that took place in 
2005, the Commission has shown a great willingness to 
incorporate and integrate wind. If you look at our Notice of 
Inquiry regarding variable resources, we have striven greatly 
to increase not just wind but solar and other resources into 
the grid in a way that preserves reliability and minimizes 
costs to ratepayers. So in many cases, these costs are about 
balancing efforts to integrate variable resources into the grid 
and at the same time justly assign the costs of integrating 
those resources in a fair manner, and that is as you know often 
complex but I don't think you can extrapolate one particular 
case to either hostility to wind or hostility to the ratepayers 
who are varying the cost of integrating wind.
    Mr. Markey. OK, great, thank you, Commissioner Spitzer.
    The chair recognizes the gentleman from Kentucky, Mr. 
Whitfield.
    Mr. Whitfield. Thank you very much and thank you all so 
much for your testimony.
    Either one of you can answer this question. When the Fourth 
Circuit Court of Appeals in the Piedmont case ruled that FERC 
did not have the authority for new transmission facilities 
location, that you do not have that authority which was given 
to you under the Energy Policy Act, I know a number of 
organizations did appeal the decision, the American Wind Energy 
Association, Edison Electric Institution and so forth, appealed 
to the U.S. Supreme Court. Evidently, the Obama Administration 
filed a brief on FERC's behalf telling the Supreme Court that 
it should not take the case and review the Fourth Circuit 
decision. When we hear almost every day a need to expand the 
grid, to modernize the grid, I was curious how would FERC or 
the Administration make a decision and not to appeal that 
decision?
    Mr. Wellinghoff. That was an interesting discussion in the 
solicitor's office and as I understand it, first of all, it is 
the solicitor in the Administration who makes the decision and 
not FERC.
    Mr. Whitfield. OK, so FERC was really not consulted?
    Mr. Wellinghoff. No, we were consulted and I want to tell 
you the nature of that consultation. We were consulted. In 
fact, the solicitor, as I understand it, agreed with it 
substantively that we were correct in our initial decision that 
the Fourth Circuit was incorrect, and I still believe we are 
correct. However, it was my understanding that the solicitor 
decided not to take it up to the Supreme Court or not to ask 
for cert to the Supreme Court on procedural grounds in that 
there was no conflicts in the circuits. It was only the Fourth 
Circuit that made the decision so therefore we only had one 
circuit decision so they didn't feel that it was a significant 
enough case to take up. That was not our call. It was the 
solicitor's call.
    Mr. Whitfield. Mr. Spitzer.
    Mr. Spitzer. Thank you, Congressman. So there is no 
mistake, my opinion is that the Fourth Circuit decision was 
wrong. I would like a dissenting opinion.
    Mr. Whitfield. OK.
    Mr. Spitzer. Sometimes lawyers lose cases and it was we 
lost two to one.
    Mr. Whitfield. Right.
    Mr. Spitzer. One of the issues was whether the case was in 
fact ripe and this gets into the unique nature of the case 
before the First Circuit, Fourth Circuit.
    Mr. Whitfield. Right.
    Mr. Spitzer. It was on a power line for which the 
application had not yet been filed at FERC and so one of the 
views of the Supreme Court does not like taking cases if they 
are not ripe for adjudication and given the fact that there was 
no actual power line case filed at FERC, there was a real 
question as to procedurally whether it was correct to seek 
certuari to the Supreme Court. Secondly, as the chairman noted, 
oftentimes you look for conflicts between Circuit Courts of 
Appeal to have a case go up to the Supreme Court.
    Mr. Whitfield. Right.
    Mr. Spitzer. So I think it is one of those unique factual 
circumstances but doesn't gainsay that the final rule that FERC 
voted not that was basically reversed by the Fourth Circuit was 
adopted by either FERC and I think we believe that the Fourth 
Circuit was incorrectly decided. In the Piedmont case, the only 
question is what is the best procedural mechanism to pursue 
reversal, either in the courts or with Congressional 
clarification?
    Mr. Whitfield. Right, so you all feel quite strongly that 
your legal team does believe that under the Energy Policy Act 
that FERC does have backstop siting authority?
    Mr. Spitzer. Yes, sir.
    Mr. Wellinghoff. Yes.
    Mr. Whitfield. OK, thank you very much.
    I note in, Mr. Wellinghoff, your testimony, I believe it 
was your testimony you talked about a strategic plan to explore 
as appropriate and implementing market reforms that will allow 
renewable energy resources to compete fairly in Commission 
jurisdictional markets. When do you expect that study or that 
strategic plan to be completed?
    Mr. Wellinghoff. Excuse me. The strategic plan is 
completed. We have started to implement different aspects of 
that strategic plan including looking at variable renewable 
resources. We just issued an NLI, Notice of Investigation, in 
January on that issue asking for comments as to the barriers of 
integrating into the system. The problem we have with these 
variable resources, both wind and solar, is that you are not 
completely able to forecast when you are going to have them 
into the system and because of that variability, you have to 
look at how you are going to operate the grid in a way to 
ensure reliability because we are charged with reliability on 
the grid. So we are very interested in determining how we can 
have larger and larger amounts and there are a lot of areas in 
the country, one of them being the northwest, for example, 
Bonneville's area. Another one being the south central portion 
of the country, Oklahoma-Kansas area where larger and larger 
amounts of wind are coming onto the system because they are 
developing them there and they apparently are economic and so 
they are coming onto the grid and as doing such, we need to 
ensure that they do it in a reliable fashion. So we want to 
make sure that this integration is done in a way that will 
protect this.
    Mr. Whitfield. Just one follow-up if I could, Mr. Chairman.
    In the Notice of Inquiry, you are asking for public input. 
When do you expect that period will end for public input?
    Mr. Wellinghoff. I think it is the end of March.
    Mr. Whitfield. Thank you.
    Mr. Butterfield [presiding]. Thank you, Mr. Chairman. All 
right, the gentleman's time has expired.
    The gentleman from Michigan, the chair emeritus of this 
committee.
    Mr. Dingell. Thank you, Mr. Chairman.
    I have a splendid opening statement which I ask to be 
inserted in the record.
    Mr. Butterfield. Without objection.
    [The prepared statement of Mr. Dingell follows:]

    [GRAPHIC] [TIFF OMITTED] T6019A.032
    
    [GRAPHIC] [TIFF OMITTED] T6019A.033
    
    [GRAPHIC] [TIFF OMITTED] T6019A.034
    
    [GRAPHIC] [TIFF OMITTED] T6019A.035
    
    Mr. Dingell. Gentlemen of the Commission, is the Commission 
or any members of the Commission asking to have the Federal 
Power Act amended on this matter, yes or no?
    Mr. Wellinghoff. Excuse me, Congressman Dingell, on the 
matter of cyber security?
    Mr. Dingell. Yes, are you seeking to have any amendments 
made to the Commission or rather to the Federal Power Act?
    Mr. Wellinghoff. Yes, we have supported legislation on 
cyber security that would require.
    Mr. Dingell. Would you please submit those amendments to 
the committee so that we could see what they are, please?
    Mr. Wellinghoff. We would be happy to do that.
    Mr. Dingell. Is this the Commission or just individual 
members of the Commission?
    Mr. Wellinghoff. The Commission has submitted.
    Mr. Dingell. By what vote, sir?
    Mr. Wellinghoff. Excuse me?
    Mr. Dingell. By what vote, in other words?
    Mr. Wellinghoff. We haven't.
    Mr. Dingell. This is the request of the Commission or is 
this just individual commissioners who are seeking it?
    Mr. Wellinghoff. The Commission doesn't typically vote with 
respect to proposals of legislation. We usually respond to 
requests from committees for more information and that comes 
from the Commission.
    Mr. Dingell. All right, would you please submit it to us 
and with a statement including whether this is the Commission's 
suggestion to the committee or whether it is that of individual 
Commissioners?
    Now, next question, what, let us see, the Commission, I 
want to address the question of siting, transmission siting 
authority. Has the Commission decided who it is that should pay 
for new lines? In other words, is it going to be the originator 
of the power, the transmission company, the ultimate recipients 
and customers? Who will be the person who pays for these new 
lines and how will the allocation of these costs and benefits 
be decided according to the rules of the Commission?
    Mr. Wellinghoff. Congressman Dingell, currently it depends 
on how the line is built. If it is built by a merchant then the 
merchant will pay for the line. If it is built by a developer 
who wishes to allocate costs more broadly, then it depends upon 
the region, and different regions do it differently. Certain 
RTOs have certain allocations.
    Mr. Dingell. So you are not going to have a standard 
approach to this?
    Mr. Wellinghoff. There currently is not a standard 
approach.
    Mr. Dingell. If I understand you correctly, you are telling 
me you have different rules for different States or different 
regions?
    Mr. Wellinghoff. That is correct.
    Mr. Dingell. How is that to be justified?
    Mr. Wellinghoff. Each region decides they believe that 
methodology is appropriate for their region. They come to FERC, 
we look at it and review it, and determine whether or not it is 
appropriate for them and in those instances we then make a 
final determination but we do try to look at regional 
differences and there certainly are differences with respect to 
regions and how those costs may or should be allocated. They 
may be different in PGM.
    Mr. Dingell. Well, I am going to submit a letter on this. 
We are consuming time that I don't have for this because we 
only have 5 minutes.
    Now, what evidence is there that FERC needs backstop 
authority as granted in the Interview Policy Act of 2005? Is 
there broad consensus that the States are not capable of siting 
new transmission lines or that the States are acting in any way 
in bad faith? Is there a consensus that the consumers are 
suffering because these States are unwilling or unable to site 
new lines?
    Mr. Wellinghoff. The 2005 Act provides backstop siting 
authority in the instance of a congested corridor designated by 
DOE.
    Mr. Dingell. Well, I understand you have got backup 
authority. Do you feel it is necessary to use that backup 
authority and if so, where, when and why?
    Mr. Wellinghoff. I believe that in those instances where we 
have location-constrained resources that are needed to get the 
load by a long transmission line over multiple States or 
regions to the extent that a particular.
    Mr. Dingell. Have you ever used this authority, this backup 
authority or have you left the matter to the States?
    Mr. Wellinghoff. Currently, the backup authority is only 
for congestion corridors designated by DOE which are in very 
limited areas of the country.
    Mr. Dingell. So you have not used it yet?
    Mr. Wellinghoff. We have not used it yet.
    Mr. Dingell. Do you have any plans to use it and if so, 
where, when and why?
    Mr. Wellinghoff. We do not have any current plans to use 
it.
    Mr. Dingell. Do you think that it is necessary to use it 
for any particular reason at this time?
    Mr. Wellinghoff. Not at this time.
    Mr. Dingell. OK, well, I know my time has expired, Mr. 
Chairman. I thank you for your courtesy.
    Mr. Butterfield. I thank the gentleman.
    The gentleman from Alabama.
    Mr. Griffith. Thank you, Mr. Chairman.
    Along those same lines and this is a comment. Is there a 
possibility because of the diversity not only of our power 
generation but also of our geography here in the States, is 
there any possibility that this is complicated enough that we 
might consider before any regulation that would be one size 
fits all, that we could do a pilot program or a couple of pilot 
programs that would take a particular geography and see how the 
integration and the reliability impact of integrating these 
large amounts of renewable energy into the grid, how we might 
do that on a pilot program before we decide that it is good for 
everyone? Is that unreasonable?
    Mr. Wellinghoff. Congressman Griffith, I don't think it is 
unreasonable. In fact, I think it is going on right now. We 
have a great pilot going on in a place called Texas. Texas 
right now is integrating in 8,000 megawatts of wind and they 
are going to go to 18,000 megawatts of wind. They have just 
developed a $5 billion transmission upgrade to do that. I just 
had some conversations with Chairman Smitherman, the chairman 
of the Texas Public Utilities Commission on that matter so I 
think we have a great incubator there of a pilot going on. We 
also I think have it going on in the different RTOs, as well, 
in California, in the Midwest, in SPP. They all have varying 
amounts of renewable energy that they are integrating in their 
systems there and so they are all sort of different pilots 
going on right now and I think it is good idea to have that 
happening.
    Mr. Griffith. The sharing of costs of transmission and who 
is responsible for it from the maintenance to the charging of 
it, how is that, do you think, that is going to be decided?
    Mr. Wellinghoff. The sharing the cost of transmission, I 
hope, is initially and primarily decided by the regions and the 
States. And again, it is something that I hope can be worked 
out on that regional State level. It is largely being done that 
way now within the RTOs. They are working out various 
proposals. I know though for example in MISO, the Midwest ISO, 
there is two different groups. One being the State 
commissioners primarily and another group being the 
transmission owners that have different ideas of how to 
allocate costs and they haven't come together yet. I think they 
are, as I understand it, may be coming to FERC ultimately to 
have us resolve for them which would be the most appropriate 
way to do it but my preference would be to have the States and 
the regions work it out on their own.
    Mr. Griffith. My concern, of course, in my district is I am 
Tennessee Valley Authority. What impact do these proposed or 
suggested regulations do you think would have on that 
particular utility?
    Mr. Wellinghoff. I don't believe they would have an impact 
directly. I believe that the TVA determines how to allocate 
their costs within their own region.
    Mr. Griffith. Thank you.
    Thank you, Mr. Chairman.
    Mr. Butterfield. Thank you.
    At this time, the chair recognizes the gentlelady from 
Wisconsin.
    Ms. Baldwin. Thank you, Mr. Chairman.
    Chairman Wellinghoff, welcome.
    Mr. Wellinghoff. Thank you.
    Ms. Baldwin. As you, I think, noted in your testimony and I 
am sorry, I saw it in the written testimony. I am sorry I 
missed your oral testimony today but FERC has convened several 
technical conferences around the country asking for input and 
comment on matters relating to transmission planning, 
coordination and cost allocation. And I have been hearing some 
observers recently speculate that these activities should leave 
little doubt that FERC intends to set down concrete rules of 
cost allocation for transmission projects. And so I am 
wondering if you can confirm whether there is a cost allocation 
rulemaking in the works and if so, what details can you provide 
us?
    Mr. Wellinghoff. We are currently reviewing, as I 
understand it, several thousand pages of comments on those 
workshops that you referred to regarding cost allocation and 
planning. When we complete that review, we will consider a 
rulemaking with respect to cost allocation and I am certain 
that that rulemaking will be informed also by other proceedings 
like the filing that we expect from the Midwest ISO and their 
cost allocation proposals. So it is possible that we would move 
to rulemaking. I can't tell you today that it is a certainty 
but we are looking at those comments and considering that in 
conjunction with the other filings that are coming in on cost 
allocation because we are getting sort of a disparate request 
with respect to cost allocation from different parts of the 
country, and it would be good to look at them in sort of a 
unified whole not saying one size fits all because I really 
don't believe in that per se. I think you do have to account 
for regional differences on the one hand but it may be good to 
set down some sort of general principles with respect to cost 
allocation. And I would like to see that go forward but again 
what will ultimately come out of it will be up to a vote of the 
Commission.
    Ms. Baldwin. What light could you shed on the timeframe for 
making that decision of whether you are going to move forward 
with a rulemaking?
    Mr. Wellinghoff. I think we should know where we are going 
to be in 6 months.
    Ms. Baldwin. OK.
    Mr. Wellinghoff. It shouldn't be that long. I mean if a 
rulemaking comes out and I can't tell you when exactly it would 
come out but it would be my hope at least that we would have 
enough analysis done on the comments and have a good enough 
idea from the filings from places like MISO as to what some of 
the alternative proposals are to look within a 6-month 
timeframe to whether or not we want to do a rulemaking.
    Ms. Baldwin. OK, last year the Seventh Circuit Court of 
Appeals struck down a FERC-approved tariff to distribute costs 
through a postage stamp rate in the PJM RTO, and I wonder if 
you can tell me what steps the Commission has taken in response 
to this case?
    Mr. Wellinghoff. Excuse me, I am sorry. I just had to get a 
little update there. The case is pending before the Commission 
right now, the remand to us, but we did ask parties in the case 
to submit additional evidence to us because basically the 
Seventh Circuit asked us to do some cost benefit analysis with 
respect to the way that we spread those costs in that 
allocation, and so we are asking for information from the 
critical parties in the case to ensure that we had adequate 
evidence to be able to go back to the Seventh Circuit and show 
them and demonstrate to them that our allocation methodology 
was appropriate.
    Ms. Baldwin. So in light of the fact that you are taking in 
additional evidence, do you believe that the Commission has the 
authority to approve a tariff that includes some level of broad 
cost-sharing for large transmission projects?
    Mr. Wellinghoff. Yes, I believe we do if we do it under the 
Seventh Circuit principles and I think they laid it out that we 
don't have to be exactly precise in how we look at the cost 
allocation but we do have to show how the costs and benefits 
were considered, and I believe we can develop sufficient 
evidence in the record to do that.
    Ms. Baldwin. OK, as you may be aware, on March 16 of this 
year, NARUC sent a letter to Senators Reid, McConnell, Bingaman 
and Murkowski expressing some concerns that any dramatic shift 
by Congress in the current balance between State and Federal 
jurisdiction over transmission line permitting and cost 
allocation will undermine significantly the just initiated 
interconnection-wide transmission planning efforts and produce 
gridlock. And I would ask, by the way, unanimous consent, Mr. 
Chairman, that that letter be inserted in the record of our 
proceedings today.
    [The information appears at the conclusion of the hearing.]
    Ms. Baldwin. That same letter goes on to say that they, and 
this is NARUC, remain unconvinced that additional Federal 
authority over transmission is needed. I give you as an aside, 
in Wisconsin since 2001, the total value of transmission 
construction and upgrades that are in-service or currently 
approved by our State's public service commission for future 
construction is approximately $2.7 billion. The letter adds 
that taking action now to disrupt the existing planning process 
actually contradicts the Congressional intent of the ARRA, the 
American Recovery and Reinvestment Act, which directed the 
Department of Energy to give the States $27 million to 
coordinate transmission planning efforts across the country's 
three grids, the Eastern Interconnection, the Western 
Interconnection and the Electric Reliability Council of Texas. 
Each of the 40 States in the Eastern Interconnection are 
participating in the Eastern Interconnection States Planning 
Council. Are you supportive, Mr. Chairman, of the platform that 
has been created by the American Recovery and Reinvestment Act 
for States and stakeholder cooperation and information-sharing? 
And what is FERC going to do to support these ongoing efforts?
    Mr. Wellinghoff. We are very supportive of that provision 
of that Act. In fact, we were sure to get FERC inserted in that 
so we could be advisors to DOE with respect to that particular 
planning process, and so we have people who are participating 
in both the Eastern and Western Interconnect, the planning 
processes. We are making our FERC staff available to those two 
entities to ensure that if they need technical information 
support, we will be happy to provide that to them, and I don't 
see that activity as any way inconsistent with the provision in 
the Bingaman Bill, for example, in the Senate that provides 
FERC with backstop siting authority and also some clarification 
of our cost allocation authority. I believe that planning 
process can and should and will go forward, and it will go 
forward with FERC's full support.
    Ms. Baldwin. OK, thank you, Mr. Chairman. I see that my 
time has expired.
    Mr. Butterfield. I thank the gentlelady.
    The gentleman from Vermont, Mr. Welch.
    Mr. Welch. Thank you, Mr. Chairman.
    I have some questions following up on Dr. Griffith. There 
are some of us who believe that we really need much more of an 
energy boost from FERC to protect consumers in the planning 
process of these transmission lines. And, be specific, in 
Vermont there is going to be very significant cost allocations 
and there is a sense among our utilities that we have very 
little control and very little advocacy to make certain that 
the planning is done on a least integrated cost basis. Mr. 
Chairman, my understanding is that the RTOs do have an 
obligation to implement principle number five and that approach 
would be least cost integrated resource planning. Is that your 
understanding as well, Mr. Wellinghoff?
    Mr. Wellinghoff. Yes, the RTOs are a very interesting 
entity.
    Mr. Welch. No, answer my question. I mean I know they are 
interesting.
    Mr. Wellinghoff. I am intending to.
    Mr. Welch. OK, good.
    Mr. Wellinghoff. They are voluntary entities that are 
formed by the transmission owners in the region and as a part 
of that voluntary operating and cooperation agreement, those 
owners decide to what extent planning is part of a integrated 
least cost plan so it would be up to the stakeholders in each 
RTO to determine specifically what aspects of planning they 
will do and whether that planning goes to the point of an 
integrated resource plan.
    Mr. Welch. So then you don't see FERC as having some 
responsibility to make certain that they do the least cost 
integrated planning?
    Mr. Wellinghoff. FERC is responsible for ensuring that 
rates are just and reasonable.
    Mr. Welch. Yes, but that is built upon a major cost 
foundation in the transmission system.
    Mr. Wellinghoff. And we are also responsible for ensuring 
that costs in the interstate transmission system are prudently 
incurred.
    Mr. Welch. All right, let me tell you how I am translating 
this, OK.
    Mr. Wellinghoff. Sure.
    Mr. Welch. My utilities in Vermont work pretty hard to try 
to keep the cost to ratepayers down and the ISO New England 
does not perceive, as I understand it, they don't perceive that 
it is charged with doing least cost integrated resource 
planning but just transmission planning. And absent a very 
clear sense of direction from FERC, that is the way they are 
going to do it to the detriment of the consumers.
    Mr. Wellinghoff. Again, it is my understanding that the 
RTOs can make that decision internally. I don't believe that 
FERC has the authority to dictate to the RTOs in that regard. 
In fact, we have had a California case that has indicated.
    Mr. Welch. OK, let me just stop and I am not arguing with 
you. I just want to understand this because maybe we need some 
legislative authority.
    Mr. Wellinghoff. Sure.
    Mr. Welch. Either the ISOs have to do least integrated 
resource planning or they don't. Their perception as I 
understand it right now is that all they have to do is 
transmission planning and is it your testimony today that FERC 
doesn't have a point of view on that?
    Mr. Wellinghoff. No, it is my testimony today that FERC 
doesn't have the authority to order them to do that. My point 
of view and I authored the least cost utility planning statute 
in the State of Nevada so I am very familiar with the process 
is that everybody should be doing least cost utility planning.
    Mr. Welch. OK, would it be your advice to this committee 
that you need enabling legislation to permit you to make 
certain that that least cost integrated planning is done? Would 
that help you do your job?
    Mr. Wellinghoff. I would be happy to have that authority.
    Mr. Welch. All right, would you be willing to give me some 
draft language that would be helpful to you to help the 
consumers?
    Mr. Wellinghoff. I would be happy to do that.
    Mr. Welch. All right, thank you.
    I yield back.
    Mr. Butterfield. I thank the gentleman.
    We have just received word that we have got three votes 
coming up very shortly. Any of the members on either side of 
the aisle wish to ask any additional questions?
    I have one for my close.
    Commissioner Spitzer, your testimony discussed the 
revolution in natural gas production from shales. Much of this 
new production will come from the Marcellus Shale located in an 
area that has not traditionally been a major gas producing 
area. What is it going to require in terms of new pipeline 
infrastructure to get all of this new gas to market?
    Mr. Spitzer. Thank you, Mr. Chairman. There have already 
been some discussions of open seasons for shale to come from 
Pennsylvania, western Pennsylvania into the eastern markets to 
reduce the high prices of the eastern markets. They have not 
yet filed certificates to my knowledge with the FERC and if and 
when those certificates are filed, they will be handled in a 
way that is consistent with FERC's authority under the Natural 
Gas Act. So it is while we recognize that shales have been 
produced in various parts of the country including the 
Marcellus, it is also recognized that there needs to be some 
pipeline capacity to get that gas into the consuming markets 
and that is under longstanding Federal law siting resides with 
the FERC.
    Mr. Butterfield. All right.
    The ranking member has returned. The chair recognizes the 
gentleman from Kentucky.
    Mr. Whitfield. Thank you and thank you all again for being 
here today.
    As you know or maybe you don't know but I do represent a 
State that produces a lot of coal, and we all understand that 
there are environmental concerns with coal and, Mr. 
Wellinghoff, I know you had made a statement at one point in 
time that we probably wouldn't need any more nuclear power 
plants or coal plants, and I know that subsequent to that you, 
you know, clarified that statement. But when I read a lot of 
documents today we talk about renewable energy and we know that 
a lot of States have renewable energy mandates and in the Cap 
and Trade Bill that came out of the House there is a renewable 
energy mandate and of course the Senate has not acted yet. And 
I am not any kind of legal expert on the intricacies of FERC 
but in your opinion, would it be discriminatory in any way to 
adopt a policy providing incentives or give an advantage to one 
source of energy production over another?
    Mr. Wellinghoff. From a Congressional standpoint or a FERC 
standpoint? FERC standpoint. We under our statute are required 
to ensure that rates are just and reasonable, and that there is 
no undue discrimination, and we uphold that policy. I believe 
that we have in fact in all our initiatives ensured that there 
is not undue discrimination with respect to any resource on the 
grid and that is my goal, and I think it is, I don't want to 
speak for my fellow commissioners but I think it is their goal 
as well. So to the extent that coal or nuclear is developed and 
is wishing to integrate to the grid, we certainly would do 
whatever we could to ensure that there is a fair and open 
transparent policy to do that. You just have to appreciate that 
over the 3-and-a-half years that I have been at FERC, we have 
seen mostly wind come onto the grid and that has been the thing 
that we have had to worry about. Last year, as a matter of 
fact, in this country we had 9,900 megawatts of wind come onto 
the grid and it has been a huge challenge. And it has been a 
challenge as I indicated from the standpoint of ensuring grid 
reliability, integration in a way that we can make sure the 
grid is stable, and that because we have the variable resources 
coming into the grid, ensuring that that grid is going to 
operate to the reliability and benefit of the consumers. So it 
may seem that we have emphasized to some degree renewable 
resources but certainly to the extent that coal and nuclear is 
eventually built in this country, the open transmission 
processes for integration will serve those resources as well.
    Mr. Whitfield. OK, Mr. Spitzer, would you?
    Mr. Spitzer. Thank you. I think it might be helpful, Mr. 
Chairman and Congressman, in response to briefly read the last 
paragraph of my statement which is, ``As a proponent of 
competitive markets, I believe the Commission must continue to 
focus on enhancing competition in wholesale electric and 
interstate natural gas markets. The Commission must continue in 
its role as an independent wholesale energy regulator by 
developing rules and policies that allow all types of resources 
and infrastructure to compete fairly. Just as we should not 
adopt rules or policies that ignore the laws of supply and 
demand, we should not adopt rules or policies that ignore any 
type of energy resource or infrastructure. Likewise, our rules 
and policies should not favor one type of resource or 
infrastructure over another. If we are to achieve the two 
primary goals of the strategic plan laid out by Chairman 
Wellinghoff, that the Commission's role should be to establish 
rules and policies that ensure that all types of resources 
whether they are natural gas, oil, hydro, nuclear, wind, solar 
or demand resources have a full and fair opportunity to compete 
for the ultimate benefit of consumers.'' So that would reflect 
my and I believe the Commission's standpoint.
    Mr. Whitfield. Now, yes, I understand what you were saying 
and the fact that I didn't see coal in there was on demand 
resources.
    Mr. Spitzer. I apologize.
    Mr. Whitfield. But anyway, I know what you mean and, Mr. 
Norris, what would be your reply?
    Mr. Norris. Let me echo what the chairman and Commissioner 
Spitzer said and that is I think we create all fuel sources 
fairly and equally, and leave it to this body to tell us how we 
evaluate cost and if the other costs associated with fuel 
sources be it internal or external costs, that becomes a factor 
I think in how we move forward but that is our job that to 
fulfill what you tell us to do in that regard. Barring that, I 
think we are trying not to be the choosers or pickers of fuel 
but make sure they are treated fairly.
    Mr. Butterfield. I thank the gentleman.
    All right, will there be any further questions from either 
side?
    All right, let me on behalf of the chairman and the full 
committee thank you, gentlemen, for your testimony today. It 
has been very informative and your comments are part of the 
record. This will conclude the hearing for this afternoon. 
Thank you.
    [Whereupon, at 3:47 p.m. the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

    [GRAPHIC] [TIFF OMITTED] T6019A.036
    
    [GRAPHIC] [TIFF OMITTED] T6019A.037
    
    [GRAPHIC] [TIFF OMITTED] T6019A.038
    
    [GRAPHIC] [TIFF OMITTED] T6019A.039
    
    [GRAPHIC] [TIFF OMITTED] T6019A.040
    
    [GRAPHIC] [TIFF OMITTED] T6019A.041
    
    [GRAPHIC] [TIFF OMITTED] T6019A.042
    
    [GRAPHIC] [TIFF OMITTED] T6019A.043
    
    [GRAPHIC] [TIFF OMITTED] T6019A.044
    
    [GRAPHIC] [TIFF OMITTED] T6019A.045
    
    [GRAPHIC] [TIFF OMITTED] T6019A.046
    
    [GRAPHIC] [TIFF OMITTED] T6019A.047
    
    [GRAPHIC] [TIFF OMITTED] T6019A.048
    
    [GRAPHIC] [TIFF OMITTED] T6019A.049
    
