[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
H.R. 1719, ``ENDANGERED SPECIES COMPLIANCE AND TRANSPARENCY ACT OF
2011'' AND H.R. 2915, ``AMERICAN TAXPAYER AND WESTERN AREA POWER
ADMINISTRATION CUSTOMER PROTECTION ACT OF 2011''
=======================================================================
LEGISLATIVE HEARING
before the
SUBCOMMITTEE ON WATER AND POWER
of the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
Thursday, September 22, 2011
__________
Serial No. 112-64
__________
Printed for the use of the Committee on Natural Resources
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
or
Committee address: http://naturalresources.house.gov
----------
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Washington, DC 20402-0001
COMMITTEE ON NATURAL RESOURCES
DOC HASTINGS, WA, Chairman
EDWARD J. MARKEY, MA, Ranking Democrat Member
Don Young, AK Dale E. Kildee, MI
John J. Duncan, Jr., TN Peter A. DeFazio, OR
Louie Gohmert, TX Eni F.H. Faleomavaega, AS
Rob Bishop, UT Frank Pallone, Jr., NJ
Doug Lamborn, CO Grace F. Napolitano, CA
Robert J. Wittman, VA Rush D. Holt, NJ
Paul C. Broun, GA Raul M. Grijalva, AZ
John Fleming, LA Madeleine Z. Bordallo, GU
Mike Coffman, CO Jim Costa, CA
Tom McClintock, CA Dan Boren, OK
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Jeff Denham, CA CNMI
Dan Benishek, MI Martin Heinrich, NM
David Rivera, FL Ben Ray Lujan, NM
Jeff Duncan, SC John P. Sarbanes, MD
Scott R. Tipton, CO Betty Sutton, OH
Paul A. Gosar, AZ Niki Tsongas, MA
Raul R. Labrador, ID Pedro R. Pierluisi, PR
Kristi L. Noem, SD John Garamendi, CA
Steve Southerland II, FL Colleen W. Hanabusa, HI
Bill Flores, TX Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Charles J. ``Chuck'' Fleischmann,
TN
Jon Runyan, NJ
Bill Johnson, OH
Todd Young, Chief of Staff
Lisa Pittman, Chief Counsel
Jeffrey Duncan, Democrat Staff Director
David Watkins, Democrat Chief Counsel
------
SUBCOMMITTEE ON WATER AND POWER
TOM McCLINTOCK, CA, Chairman
GRACE F. NAPOLITANO, CA, Ranking Democrat Member
Louie Gohmert, TX Raul M. Grijalva, AZ
Jeff Denham, CA Jim Costa, CA
Scott R. Tipton, CO Ben Ray Lujan, NM
Paul A. Gosar, AZ John Garamendi, CA
Raul R. Labrador, ID Edward J. Markey, MA, ex officio
Kristi L. Noem, SD
Doc Hastings, WA, ex officio
------
CONTENTS
----------
Page
Hearing held on Thursday, September 22, 2011..................... 1
Statement of Members:
Hastings, Hon. Doc, a Representative in Congress from the
State of Washington........................................ 6
Prepared statement of.................................... 8
Markey, Hon. Edward J., a Representative in Congress from the
Commonwealth of Massachusetts.............................. 16
Prepared statement of.................................... 17
McClintock, Hon. Tom, a Representative in Congress from the
State of California........................................ 1
Prepared statement of.................................... 3
Napolitano, Hon. Grace F., a Representative in Congress from
the State of California.................................... 4
Prepared statement of.................................... 5
Statement of Witnesses:
Azar, Lauren, Senior Advisor, Office of the Secretary of
Energy, U.S. Department of Energy, Washington, D.C......... 41
Prepared statement on H.R. 2915 and H.R. 1719............ 43
Corwin, R. Scott, Executive Director, Public Power Council,
Portland, Oregon........................................... 27
Prepared statement on H.R. 1719.......................... 29
Glotfelty, James, Executive Vice President, Clean Line Energy
Partners LLC, Houston, Texas............................... 55
Prepared statement on H.R. 2915.......................... 57
James, Leslie, Executive Director, Colorado River Energy
Distributors Association, Phoenix, Arizona................. 9
Prepared statement on H.R. 1719.......................... 10
Michaels, Robert J., Ph.D., Professor of Economics,
California State University, Fullerton, California......... 44
Prepared statement on H.R. 2915.......................... 45
Patton, Sara, Executive Director, NW Energy Coalition,
Seattle, Washington........................................ 21
Prepared statement on H.R. 1719.......................... 23
Rettenmund, Frederic Dean, Power Resources and Communications
Manager, Inland Power and Light Company, Spokane,
Washington................................................. 18
Prepared statement on H.R. 1719.......................... 19
Yeatman, William, Assistant Director, Center for Energy and
Environment, Competitive Enterprise Institute, Washington,
D.C........................................................ 59
Prepared statement on H.R. 2915.......................... 61
Additional materials supplied:
American Wind Energy Association, Statement submitted for the
record..................................................... 73
TransWest Express LLC, Letter submitted for the record....... 74
LEGISLATIVE HEARING ON H.R. 1719, TO BETTER INFORM CONSUMERS REGARDING
COSTS ASSOCIATED WITH COMPLIANCE FOR PROTECTING ENDANGERED AND
THREATENED SPECIES UNDER THE ENDANGERED SPECIES ACT OF 1973.
``ENDANGERED SPECIES COMPLIANCE AND TRANSPARENCY ACT OF 2011''; AND
H.R. 2915, TO REPEAL THE WESTERN AREA POWER ADMINISTRATION BORROWING
AUTHORITY, AND FOR OTHER PURPOSES. ``AMERICAN TAXPAYER AND WESTERN AREA
POWER ADMINISTRATION CUSTOMER PROTECTION ACT OF 2011.''
----------
Thursday, September 22, 2011
U.S. House of Representatives
Subcommittee on Water and Power
Committee on Natural Resources
Washington, D.C.
----------
The Subcommittee met, pursuant to call, at 2:01 p.m., in
Room 1324, Longworth House Office Building, Hon. Tom McClintock
[Chairman of the Subcommittee] presiding.
Present: Representatives McClintock, Hastings, Napolitano,
Garamendi, and Markey.
STATEMENT OF HON. TOM McCLINTOCK, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mr. McClintock. The Subcommittee on Water and Power will
come to order. The Chair notices the presence of a quorum,
which under Committee Rule 3(e) is two Members.
The Chair asks unanimous consent that Mrs. McMorris Rodgers
be allowed to sit with the Subcommittee and participate in the
hearing.
Hearing no objection, so ordered.
We will begin with 5-minute opening statements by myself
and the Ranking Member of the Water and Power Subcommittee, and
the Chair will begin.
The Water and Power Subcommittee convenes today to hear
testimony on H.R. 1719 by Congresswoman McMorris Rodgers that
will provide electricity consumers with transparent price
information on the cost of ESA mandates; and also my bill, H.R.
2915, that will rescind the provision of the discredited
stimulus that puts taxpayers on the hook for loans to wind and
solar transmission developers administered by the Western Area
Power Administration.
For the past decade, the Federal Government has taken
extraordinary steps to force wind and solar electricity on
American consumers while spending untold hundreds of billions
of dollars of direct subsidies and loans and loan guarantees
that hide from consumers the actual price of these sources and
puts taxpayer money in jeopardy when investors recoil at the
risk and these schemes collapse.
As we will hear, the unsubsidized cost of solar and wind
power makes them the most expensive forms of electricity
generation yet to be invented. Solar voltaic, for example,
costs about $211 per megawatt hour, compared to combined-cycle
gas-fired generation at $63.
And that is just the beginning of the expense. Electricity
systems are integrated, meaning that the amount of power being
put onto the grid must constantly match the amount being drawn
from the grid or the grid collapses. Solar and wind are
intermittent and unpredictable. At a moment's notice, a passing
cloud bank or a sudden calm can drop generation to zero. This
means that consumers must also pay for backup generation of
equal amount to be kept constantly ready and on call to fill
the gap at a moment's notice.
As we will hear, ironically, this often means more carbon
emissions are produced because of the wind and solar mandates.
And we pay twice: once for the enormous capital expense of
these systems and a second time for the backup power that we
must also build, maintain, operate, and keep in a constant
state of readiness.
Then we get to the next problem: transmission. Unlike
conventional power, solar and wind arrays are usually placed in
the most remote regions of the country, requiring construction
of transmission lines over vast distances. Because of
electrical current degradation over those long distances and
the low initial output of wind and solar, the transmission
lines must be special high-tension direct-current lines that
are much more expensive than normal transmission facilities.
Put all this together and one wonders, who in his right
mind would invest in such a ridiculous arrangement? Well, the
answer is, nobody in his right mind would risk their own money
to do so, but there have been Members of Congress more than
willing to risk their constituents' money, and those bills are
now coming due.
We are told that creating jobs is the purpose of this
money. I suppose you could say that Solyndra created jobs while
their management was raking in government-guaranteed loans.
What we found out, though, is that jobs that are not
economically viable do not last. And these temporary jobs come
at a steep price. When taxpayers are left holding the bag to
bail out these loans, that money comes from the same capital
pool that would otherwise have been available to invest in
permanent, economically viable jobs.
And if investors, with all the information at their
disposal, aren't willing to risk their own money on these
ventures, well, that ought to be a warning that Congress has no
right to risk their constituents' money in them either. Yet the
so-called ``stimulus'' bill gave the Western Area Power
Administration the authority to put $3.25 billion of tax money
at risk to finance wind and solar transmission lines. And here
is the ultimate warning: The measure even provides for loan
forgiveness if the developer can't repay it. They don't even
have to declare bankruptcy.
My bill pulls the plug on this program before taxpayers end
up holding the bag for these projects. Some Members of this
House already bear enormous responsibility for the Solyndra
fiasco. This bill gives them a chance to redeem themselves
before this program, too, blows up in their faces.
The Subcommittee will also hear testimony on H.R. 1719, a
bill to provide consumers with the information on the cost of
the Endangered Species Act as it affects their electricity
prices. Consumers deserve to know the actual cost of what they
are paying for, and this measure does so.
I look forward to the consideration of these two important
bills that will help us return sanity, abundance, and
transparency back to our water and power policies.
And, with that, the Chair recognizes the Ranking Member,
the gentlelady from California, Mrs. Napolitano.
[The prepared statement of Mr. McClintock follows:]
Statement of The Honorable Tom McClintock, Chairman,
Subcommittee on Water and Power
The Water and Power Subcommittee convenes today to help return our
federal power policies back to a rational cost-benefit approach and
force government transparency as one way to reduce higher energy costs
and bring about job creation.
This Administration's underlying agenda is to promote a so-called
``green transmission system''--meaning facilities that limit
transmission to sources the minority party finds ideologically
pleasing--principally wind and solar--and that exclude electricity they
find ideologically displeasing--namely hydropower, coal and nuclear.
Never mind that wind and solar are the two most expensive ways to
generate electricity and forget that hydropower, coal and nuclear are
the least expensive while two of those produce exactly zero emissions.
Wind and solar are also entirely unreliable, so they require a
highly complex transmission system and a kilowatt-for-kilowatt backup
system to maintain the electrical grid. This dual system makes these
energies extremely expensive and could not possible survive a rational
cost-benefit analysis. Despite that, the Democrat majority and this
Administration rushed through in 2009--with no debate or committee
consideration--a $3.25 billion stimulus loan slush fund for wind and
solar developers. The provisions governing this so-called borrowing
authority even provide forgiveness of the loans to companies that
cannot repay them--forcing taxpayers and ratepayers to bail out
fiscally irresponsible projects. While the Administration has only
doled out 8.5% of these loans over two and a half years later, we need
only look to the Solyndra failure of what could happen to the next
transmission project that lacks the merit to attract full private
investment.
The WAPA borrowing authority is simply a governmental financial
exercise that picks winners and losers when in fact the market should
be the decision-maker. The real losers are the taxpayers that may end
up holding the bag. It is time to require every sector of the energy
industry to raise its own capital through its own merit rather than to
perpetuate the crony capitalism that is now running rampant through
this government. My bill, The American Taxpayer and Western Area
Customer Protection Act of 2011, helps return us to the market approach
that has been lost over the last decade. I'm pleased to have two
excellent witnesses testifying on the notion that federal subsidies on
intermittent power are not in the best interest of the taxpayer,
ratepayer, the economy and the environment.
On that note, we will hear from the Democrat minority today that my
bill kills clean energy jobs. On the contrary, all we are asking is
that wind and solar stand on its own without one form of government
subsidies. I have been a longstanding proponent that no form of energy
should be subsidized through any federal means. Instead, we should
provide the regulatory climate by which all energies are not blocked by
government fiat and can stand against each other in the marketplace. I
only wish my Democrat colleagues had that same approach. At a hearing
last week on a common sense hydropower production bill, my counterparts
were all too eager to stand behind regulatory red tape that
strangulates rural job creation. It reminded me of the Tolstoy saying:
``I sit on a man's back, choking him and making him carry me, and yet
assure myself and others that I am very sorry for him and wish to ease
his lot by all possible means--except by getting off his back.''
The Subcommittee will also hear testimony on H.R. 1719, a bill to
provide needed transparency on how Endangered Species Act mandates
impact electricity ratepayers. As I've said before to this
Subcommittee, the Endangered Species Act has put a gun to the head of
the West. The utterly unreasonable effect of this law is now
impoverishing millions of people in western communities, devastating
the agricultural sector of our economy and threatening all of us with
permanent water shortages, higher energy costs, skyrocketing food
prices and chronic unemployment.
Congresswoman McMorris Rodgers' bill does not amend the Act itself,
but provides a mechanism by which electricity ratepayers have the
ability to understand how much of their wallet goes towards complying
with endangered species regulations. The environmental community has
concerns over such transparency and that should be telling given that
they drive the lawsuits that increase these costs. This bill, which I'm
cosponsoring, provides much needed light on these activities and the
resulting costs.
I look forward to further consideration of these two important
bills that will help us return sanity and abundance back to our water
and power policies.
______
STATEMENT OF HON. GRACE NAPOLITANO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mrs. Napolitano. Thank you, Mr. Chairman.
And thank the witnesses for coming and being our witnesses
today. I look forward to your testimony.
The bills we are considering today attempt to create more
transparency and protect our taxpayers, but both pieces of
legislation fail in their attempts.
H.R. 1719 is an oversimplification of cost in an overly
complicated power system. The PMAs are required, under numerous
existing laws, including ESA, treaties, tribal trust
responsibilities, to protect, mitigate, and enhance fish and
wildlife and their habitat. It attempts to pay all fish and
wildlife costs associated with the dam operations under the
Endangered Species Act. H.R. 1719 is misleading and disregards
the PMAs' other responsibilities and obligations. BPA is
already transparent in providing thorough information on their
fish and wildlife program funding. And it is available to all.
On this Committee, there have been repeated assertions to that
effect.
Transparency also does not mean, and should not mean, that
we can pick and choose and single out compliance with one law.
Transparency means that we should include all costs that affect
power rates, such as the cost of transmission, the cost of
irrigation, as well as the cost of failed investments like the
Washington Public Power Supply System, or ``WPPSS'' for short,
nuclear plant default of 1983--$6.8 billion default, the
largest municipal bond default in U.S. history. And 28 years
later, the BPA ratepayers are still paying for this defunct
investment.
Meanwhile, the millions of dollars that BPA ratepayers are
paying annually for fish and wildlife costs are allowing the
hydropower system to operate while protecting endangered
species. And I keep repeating, those are fish species. We are
the man species. When are we next?
If we are going to list transparency, let's list all the
costs that affect power rates, as well as the benefits of a
robust ecosystem. And for the record, to help better understand
the issues, I am requesting and would like the power users on
this first panel to submit for our record for this
Subcommittee, at your agency--record the price at which your
agency purchases power from the PMA and the price you sell it
for.
H.R. 2915, introduced by the Chair of the Subcommittee,
repeals Western borrowing authority as authorized by the
American Recovery and Reinvestment Act. In reality, what this
legislation does is repeal thousands of jobs associated with
the construction of transmission lines, wind farms, and across
the West. And, yes, some of these may be sometimes short-term,
but let me tell you, the benefits are long-term.
For example, Montana-Alberta line project, the first
project to utilize Western's borrowing authority, created
approximately 900 short- and long-term jobs. The number does
not take into account the spillover effects of employment
incomes being spent in the economy as well as tax revenues for
the communities. This is one of 21 job-creating projects that
is in the queue to utilize this authority. Enactment of
Western's borrowing authority repeals those jobs, mostly in
rural communities.
2915 also disregards a 2009 Department of Energy study that
shows that more transmission is needed to relieve areas of
congestion within our Federal power grid. It is also important
to note that, in the stimulus bill, the Bonneville Power
Administration was also given an additional $3.25 billion in
borrowing authority, which they will pay back with interest,
yet today's legislation only addresses Western's borrowing
authority because of its focus on promoting renewable energy.
A February 2011 Gallup poll found that 83 percent of the
general public supports an energy bill that provides incentives
for using solar and other alternative energy sources. 2915 not
only repeals those jobs and disregards the need for upgrading
our transmission, it also ignores what the American people not
only want but need. Mr. Chairman, now is not the time to kill
good legislation or jobs.
I yield back.
[The prepared statement of Mrs. Napolitano follows:]
Statement of The Honorable Grace F. Napolitano,
a Representative in Congress from the State of California
The bills we are considering today attempts to create more
transparency and protect our tax payers. Both pieces of legislation
fail at their attempts.
H.R. 1719 is an oversimplification of costs in an overly
complicated power system. The PMAs are required under numerous laws,
including the ESA, treaties, and tribal trust responsibilities to
protect, mitigate and enhance fish and wildlife and their habitat. H.R.
1719 also attempts to peg all fish and wildlife costs associated with
dam operations on the Endangered Species Act.
This legislation is misleading and disregards the PMAs other
responsibilities and obligations.
BPA is already transparent in providing thorough information on
their fish and wildlife program funding.
Transparency does not mean and should not mean that we can pick and
choose and single out compliance with one law. Transparency means that
we should include all costs that affect power rates, like
the costs of transmission,
the cost of irrigation,
as well as the cost of failed investments, like the
Washington Public Power Supply System (or WHOOPS for short)
nuclear plant default in 1983.
The $6.8 billion default became the largest municipal
bond default in US history, and 28 years later, the BPA rate
payers are still paying for this defunct investment.
Meanwhile, the millions of dollars that the BPA rate payers are
paying annually for fish and wildlife costs are allowing the hydropower
system to operate, while protecting endangered species.
IF we're going to list transparency, let's list all the costs that
affect power rates as well as the benefits of a robust ecosystem.
To help better understand the issues, I would like the Power users
on the first panel to submit for the record the price at which your
agency purchases power from the PMAs and the price it is sold for.
H.R. 2915, introduced by the Chair of the Subcommittee, repeals
Western's Borrowing Authority as authorized by the American Recovery
and Reinvestment Act.
In reality what this legislation does is repeal thousands of jobs
associated with the construction of transmission lines and wind farms
in across the west.
For example, the Montana-Alberta Line Project, the first project to
utilize Western's borrowing authority created approximately 900 short
term and long term jobs.
This number does not take into account the spillover effects of
employment incomes being spent in the economy, as well tax revenues for
the communities.
This is one of 21 job creating projects that in queue to utilize
this authority. Enactment of Western's Borrowing Authority repeals
those jobs, mostly in our rural communities.
H.R. 2915 also disregards a 2009 Department of Energy Study that
shows that more transmission is needed in order to relieve areas of
congestion within our federal power grid.
It is also important to note that in the stimulus bill, the
Bonneville Power Administration was also given an additional $3.25
billion in borrowing authority.
Yet today's legislation only addresses Western's
borrowing authority, because of its focus on promoting
renewable energy.
A February 2011 Gallup poll that found that 83% of the general
public supports an energy bill that provides incentives for using solar
and other alternative energy sources.
H.R. 2915 not only repeals jobs and disregards the need for
upgrading our transmission, it also ignores what the American people
want.
Mr. Chairman, now is not the time to kill jobs.
______
Mr. McClintock. The gentlelady yields back.
The Chair is pleased to note the presence of the Chairman
of the Natural Resources Committee, Congressman Doc Hastings of
northern Oregon--oh, Washington.
STATEMENT OF HON. DOC HASTINGS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WASHINGTON
Mr. Hastings. It used to be northern Oregon.
Thank you very much for holding this hearing.
Today's hearing is really about restoring transparency,
fiscal responsibility, and American jobs. The Water and Power
Subcommittee Chairman McClintock's bill to repeal the Western
Area Power Administration's Stimulus Act borrowing authority
for renewable energy transmission is a necessary response to a
recent bankruptcy of Solyndra, the now-bankrupt recipient of
535 million stimulus dollars.
In the same way the taxpayers are now on the hook for over
a half a billion dollars due to the failed Solyndra loan, the
WAPA borrowing authority actually envisions and allows for
similar failed investments. I will simply read to you what the
statute says, and I quote: ``If, at the end of the useful life
of a project, there is a remaining balance owed to the Treasury
under this section, the balance shall be forgiven,'' end
quote--another way of saying, ``Taxpayers, it is your
responsibility.''
This is a Stimulus Act experiment that needs to be halted
and repealed. Billions of dollars in taxpayer dollars are at
risk of a failure and a bailout. Chairman McClintock's bill
would protect taxpayers and responsibly end this risky stimulus
program.
We will hear that protecting taxpayers in this manner is an
action hostile to renewable energy development and the
construction of major transmission lines. Yet that is simply
nonsense, that such projects aren't economically possible
without government handouts. Such projects were under way
before the program existed, and undoubtedly they will continue
to stand on their own economically after it has ended.
In responding to and discussing this bill, I would urge all
to be cautious about seeking to compare WAPA borrowing
authority with the longstanding Bonneville Power authority,
since that has been referenced at least a bit already. These
authorities are as different as day and night. WAPA's authority
is a creature of the stimulus and is mandated to be used for
renewable energy transmission, while BPA's authority has been
in existence for decades and has no such mandates. WAPA's
authority specifically allows for a bailout by taxpayers, while
BPA customers are fully responsible for any shortfall. In fact,
that was referenced with the Washington Public Power Supply
System default.
The BPA authority is administered in a public,
collaborative process without political interference from
Washington, D.C., while WAPA's activities have been anything
but open and transparent. BPA's authority also exists to
respond to the many Federal regulatory conditions, including
for fish and wildlife protection, placed upon by the region's
hydropower system. Do not make the mistake of trying to defend
the indefensible in WAPA by attempting to change the subject.
And as it relates to Bonneville costs, I also commend the
Chairman for hearing the bill sponsored by our colleague, Cathy
McMorris Rodgers, that provides for the Endangered Species Act
transparency on electric bills. Endangered fish costs are a
major reason for electricity increases in the Pacific Northwest
region--in some cases, 30 percent of the costs right now. And
now, environmental extremists are pushing Snake River dam
removal, which obviously would drive up power rates to
unprecedented levels.
And I will just say tangentially, Mr. Chairman, as long as
I am Chairman of the full Committee, that any legislation
dealing with removing the Snake River dams will not be looked
upon favorably by me. And, of course, now we have a problem
there because we have a Federal judge that has recently put
another cloud on the operating process for that area, and we
have to deal with that now.
But I just want to say one thing, and that is that it is
clear that in the Pacific Northwest and elsewhere in our
Nation, when energy prices rise and it is followed by lower job
growth and more out-of-work Americans, these two bills will
protect and inform taxpayers. And they deserve bipartisan
support from this Committee.
And I thank the Chairman for his courtesy in allowing me to
be here, and I yield back my time.
[The prepared statement of Mr. Hastings follows:]
Statement of The Honorable Doc Hastings, Chairman,
Committee on Natural Resources, on H.R. 1719 and H.R. 2915
Thank you for holding this hearing.
Today's hearing is about restoring transparency, fiscal
responsibility and American jobs.
Water and Power Subcommittee Chairman McClintock's bill to repeal
the Western Area Power Administration's borrowing authority is a
necessary response to the recent bankruptcy of Solyndra, a recipient of
a $535 million stimulus loan guarantee. In the same way that taxpayers
are now on the hook for over a half billion dollars due to the failed
loan guarantee, the WAPA borrowing authority actually envisions and
allows for similar failed investments. I will simply read to you what
the statute says: ``If, at the end of the useful life of a project,
there is a remaining balance owed to the Treasury under this section,
the balance shall be forgiven.''
At a time when we need to protect scarce taxpayer dollars, we
shouldn't be in the business of continuing programs that allow
taxpayers to be fleeced by failed federal investments. And, we should
be asking ourselves whether it's appropriate to have the federal
government even considering using 1.5 billion of additional taxpayer
money a few years from now to prop up a renewable-only transmission
line being financed by a multi-billion dollar company. It is simply
nonsense to believe that it's economically possible without taxpayer
assistance to build major transmission lines that only support
intermittent renewable energy sources.
As part of this debate, I want to make sure there is a clear
understanding of the distinct difference in the borrowing authorities
of the Bonneville Power Administration and WAPA. While WAPA has a
mandate to only use its authority for renewable energy transmission for
developers, Bonneville has no such mandates, is able to use its funding
for other regional matters and is able to prioritize its needs without
interference from Washington, DC. The borrowing authorities are as
different as night and day.
As it relates to Bonneville costs, I also commend the Chairman for
hearing our colleague Cathy McMorris Rodgers' bill to provide
Endangered Species Act transparency on electric bills. Endangered fish
costs are a major reason for electricity rate increases in the Pacific
Northwest region, reaching over 30% of the costs passed on to
consumers. Environmental extremists are pushing Snake River dam
removal, which would drive up power rates to unprecedented levels -
while likely harming fish. Although that will not happen as long as I'm
Chairman of this Committee, with a federal judge recently putting
another cloud of uncertainty on the river system, electricity consumers
have a right to know what their hard-earned dollars are paying for
under current regulations. That's what this bill does and it's time for
this Administration to open the books on salmon spending to provide
more answers and to allow consumers to make informed decisions on the
effectiveness of their increased energy costs.
One thing is clear in the Pacific Northwest and elsewhere in our
nation: when energy prices rise, lower job growth follows. Government
intervention that picks winners and losers is not the answer nor are
increased regulations aimed at stifling energy production. That's why
it's imperative for this Committee to help provide the business climate
for an all-of -the-above energy plan that includes increased oil and
natural production along with alternative and renewable sources such as
hydropower, wind, solar and nuclear. This comprehensives approach will
help ensure low energy costs, strengthen our economy and create new
American jobs.
Thank you again for holding this hearing.
______
Mr. McClintock. I thank the Chairman.
We will now hear from our first panel of witnesses. Each
witness's written testimony will appear in full in the hearing
record, so I would ask that our witnesses keep their oral
statements to 5 minutes, as outlined in the invitation letter
and also in the Committee's rules.
We have a timing system. A green light means you have all
the time in the world. The yellow light means you are down to 1
minute. And the red light means that we have stopped listening
so you might as well stop talking.
The Chair will begin by recognizing Ms. Leslie James,
Executive Director of the Colorado River Energy Distributors
Association, from Phoenix, Arizona.
I would like to note that Ms. James has to leave for a
flight out of Baltimore, and if there is no objection, she can
be excused from the panel after her testimony, and we will
submit questions to her to answer.
STATEMENT OF LESLIE JAMES, EXECUTIVE DIRECTOR, COLORADO RIVER
ENERGY DISTRIBUTORS ASSOCIATION, PHOENIX, ARIZONA
Ms. James. Thank you, Mr. Chairman and members of the
Subcommittee. As noted, I am Leslie James, Executive Director
of CREDA. I am pleased to be here today to speak with you
regarding H.R. 1719 as it relates to the Federal Colorado River
Storage Project, or CRSP.
CREDA is a nonprofit organization representing consumer-
owned electric utility systems that purchase Federal hydropower
from the CRSP. We were formed in 1978, and our members serve
over 4 million consumers in the States of Arizona, Colorado,
Nevada, New Mexico, Utah, and Wyoming. CREDA members have all
entered into long-term cost-based contracts with the Western
Area Power Administration for purchase of these resources.
CRSP customers have been insuring repayment of the Federal
investment for 40 years. The rates charged under these long-
term cost-based contracts repay all of the Federal investment
with interest, including generation, transmission, O&M, and
environmental costs. In addition, the CRSP customers are paying
over 95 percent of the cost of the irrigation features of the
CRSP, which are beyond the ability of the irrigators to repay.
There are no taxpayer subsidies in this project.
Let me give you an example of--another example of
transparency. Since 1992, CREDA has been party to a
collaborative work program review process with Reclamation and
Western. This process is a beneficial relationship and has
provided transparency to customers of the work program elements
of these Federal agencies.
H.R. 1719 is consistent with that objective. The
environmental-related costs incurred by Western and Reclamation
in the CRSP are both substantial, both in terms of direct
program costs as well as indirect costs and replacement power
due to restricted generation. From the year 2000 to the
current, Western has incurred $743 million in purchase power
costs due to endangered species and other environmental
objectives, market and hydrologic conditions. It is important
that the customers, the firm electric service customers who are
paying the bill, are apprised and aware of these costs.
Let me talk a little bit about the CRSP in general. Glen
Canyon Dam is the largest generating facility in this project.
It is located near Page, Arizona. In 1996, after many years of
study and a $104 million environmental impact statement, Glen
Canyon operations were changed. Approximately one-third of the
generating capacity has been reduced. The actual cost of this
reduction, as reported in a very recent study by Argonne
National Labs, is estimated to be $50 million per year, on
average. This number reflects environmental restrictions,
market conditions, and hydrologic conditions. To date, over
$273 million has been spent on studies at Glen Canyon Dam, also
paid for by CRSP power revenues.
Another example: During the year 2000, due to the
requirements of a 1994 Fish and Wildlife Service biological
opinion, a low steady flow experiment was undertaken. This
experiment was intended to gain information regarding
endangered humpback chub conditions. The cost of this
experiment required Western to purchase replacement power
totaling $26 million for that summer. In addition, the cost of
the experimental loan was about $3.5 million, also paid by CRSP
power revenues. Just last month, we are finally receiving a
report on the results of that experiment from 2000. In 1997,
the Glen Canyon Dam Adaptive Management Program was
established. Since that time, the direct program costs paid for
by CRSP power revenues have exceeded $105 million.
Moving up the basin, Flaming Gorge Dam is on the Green
River, located near Vernal, Utah. Since 1992, Flaming Gorge
operations have been changed to benefit endangered fish,
reducing the generation about 17 percent. The cost averages
about $2 million a year, and the cost of the EIS was about $1.6
million.
Over in Colorado, the Aspinall Unit includes three dams and
generating facilities along the Gunnison River. Since 1998, the
Upper Colorado River Endangered Fish Recovery Implementation
Program has been funded $84.5 million from CRSP power revenues.
CREDA's current concern is that, once again, there may be
efforts to reoperate the Aspinall Unit in favor of endangered
fish and National Park Service concerns and to the detriment of
hydropower generation.
These facilities are the last remaining peaking units in
the CRSP. A preliminary final EIS is currently under review by
the cooperating agencies, but this process has been under way
for about 8 years, with about $3.4 million being spent on
studies to date.
There should be an appropriate balance of environmental
needs with authorized project purposes. We believe that H.R.
1719 provides good cost transparency for the customers who are
paying the bill.
I thank the Subcommittee for being here today, and I would
be glad to take any questions.
[The prepared statement of Ms. James follows:]
Statement of Leslie James, Executive Director,
Colorado River Energy Distributors Association (CREDA), on H.R. 1719
Mr. Chairman, members of the Subcommittee, I am Leslie James,
Executive Director of the Colorado River Energy Distributors
Association (CREDA). I am pleased to have been asked to talk with you
today regarding H.R. 1719, the Endangered Species Compliance and
Transparency Act of 2011.
CREDA member utilities (firm power customers) have long-term, cost-
based contracts with the Western Area Power Administration (WAPA), an
agency within the Department of Energy, for purchase of federal
hydropower generation from the Colorado River Storage Project (CRSP).
My purpose today is to provide some background on the CRSP facilities,
to describe environment-related impacts on the CRSP federal facilities,
and to offer our support of H.R. 1719.
CREDA is a non-profit organization representing consumer-owned
electric systems that purchase federal hydropower generation of the
CRSP. CREDA was established in 1978, and serves as the ``voice'' for
them in dealing with resource availability and affordability issues.
CREDA represents its members in working with the Bureau of Reclamation
(Bureau), as the owner and operator of the CRSP, and WAPA, as the
marketing agency of the CRSP. CREDA members are all non-profit
organizations, serving over four million electric consumers in the six
western states of Arizona, Colorado, Nevada, New Mexico, Utah and
Wyoming. CREDA members purchase over 85% of the CRSP hydropower
generation.
Attached is a listing of current CREDA members. When CREDA was
formed, the key issue for its members was the increasing CRSP rate.
CREDA members felt it would be more effective to have a single
``voice'' for them on rate, federal legislative and environmental
issues impacting the CRSP.
CRSP contractors have been ensuring repayment of the federal
investment for 40 years, by entering into long-term contracts to
purchase the CRSP hydropower generation and by paying all of the
federal investment in generation and transmission facilities (with
interest), all power-related operation and maintenance costs, and
associated environmental costs. In addition, the CRSP contractors are
paying over 95% of the cost of the irrigation features of the CRSP--the
costs that are determined to be beyond the irrigators' ``ability to
pay''. In fact, in the current CRSP rate, 21% of the total annual
revenue requirement is due to irrigation assistance!
It is important to note that the CRSP rate includes costs other
than those associated with generation of the hydropower and irrigation
assistance. Specific examples of the environment-related costs assessed
to the CRSP are the programmatic (i.e., ``direct'') costs of the Glen
Canyon Adaptive Management Program (AMP) and the Upper Basin Endangered
Fish Recovery Implementation Program (RIP). Since approximately $743
million in purchased power costs have been incurred by WAPA since 2000,
CREDA believes it is important that the customers have visibility of
those costs, which are included in their firm power rates. More detail
on these costs and programs will be provided below.
I. H.R. 1719 AND THE CRSP
The environment-related costs incurred by the Bureau and WAPA in
the CRSP are significant. Those costs are borne almost exclusively by
the power customers of the CRSP. By law, these customers are not-for-
profit entities; thus they have no option other than to pass those
costs on to their consumers.
H.R. 1719 provides a mechanism for the power customers to readily
receive information regarding the direct and indirect costs associated
with the federal agencies' compliance with the Endangered Species Act
(ESA) and other environmental requirements. These costs should also
include those costs associated with mitigation and reasonable and
prudent alternative compliance under the ESA. Each power customer would
then have the ability to utilize that information in a manner that best
fits its individual needs. It is our understanding that this
information is readily available and can be provided at little or no
incremental cost to the agencies. CREDA supports the additional
transparency of these costs as a sound business practice.
In 1992, CREDA, the Bureau and WAPA entered into a contractual
arrangement that gives CREDA the ability to review agency work plans
and, through a defined process, provide customer input and perspective
to the agencies. This contractual arrangement has been has been
invaluable to fostering a partnership-type relationship among the three
entities and has encouraged transparency in agency cost reporting. H.R.
1719 is consistent with that objective; it provides more information to
the customers who ultimately are responsible for ``paying the bills''.
II. THE CRSP FACILITIES AND ENVIRONMENTAL IMPACTS
CRSP was authorized in the Colorado River Storage Project Act of
1956 (P.L. 485, 84th Cong., 70 Stat. 50), as a multi-purpose federal
project to provide flood control; water storage for irrigation,
municipal and industrial purposes, in addition to the generation of
electricity. This testimony will focus on the major generation features
of the CRSP, although there are several irrigation projects authorized
as part of the Project. The CRSP power features include five dams and
associated generators, substations, and transmission lines.
GLEN CANYON DAM
Glen Canyon Dam is located near Page, Arizona and is by far the
largest of the CRSP projects. Glen Canyon Dam began operation in 1964.
The water stored behind the dam is the key to full development by the
Upper Colorado River Basin states of their Colorado River Compact share
of Colorado River water. The Glen Canyon power plant consists of eight
generators for a total of about 1300 MW, which is more than 76% of
total CRSP generation.
The ability of the Bureau to generate, and WAPA to market, the
total generating capability of Glen Canyon Dam has been impacted over a
period of many years, by various processes and laws. In 1978 the Bureau
began evaluating the possibility of upgrading the eight generating
units at Glen Canyon. This was possible, primarily due to design
characteristics of the generators and improved insulating materials.
This upgrade was completed, and the generation was increased from about
1000 to 1300 MW.
To fully utilize the unit upgrades would require the maximum
release of water from Glen Canyon to be increased from 31,500 cubic
feet per second (cfs) to about 33,200 cfs. The Bureau also studied the
possibility of adding new generating units on the outlet works to
provide additional peaking capacity. The possibility of increasing
maximum releases from Glen Canyon raised concerns with downstream
users. After discussion with stakeholders, the Secretary of the
Interior initiated the first phase of the Glen Canyon Environmental
Studies.
In 1982, the Bureau began Phase 1 of the Glen Canyon Environmental
Studies. These studies were primarily to analyze the impacts of raising
the maximum release from 31,500 cfs to 33,200 cfs on the transport of
sediment downstream from the dam, recreation (including fishing and
rafting), endangered species (including the humpback chub in the Lower
Colorado River), and the riparian habitat along the river banks. The
studies proceeded during the early 1980's and were concluded in 1987.
The general conclusion of the Glen Canyon Environmental Studies Phase 1
was that the dam had blocked much of the sediment coming down the
Colorado River and therefore beaches were not being replenished with
sand. However, the impact on power and water economics was not fully
explored.
After reviewing the Glen Canyon Environmental Studies Phase 1 and a
review by the National Academy of Science, the Secretary of the
Interior determined that the Glen Canyon Environmental Studies should
be continued to address the economic impacts, particularly as they
relate to power, and also to collect additional data to substantiate
some of the conclusions in the Phase 1 report. The Glen Canyon
Environmental Studies Phase 2 was initiated in 1989, which included a
series of test flows to evaluate the impact of different operating
conditions.
In July 1989, the Secretary of the Interior announced the start of
an environmental impact statement (EIS) on the operation of the Glen
Canyon Dam. No specific Federal action was identified for study.
Meetings were held during 1990 to seek input into alternatives that
should be considered, and the Bureau determined that nine alternatives
(including a ``no action'' alternative) should be studied. Meanwhile,
in 1992, the Grand Canyon Protection Act (GCPA) (106 Stat. 4672) was
signed into law. Section 1804 of the Act required completion of the EIS
within two years. The EIS was completed and the Record of Decision
(ROD) signed in October 1996. As a result, Glen Canyon operations were
changed to reflect a revised flow regime; approximately one-third of
the generating capacity was lost (456 MW).
The cost of the Glen Canyon EIS was approximately $104 million, and
was funded by power revenues collected from the CRSP contractors. To
date, over $273 million has been spent on Glen studies, and paid by
CRSP power revenues. This figure does NOT include the over $105 million
spent from 2000 to the current year for the Adaptive Management
Program. The GCPA says that CRSP power revenues MAY be used to fund the
Adaptive Management Program (emphasis supplied). It is not a mandate,
but a permissive use of power revenues, which will be addressed in more
detail below.
In 1991, the Department of the Interior estimated the expense from
lost generation due to the changes in Glen Canyon Dam operation to be
$44.2 million annually (adjusted for inflation). Given what has
occurred in the energy markets and hydrologic conditions (drought)
since that time, the cost was higher. A recent study prepared by
Argonne National Labs for the Western Area Power Administration (the
``post-ROD study''), the average annual cost has been approximately $50
million annually. The cost of replacing that power is borne by the CRSP
customers.
In April of 2000, it was determined that due to hydrologic
conditions and requirements of a 1994 USFWS biological opinion, a low
steady flow summer experiment would be undertaken. The experiment
included high spike flows in May and September, with low flat flows
(8,000 cfs) all summer. The purpose was to gain information regarding
endangered humpback chub conditions. The low, flat flows and hydrology,
along with western energy market prices, had a severe impact on power
generation, requiring CRSP customers and WAPA to purchase replacement
power to meet their resource needs. The cost incurred by WAPA (and to
be recovered from CRSP contractors) for this replacement power was $26
million, during that summer. The cost of the experiment alone was over
$3.5 million, funded by CRSP power revenues. These figures do NOT
include additional costs to CRSP contractors who had to purchase or
supplement their CRSP resource with purchases from the energy market. A
final report on the responses of key resources was finally issued in
August 2011 (USGS Open File Report 2011-1220).
ASPINALL UNIT
The Aspinall Unit includes three dams and generating plants along
the Gunnison River near Gunnison, Colorado. Blue Mesa is the first dam
on the river and has two units producing about 97 MW. Morrow Point is
the second dam in the series and consists of two generators producing a
total of 146 MW. Crystal is the final dam and has one 32 MW generator.
Morrow Point and Crystal Reservoirs allow some regulation of the river
flow so that releases from Crystal can be used to regulate downstream
flows as necessary.
Since the early 1990's as part of the Upper Colorado River
Endangered Fish Recovery Implementation Program, or RIP, studies have
been undertaken to determine fish needs in this region. In November
2004, the Bureau held the first Cooperating Agency meeting, which they
have opened to the public. One of CREDA's members, Platte River Power
Authority (Colorado), is a cooperating agency in the process. This EIS
process has been underway for about 8 years, and a draft preliminary
final EIS was issued to the cooperating agencies in late August, 2011.
Study costs to date total $3.4 million. CREDA's view is that, while
maintaining authorized project purposes, the Bureau may operate the
facilities to benefit fish and wildlife and recreation resources. Their
obligation, however, is to avoid jeopardy to endangered species, not a
broader duty.
FLAMING GORGE DAM
Flaming Gorge Dam is on the Green River, a major tributary of the
Colorado River, and is located near Vernal, Utah. Flaming Gorge has
three units producing about 152 MW of generation. In 1992, the USFWS
issued a Biological Opinion on the operation of Flaming Gorge Dam.
Approximately 26 MW of generating capacity have been lost to date due
to changed operations to benefit endangered fish, estimated at
approximately $2 million per year. The Record of Decision on the
operation of Flaming Gorge Dam was signed in February 2006. The cost of
the EIS was approximately $1.6 million. Two CREDA members from Utah
have been ``cooperating agencies'' through this process. We expect the
same level of operational expense to be incurred following issuance of
the ROD.
III. THE ENVIRONMENTAL PROGRAMS IN THE CRSP
GLEN CANYON DAM ADAPTIVE MANAGEMENT PROGRAM
CREDA participates on the Federal Advisory Committee charged with
making recommendations to the Secretary of the Interior as to
operations of Glen Canyon Dam pursuant to the Record of Decision and
underlying laws. Funding for the program (Adaptive Management Program)
is provided through CRSP power revenues. Proposed funding for this
year's program is over $10 million.
On October 27, 2000, President Clinton signed the FY 2001 Energy
and Water Development Appropriations Act, which includes language
(Section 204) capping the amount of CRSP power revenues that can be
used for the Adaptive Management Program at $7,850,000, subject to
inflation. Without this cap, the annual program costs would have
continued to increase more rapidly, with power revenues being the
primary funding source. Over $105 million of CRSP power revenues has
been spent to date on direct program costs.
Science findings over the past 14 years indicate that some of the
premises on which the EIS/ROD were based may have resulted in different
or inconclusive resource impacts and that the current flow restrictions
may not be beneficial to downstream resources (primarily humpback chub
and sediment). For instance, the endangered humpback chub population
has continued to increase since 2000, albeit it is unclear whether this
increase is due to current fluctuating operations, temperatures, or
non-native fish interactions. It is imperative that these science
findings be incorporated into recommendations to the Secretary of the
Interior to implement flow changes and management actions to benefit
the downstream resources and to maximize power production.
On February 15, 2006, ESA-related litigation was filed in Arizona
District Court by the Center for Biological Diversity, Sierra Club,
Living Rivers and Arizona Wildlife Federation against the Department of
the Interior and the Bureau. This litigation was ultimately settled.
Unfortunately, additional litigation was filed by the Grand Canyon
Trust in December 2007 against the Bureau and Fish and Wildlife
Service, seeking to impose an extreme operational shift to a steady
flow regime. Although the District Court in Arizona found for the
United States on all counts in March 2011, the case has been appealed
to the 9th Circuit Court of Appeals. This litigation could have program
and cost implications for the Adaptive Management Program.
CRSP contractors have paid, and continue to pay, the majority of
costs at Glen Canyon, even while the dam's generating capacity has been
depleted by about one-third, and there are significant operating
constraints on the remaining available capability, as required by the
1996 ROD. Just since 2000, the replacement power cost (i.e.,
``indirect'' cost) incurred by WAPA (and borne by CRSP power customers)
totals $239 million. This amount does not include costs borne by each
CRSP power customer to ``make up'' any additional resource not provided
by WAPA. These costs are significant and H.R. 1719 would enhance the
ability of the power customers to be aware of the environmental costs
associated with these programs.
UPPER COLORADO RIVER ENDANGERED FISH RECOVERY IMPLEMENTATION PROGRAM
(RIP)
The RIP was established through cooperative agreements among States
and federal agencies in 1988 for a 15-year period to help recover four
endangered fish in the Upper Colorado Basin. Power revenues currently
fund about 60% of the base research/study program. Federal legislation
was passed in October 2000, which authorized a $100 million capital
improvements program. CREDA testified in support of this legislation in
both House and Senate hearings. The legislation provides matching funds
for the capital program so that, in the event State funding for the
program ceases, power revenue funding also ceases.
The legislation requires CRSP power revenue funding for monitoring
and research (currently $7.2 million per year. In addition, the Upper
Basin States and CRSP power customers each contributed $17 million
toward funding capital features. The legislation recognized that
changes in operation of Flaming Gorge and Aspinall generation as a
result of Biological Opinions cost CRSP contractors $15 million. To
date, $84.5 million has been funded by CRSP power revenues for
monitoring and research activities in this program.
IV. RECOMMENDATION
CREDA encourages passage of H.R. 1719 as a sound business practice
and an important measure, which will provide transparency and cost
information to the customers of the federal Power Marketing
Administrations.
Thank you for the opportunity to appear today.
COLORADO RIVER ENERGY DISTRIBUTORS ASSOCIATION (CREDA) MEMBERSHIP
ARIZONA
Arizona Municipal Power Users Association
Arizona Power Authority
Arizona Power Pooling Association
Irrigation and Electrical Districts Association of Arizona, Inc.
Salt River Project
COLORADO
Colorado Springs Utilities
Intermountain Rural Electric Association
Platte River Power Authority
Tri-State Generation & Transmission Cooperative
(also Nebraska, Wyoming and New Mexico)
Yampa Valley Electric Association, Inc.
NEVADA
Colorado River Commission of Nevada
Silver State Electric Association
NEW MEXICO
City of Truth or Consequences
Farmington Electric Utility System
Los Alamos County
Navajo Tribal Utility Authority
UTAH
City of Provo
City of St. George
South Utah Valley Electric Association
Utah Associated Municipal Power Systems
Utah Municipal Power Agency
WYOMING
Wyoming Municipal Power Agency
______
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
.epsMr. McClintock. Thank you, Ms. James, for your
testimony. We also understand your transportation constraints,
and you are excused from the panel whenever you need to leave.
Ms. James. Thank you.
Mr. McClintock. The Ranking Member of the Committee on
Natural Resources has arrived and would like to make an opening
statement. So, without objection, we will suspend the regular
order to recognize him.
I will also ask unanimous consent that we suspend the
regular order for Ms. McMorris Rodgers, who is detained at a
House Republican Conference meeting.
So, without objection, the Chair recognizes the Ranking
Member, Mr. Markey, for 5 minutes.
STATEMENT OF HON. EDWARD MARKEY, A REPRESENTATIVE IN CONGRESS
FROM THE COMMONWEALTH OF MASSACHUSETTS
Mr. Markey. Thank you, Mr. Chairman. Thank you for your
graciousness.
Mr. Chairman, we are meeting today to consider two bills.
They may be the worst policy suggestions that have come before
this Committee since yesterday.
The first bill would bar the Western Area Power
Administration from using borrowing authority to support the
construction of transmission lines. But the Bonneville Power
Administration also has a similar borrowing authority. The bill
doesn't go after the $3.25 billion in borrowing authority; it
only targets Western's, because Western's borrowing authority
is intended for transmission of renewable energy. Bonneville's
does not specify.
What happened to the GOP's all-of-the-above energy
strategy? Apparently, it has been replaced by an all-of-the-
below strategy, energy sources that come from below the
ground--oil, natural gas, coal--along with nuclear power, which
all get lavished with huge tax breaks, royalty breaks,
government loan guarantees, and other subsidies. Solar, wind,
and other renewable energy sources get left behind under the
Republican plan.
From Alexander the Great to our current conflagrations in
the Middle East, battles are often won or lost on the supply
routes. And in the growing Republican war on clean energy,
today we are seeing that they are using the same tactics,
attacking the transmission supply route for wind and solar
energy to starve the sound basis for new projects. It is
classic military strategy. But in this war on clean energy,
Republicans are on the wrong side of history and of economics.
The second bill that we are considering would have Power
Marketing Administrations make a special note on customer bills
highlighting the cost of compliance with the Endangered Species
Act. If my Republican colleagues are really concerned about
disclosing costs to their customers, let me suggest an
alternative.
In 1982, the Washington Public Power Supply System, more
commonly and appropriately remembered as WPPSS, finally gave up
on the construction of four nuclear power plants after
realizing they were hopelessly behind schedule and way over
budget. The ensuing default was the largest municipal bond
failure in the history of our country until that time.
Ratepayers were on the hook for $2.3 billion--big money in the
early 1980s. This worked out to more than $12,000 per customer
in some regions. Ratepayers to this day are still paying back
the cost of that nuclear folly nearly 30 years later.
If the idea behind this bill is transparency, I would
suggest the legislation also require inclusion of the cost of
nuclear bailouts on customer bills in the Bonneville operating
region, where WPPSS is located. I think they should each know
how much they are still paying on that mess that was created
with nuclear power back in the 1980s.
We could also require bills to note what the power would
actually cost if market rates were being charged, like they are
in most places in the country, rather than taxpayer-subsidized
cost-based rates.
Maybe we could also include a line item on customer bills
to show the discount power administration customers are getting
from U.S. taxpayers subsidizing the construction of the
hydroelectric dams generating the vast majority of their
electricity.
Bonneville's cost to service the debt left over from the
nuclear bailout three decades ago was more than $550 million
last year alone. The cost of compliance with the Endangered
Species Act, something that the region actually receives a
significant benefit from, is $175 million. So what we really
have here is a little fish in a big nuclear debt pond.
These bills are part of the same Republican agenda that
yesterday attempted to push through emergency funding for
natural disaster victims at the expense of a program that helps
American companies manufacture super-efficient vehicles that
reduce our dangerous dependence on foreign oil. That initiative
failed yesterday. That is why the Republicans are in caucus
right now; how can they resuscitate that? These two anti-
environment, anti-clean-energy bills before us today should
fail, as well.
Thank you, Mr. Chairman, very much.
[The prepared statement of Mr. Markey follows:]
Statement of The Honorable Edward J. Markey, Ranking Member,
Committee on Natural Resources
Mr. Chairman, we are meeting today to consider two terrible bills.
If fact, they may be the worst policy suggestions that have come before
this Committee since. . .yesterday.
The first bill would bar the Western Area Power Administration from
using borrowing authority to support the construction of transmission
lines. But the Bonneville Power Administration also has a similar
borrowing authority. Mr. McClintock's bill doesn't go after that $3.25
billion in Borrowing Authority, it only targets Western's. Why? Because
Western's borrowing authority is intended for transmission of renewable
energy. Bonneville's does not specify.
What happened to the GOP's ``All of the Above'' energy strategy?
Apparently it has been replaced with an ``All of the Below'' strategy.
Energy sources that come from below the ground--oil, natural gas, and
coal--along with nuclear power get lavished with tax breaks, royalty
breaks, government loan guarantees, and other subsidies. Solar, wind
and other renewable energy sources get left behind under the Republican
plan.
From Alexander the Great, to our current conflagrations in the
Middle East, battles are often won or lost on the supply route. And in
the growing Republican war on clean energy, today we see they are using
the same tactics, attacking the transmission supply route for wind and
solar energy to starve the sound basis for new projects. It's classic
military strategy, but in this war on clean energy, Republicans are on
the wrong side of history and of economics.
The second bill that we are considering would have Power Marketing
Administrations make a special note on customer bills highlighting the
cost of compliance with the Endangered Species Act.
If my Republican colleagues are really concerned about disclosing
costs to their customers, let me suggest an alternative.
In 1982, the Washington Public Power Supply System--more commonly
remembered as WOOPS--finally gave up on the construction of four
nuclear power plants after realizing they were hopelessly behind
schedule and way over budget. The ensuing default was the largest
municipal bond failure in history at the time. Ratepayers were on the
hook for $2.3 billion. This worked out to more than $12,000 per
customer in some regions. Ratepayers to this day are still paying back
the costs of that nuclear folly nearly 30 years later.
If the idea behind this bill is transparency, I would suggest the
legislation also require inclusion of the cost of nuclear bailouts on
customer bills in the Bonneville operating region, where WPPS
[PRONOUNCE: WOOPS] is located. We could also require bills to note what
the power would actually cost if market rates were being charged like
they are in most places in the country--rather than taxpayer subsidized
``cost based'' rates. Maybe we could also include a line item on
customer bills to show the discount Power Administration customers are
getting from U.S. taxpayers subsidizing the construction of the
hydroelectric dams generating the vast majority of their electricity.
Bonneville's cost to service the debt leftover from the nuclear
bailout 3 decades ago was more than $550 million last year alone. The
cost of compliance with the Endangered Species Act--something that the
region actually receives a significant benefit from--is $175 million.
So what we really have here is a little fish in a big nuclear debt
pond.
These bills are part of the same Republican agenda that yesterday
attempted to push through emergency funding for natural disaster
victims at the expense of a program that helps American companies
manufacture super-efficient vehicles that reduce our dangerous
dependence on foreign oil. That initiative failed. These two anti-
environment, anti-clean energy bills before us today should also fail.
______
Mr. McClintock. Thank you.
We will now resume the regular order of the Committee,
which begins with Mr. Fred Rettenmund, Power Resources and
Communications Manager of the Inland Power and Light Company,
from Spokane, Washington, to testify.
STATEMENT OF FREDERIC DEAN RETTENMUND, POWER RESOURCES AND
COMMUNICATIONS MANAGER, INLAND POWER AND LIGHT COMPANY,
SPOKANE, WASHINGTON
Mr. Rettenmund. Thank you, Mr. Chairman and other Committee
members. Inland Power and Light appreciates the opportunity to
be here today and share our views on H.R. 1719, which we think
is an important piece of legislation that would help all of us
better understand, and our consumers understand, costs related
to the Endangered Species Act and related programs.
First, though, Inland is a small utility. We only serve
39,000 members or consumers, but we cover that area in 13
counties in eastern Washington and northern Idaho. We buy all
of our power, currently, from the Bonneville Power
Administration, which I would happily note is 80 percent clean,
renewable hydropower, and we really like that aspect of their
portfolio.
Our total cost of purchasing power and transmission
services from Bonneville is about $27 million per year. That is
$24 million for power and about $3 million for transmission.
Transmission is a much smaller component of the total cost from
Bonneville.
About half of our total cost of business is to buy power
and transmission services from Bonneville. The other portion is
related to our own distribution costs. To get it to our
members--which, by the way, we only have five members per mile
line. So, Mr. Chairman and others, to give you a sense of the
real rural nature of our service territory, we are quite rural.
Our service territory overlaps Congresswoman McMorris Rodgers'
service territory--or, her district quite well. And we
appreciate her efforts to focus on issues that are of interest
to us.
So we support 1719. We support it both in terms of the
direct costs that Bonneville incurs and the indirect cost. And
the importance there is, both of those affect the rates that
BPA charges us. And indirect costs are just as important, if
not more so, than direct costs. The number is considerable.
I guess I would indicate that these costs are paid for by
our consumers. We don't have any money, ourselves. We get it
from our consumers, who are working families and they are
irrigators and they are small businesses. And those people are
working hard to make ends meet. And that is who we get the
funds to pay this $27 million to Bonneville.
Now, I have attached to my testimony a fact sheet that
Bonneville issued, 2010, that describes the total cost of their
providing fish and wildlife programs that, as I indicated, we
pay for. The cost has risen from around $470 million in 1999 to
about $745 million per year. That is big numbers.
I would note that over the course of the whole fish and
wildlife program, the total cost of that is about $12 billion
from the beginning in 1980. That is also, in anybody's
scorecard, that is real money.
I would address the notion that, yes, there are other cost
categories, but fish and wildlife is the cost category that
seems to be growing faster than other, sort of, components of
Bonneville's rates. A lot of the other costs are fixed, and a
lot of the fish and wildlife costs are varying significantly.
Thirty percent of Bonneville's rate is related to fish and
wildlife costs. That is a significant portion. And, quite
frankly, the $750 million a year for the total cost of the
program is very difficult for our members to get, sort of, a
handle on what that means for them. So what we need to do is
provide them with good information about how that relates to
their bill and what they are sending to us.
Now, we think Bonneville can play a major role in sort of
clarifying some of that, providing better information. I have
done a back-of-the-envelope calculation, but we really would
like to rely on Bonneville to provide a more precise set of
numbers with respect to what is on our bill and other
customers' bills. It won't be real tough for them to do. They
have some of the best analytical staff in the country on the
power side of the business. And it won't be, really, a
difficult thing for them to do, at least in total. And we are
interested in a total, as well as ESA costs, as an estimation.
So I guess I would just leave you with the concluding, sort
of, notion that we are on board with the general notion that we
need to try and do right things for fish, things that are cost-
effective, prudent, things that are based on sound science,
but, basically, there are some questions there.
I would indicate, finally, we support 1719. And our
fundamental view is that, in the spirit of 1719, better-
informed electric consumers mean better-informed citizens, and
that is a good thing.
Thank you.
[The prepared statement of Mr. Rettenmund follows:]
Statement of Frederic Dean Rettenmund, Power Resources and
Communications Manager, Inland Power and Light Company, on H.R. 1719
Introduction and Background
Chairman McClintock, Ranking Member Napolitano, Representative
McMorris Rodgers and members of House Subcommittee on Water and Power,
I appreciate the opportunity to appear before you today representing
Inland Power and Light Company to share our views on the importance of
having timely, accurate and easy to use information about ESA
compliance costs.
My name is Fred Rettenmund. I am the Power Resources and
Communications Manager for Inland Power and Light Company. Inland Power
is a cooperative utility that serves approximately 39,000 consumers in
thirteen counties in eastern Washington and northern Idaho. Inland
Power currently purchases all its wholesale power from the Bonneville
Power Administration. Over 80% of our total power supply comes from
clean, renewable hydroelectric power. Inland Power spends about $27
million a year for BPA power and transmission services. BPA related
costs make up about half of our total cost of doing business with the
other half covering the costs of delivering power to our members.
Inland Power primarily serves residential consumers and has a largely
rural service territory averaging only five members per mile of
distribution line.
Inland Power is located principally in Washington's 5th
Congressional District served by Representative Cathy McMorris Rodgers.
We appreciate her ongoing support regarding issues facing our
consumers.
Inland Power Supports H.R. 1719
Inland Power supports H.R. 1719, the Endangered Species Compliance
and Transparency Act of 2011. BPA should report to its utility
customers what portion of each utilities' monthly wholesale power and
transmission bill is related to direct and indirect fish costs. This
information will assist utilities in their efforts to better inform
their consumers.
BPA costs are paid for by the consumers of utilities that purchase
power from BPA. The policies BPA adopts, actions it takes and costs it
incurs have a large impact on our members. Accordingly, we participate
in a large number of BPA related forums and meetings. We commit the
time and effort to these activities to create a better understanding of
BPA's programs and their related costs, and in turn provide informed
recommendations and comments about BPA's policies, operations and
practices. H.R. 1719 will be of significant value in these efforts.
Challenges Utilities Face with Fish and Wildlife Costs
Key amongst the challenges faced by BPA are issues dealing with
salmon and steelhead programs. The BPA funded, or should I say consumer
or ratepayer funded, actions regarding fish are very complex, diverse
and on a scale unmatched anywhere else in the United States or possibly
the world. As shown in the BPA's January 2010 Fact Sheet (``BPA invests
in fish and wildlife'') attached to this testimony, in the eleven years
from 1999 to 2009 BPA's fish and wildlife expenditures increased from
approximately $470 million to about $745 million per year. What was
spent in total for fish and wildlife during this period was about $8
billion, and almost $12 billion has been spent since 1980. Fish related
costs are one of the fastest growing BPA cost categories, have a
significant impact on BPA wholesale power rates and what utility
customers like Inland Power, and our consumers, pay for electric power.
All these costs end up in the monthly electric bills of the
ratepayers of 125 Northwest utilities. It is our understanding that
fish and wildlife costs represent more than 30 percent of the rate that
is charged to Inland Power and other utilities. We doubt that many of
the consumers in the region are aware of what they are paying towards
BPA's fish related costs. Providing clear direction to BPA about their
responsibilities in reporting Endangered Species Act related costs
would be useful to the region and the public. Having readily accessible
and transparent cost information would be most beneficial.
Providing Valuable Information
We are aware that the Northwest Power and Conservation Council
annually provides a report to the Northwest Governors on the
expenditures of Columbia River Basin Fish and Wildlife Program. Using
data primarily supplied by BPA this report provides extensive
information on the varied aspects of the BPA funded fish program.
However, making these very large and program-wide numbers meaningful to
the typical consumer is another story. It is very difficult for an
Inland Power consumer to understand what $700 to $800 million per year
in BPA fish costs might mean in terms of their own electric bill.
Inland makes an effort to convey what fish costs are included in an
Inland members' retail electric bill. However, it would be a big
improvement if the monthly wholesale power bill Inland Power receives
from BPA would provide information regarding what portion of that bill
is related to fish costs.
From Inland Power's perspective H.R. 1719 is about information
sharing. While from time to time there is much debate about the
effectiveness of various specific fish programs and actions,
information and knowledge about fish and wildlife costs should be seen
as a means to improve the overall discussions about the fish and
wildlife programs.
Inland Power, like many other utilities, has in recent years
experienced increases in retail electric rates and will undoubtedly
have to raise its rates in the not too distant future. Our members want
and deserve to have quality information about the factors impacting
their electric bills. That would include information related to Inland
Power's own costs of operating and maintaining over 7,500 miles of
distribution lines, other costs of providing reliable and safe
electrical service and information regarding BPA costs, including fish
costs.
Conclusion
In summary, having easy access to factual numbers about how much
each utility is spending on ESA costs and related activities would be
very helpful to the region's utilities as they seek to provide
information to their consumers. Mr. Chairman, I would like to thank you
for holding this hearing and providing Inland Power with the
opportunity to share our views on this significant issue affecting our
utility and the members we serve.
______
Mr. McClintock. Thank you for your testimony.
Our next witness is Ms. Sara Patton, Executive Director of
the Northwest Energy Coalition, from Seattle, Washington, to
testify.
STATEMENT OF SARA PATTON, EXECUTIVE DIRECTOR,
NW ENERGY COALITION, SEATTLE, WASHINGTON
Ms. Patton. Good morning, Mr. Chairman and members of the
Committee. Thank you very much for the opportunity to be here.
My name is Sara Patton. I am the Executive Director of
Northwest Energy Coalition. The Northwest Energy Coalition is a
coalition of more than 110 consumer, environmental, faith-
based, and low-income groups, unions, clean energy businesses,
and progressive utilities from the four Northwest States and
British Columbia, working together for a clean and affordable
energy future.
I am testifying today to raise concerns about H.R. 1719. My
remarks focus on the Bonneville Power Administration because
that is what we basically know about. And I have also submitted
detailed written comments and will be brief and happy to answer
any questions.
For the groups I represent, H.R. 1719 raises a number of
concerns. First, I would like to emphasize that environmental
and consumer public interest groups enthusiastically support
transparency in economic analyses and reporting. We would
support H.R. 1719 if it mandated a full and thorough accounting
of the costs and benefits of Federal dam operations on fish
anglers and fishing communities, irrigators, recreational
businesses, and other users of the river along with power
consumers. Only by looking at the whole picture can any
particular cost category be put in perspective. H.R. 1719 looks
only at a small part of how the Columbia River is shared and
paid for.
The whole picture would include, for example, disclosure of
the high cost of the Columbia Generating Station, a nuclear
power plant which BPA funds. BPA reported in 2009 that the
operations and maintenance costs for the Columbia Generating
Station, which produces 10 percent of BPA's power, are greater
than the operations and maintenance costs of the entire
remainder of the Federal Columbia River Power System, the 31
hydroelectric dams which produce the remaining 90 percent of
Bonneville's electricity. Those are costs and benefits worth
thinking about.
My next concern is that this bill is unnecessary for the
Northwest. Information on fish and wildlife restoration costs
are readily available from BPA and the Northwest Power and
Conservation Council. Utilities are free to inform their
consumers if they wish, and many do so now. And it must be
noted, the bill doesn't guarantee the information will get to
the utilities' customers but only to the utilities.
Third, it must be noted that BPA's fish and wildlife
restoration is required by a number of Federal laws and
treaties dating back to 1855, so separating out the ESA cost is
next to impossible. H.R. 1719 proposes no way to separate which
costs are specifically required to meet the ESA alone, perhaps
because it can't be done.
Fourth, H.R. 1719 should not count the cost of foregone
revenue as an ESA compliance cost. Including foregone revenue
and the cost of replacement power as a cost implies that BPA
can claim savings for violating Federal laws or that BPA
somehow owns the river. Bonneville does not own the river; it
shares the river with all the other users, including fish and
wildlife. BPA is not entitled to all the possible revenue it
can squeeze out of the river, only its share. Nor is BPA
entitled to claim lost revenue from power that is illegal to
generate in the first place.
An analogy will help. Trucking companies must obey a number
of safety regulations. These include providing seatbelts and
equipment inspections. Equipment costs are real and should be
counted as a cost of compliance with regulations. However, we
do not count as a cost the forgone revenue that a company could
have realized if its drivers could drive over the speed limits
or ignore weight limits. Trucking companies do not own the
highways, and the cost of sharing them with other users is not
revenue somehow owed to them. Similarly, the various users of
the river do not owe each other money. They are all simply
sharing this great resource.
In fact, the Northwest Power and Conservation Council
reported in 2006 that irrigation water withdrawals account for
about $250 million per year in, quote, ``foregone revenues,''
end quote. Does that mean BPA ratepayers are subsidizing
farmers? Of course not. Farmers and power users are sharing the
river with recreation, flood control, navigation, and, of
course, fish and wildlife.
However, if Congress believes it is important to report
such costs, then it should require a calculation of all the
costs of the Federal river system and report all of them on a
consistent basis.
Furthermore, true transparency would examine both costs and
benefits. A real examination of ESA impacts must include the
economic benefits to the region of salmon restoration in terms
of jobs and revenue. This legislation would only identify costs
and, therefore, would not give the public or utilities a clear
and complete picture of Federal and regional investments in
salmon recovery unless it includes the enormous benefits these
expenditures provide.
Finally, even if we accept the foregone revenue for ESA
compliance as a cost, BPA rates will still be a great deal. We
don't think it is a good idea to jeopardize the low-cost
hydropower the Northwest depends on by failing to meet our
legal and stewardship responsibilities for God's creation.
In conclusion, the Northwest Energy Coalition supports
objective and transparent accounting of BPA's fish-and-
wildlife-related costs, but H.R. 1719 introduces a number of
difficult issues that need to be resolved before our coalition
could support it.
Thank you very much for this opportunity.
[The prepared statement of Ms. Patton follows:]
Statement of Sara Patton, Executive Director,
NW Energy Coalition, on H.R. 1719
The NW Energy Coalition is a coalition of more than 110 consumer,
environmental, faith-based and low-income groups, unions, clean energy
businesses, and progressive utilities from the four Northwest states
and British Columbia, working toward a clean and affordable energy
future. I am testifying today in opposition to H.R. 1719. Although H.R.
1719 applies equally to all Federal Power Marketing Agencies (PMAs),
this testimony is focused mainly on the Bonneville Power Administration
(BPA) because that is our area of expertise and concern. However, in
most cases, we believe the intent of these comments is applicable to
the other PMAs.
Summary
The proposal in H.R. 1719 to require the Bonneville Power
Administration (BPA) to report the costs of compliance with the
Endangered Species Act (ESA) raises a number of concerns:
Transparency of BPA's costs is a laudable goal, if
there is full and honest accounting to inform the public of the
whole story.
This bill is unnecessary: the information on fish and
wildlife program funding is already readily available from BPA,
and utilities are free to inform their customers if they wish.
BPA's fish and wildlife funding is required by a
number of federal laws and treaties; separating out ESA costs
is difficult or impossible.
Proposals to include foregone revenues in these costs
imply that BPA can claim benefits for violating federal laws,
and that BPA power production usage is paramount to all other
uses.
Meaningful economic transparency should address both
costs and benefits.
The definition of the firm customers' share of BPA's
ESA costs can be interpreted in different ways, leading to
starkly different conclusions. If not done correctly such
accounting fosters more confusion than transparency.
This issue is likely to focus national attention on
the fact that BPA's wholesale power rates are lower than most
any other wholesale generator, and normally well below market
rates.
The NW Energy Coalition Supports Real Transparency
Environmental and consumer advocates would enthusiastically support
H.R. 1719 if it mandated honest accounting of the costs and benefits of
federal dam operations on fish, anglers and fishing communities,
irrigators, recreation businesses and other users of the river--along
with power consumers. Only by looking at the whole picture can any
particular cost category be put into perspective. H.R. 1719 looks at
only a small part of how the Columbia River system is shared and paid
for. This issue will be addressed in detail later in this testimony.
H.R. 1719 is Unnecessary
H.R. 1719 does not compel the production of any information that is
not already available to the public, electricity utilities, or anyone
else who seeks it. BPA currently provides information to the region
regarding the costs of its fish and wildlife programs (including so-
called ``indirect costs''). Bonneville also provides a detailed walk
through of all of its costs as part of its Integrated Program Review
preparatory to each power rate case. Any utility wishing to provide
this information to its retail consumers may do so; some do this now.
This bill is not needed and would not change current practice at all.
Salmon Recovery Actions Meet a Myriad of Federal Responsibilities
BPA's investments in rebuilding fish and wildlife populations are
required by a number of federal laws and treaties, including the
Endangered Species Act, the Northwest Power Act, the Fish and Wildlife
Coordination Act, the Clean Water Act and United States treaties with
Indian Tribes and Canada. It is not possible to categorize which of the
costs are related solely to the ESA.
Bonneville and the federal family have numerous legal obligations
to recover these valuable fish in addition to the ESA. H.R. 1719's
mandate to isolate ESA costs is impossible, since most of the actions
being taken for endangered and threatened fish and habitat overlap or
are also required by these other laws and treaties.
For example, the Pacific Northwest Electric Power Planning and
Conservation Act (Northwest Power Act), Section 16 U.S.C.
839b(h)(6)(E), requires the Northwest Power and Conservation Council
(NPPC) to include measures in its Fish and Wildlife Program (Program)
that:
(i) provide for improved survival of such fish at
hydroelectric facilities located in the Columbia River system;
and
(ii) provide flows of sufficient quality and quantity between
such facilities to improve production, migration, and survival
of such fish as necessary to meet sound biological objectives.
(Emphasis added)
More generally, the Northwest Power Act requires the Administrator
and other Federal agencies to exercise their responsibilities ``in a
manner that provides equitable treatment for such fish and wildlife
with the other purposes for which such system and facilities are
managed and operated.'' (Section 16 U.S.C. 839b(h)(11)(A); emphasis
added). BPA's obligation ``to adequately protect, mitigate, and enhance
fish and wildlife. . .'' (ibid.) is not a secondary ``cost'' of the
power system, it is a coequal purpose along with irrigation,
navigation, recreation and flood control.
Similarly, there are numerous treaty obligations to Native American
Tribes that require BPA and the Federal agencies to restore and enhance
their native fisheries. At the same time, the Federal Columbia River
Power System (FCRPS) Biological Opinion requires specific flow and
spill operations to ensure that the operation of the FCRPS does not
jeopardize the continued existence of listed species under the ESA.
It is important to note that the flow targets in the Program and
Biological Opinion are constrained by the current configuration of the
hydroelectric system. Average spring flows in the Columbia before the
dams were 450,000 cubic feet per second. The current target is 200,000
cubic feet per second--less than half the historical average.
Unfortunately, the federal agencies have only met this flow target
37.5% percent of the time between 1995 and 2010, and not once between
2006 and 2010.
It is evident that these various obligations overlap and cannot be
separated into ESA and non-ESA obligation
Adding ``Indirect Costs'' is Improper and Obscures The Actual
Monetary Contribution BPA Makes to Salmon Recovery
H.R. 1719 requires PMAs to include ``foregone generation and
replacement power costs'' as indirect costs in their ESA-compliance
calculations (Sec. 2 (c)). As explained below, it is false and highly
misleading to include these items as ``costs.'' It also improperly
distorts the actual monetary contribution BPA makes to salmon recovery.
H.R. 1719 would set a dangerous precedent by codifying this type of
accounting.
BPA already counts the revenue foregone and the cost of replacement
power from operating the FCRPS to meet the requirements of the
Endangered Species Act, the Northwest Power Act, the Clean Water Act,
and other laws and regulations as a part of these costs. According to
the NW Power and Conservation Council's Tenth Annual Report to the
Northwest Governors on BPA Expenditures (July 1, 2011; Document 2011-
04), over 50% of BPA's claimed expenditures for Fish and Wildlife
programs are from foregone revenue and replacement power costs.
Foregone Revenue
``Foregone revenue'' is the cost of foregone generation; that is,
the money BPA speculates it could have made if it did not have to
operate the river to assist salmon migration. It is the lost generation
from water spilled over the dams plus the difference in prices BPA
forecasts it might have received if it could shift timing of generation
into higher priced periods rather than when salmon need a push out to
sea. Considering as a ``cost'' the revenues or profits that a business
or agency could have made if it had violated federal laws, regulations,
or court orders is a curious accounting concept, to say the least.
An example is illustrative. Trucking companies must obey a number
of safety regulations. These include providing seat belts, equipment
inspections and rest breaks for drivers. These are all proper costs of
compliance with these regulations. However, we do not count as a cost
or even ``indirect cost'' the foregone revenue that the company could
have realized if it did not have to give its drivers rest breaks, or if
those drivers could drive over the speed limits or ignore weight
limits. On the contrary, it is understood that the trucking companies
do not own the highways, and the ``cost'' of sharing it with other
users is not revenue somehow owed to them.
Given its practice of reporting foregone revenue for fish and
wildlife protection, it is important to note that BPA does not report
the foregone revenue associated with meeting other legal constraints on
power generation such as providing irrigation water, flood control,
maintaining minimum flow depths for river transportation, limiting
rapid variations (``ramping''--which can damage streambeds and banks)
in flow rates, or recreation. All of these other federally mandated
purposes limit the ability to generate electricity and reduce BPA's
potential revenue. Hence, to be consistent, BPA would need to count
them as ``costs'' as well.
For example, the Northwest Power and Conservation Council has
calculated that the 14.4 million acre-feet withdrawn for irrigation
could generate an additional 625 average megawatts if the water
remained in the river--about five percent of the total output of the
BPA system. (``Multiple Use Memorandum,'' NPCC, February 7, 2006, p.5)
Analysis by the NPCC calculated that at average market rates, the
foregone revenue of this irrigation would be $250 million per year. At
the market prices for the summer of 2005, the lost revenue associated
with irrigation withdrawals was over $380 million. Neither BPA nor H.R.
1719 counts this ``cost.''
While these numbers are dated and the impact of other uses of the
river will vary from year to year depending on market power prices and
the amount of water in the river at any given time, the point remains
that BPA is not including foregone revenue from any other uses of the
river in its calculations of costs.
All of this begs the important question of whose costs these are.
Are irrigation foregone revenues a ``cost'' for BPA's ratepayers? Is a
requirement to keep rivers flowing at minimum levels for navigation
another ``cost''? If so, then one would conclude that Bonneville is
subsidizing the irrigators and barge and boat operators. This logic is
absurd. Bonneville does not own the river; it shares the river with all
the other uses, including fish and wildlife. BPA is not entitled to all
of the possible revenue it can squeeze out of the river, only its
share. NW Energy Coalition recommends that Sec. 2(c) be deleted from
the bill. The various uses and users of the river do not owe each other
money; they are all simply sharing in this great resource.
However, if Congress believes it is important to report such costs,
then it should require BPA to calculate the costs of each of the other
purposes of the dams and report all of them on a consistent basis.
After all, every use of the river, from navigation to flood control to
irrigation, reduces BPA's revenues, and its ability to fund its
obligations.
Foregone salmon
We should also note, if the Committee wants to continue down the
road of assigning indirect costs, that the NPCC found that 5 to 11
million salmon lost each year (compared to the period prior to dam
construction) were attributable to damage caused by the hydroelectric
system. Based on this estimate, the Columbia River Indian tribes,
anglers and fishing businesses have ``foregone'' 365 to 805 million
salmon and steelhead since the dams were built.
Salmon and steelhead are invaluable to tribal culture and
religion--the tribes would not put a price on this loss. Non-tribal
economists, on the other hand, would value the annual losses in the
hundreds of millions of dollars.
Replacement Power Costs
H.R. 1719 also requires that BPA include ``replacement power
costs'' due to fish and wildlife operations in its estimate of indirect
costs. These costs can vary dramatically depending on water
availability, market energy prices, and load demand--none of which can
be properly attributed to salmon recovery.
This problem was made very clear in 2001 when BPA's power purchase
costs alone exceeded $1 billion. But that was a year when the agency
eliminated ``spill'' for salmon, so it would be fair to say that
Bonneville's salmon restoration efforts were reduced because the impact
of fish operations on generation was even less than in previous years.
Instead, BPA counts that as a year when its indirect costs skyrocketed.
It is bad public policy to pin power purchase costs that could arise
for any number of non-salmon-related reasons on salmon recovery. In
fact, the reason power purchase costs were so high that year had
nothing to do with fish and everything to do with energy deregulation
problems and weather.
Costs Must be Balanced with Benefits
Any meaningful effort to provide real transparency should include
both the cost and the benefits of actions to recover salmon. H.R. 1719
would require that only costs be reported, and therefore would fail to
provide the public a complete picture. The economic benefits of salmon
recovery efforts come in at least two forms: the economic benefit from
increased fishing opportunities and the impact of actually implementing
recovery measures.
Economic Impact of Implementing Salmon Recovery Measures
BPA funds implementation of habitat improvements and other
restoration measures through the Federal Columbia River Power System
(FCRPS) Biological Opinion and through BPA's ``Integrated Fish and
Wildlife Program.'' Most of these fish and wildlife activities are
implemented in rural areas east of the Cascade Mountains These
investments pay salaries and purchase materials creating additional
jobs and economic activity. The effects of these investments over the
next several years can be expected to ripple through tribal and rural
economies, creating thousands of additional jobs and significant
economic activity. If this work is implemented over the next ten years
at the level recommended by state and tribal scientists, the annual
funding would support more than 5,000 jobs over the next ten years
(assuming $40,000 per job).
Economic Benefits of Commercial and Recreational Fishing Opportunities
If fish and wildlife populations increase, the Pacific Northwest
will experience increased spending by fishers, hunters, and
recreationalists creating additional jobs and economic benefits.
Increased fishing opportunities for the commercial fishing industry
will also have a ripple effect on local coastal communities.
To illustrate the economic benefit of increased fishing
opportunities, one need not look further than 2001, when the region
experienced better-than-average adult salmon returns due to improved
ocean conditions. In that year, salmon runs increased sufficiently for
Idaho to open a rare recreational fishing season on salmon. A report by
credentialed independent economists (Ben Johnson Associates, Inc. The
Economic Impact of the 2001 Salmon Season in Idaho, prepared for the
Idaho Fish and Wildlife Foundation, April 2003) examined the economic
impact of the 2001 salmon season and found that the increased fish
opportunity was responsible for almost $90 million in angler
expenditures. These expenditures were split evenly between the local
river communities and the rest of the state. However, impacts were more
significant in the smaller local economies. Angler expenditures in
Riggins, Idaho (on the Salmon River) during the salmon fishing season
stimulated 23 percent of the town's annual sales. While more recent
economic analysis is not yet available, modestly higher salmon returns
over the past three years (an increase widely attributed to spill) have
provided fishermen and fishing businesses with seasons similar to the
2001 fishing season. Any presentation of economic costs must also
provide the important benefits to local economies of investments in
fish and wildlife while considering the costs of the actions.
BPA's Firm Customers' ``Share'' of Fish Costs is not Well-Defined.
H.R. 1719 requires that PMAs report each firm power customer's
``share'' of ESA compliance costs, but leaves the determination of what
constitutes a share to the PMAs (in coordination with other Federal
agencies). How shares are calculated, and what constitutes a firm
customer, is left open in the legislation, but these issues are highly
contentious. How shares are calculated can vary tremendously, depending
on various assumptions. We have seen media reports that set the
proportion of fish restoration costs in Bonneville's rates ranging from
less than 5% to 30% using the same basic information!
While this information is extremely important, we all know that
statistics can be presented or ``spun'' in different ways depending on
the desired outcome. It is important that this information be fair and
objective.
There are several reasons why this calculation is not
straightforward and will most likely foster confusion rather than
transparency. First to recover its costs, BPA sells to many different
types of firm customers at different rates. Some of these rates are
determined by BPA, some by the market. Some rates to firm customers are
fixed for many years, while others can vary periodically.
This complicated web of arrangements can lead to confusion and
misinterpretations of what, at first, seem easy questions. We have seen
the media and electric utility representatives take an accurate BPA
statement that BPA power rates could go down by a specified percentage
if it didn't have any fish costs and report that specified percentage
of ``your power bill'' goes for fish. This deductive leap is incorrect
and troubling for several reasons:
1. All of BPA's sales help pay its fish costs, but many of
BPA's firm customers' rates are fixed or set by the market.
Therefore, if costs are reduced, only a subset of BPA's
customers would get all the benefit of the reduction. How much
those customers' rates would be reduced is not the same as how
much of BPA's rates go to fish.
2. BPA was referring to its power rates only. But almost a
quarter of BPA's budget is transmission, whose costs are
recovered through a separate rate. Those rates were not
included in the calculation, but all customers have to pay for
transmission.
3. BPA was referring to its wholesale rate, but consumers pay
retail bills. Retail bills contain all the other costs of
delivering electricity, such as meter reading, distribution
wires, billing, etc. Only about 50-60% of a homeowner's bill is
due to the actual wholesale cost of power.
4. Finally most consumers in the region are served by
utilities that buy only some of their power from BPA, if any.
These consumers' bill-impacts would be proportionally less.
This discussion illustrates how controversial and complicated this
issue is--and how open to misinterpretation it will be.
There are less costly, and more effective ways to restore wild salmon
and steelhead.
Public interest groups, fishing based businesses, taxpayer
advocates and others support a full and honest accounting of BPA's
fish-restoration costs. This is because we know that the public
supports the goal of restoring wild salmon and steelhead to the
Columbia Basin, but only if that effort is successful. That is why we
believe that there is a better way: the removal of the four lower Snake
River Dams; replacing their modest amount of power with energy
efficiency and renewables; extending irrigation pumps to continue
irrigation to the 13 or so affected farms; and refurbishing the rail
and highway system to ensure farmers can economically ship their goods
to market.
As the true costs of the expensive and ineffective path we are
currently on becomes clear, the region will realize that removing those
four dams is a less-expensive option. Every day these dams continue to
exist, the federal government is wasting money and holding back the
quality of life for people in the region.
The federal government can act responsibly by taking down these
four dams. Eliminating them will be less costly than allowing them to
exist, and will create a more reliable energy source in the Pacific
Northwest that is paid for by people in the region. Taking down these
dams will also reverse the decline of an important natural resource,
Pacific salmon.
While NW Energy Coalition supports full transparency, it is
important to note that even with BPA's large fish obligations, BPA's
rates are the envy of other regions. If BPA's customers want to avoid
these fish costs, they are free to get their power elsewhere--at about
twice the price! We are concerned that shining a spotlight on BPA's
rates will only renew calls by some outside the region who believe our
rates are heavily subsidized.
Conclusion
Although the NW Energy Coalition supports objective accounting of
BPA's fish and wildlife-related costs, indirect costs are not
appropriate to assign to one party in a shared system that is put to
multiple uses. However, if Congress believes it is important to attempt
to quantify these costs, it should insist that the impacts from other
users such as irrigation and navigation are also accounted for.
Unfortunately, H.R. 1719 introduces a number of difficult issues that
need to be resolved before our Coalition could support it.
Thank you for this opportunity to provide these comments.
______
Mr. McClintock. Thank you for your testimony.
Our final witness on this panel is Mr. Scott Corwin,
Executive Director of the Public Power Council, from Portland,
Oregon.
STATEMENT OF R. SCOTT CORWIN, EXECUTIVE DIRECTOR, PUBLIC POWER
COUNCIL, PORTLAND, OREGON
Mr. Corwin. Thank you, Mr. Chairman, Ranking Member, other
members of the Committee. Greetings from the Northwest.
I should also note, with me today is my 10-year-old
daughter, Hadley, learning about Congress.
I appreciate the opportunity to testify today on H.R. 1719,
the Endangered Species Compliance and Transparency Act. And we
appreciate the initiative of Representative McMorris Rodgers
and the co-sponsors in raising the issue and proposing H.R.
1719.
Our members provide retail electricity service to millions
of citizens throughout the Northwest, including Washington,
Oregon, Idaho, western Montana, parts of California, Nevada,
and Wyoming. And while these consumers often ask about the
nature of costs that make up their electricity rates, some have
little knowledge about the level of fish and wildlife costs
affecting those rates.
In the case of BPA, ESA-related costs in the rates the
agency charges for wholesale power are inordinately large.
According to the Northwest Power and Conservation Council, the
independent State compact that looks at these costs, last year
alone those costs were $802 million. This single category of
costs accounted for about 30 percent of the BPA power costs
charged in rates. The total BPA ratepayer cost for fish and
wildlife since 1980 is well over $12 billion. Now, that does
not count the amounts contributed through other Federal, State,
and local entities.
More knowledge about fish and wildlife costs is not an
impetus to do less for fish. Rather, it can create ownership in
the efforts under way and serve as an inducement to create
better, more effective means of assisting species in the
future. Support for this bill should not depend upon whether
you believe these expenditures in the name of salmon and
steelhead should be lower, higher, or are just about right. The
issue here really is information.
It could make the understanding of these costs clearer if
they were displayed directly on the power bill each month. What
happens to the information after that or to the opinions of
consumers that get that information will vary greatly from
utility to utility and from customer to customer. This is the
local control that public power values highly.
It is not necessarily the case, certainly, as has been
claimed, that a utility or ratepayers could gain this
information without this bill. The processes in place to
determine the costs that I just described are lengthy and
complex in the region. Utilities would benefit from having one
official estimate that is produced by the agency and disclosed
on the actual bill.
In addition, with respect to whether ESA-related costs
should be the only costs displayed on the bill, certainly there
are other costs displayed now. Transmission is completely
billed separately. But there are not other costs in BPA's power
rates that are of this magnitude and this level of volatility.
This does distinguish these particular costs from all the other
categories that flow into the rates of Power Marketing
Administrations. There are existing accounting systems with
which the agency can produce the number for fish and wildlife
costs already at little additional administrative burden.
How should these costs be defined? As you just heard, some
question the approach here that would include indirect costs as
well as direct costs of ESA implementation in H.R. 1719. To the
ratepayers, they are one and the same. Water spilled over a
dam, rather than creating electricity, impacts ratepayers just
as much as direct projects or capital costs. It is also not a
foregone conclusion that that particular mode of meeting that
statutory obligation is most efficient or effective at any
particular point in time. In other words, the law does not
directly compel the action that is creating the loss to
ratepayers in this instance.
The pertinent question is, without the set of actions in
question, would the power rate be lower? Whether the action
causes a loss of generation or is a direct expenditure, the
impact is pressure on rates to be higher than they otherwise
would be. And, in this case, an objective baseline is already
established. You can look at generation capacity clearly, pre-
and post-implementation of the biological opinions.
In conclusion, H.R. 1719 is a straightforward approach to
providing more information and accountability. Timely release
of this information is a worthy goal in and of itself. And to
the extent it can create incentives for better management of
our natural resources, this can benefit endangered species and
ratepayers alike.
Again, thank you very much for the opportunity to testify
today.
[The prepared statement of Mr. Corwin follows:]
Statement of R. Scott Corwin, Executive Director,
Public Power Council, on H.R. 1719
Introduction
Good afternoon, Chairman McClintock, Ranking Member Napolitano, and
Members of the Subcommittee. My name is Scott Corwin. I am the
Executive Director of the Public Power Council. I thank you very much
for the opportunity to testify today on H.R. 1719, The Endangered
Species Compliance and Transparency Act of 2011.
The Public Power Council (PPC) is a trade association representing
the consumer-owned electric utilities of the Pacific Northwest with
statutory first rights (known as ``preference'') to purchase power that
is generated by the Federal Columbia River Power System and marketed by
the Bonneville Power Administration (BPA). These preference rights were
granted to publicly and cooperatively-owned utilities because they have
a mandate to pass the benefits through to the citizens of the
Northwest, the consumers who are their owners. Our member utilities
have service territories in portions of seven western states and serve
over 41% of the electricity consumers in the region.
These utilities, being both some of the largest and the smallest in
the Northwest, are committed to preserving the value of the Columbia
River system for clean, renewable hydropower and for the system's
multiple other uses. Customers pay for all of the power costs incurred
by BPA; the agency is a pass-through entity of its costs and
obligations. And, because the utility members of PPC are owned by and
answer directly to their customers, they are very sensitive to the
rates they pay for wholesale power and transmission of electricity.
We appreciate the initiative of Representative McMorris Rodgers and
the cosponsors in raising this issue, and for proposing H.R. 1719, the
Endangered Species Compliance and Transparency Act of 2011. H.R. 1719
is narrowly tailored to require the power marketing administrations to
display these costs on the monthly wholesale power bill sent to
utilities. It is then up to the local utility to decide what to do with
that information. Local control over management of the utility is a
fundamental priority of each consumer-owned utility in the Northwest.
This bill offers the opportunity for ratepayers to be better
informed consumers. Our members provide electricity to retail utilities
serving millions of citizens throughout the Northwest, including
Washington, Oregon, Idaho, and parts of Montana, California, Nevada,
and Wyoming. While these consumers often ask about the nature of the
costs that make up their electricity rates, some have little knowledge
about the level of fish and wildlife costs affecting those rates.
With respect to awareness of costs, past polling conducted by a
consortium of river users and utilities who support a balanced approach
to the use of the Columbia River system (Northwest RiverPartners) found
that about 60% of respondents did not know there were any costs in
their rates related to implementation of the Endangered Species Act. A
poll conducted this year found concern about the impact to electricity
rates once respondents were informed about these costs.
Fish and Wildlife Costs
In the case of BPA, the fish and wildlife costs in the rates the
agency charges for wholesale power are inordinately large. At $802
million last year alone, this single category of costs accounted for
about 30 percent of the BPA power costs charged in rates. The total BPA
ratepayer cost for fish and wildlife since 1980 is well over $12
billion. That does not count the amounts contributed through other
federal, state, and local entities.
The latest assumption for fish and wildlife annual costs in the BPA
power rate starting on October 1, 2011 is likely to include $745.5
million annually, broken down as follows:
$239.4 million for direct expenditures under the
Integrated Program;
$5.1 million for internal costs of the Northwest
Power and Conservation Council related to fish and wildlife;
$29.4 million for the U.S. Fish and Wildlife Service;
$42.8 million for the U.S. Army Corps of Engineers;
$5.4 million for the Bureau of Reclamation;
$280 million of indirect operational costs; and,
$143.4 million in capital investments.
The efficiency and effectiveness of some of the specific projects
and methods for salmon recovery are questions with which the region has
struggled significantly over the last two decades as the underlying
science continues to develop. Certainly, highlighting the costs on
power bills could lead to more scrutiny over the effectiveness of
salmon mitigation measures. If it does, then that would be a useful
byproduct of H.R. 1719 that would benefit fish as well as ratepayers.
In the meantime, the federal agencies overseeing salmon recovery
efforts, along with most of the states and tribes in the region, have
done extensive collaboration to come together on a scientifically sound
plan (``biological opinion'') under the Endangered Species Act
committing to an enormous continued effort for these fish.
More knowledge about fish and wildlife costs is not an impetus to
do less for fish. Rather, it can create ownership in the efforts
underway and serve as an inducement to create better, more effective
means of assisting fish in the future. And, it should be noted that any
approach to salmon recovery that will be successful long-term must take
into account all aspects of the salmon lifecycle including impacts from
hatcheries, harvest, and all areas of habitat.
Providing Valuable Information
Support for this bill should not depend upon whether you believe
these expenditures in the name of salmon and steelhead should be lower,
higher, or are just about right. The issue here is information.
Certainly, it would make the understanding of these costs clearer if
they were displayed directly on the power bill each month. What happens
to the information after that, or to the opinions of consumers
receiving that information, will vary greatly from utility to utility
and from customer to customer.
Some may argue that a utility and its ratepayers could gain this
information without this bill. This is not necessarily the case. In the
case of BPA, only the agency itself is in the best position to
determine with accuracy the costs it expends on fish and wildlife. The
processes in place to determine those costs and inform customers about
them are lengthy and complex. Utilities would benefit from having one
official estimate that is produced by the agency and disclosed on the
actual power bill.
Some might question why only ESA-related costs should be displayed
on the bill. There are very few costs in BPA's power rates that are of
this magnitude and this level of volatility. In addition, these costs
are particularly driven by federal laws that do not directly relate to
the business of producing power. This distinguishes them from many of
the cost categories that flow into the rates of power marketing
administrations. And, there are existing accounting systems with which
the agency can produce the number for fish and wildlife costs at little
additional administrative burden.
Defining ESA Costs
Under H.R. 1719, some may argue about whether the number that a
power marketing agency displays is the correct reflection of fish and
wildlife costs. Those arguments are inevitable, and there are plenty of
venues in the region for all of us to voice our concerns to the agency.
But, that discussion should not inhibit the agency from making a final
determination and getting that information to customers.
For example, H.R. 1719 correctly includes the indirect costs as
well as the direct costs of ESA implementation. To a ratepayer they are
one and the same. Water spilled over a dam rather than creating
electricity impacts rate-payers just as much as direct projects,
capital costs, or operations and maintenance. The pertinent question
is: without the set of actions in question would the power rate be
lower? Whether the action causes a loss of generation or whether it is
a direct expenditure, the impact is pressure on rates to be higher than
they otherwise would be. An objective baseline can be clearly
established in generation capacity pre and post-implementation of the
biological opinions.
We would hope that BPA would administer this provision by including
all fish and wildlife costs in its calculation of cost for purposes of
this bill. While the bill refers specifically to costs incurred related
to compliance with the Endangered Species Act (ESA), it also refers to
``activities related to such Act''. In the case of mitigation paid for
by BPA and its ratepayers, the ESA has such broad impact that most if
not all fish and wildlife mitigation could be defined as related to
that Act even if it is more formally associated with another law such
as the Northwest Power Act.
Conclusion
H.R. 1719 is a straightforward approach to providing more
information and accountability regarding a major factor in the power
rates of consumer-owned utilities. Timely release of useful information
is a worthy goal in and of itself. And, just as important is the
potential that this information may create incentives for better
management of our natural resources that could benefit endangered
species and ratepayers alike. Thank you for this opportunity to testify
today. I look forward to working with you on this matter and addressing
any questions.
______
Mr. McClintock. Thank you, Mr. Corwin.
This concludes the testimony of the first panel. We will
now move to questions by each of the Members, and the Chair
will begin.
Mr. Corwin, I will start with you. Both of the Ranking
Members mentioned the failure of WPPSS as an argument against
this bill. You would think that highly speculative ventures
like WPPSS would caution them against even more speculative
ventures like solar and wind transmission, but we will save
that for the next panel.
The question I would ask of you is to highlight again the
difference between the fixed expenditures for retiring the
WPPSS bonds and ESA costs.
Mr. Corwin. Thanks. Yeah, I would say, the region has
learned a lot by the Western Power Supply System issues in the
past. As far as the differences between those costs, right now
the bonding piece from the--it is now Energy Northwest--is
melded with Bonneville's portfolio, and they have been
refinanced several times. And I would have to get with BPA to
pull out the exact cost of that, but it is lower than I heard
stated because the entire debt service of the agency----
Mr. McClintock. Well, I just wanted to underscore the point
you made, that these are fixed costs, as opposed to the ESA
costs, which are volatile and steadily mounting.
Mr. Corwin. Yes, there is a fixed amortization on those
costs now. ESA is volatile year to year by hundreds of millions
of dollars.
Mr. McClintock. And those ESA costs have nothing to do with
power generation. They are tacked on, having nothing to do with
that power generation.
Mr. Corwin. There is certainly not a direct O&M cost of
generating power.
Mr. McClintock. One of the pressing questions I have for
both Mr. Rettenmund and Mr. Corwin is, why can't the local
retailers simply provide this to their customers anyway? Why
don't you already put that on the bill?
Mr. Rettenmund. Well, it is readily available, the total
amount that Bonneville spends on fish and wildlife----
Mr. McClintock. But is there anything stopping you from
just putting that on the bill?
Mr. Rettenmund. What we want to put on is what our
individual consumer is contributing toward that total, and so
we need some way for the actual cost that we are incurring, and
then we can calculate what is representative for the individual
member. It wouldn't help the individual member, just the whole
750 million bucks, so----
Mr. McClintock. Right.
Mr. Rettenmund.--so we need a way to understand our share.
Mr. McClintock. But can't you do that anyway without
Federal legislation?
Mr. Rettenmund. It would be much better, much higher-
quality. I have done a back-of-the-envelope, but it is not very
precise. Bonneville is much more capable of telling us what our
share, of our $24 million in power costs, how much of that
relates to fish and wildlife. That is something they are
uniquely positioned to do.
Mr. McClintock. Well, just looking at it from the
perspective of a customer, my advice would be not to wait for
Federal legislation, just give it your best shot, so that
people at least have a ballpark estimate of what they are
paying through their power bills for all of these mandates.
Because, right now, they have no guidance. And, you know,
prices are absolutely critical to people. Prices convey all of
these costs and give them an accurate picture of what they are
getting for what they are paying. I rather suspect they would
be appalled. And I am surprised that utilities don't already
provide them with the best estimate of this information that
they can make.
Mr. Rettenmund. Well, we do. I can't speak for other
utilities, but we have taken our shot at it. And for our
typical residential customer, it is about $150 per year. For an
irrigator, we are talking about $8,000, $9,000 a year. And for
a larger business--not real large, because we don't have a lot
on our system--we are talking $30,000-plus a year.
So, Mr. Chairman, we do take our shot at doing that, and we
provide that information to our customers, our members on their
bill. But it is just our best estimate, and we would like to do
a better job of conveying that information.
Mr. McClintock. Well, I understand this bill will give you
far more accurate information. But, in the meantime, I wouldn't
wait for it.
Mr. Rettenmund. We do it.
Mr. McClintock. As a consumer, I would love to see what I
am actually paying for when I write those big checks to the
utility district every month.
Mr. Rettenmund. We get calls on that.
Mr. McClintock. Just to cover the question of replacement
costs, you know, when you are required to spill massive amounts
of water from a dam to meet these ESA requirements, for
example, the opposition says, ``Well, that is not really a
cost, that is just impossible to estimate,'' what is your
response to that?
Are these real costs when you have to spill water off a dam
that would be going for power generation instead to meet some
of these requirements? Is that an actual cost to consumers?
Mr. Rettenmund. Most definitely, that is an actual cost. To
the extent water is spilled, doesn't run through the generator,
there is an impact on the rates. They are higher than they
otherwise would be.
This is the ``compliance'' in the title of the Act,
``compliance.'' And those actions are in compliance, arguably,
with the Endangered Species Act. So this isn't saying, you
know, we will have a debate another time about whether they are
really cost-effective, some of those, but this is to identify
the cost of complying with the Act, that those costs are very
much definitely a compliance cost.
Mr. McClintock. Thank you.
Mr. Rettenmund. Scott can probably speak to it in more
detail than I can, but----
Mr. McClintock. Yes, but he doesn't have the time now, so--
--
Mr. Rettenmund.--that is the gist of it.
Mr. McClintock.--thank you.
The Chair recognizes Mrs. Napolitano for 5 minutes.
Mrs. Napolitano. Thank you, Mr. Chairman.
And normally, in business, that is known as the cost of
doing business. OK?
Ms. Patton, most of the discussion on the legislation
involves the costs related to the Endangered Species Act
compliance. Could you elaborate on the economic benefits of a
healthy fishery for the Northwest?
Ms. Patton. Yeah, I would love to.
Just the fisheries alone, the commercial fishery, the
tribal fishery, and the sports fishery, are a huge contribution
to the Northwest economy and to jobs in and around. They also
contribute to those fisheries in Alaska and elsewhere. So that
is one of the big issues.
The sports alone is in the billion dollars of annual kinds
of revenue. I, in fact, was--a couple of good old boys from
West Virginia sat next to me on the plane out here, and they
were telling me about their NRA problems with elk hunting, but
they also were telling me they were out there for a fishing
visit to the Columbia River, their very first, and they were
thrilled. And we kidded around about how much they spent on
hotels and meals and all that kind of stuff. But that is part
of what the benefit is of having a solid fishery that can
benefit commercial sports and tribal fisheries.
Mrs. Napolitano. OK. BPA has the highest ESA compliance
cost of any of the four PMAs, right?
Ms. Patton. Yes.
Mrs. Napolitano. And we often hear fish and wildlife
mitigation costs account for as much as 30 percent of BPA's
wholesale rates. But what impact does all these costs have on
the ratepayers?
Ms. Patton. Well, actually, looking at that analysis, we
have parsed out those numbers for 2010, which is not the same
number as the 802. It is more like in the $700 million range.
And once you look at that, it is about 21.5 percent of BPA's
budget in that year.
And when you look at how much that then translates into for
individual end-users, an investor-owned utility end-user pays
nothing because they don't buy from BPA. A full requirements
customer from Inland or one of the other utilities that buys
all their power from BPA, it is 13--well, closer to 14 percent.
That is including the foregone revenue and the replacement
power costs that we don't think should be included.
Mrs. Napolitano. Is that the spill also?
Ms. Patton. Yeah, that is paying for spill. If you took the
coalition's point of view and said that those are not the real
costs, then you would be down to more like 6 percent for those
who buy all.
And then there are a number of utilities that buy only part
of their power from BPA, like Seattle City Light. And the
relevant numbers there would be--if we include foregone revenue
and the indirect costs that we were talking about, that is
about 5-1/2 percent of their bills. And if you don't do that,
as we would suggest, it would be in the neighborhood of 2 to 2-
1/2 percent.
And it is a little higher if the costs are higher, but that
is because, as Mr. Rettenmund said, the power costs are only
about half of any----
Mrs. Napolitano. I have a limited time, so----
Ms. Patton. Sorry.
Mrs. Napolitano.--I want to be able to get to the next
question.
And is spill the only source of so-called foregone revenue
for BPA? And to that, what other uses of Columbia Basin water
prevent BPA from generating electricity? And how would these
uses affect power rates?
Ms. Patton. Well, the spill is not the only foregone
revenue. We definitely have uses for irrigation, for
navigation, and for flood control. And those are all important
uses, and we definitely support them.
This year, when BPA actually gave away power because we had
so much water coming through the system to avoid--to balance
the system----
Mrs. Napolitano. How do they affect the power rates?
Ms. Patton. Well, if they could have sold that power, they
would have made a lot more money and they would have been able
to reduce the rates. But they couldn't because we all care
about flood control, especially the people who live in
Portland.
Mrs. Napolitano. The farmers, right.
And the question is, in regard to the printing of the
information, how often would that change based on some of the
conditions of drought, the purchase power, the court-ordered
spills, and the irrigation needs?
Ms. Patton. It would certainly change annually. To keep up
even better, it would probably change monthly. But I am sure it
would be at least annually.
Mrs. Napolitano. Thank you, Mr. Chair. I yield back.
Mr. McClintock. I think we are going to go to a second
round on questions, since we only have two Members here and I
have a number of additional items to cover on this bill.
Mr. Rettenmund, we are told--and we know this bill requires
Federal agencies to provide very objective numbers, not the so-
called, you know, benefits from the ESA such as tranquility,
that sort of thing. That seems to me to be subject to
interpretation.
I mean, if you are required to provide ESA benefits on
customer bills, how would you be able to list quantifiable,
objective benefits, or would they be highly subjective and
subject to interpretation?
Mr. Rettenmund. Well, the benefits would be very
complicated and certainly beyond our capability of doing that.
But when you are talking about fish, they are a creature that
migrates out to the ocean, they have lots of interactions with
lots of elements, and to be able to then assign the benefits
for what we get for our $750 million would be a real challenge.
And, certainly, I don't know how anybody would objectively and
straightforwardly do that.
I mean, we can look at particular actions under the fish
and wildlife program, such as the removable spillway weirs
called the fish slides at the dams, and, you know, they cost
tens of millions of dollars. And we can kind of get a ballpark
number about what the benefits of those particular things would
be in terms of getting them downstream. What happens out in the
ocean and how many return as adults, there are lots of other
variables out there, and it would be very difficult to do that,
Mr. Chairman.
Mr. McClintock. Actually, I think people would be appalled
at the per-fish cost of many of these mandates, which, in many
cases that I have seen, runs into the tens of hundreds of
thousands of dollars per fish.
Mr. Rettenmund. Yes, Mr. Chairman. We haven't gone that
route. We have put this estimated individual cost to our
members, but we haven't attempted to do that. But it is my
understanding that for certain species it would be quite
significant per fish.
Mr. McClintock. I think the public would be absolutely
appalled to see such numbers.
Mr. Rettenmund. I talk to our members, and they are quite
vocal about sometimes what they see on their bill. They would
like not to pay that portion. We make it clear----
Mr. McClintock. It is amazing, when you pull out a pocket
calculator, the lunacy of some of the requirements and the
costs that they impose, real costs on real people paying real
electricity bills every month. And it seems to me and many
others that they have a right to know how much of that is
actually going to power generation and how much of it is going
to the pet causes of the environmental left.
The group American Rivers has said that the Klamath Dam
removal is a model for the Snake River dam removal. The removal
of the four Snake River dams would be under the guise of
helping endangered salmon. What would be the impact on your
electricity rates, and the salmon by the way, if the dams were
destroyed?
Mr. Rettenmund. Well, it would be a significant increase in
the rates that Bonneville would charge us, a significant
increase to our members. Those 4 projects, if memory serves me
correctly, are about 1,100 average megawatts of firm energy,
which is about 15 percent of Bonneville's total portfolio of
firm energy. You would have to replace that lost energy with
some other, much more higher-cost resource, much higher than
the cost of the hydro.
It is often argued that conservation can step in and do
that. We are already assigning conservation the role of trying
to reduce the cost of low growth. And there isn't an unlimited
supply of conservation. The six-power plan that the council put
out does not call for the removal of the Snake River dams and
has conservation being the resource of first choice to try and
tamp down low growth to help lower rates and make our system
more cost-effective.
Mr. McClintock. Final question. This will be a matter of
discussion on the next panel, as well, but I would like to take
the opportunity to ask you a question about the difference
between the Bonneville Power Administration's borrowing
authority compared to WAPA's authority.
Actually, I guess, Mr. Corwin, you would be the best person
to take that one on. Can you tell the Subcommittee what
differences there are between the two of them?
Mr. Corwin. Sure. Thank you, Mr. Chairman. And I had the
opportunity to testify on the Bonneville authority in March of
2009 when this Subcommittee was considering it.
They really are apples and oranges. The Chairman put it
pretty well. Bonneville had existing authority that it has had
for decades under the Transmission System Act. They had
structures in place for decades to use that financing for
transmission infrastructure and reliability, energy efficiency,
fish and wildlife, hydropower generation, such as the upgrades
to the Grand Coulee--or refurbishment at Grand Coulee.
The agency is legally required to act with adherence to
business principles, by statute, and they do so. Most
importantly of all, they have the strong, well-established
process that they go through for planning and building of any
infrastructure and looking at those costs with customers. In
fact, we spent 2 days earlier this week, full days, with the
agency going through their capital planning process.
Mr. McClintock. Great. Thank you very much.
If there is no objection, we will take out of order the
Ranking Member of the Natural Resources Committee for 5 minutes
of questions.
Mr. Markey. Thank you, Mr. Chairman, very much.
Ms. Patton, I seem to remember reading very recently that
Google and Facebook are building server farms up in the
Northwest as fast as they can. Are they doing that because
electricity rates are high in the Northwest and they like to
pay high electricity rates, Ms. Patton?
Ms. Patton. I don't think so. Those server farms use a
great deal of energy.
Mr. Markey. Why do you think they picked up there rather
than, like, the Northeast for something that consumes so much
electricity?
Ms. Patton. I think because the power rates are very
competitive.
Mr. Markey. Very competitive or very low?
Ms. Patton. Very low.
Mr. Markey. Compared to the Northeast, compared to the
South, compared to the Midwest. Do you think that is the case,
Ms. Patton?
Ms. Patton. That is correct. The hydropower base is very--
--
Mr. Markey. Have you ever heard of Google complaining about
the Endangered Species Act as one of the reasons why they might
not move to the Northwest with all of these server farms?
Ms. Patton. I have not.
Mr. Markey. What?
Ms. Patton. I have not heard Google complain.
Mr. Markey. You have not heard them.
Ms. Patton. In fact, I have asked them about it, and they
don't complain.
Mr. Markey. Actually, I remember reading that Facebook and
Google are actually touting all of the green power that they
have, huh, coming out of----
Ms. Patton. They are. They are. We actually brought to
their attention that they should think about the fact that
green hydropower is great hydropower. It has many, many great
attributes, but it also has some problems with salmon.
Mr. Markey. Do you believe, Ms. Patton, that it would be
good, in terms of attracting investment from large high-tech
companies that are streaming into your region, that they all
know that, you know, they are all going to be part of an effort
to undercut the Endangered Species Act? Do you think that would
help to draw Google and eBay and Amazon and Hulu up there?
Ms. Patton. I think they would be very embarrassed.
Mr. Markey. Do you think they would be very embarrassed?
Yeah. That is interesting.
Now, as you know, the Federal Government, pursuant to a
program that has been authorized by the Congress, is going to
be providing an $8.2 billion loan guarantee program for the
Southern Company to build nuclear power plants down in
Georgia--$8.2 billion worth of Federal funding.
Do you think it might be helpful for them to know what
happened with WPPSS, in terms of the exposure to the taxpayers?
Ms. Patton. I think that would be. I think that the WPPSS--
we call it Energy Northwest now--debt has----
Mr. Markey. They changed the name to protect the guilty.
Yeah, they are in, like, a big witness-protection program up
there now, you know. But----
Ms. Patton. But it is paid for by the ratepayers.
Mr. Markey. Yeah, we have been able to track them down up
there. They changed the name.
But do you think it might be helpful, in other words, for
the American taxpayer if the people up in the Northwest, those
who are still paying that WPPSS bill, had it on their bill?
Ms. Patton. It would be great.
Mr. Markey. Don't you think it would help all of us here--
--
Ms. Patton. I think so.
Mr. Markey.--if that was on the bill and then they could
see the $500 million, even last year, that they had to pay on
it, so they can see what happens when something goes wrong with
nuclear power in terms of their bills? Especially if it is
taxpayer-guaranteed.
Ms. Patton. Yeah. Almost $550 million. And the total debt
is now $5.9 billion for those three plants.
Mr. Markey. Yeah. So would you have a problem with us
putting that on the bill?
Ms. Patton. I would have no problems, but I would want it
to be----
Mr. Markey. Mr. Rettenmund, would you have a problem if we
put that on the bill, just so that the----
Ms. Patton.--everything on the bill.
Mr. Markey.--yeah, the public would know about that? Would
you have a problem with that?
Mr. Rettenmund. I think the public is already generally
aware----
Mr. Markey. No, no. Well, they are generally aware of the
Endangered Species Act, too, but you are going to give them a
specific number. Don't you think----
Mr. Rettenmund.--and the costs that were incurred during--
--
Mr. Markey. But $500 million--how many people do you really
think know they are paying still $500 million on that mistake?
Mr. Rettenmund. I think most of our members are aware of
the----
Mr. Markey. I am talking about the consumer, the consumer.
Mr. Rettenmund. Our members are--we refer to our consumers
as members in the co-op.
Mr. Markey. Oh. You think they all know?
Mr. Rettenmund. I don't think they all know, no, sir.
Mr. Markey. Would you object to us putting it on the bill?
Mr. Rettenmund. I think the way the bill is crafted right
now works.
Mr. Markey. No. But I am asking, would you mind if we added
that as an extra line?
Mr. Rettenmund. I don't need that information, sir.
Mr. Markey. You don't think that the consumer needs that
information?
Mr. Rettenmund. I didn't say that.
Mr. Markey. Why not? Why not? Why don't they need the
information?
Mr. Rettenmund. I think we can do an adequate job now of
putting that type of information, conveying it----
Mr. Markey. How would you convey that information, Mr.
Rettenmund?
Mr. Rettenmund. Well, we know that there are three broad
cost categories for Bonneville. There is the operating----
Mr. Markey. No, but how do you communicate the $550 million
last year to your consumers? How do you do that?
Mr. Rettenmund. We would be able to--monthly, we
communicate with our members about what the overall costs are.
And we can do the $750 million for fish and wildlife. We can do
the $700 million for the nuclear plants, including the
operation and maintenance. And there is the other big bucket of
dollars of $700 million for the operation/maintenance debt.
Mr. Markey. So if I made the Markey amendment to add in,
you know, the WPPSS money to the bill so that everyone could
know, would you object to that?
Mr. Rettenmund. I don't have an opinion on that today, sir.
Mr. Markey. You don't.
OK, how about you, Mr. Corwin? Would you object to it if we
were able to put that in?
Mr. Corwin. I don't think it is necessary because it is one
number.
By the way, I think that estimate is high for just the
WPPSS part of the debt.
It is one number you can come up with. Fish and wildlife is
much more complex, much more volatile year to year. It goes
hundreds of millions of dollars up and down between years. So
that is why it is valuable to have the agency produce it.
Mr. McClintock. All right, thank you. The gentleman's time
has expired.
Mrs. Napolitano?
Mrs. Napolitano. Thank you, Mr. Chair.
And I would like to introduce into the record a copy of the
U.S. residential average price per kilowatt hour. I think Mr.
Markey had an issue with this, over his subsidizing the rest of
the Western U.S., and I will yield to him in a minute if he
wants to comment on that.
Mr. McClintock. A question for the Ranking Member. Is that
the chart that shows that the areas with large hydropower
production have the lowest prices?
Mrs. Napolitano. That is correct.
Mr. McClintock. Thank you. I would be happy to enter that
into the record, without objection.
Mrs. Napolitano. Thank you.
Mrs. Napolitano. And then, to Mr. Corwin, in your written
testimony, you state BPA's fish costs are particularly driven
by Federal laws that do not directly relate to the business of
producing power, and that--that is it. Therefore, more
important that these costs be displayed on the utility bills.
Would you agree that, since BPA, the WPPSS-related costs
are not directly related to the business of producing power,
they should also be displayed on the customers' monthly power
bills?
Mr. Corwin. Right now, that bucket of nuclear debt and
costs is kind of melded together. It does relate to producing
10 percent of the power that Bonneville purchases.
Mrs. Napolitano. I know. But would you--they should also be
displayed, wouldn't you agree?
Mr. Corwin. I don't know. I was entertained by the
foregoing discussion, but I hadn't come prepared to take a
position on what else should be on the bill. I could think of
many other things that could be, in theory.
Mrs. Napolitano. Precisely. And if you want to really be--
--
Mr. Corwin. But this one is unique, I think.
Mrs. Napolitano.--transparent to the general paying
customer and the public--that is, the end-user, which would be
your residential--don't you think all of this information would
be valuable to them to be able to then assess where their
taxpayer money is going to in helping fund some of these
entities?
Mr. Corwin. I do think that transparency of all costs is
valuable to the consumers. And we work with the agency to make
sure that we can identify those costs.
This one is just unique in that it has many, many different
parts that you have to try to combine together to get the one
figure that we are talking about, as opposed to identifying,
you know, just--another cost we haven't talked about is the
cost of the treaty with Canada, for example----
Mrs. Napolitano. Right.
Mr. Corwin.--and other----
Mrs. Napolitano. Precisely. There are many moving parts.
Mr. Corwin. But those are much easier to--like Mr.
Rettenmund's testimony earlier, when he is trying to figure out
how to display a cost, he can grab those, put them on if he
wants. That is the local prerogative of the utility.
Mrs. Napolitano. OK.
But, to any of you, do you think it is worth almost half a
million dollars--$500 million a year to add this? I mean, this
is a--well, if you want to say it is a--it is an additional
cost to the taxpayer and the ratepayer.
Ms. Patton. I think it would be great. I do think it should
be all of the costs and benefits of all of those major pieces
of Bonneville's budget.
Mrs. Napolitano. But would it be worth----
Ms. Patton. Absolutely worth having.
Mrs. Napolitano.--$500 million annually to do display for
this?
Ms. Patton. Yes.
Mrs. Napolitano. OK.
Mr. Markey, would you care to take over?
Mr. Markey. Yes. I thank you. I very much appreciate it.
And I am a little shocked at the fact that a couple of our
witnesses here seem to think that the consumers only care about
endangered species compliance costs and that they don't care or
don't have to know on a monthly basis about the WPPSS costs. I
just am kind of shocked by that because the WPPSS cost is just
so massive. And I just think that you have to keep it in front
of them so they can see what happens when these nuclear
projects go wrong. And, again, I am going to continue to
advocate for that, because, you know, I do think that there is
a real problem there.
And I think one other thing--maybe you can help me with
this, Ms. Patton. Don't you think that we should also be
telling consumers how much lower their bills are because they
are only being charged cost-based rates rather than market-
based rates? Because I'm a big market guy. You know, I am a big
free-market guy. And the whole idea of, you know, subsidies out
there and the government getting in and subsidizing--so, don't
you think they should know that, that they are getting this
incredible discount because of--you know, they don't get
charged market rate?
Ms. Patton. Well, I think that----
Mr. Markey. And I was up in New England. All of us in New--
it is all market-based up in New England. We believe in
capitalism and the free market. But up in the Northwest, they
don't; they don't believe in that whole concept of market-based
rates.
So do you think that the consumers should know that, that
they are getting this additional benefit?
Ms. Patton. Well, I guess I have a couple things. One,
there are a lot of good reasons for the market-based rates in
the Northwest. Two, right now the market is so low for
wholesale power that Bonneville might even be higher than some
of the market.
And, three, the good thing is that our utilities, the
publicly owned utilities that get that power from Bonneville
are very happy to explain on a regular basis how their rates
are cheaper than the investor-owned utilities that neighbor
them. So we do get that information out to them.
Mr. Markey. Yeah, but having them put it on the bill each
month is what I am saying. You know, apparently, we are just
going to be expanding these bills with all the extra info they
get each month, because they can't remember it, so they see it
each time. Don't you think we should be putting in this other
extra info so they can just understand a little bit better how
the flow of cash works?
Ms. Patton. It would be very interesting to see the market
rate for power next to the portion of the customer's bill
that----
Mr. Markey. Yeah. I am a big Darwinian paranoia-inducing
capitalist, OK? So I would just like to get that info out
there. Thank you.
Mr. McClintock. The Chair is delighted that at this hearing
of the Water and Power Committee the Ranking Member has had an
epiphany on free markets.
And, with that, we will conclude this panel and thank the
witnesses for their testimonies. And we will excuse them at
this time and call up our second panel on the subject of H.R.
2915.
OK. If we are all set, the Chair would like to welcome our
second panel of witnesses.
You heard what I said earlier about time and timekeeping
and records, so we will just go right into the testimony.
We will begin with Ms. Lauren Azar, Senior Advisor to
Secretary Steven Chu, Department of Energy, from Washington,
D.C.
STATEMENT OF LAUREN AZAR, SENIOR ADVISOR TO SECRETARY OF ENERGY
STEVEN CHU, DEPARTMENT OF ENERGY, WASHINGTON, D.C.
Ms. Azar. Good afternoon, Mr. Chairman and Ranking Member
Napolitano.
Three months ago, I arrived here after Secretary Chu hired
me to get things built--things like transmission and storage.
Four months ago, I was a utility commissioner in Wisconsin.
Prior to that, I was a partner in the same law firm as Reince
Priebus, and, as a lawyer, I helped to create the American
Transmission Company. I also helped to site a 220-mile extra-
high-voltage line through the wetlands and scenic rivers of
Wisconsin and Minnesota. In short, I come from the trenches.
Today I sit before you in strong opposition of H.R. 2915. I
applaud the Chairman's goal to minimize Federal risk, but 2915
doesn't further that goal. While I have only been at the DOE
for 3 months, I have discovered ways this Subcommittee could
minimize the risk associated with WAPA, and I would be happy to
work with you to get this done, but that is not our task today.
Our task today is to address whether Congress should remove
WAPA's borrowing authority.
Congress, when led by Republicans and Democrats, has
recognized this Nation's desperate need for new electric
transmission. Federal mechanisms to bolster transmission were
passed in 2005 and 2009. And we need to look no further back
than 2 weeks ago, when apparently maintenance on a substation
in Arizona prompted a cascading blackout for about 5 million
customers. That event should never, never have happened. When
the investigations are completed, I suspect we will find that
additional transmission would have stopped the blackout from
spreading. Indeed, the transmission engineer from WAPA's
Phoenix office suspects some lines that WAPA may fund through
its borrowing authority could have localized that blackout.
I have attached a map to my testimony--and it is on the
screen right now--showing project applications that WAPA is
most actively pursuing as of May 2011. I would welcome
questions about the West's need for more transmission, but,
given the legislation in 2005 and 2009, I suspect you already
know it.
So if the West needs more transmission, why would someone
try to eliminate the government financing for that
transmission? Policy alone appears to be driving this bill:
that the Federal Government should have no role in funding our
Nation's infrastructure. I disagree for three reasons.
First, public-private partnerships built our Nation's
electric infrastructure. Our Nation is relatively unique in the
world as to how we built electric infrastructure. From the
birth of the electric industry, public-private partnerships
have been at the heart of its infrastructure build-out. This
borrowing authority simply continues that legacy. WAPA has
borrowed funds for three projects. For two of the three, it has
partnered with a private entity. In exchange WAPA, has the
opportunity to be part-owner. For the third, WAPA is developing
it alone to assist its preference customers--your
constituents--and to convey power from a renewable energy zone
to the Palo Verde hub.
Second, borrowing authority increases competition in
transmission. Historically, public utilities have been able to
rely on bonding authority through their State statutes to build
transmission. But sometimes public utilities would prefer not
to build transmission because it brings competition into
utility service territories. While public utilities have
bonding authority, private entities who could compete with them
do not. WAPA's borrowing authority helps to levelize this
playing field, thereby bolstering competition in the
development of transmission.
Third, WAPA brings more than just a purse. Thirteen of the
15 States in WAPA's territory have implemented renewable
portfolio standards or goals, as shown on the map attached to
my testimony and now on the screen. More renewable generators
will be built because of these State decisions. Coal, natural
gas, and nuclear generators can be built nearly anywhere
because the fuel can be transported to the generator. Not so
with renewables. For renewables, the fuel cannot be shipped, so
the generators must be sited where the fuel is located and the
transmission built to the site, often through multi-State
transmission lines. Multi-State transmission lines are
particularly difficult to build. If built at all, they take 5
to 15 years because of both the State siting and Federal
permitting processes.
In administering the borrowing authority, WAPA brings more
than a purse. It also brings a partner in development who can
assist with the NEPA process and a partner who can condemn
property if there are no other alternatives. While WAPA brings
more than a purse, the purse itself is also significant because
the interest rates under the borrowing authority drive down the
cost of capital.
In conclusion, I am ready, I am willing, and I am able to
help both sides of the aisle reduce risk associated with WAPA
and the other Power Marketing Administrations--actions that
would address the patchwork of legislation created over the
last 100 years. But I ask you not to adopt H.R. 2915 unless you
would like to hinder the development of transmission in the
West.
I look forward to your questions.
[The prepared statement of Ms. Azar follows:]
Statement of Lauren Azar, Senior Advisor,
Office of the Secretary of Energy, U.S. Department of Energy, on H.R.
2915
Chairman McClintock and Ranking Member Napolitano, I appreciate the
opportunity to testify on H.R. 2915, a bill to repeal Western Area
Power Administration's borrowing authority. The Department of Energy
(DOE) will be submitting additional comments on H.R. 1719 at a later
date.
I currently serve as a Senior Advisor to U.S. Secretary of Energy,
Steven Chu, whom I assist in developing energy infrastructure and
storage opportunities. Prior to joining DOE, I was a Commissioner of
the Public Service Commission of Wisconsin, a state regulatory body
responsible for electricity, natural gas, telecommunications and water
industries. I also served as President of the Organization of Midwest
Independent Transmission System Operator States, a non-profit
organization of states covered by the Midwest ISO--which is the
transmission operator and planner for the upper Midwest region. In both
positions I have had the responsibility to ensure that needed
transmission projects are planned and built in a responsible, cost-
effective way.
Today I am testifying in strong opposition to H.R. 2915, a bill to
repeal the Western Area Power Administration (Western) borrowing
authority statute. Western's borrowing authority statute empowers it to
develop transmission facilities that deliver power generated by
renewable energy sources.
New transmission is urgently needed in the western United States.
And yet, getting lines in the air has been far too slow over the past
few decades. Western's $3.25 billion of permanent, indefinite,
borrowing authority is, therefore, a critical tool for addressing two
of the major energy challenges we now face in the West--the need for
additional transmission infrastructure and integration of renewables
onto the grid. To date, three projects have been approved: Montana
Alberta Tie, Ltd., a 214-mile, 230-kilovolt single-circuit alternating
current transmission line between Great Falls, Montana, and Lethbridge,
Alberta; the development phase of TransWest Express, a 725-mile, 600-
kilovolt direct current transmission line from south central Wyoming to
the El Dorado Valley south of Las Vegas, Nevada, a transmission gateway
to California; and Electrical District 5 to Palo Verde Hub, a 45-mile,
230-kilovolt transmission line in Arizona. The construction of these
three transmission lines alone, if completed, would use more than half,
or approximately, $1.8 billion, of Western's borrowing authority.
Western is also considering a number of other projects that are at
various stages of the review process.
The heart of our Nation's renewable energy potential lies within
Western's service territory. It includes nine of the ten windiest
states of the country, as well as the best geothermal, hydropower, and
solar potential in the Nation. That is why there are 57 active requests
for transmission interconnections for wind power pending in Western's
interconnection request queue--representing a total of 9,223 megawatts
of wind power to add to the grid. On average, each of these requests
represents the equivalent of a 162-megawatt wind farm. These are
private sector developers that want to put people to work and steel in
the ground, but can't without access to transmission to bring their
electricity to market.
In addition to being a promising area for renewable energy
development, Western's service territory also suffers from significant
transmission congestion. Several areas in Western's service territory
were identified in DOE's December 2009 National Electric Transmission
Congestion Study either as critically congested, as congestion areas of
concern, or as conditionally congested areas where future congestion
would result if new generation is developed without simultaneous
development of transmission.
If the legislation before this Committee were enacted into law,
very promising renewable energy projects in California, Arizona, New
Mexico, Wyoming, Colorado, and Nevada would likely be delayed, or worse
not materialize at all. Just two weeks ago, Arizonans and Californians
experienced the impacts of our fragile transmission infrastructure when
widespread blackouts impacted millions of people in the Southwest. The
Administration firmly believes that Western's borrowing authority is
essential to enhancing domestic energy production and improving
electricity reliability throughout the West. For these reasons, the
Administration strongly opposes H.R. 2915.
Finally, I would like to stress that no funds will be provided
through Western's borrowing authority except after substantial due
diligence on the part of both Western and the Department of Energy. The
technical merits and feasibility of each project, as well as the
financial stability and capability of potential project partners are
thoroughly reviewed. Also, there must be a reasonable expectation that
a project considered for funding will generate enough transmission
service revenue to repay the principal investment; all operating costs,
including overhead; and accrued interest. Facilities funded through
Western's borrowing authority will be repaid through the rates paid by
subscribers of that new facility. Moreover, the statute calls for each
project funded under this authority to be repaid separately from
Western's other facilities, as well as from other projects funded using
borrowing authority. This safeguard assures that costs of each new
project are properly allocated to those who benefit from it.
DOE appreciates and respects the oversight role this Committee and
others play in ensuring we are implementing laws in the manner Congress
intended. Thank you for the opportunity to share these views and I look
forward to your questions.
______
Mr. McClintock. Thank you for your testimony.
I now recognize Dr. Robert Michaels, Professor of Economics
at California State University-Fullerton, to testify.
STATEMENT OF ROBERT J. MICHAELS, PH.D., PROFESSOR OF ECONOMICS,
CALIFORNIA STATE UNIVERSITY-FULLERTON, FULLERTON, CALIFORNIA
Dr. Michaels. Thank you, Mr. Chairman. I am honored to be
here.
We have three basic points that we want to make here. The
question about transmission of renewables, priority for
renewables, is really a question that needs to be rethought,
particularly in light of what we now know about renewables,
what we now know about the operations of the electrical system,
and what we understand about the economic effects of
renewables.
There have always been some renewables that have, in fact,
made the market test: biomass, such similar things. Right now,
the renewables we are talking about are renewables that
overwhelmingly do not pass the market test. They are wind,
solar--which, generally speaking, live on subsidies. Wind and
solar are high-cost energy. Wind and solar are intermediate
energy. And the contribution that wind and solar make to
reliability is often negative.
The problem that we are facing here is a much broader
question of subsidies, much broader than the immediate subject
matter here, and which needs to be thought about.
Interestingly, there is a Federal agency that is exactly doing
that. The Energy Information Administration has come out and
produced the first set of estimates of subsidies per kilowatt
hour for different types of generation fuels. The figures that
they come up with--I have them on my exhibits--are eye-opening,
to say the least. Allegations that fossil fuel sources carry
some sorts of preferences, they simply fall apart when you do
an objective accounting analysis of the data. And, in fact,
wind, solar--far, far more heavily subsidized, and it is not at
all clear that they make a contribution.
Well, you might say, what if we need this to develop them?
The problem is the subsidies that they are giving out are not
like research subsidies. The subsidies are basically production
tax credits. They are not things to incorporate, say, like
happens with coal, all the hundreds of millions being done on
carbon capture and sequestration.
We really need to rethink the subsidies. We need to rethink
the role of the intermittent renewables. And we need to think
out once more the question on which so much of this policy is
justified, an argument that it is going to bring us so-called
``green jobs.''
Green jobs are something nobody wants to think about too
hard because it is a matter of hope more than anything else.
But if you think about it with a little bit of sense, there is
a problem. What happens when some of these subsidies are used
to create green jobs? Taxes are paid by people or higher
electric bills are paid by people. The money they have to pay
out is money that they don't get to spend on stuff that is
produced by other people. The problem that we have in here is,
all we think about is creation. And the real difficulty is
nobody wants to be thinking about the job destruction that is
just as likely to happen.
We have some interesting figures because one of the big
problems with the analysis of so-called green jobs is this:
Nobody has any idea what they are. And you have remarkable sets
of figures coming out of prestigious research institutions like
the Brookings Institution. They recently put out one which said
that there were 2.7 million green jobs in the economy, and
somehow this was going to be a good reason for them to have
additional subsidies and additional renewables. About three-
quarters of a million of those jobs are for bus drivers and
trash haulers. Green jobs are whatever you want to define them
as. Bus drivers supposedly reduce congestion and pollution.
There is a great deal of work that needs to be done here.
It really needs to be done before we think about any policies
to expand renewables usage. And, more than that, we need to be
rethinking all about markets for electricity.
The Federal Energy Regulatory Commission used to actually
have a statement of its vision on the front page of its Web
site. It is gone. But only 7 years ago, a regulatory
commission, if you can imagine this, said, ``We want reliable,
affordable energy through sustained competitive markets.'' If
there is anything that we need on the Department of Energy's
Web page, it is the same slogan.
Thank you.
[The prepared statement of Dr. Michaels follows:]
Statement of Robert J. Michaels, PhD, Professor of Economics,
California State University
I. Introduction
My name is Robert J. Michaels. I am Professor of Economics at
California State University, Fullerton and an independent consultant. I
hold an A.B. Degree from the University of Chicago and a PhD from the
University of California, Los Angeles, both in economics. My past
employment as an economist includes the Institute for Defense Analysis
and affiliations with consulting firms. I am also Senior Fellow at the
Institute for Energy Research and Adjunct Scholar at the Cato
Institute. I attach a biography to this testimony. The findings and
opinions I am presenting today are entirely mine, and they are not the
official views of any of my professional or consulting affiliations.
For over 20 years I have performed research on regulation and the
emergence of markets in the electricity and gas industries. My findings
have been presented in peer-reviewed journals, law reviews, and
industry publications and meetings. I am Co-Editor of the peer-reviewed
journal Contemporary Economic Policy, an official publication of
Western Economic Association International with a circulation of 2,800.
I am also author of Transactions and Strategies: Economics for
Management (Cengage Learning, 2010), an applied text for MBA students
and advanced undergraduates. My consulting clients have included state
utility regulators, electric utilities, independent power producers and
marketers, natural gas producers, large energy consumers, environmental
organizations, public interest groups and governments. My services have
at times entailed expert testimony, which I have presented at the
Federal Energy Regulatory Commission, public utility commissions in
California, Illinois, Mississippi and Vermont, the California Energy
Commission, and in three previous appearances before other House
committees.
II. Background and Purpose
The Committee today is exploring the economics that underlies H.R.
2915, and in particular the consequences of repealing the Western Area
Power Administration's (WAPA) $3.25 billion borrowing authority under
The American Reinvestment and Recovery Act of 2009. That Act authorizes
borrowing to construct new or upgraded transmission lines
interconnected with WAPA, and specifically mentions lines ``delivering
or facilitating the delivery of power generated by renewable energy
resources.'' \1\ Numerous individuals and agencies have alleged that
the increased investment in ``renewable'' sources of power is a
worthwhile national objective on two grounds:\2\ [1] it will provide
environmental and climate benefits that outweigh their higher costs,
and [2] these investments will favorably impact employment,
particularly in a time of recession. If these statements were even
approximately true, they could justify support and subsidization of
renewable power. Unfortunately, they are not.
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\1\ 42 U.S.C. Sec. 16421a.
\2\ There is no generally accepted definition of ``renewable''
sources, but popular usage includes biomass, geothermal, wind and solar
facilities. The U.S. Department of Energy has sometimes included
hydroelectric generation and some states include still others, e.g.
Pennsylvania's inclusion of waste coal as a renewable source.
---------------------------------------------------------------------------
My testimony addresses the realities of renewable electricity. It
first addresses the very minor contribution of renewables to the
nation's power supply, and how that contribution reflects subsidies and
regulations rather than market factors. It continues with a summary of
the actual subsidies to various power sources, showing that some
renewables receive highly disproportionate treatment that is
unjustifiable on economic grounds. The third part questions the logic
behind any policy that purports to ``create jobs.'' Even if government
can create them, energy policy is one of the poorest possible vehicles
with which to do so. Renewables are seldom sources of durable jobs, and
their actual importance for the nation's employment is negligible. On
closer examination, most of the millions of frequently touted ``green''
and ``clean'' jobs have little to do with either existing or proposed
energy policies. I conclude that federal policies toward renewables are
due for a complete rethinking, and that the WAPA authorization may be a
useful starting point for that process.
III. Renewables and reality
A. Renewables in the U.S. power supply
Exhibit 1 shows the amounts of the nation's power coming from
various sources. In 2010, 44.9 percent came from coal, 23.8 percent
from natural gas, 19.6 percent from nuclear, and 4.1 percent from
renewables (excluding hydropower).\3\ Note the recent drop in
production from coal, the longer-term increase in production from gas
and the remarkable constancy of nuclear generation. Renewable power is
a small fraction of today's total, but its contribution was even
smaller in the past--2.1 percent in 1990 and 2.2 percent in 2005, when
its current growth began. Exhibits 2 and 3 show that the mix of
renewable sources has changed substantially over the past 20 years. In
1991, over 95 percent of renewable electricity was from geothermal
sources, biomass and waste burning. These technologies were viable
because their unsubsidized power was (and still is) competitive with
fossil-fuel generation in a few areas. They were also dispatchable,
operable when their power was valuable and left idle when it was not.
All three of them have since stagnated. In 1992 they produced 70.5
million kilowatt-hours (gigawatt hours or gwh) and in 2009 slightly
more, 72.2 gwh. Solar power remains a minor presence despite its
substantial subsidies. Its 1993 output of 0.45 gwh grew to only 1.29
gwh in 2010, under 1 percent of renewable power and 0.03 percentof all
U.S. power. Exhibit 4 shows that the growth of renewable electricity
since 2000 has been almost entirely in wind power, which by 2010
accounted for over half of all renewable generation capacity.
Explaining that growth is our next task.
---------------------------------------------------------------------------
\3\ All figures are from various reports from the U.S. Department
of Energy's Energy Information
Administration. Data and references are available upon request from
the author.
---------------------------------------------------------------------------
B. Costs of power and costs of reliability
Wind power is both intermittent and expensive, and official
expectations are that it will remain so. Exhibit 5 shows the U.S.
Energy Information Administration's (EIA) projections of the levelized
cost per megawatt-hour (mwh) of various technologies (including fuel
where applicable) for plants expected on-line in 2016 (in 2009
dollars). The three most costly sources are solar thermal ($312/mwh),
offshore wind ($243) and solar photovoltaic ($211). The cost of onshore
wind is $97/mwh. Compared with a conventional (not an advanced)
combined cycle gas-fired generator ($66/mwh) the cheapest intermittent
source is almost 50 percent more expensive. Intermittent renewables are
even likely to be poor investments under a carbon tax or cap-and-trade
system. The costs of carbon capture and sequestration (CCS) technology
are still highly uncertain, but EIA estimates that adding it to a
combined cycle gas unit still leaves it 8 percent less expensive per
mwh than the cheapest wind turbine. At carbon prices typically
projected for cap-and-trade regimes the wind plant still loses.
Technology and economics both tell us that intermittent wind
capacity carries costs that will likely exceed those the same
dispatchable fossil-fueled capacity. Small amounts of wind can easily
be integrated into a regional grid because a sudden calm is
operationally indistinguishable from a minor outage. Larger amounts of
wind capacity, however, require costlier backup arrangements, including
operating reserve generators. In most regions wind blows most strongly
when its power production is least valuable. In 2006, California had
2,323 MW of wind capacity and was operating under record loads in early
summer. Wind's average on-peak contribution (over the diverse northern
and southern climates) was 256 MW.\4\ For system planning purposes,
ERCOT, the Texas grid operator, currently sets a wind turbine's
``effective capacity'' at 8.7 percent of its nominal amount for
planning purposes.\5\
---------------------------------------------------------------------------
\4\ Robert J. Michaels, ``Run of the Mill, or Maybe Not,'' New
Power Executive, July 28, 2006, 2. The
calculation used unpublished operating data from the California
Independent System Operator. Similarly low wind power production can be
seen in real time on most warm days at the ISO's web site. http://
www.caiso.com/Pages/TodaysOutlook.aspx
\5\ Lawrence Risman and Joan Ward, ``Winds of Change Freshen
Resource Adequacy,'' Public Utilities
Fortnightly, May 2007, 14-18 at 18; and ERCOT, Transmission Issues
Associated with Renewable
Energy in Texas, Informal White Paper for the Texas Legislature,
Mar. 28, 2005 at 7.
http://www.ercot.com/news/presentations/2006/
RenewablesTransmissi.pdf
---------------------------------------------------------------------------
Because wind requires fossil-fuel generation as backup we cannot
simply conclude that a mwh of wind power eliminates the pollutants in a
mwh of conventional power. Research by gas marketer Bentek Energy found
that in some areas additional wind power has strikingly perverse
consequences. Bentek found that large increases in Texas and Colorado
wind capacity indeed led to less coal-fired generation. Emissions of
EPA ``criteria pollutants'' from these plants, however, actually
increased, and CO2 emissions were unchanged.\6\ Operating
data showed that wind's variability required numerous quick adjustments
by coal-fired units, which were responsible for the added pollution.
Bentek's controversial conclusion was that the total load in the area
could have been served with lower total emissions had the wind units
never existed.
---------------------------------------------------------------------------
\6\ Bentek Energy, How Less Became More: Wind, Power and Unintended
Consequences in the Colorado
Energy Market (April 10, 2010). http://docs.wind-watch.org/BENTEK-
How-Less-Became-More.pdf Criteria pollutants include ozone and oxides
of nitrogen and sulfur. Bentek's findings have yet to be challenged.
---------------------------------------------------------------------------
C. Who gets what subsidies?
Subsidies and regulations can explain wind power's rise quite
graphically. The American Reinvestment and Recovery Act (ARRA) extended
wind's sporadic production tax credit (PTC, now also applicable to some
other renewables) through the end of 2012. Before the PTC's first
enactment in 2000, only 67 megawatts (MW) of wind capacity were built.
That figure grew to 1,697 MW during its initial year of 2001. For 2002
(credit not in effect) and 2003 (in effect) the figures are 446 and
1,687 MW; and for 2004 (off) and 2005 (on) they are 389 and 2,431
MW.\7\ Many other factors influence investment, but total investment in
years with the tax credit was 544 percent greater than in years without
it. (We cannot go beyond these years because subsequent extensions have
included retroactivity provisions that investors may have come to
expect.) There is, however, no evidence of changes in market conditions
that would diminish the importance of subsidies, as was recently noted
by the American Wind Energy Association (AWEA). In mid-2010 it claimed
that ARRA's subsidy provisions (which included an investment tax credit
option) had been responsible for an increase in small turbine
installations:
---------------------------------------------------------------------------
\7\ U.S. Department of Energy, Energy Efficiency and Renewable
Energy (DOE/EERE), GPRA07 Wind
Technologies Program Documentation (2007), App. E at E-6.
http://www1.eere.energy.gov/ba/pdfs/39684_app_E.pdf
---------------------------------------------------------------------------
``The ITC was perhaps the most important factor in last year's
growth. . .[it] helped consumers purchase small wind systems
during a recession when other financing mechanisms were hardest
to obtain. The enactment of the ITC [was] the industry's top
priority. . .'' \8\
---------------------------------------------------------------------------
\8\ AWEA Small Wind Turbine Global Market Study, Year Ending 2009,
4.
http://www.awea.org/smallwind/pdf/
2010_AWEA_Small_Wind_Turbine_Global_Market_Study.pdf
---------------------------------------------------------------------------
Alongside such subsidies, renewable portfolio standards (RPS) and
related regulations in approximately half of the states require
utilities to obtain certain quantities of power from renewable sources.
Although quantification is difficult it is likely that some wind
investments have been made solely for RPS compliance, rather than
because they were cost-effective choices.
Energy subsidies are a sensitive issue in part because they have no
generally agreed-upon definition. For fiscal 2010 the U.S. Energy
Information Administration (EIA) produced what are the currently
authoritative estimates. Its authors took particular care in
calculating the effects of subsidies to various fuels on the actual
amounts of power they produced. Thus a subsidy to the oil industry will
only be relevant to the extent that it affects the (negligible) amount
of oil used to generate power. Exhibit 6 presents the basics. Per mwh
of power that it actually produced, wind received a subsidy of $56.29
and solar received $775.64. Wind gets 88 times more funds per mwh than
coal, and the same multiple more than gas and oil.\9\
---------------------------------------------------------------------------
\9\ Institute for Energy Research http://
www.instituteforenergyresearch.org/2011/08/03/eia-releases-new-subsidy-
report-subsidies-for-renewables-increase-186-percent/
---------------------------------------------------------------------------
Taken by themselves, these figures alone cannot determine the
desirability of subsidies. For example, the newness of renewable
technologies might provide an economic rationale for subsidies to fund
basic research that if successful could render them truly competitive.
(Justifying the subsidy, however, also requires a demonstration that
renewables somehow differ from other leading-edge industries in their
unique needs for support.) Even if so, the current form of the subsidy
is inappropriate. A targeted research subsidy might make sense, but one
that simply lowers prices paid by purchasers of renewables or reduces
the taxes of investors is harder to rationalize. EIA's report states
that ``tax expenditures'' (i.e. reductions) to the coal industry
(including those for coal not used to produce power) were $561 million
in fiscal 2010, while R&D subsidies (possibly necessary if we are to
have ``clean coal'') were $663 million. Tax expenditures for renewables
were $8,168 billion, primarily the production tax credit for wind,
while the R&D that might make them competitive was only $1,409 million
for renewables as a group with $166 of that going to wind.\10\
---------------------------------------------------------------------------
\10\ EIA, Direct Federal Financial Interventions and Subsidies in
Energy in Fiscal Year 2010 (2011), http://www.eia.gov/analysis/
requests/subsidy/pdf/subsidy.pdf
---------------------------------------------------------------------------
IV. Renewables and employment
A. ``Green jobs''
It is rapidly becoming apparent that renewable energy is failing to
produce the promise of painless prosperity embodied in ``green jobs''
that will simultaneously decrease unemployment rates and reduce
pollution. Begin with some principles:\11\
---------------------------------------------------------------------------
\11\ Some of these are adaptations of statements that originally
appeared in Robert Michaels and Robert Murphy, Green Jobs: Fact or
Fiction? (Institute for Energy Research, Jan. 2009).
---------------------------------------------------------------------------
1. The proper goal of energy policy is to support the efficient
provision of energy. The lower the cost of energy to the
economy, all else equal, the higher will be job creation and
economic growth outside of the energy sector. Raising energy
costs by forcing the use of uneconomic technologies that create
more job slots will have exactly the opposite effect. Put
simply, more workers in energy reduce the production of non-
energy goods and services.
2. Any analysis of job creation by green energy must consider
the simultaneous effect of job destruction. Policies that raise
the cost of energy to households and businesses must leave them
with fewer funds to spend elsewhere. Such policies include the
spending of tax revenues to support green activities instead of
other government purchases or returning the funds to taxpayers.
To a first approximation the net effect of such programs on
employment will be zero. This is particularly important here
because the new job slots are often visible, while the losses
are dispersed among the thousands of goods and services that
households and businesses will spend less on. Jobs that cost
more to create will generally have higher costs in terms of
lost jobs elsewhere.
3. Double counting of jobs and unrealistic assumptions about
labor markets.
Although they seldom say so explicitly, the models that underlie
most studies of green energy and job creation assume that there is a
limitless pool of idle laborers with just the right skills to fill the
job slots created by the spending. As always happens in labor markets,
many such jobs will in fact be filled by already-employed workers,
whether the nation is in prosperity or recession. Even if green
policies moved massive amounts of labor between jobs they would have
little impact on the national unemployment rate.
B. How Government Models Job Creation
Much federal research on both the technology and economics of
renewables is in the hands of the National Renewable Energy Laboratory
(NREL), where a now-standard computer model of the economic impact of
renewable projects originated and continues to be maintained. During my
appearance at a 2010 hearing before the House Energy and Environment
Subcommittee the discussion turned to what was known about the effects
of renewables on unemployment. After a representative of NREL testified
about the optimistic findings of that standard model, known as JEDI
(Job and Economic Development Impact), I commented that its use was
entirely inappropriate. I noted that JEDI is structured, by NREL's own
admission, in a way that makes any outcome other than job creation
mathematically impossible.\12\ It is thus a worthless tool for
analyzing the actual employment effects of renewables, because it can
only produce favorable ones. NREL's representative disputed my
statement, and that person and I agreed to submit supplemental
testimony on the matter.\13\
---------------------------------------------------------------------------
\12\ The model and some applications are discussed in detail at
http://www.nrel.gov/wind/news/2011/1574.html
\13\ See Supplemental Testimony of Robert J. Michaels, PhD, June
28, 2010. I have not seen any comparable submittals from NREL.
---------------------------------------------------------------------------
As I detail in that testimony, JEDI is one of a large class of
``input-output'' models that analyze the effects of a project by
examining the payments its owners make to workers and suppliers of
materials. The monies they receive will in part be respent on other
goods, and a ``multiplier'' effect brings further increases in incomes,
outputs and employment across potentially many industries. I noted that
``[t]here is nothing in the model that could conceivably
decrease employment or output in other sectors of the economy.
Any project consider by JEDI, no matter how efficient or
inefficient as a source of electricity, will show a positive
effect on employment. That increase may be large or small, but
we can be certain that it will not be negative.'' \14\
---------------------------------------------------------------------------
\14\ Id. at 3.
---------------------------------------------------------------------------
I further noted that most of the effects will be transitory, since most
of the positions created will be in construction rather than operation.
JEDI's creators appear to have consciously chosen to avoid
discussing the sources of the workers or the funds for projects under
study. Even if there is a vast pool of unemployed workers in the
project area who just happen to have the right skills, we can say
nothing about its effect on overall employment. JEDI does not net out
jobs lost due to taxes paid by consumers and businesses elsewhere that
they cannot spend as they wished to. Even if the project is funded by
private or public bond issue, alternative projects with their own
employment consequences could have been undertaken. It is not even
enough to have workers in the project area with the right skills,
because net increases in employment usually happen only if those
persons have also been suffering long-term unemployment.
NREL's disregard of elementary economics and continued reliance on
this model is remarkable, particularly in light of its' creators'
acknowledgments of its inadequacies:
On occasion [the creators] have cited the works of others who
use more complex models capable of forecasting both job
creation and job destruction. Such models can incorporate
factors that include responsiveness to higher power prices,
reductions in employment in conventional power, and the
`crowding out' of other capital spending by increased
investment in renewables. Sometimes such models produce
negative effects on employment in the long run. NREL's
researchers are thus aware that other models that capture
important complexities are available (or they could surely
create their own). For unknown reasons, they instead persist in
using a model that can produce only the single result of job
creation from renewables.\15\
---------------------------------------------------------------------------
\15\ Id. at 5, one footnote omitted. It is also noteworthy that the
model has never appeared in the peer-reviewed economics literature. As
best I can discern, its basic structure was developed by urban planners
rather than economists.
---------------------------------------------------------------------------
The ``green jobs'' claim is logically insecure at best, and models
like JEDI mask that insecurity by invariably finding that the jobs are
created. Interestingly, however, I am aware of no published research in
which the predictions of JEDI or a similar model for some project have
been compared with the actual results. Apparently the model's own
creators also take its claims on faith, and that faith appears to be
without foundation.
C. Which jobs are green?
Even if there were a usable model to analyze job creation, we are
left with the problem of identifying which jobs are actually ``green.''
A renewable project can result in the employment of technical personnel
trained to specialize in operating or maintaining its technology (whom
we presume are green), as well as additional bartenders who will help
the workers to enjoy their evenings (harder to classify as green). The
matter is important because any type of governmental or private
spending might open up slots for bartenders. Renewable technologies,
however, have been viewed as the foundation for a massive increase in
skilled workers whose human capital will provide them with higher
lifelong earnings.
Two recent studies point up that the choice of definitions can
affect estimates of the green workforce, and show that an extremely
small fraction of jobs defined as green are in renewables. The
Brookings Institution recently estimated 2.7 million jobs associated
with the ``clean economy.'' The categories include ``Agricultural and
Natural Resources Conservation'' (18.9%), ``Regulation and Compliance''
(5.3%), ``Energy and Resource Efficiency'' (31.0%), and ``Greenhouse
Gas Reduction, Environmental Management, and Recycling'' (39.6%).\16\
The clean economy expands its bounds by creative classification. Thus
we find that energy efficiency includes 350,000 people in public mass
transit, mostly bus drivers, and environmental management includes
386,000 people in waste management, formerly known as trash disposal.
The researchers chose not to use an alternative definition that would
have been far more helpful to most readers: how many clean jobs have
(or will) come into being as a result of recent and proposed energy,
environmental and climate regulations? (And, of course, how many others
will vanish.)
---------------------------------------------------------------------------
\16\ Mark Muro, et al, Sizing the Clean Economy: A National and
Regional Green Jobs Assessment, (Brookings Institution, 2011).
---------------------------------------------------------------------------
Some additional insight is possible when we consider the Brookings'
final category. ``Renewable Energy'' contains 138,000 clean jobs, only
5.1 percent of the total. If we subtract the 55,000 of them in
hydropower, which most data sources class as nonrenewable, the figure
is down to 84,000, or 3.1 percent of all clean jobs. 29,000 of this
remainder are in solar (thermal and photovoltaic), which accounts for
under 1 percent of actual renewable power production. 24,000 more are
in wind (17.4 percent of renewable power workers and under 1 percent of
total clean workers).\17\ Even if we are willing to assume very large
``multipliers'' from renewable power, its impact on employment will be
trivial, whether taken as a fraction of all energy, clean economy jobs,
or the entire labor force.
---------------------------------------------------------------------------
\17\ Brookings' authors note (at 12) that the American Wind Energy
Association claims 30,000 ``direct'' workers and the Solar Energy
Industries Association 24,000, roughly the same as the Brookings
figures.
---------------------------------------------------------------------------
As a check on those figures we examine Washington State, where
environmental awareness is high and renewable energy (non-hydro) is a
significant presence. Its four base categories are [1] Increasing
energy efficiency, [2] Producing renewable energy, [3] Preventing and
reducing environmental pollution, and [4] Providing mitigation or
cleanup of pollution.\18\ Again, a significant fraction of its green
workers are bus drivers, trash handlers and the like. The Washington
data show that renewable energy occupies 3,464 workers, 3.5 percent of
the state's 99,979 green jobs.\19\ Its current wind capacity is 2,357
MW, ranking it sixth among the states.\20\ Washington is one of the
most active states in wind investment and production, but still only a
small percentage of its green workforce works with renewables,
including wind. The Washington study's authors further note that
``construction-related industries and occupations, as well as
professional and technical services occupations, accounted for the
majority of all [renewable] positions.\21\ The majority of these jobs
are in manufacturing and construction. Per project, both are short-
lived, and once in operation ``most renewable energy facilities operate
with a relatively small number of operations and maintenance employees.
. .. The proportion of part-time positions is higher for renewable
energy than for any other private-sector core area (35 percent).'' \22\
---------------------------------------------------------------------------
\18\ Washington State Employment Security Department, 2009
Washington State Green Economy Jobs (Mar. 2010), 5. Brookings notes (at
14) that its total is approximately 19 percent higher than its own on a
per capita basis.
\19\ Calculated from Washington State Employment Security
Department, 15 and 21.
\20\ American Wind Energy Association, Wind Energy Facts:
Washington (Aug. 2011). Washington has very little non-wind renewable
capacity. http://www.awea.org/learnabout/publications/upload/
Washington.pdf
\21\ Washington State Employment Security Department, 7.
\22\ Washington State Employment Security Department, 30.
---------------------------------------------------------------------------
Both the Brookings and the Washington data tell similar stories.
Green or clean jobs are not objectively definable, and cases like the
bus drivers tell us that they are easy to inflate. Under both studies'
definitions, renewable power jobs are small fractions of the total, and
most will be short-lived construction work performed in the main by
people with skills that are usable in almost any type of project.
Washington's wind units produce a higher fraction of the state's power
than those of most other states, but their existence has not created
any discernible difference in Washington's labor market performance.
Similarly, it appears that most of the solar work force is in
construction, where opportunities will diminish with the growth of
installations. The past three years have led many to question the
federal government's ability to create new employment and the odd logic
that lies behind that hope. The data, however, should make it clear to
both believers and nonbelievers that renewable power is a singularly
inappropriate and ineffective way to increase employment.
V. Summary and Conclusions
The reality of most renewable electricity, particularly from
intermittent sources, is easy to summarize. It is expensive,
undependable and environmentally problematic. Some renewables such as
biomass and geothermal are exceptions, often capable of passing market
tests that wind and solar cannot. Unchallenged data from the Energy
Information Administration show that the subsidies per kwh actually
generated by wind and solar power are over 80 times those received by
non-nuclear conventional sources, and over 15 times those for nuclear
power. Most subsidies to wind and solar are politically-inspired wealth
transfers, rather than tools to incentivize improvements in their
competitiveness. In all but the most extreme scenarios, the Department
of Energy projects that they will be uncompetitive with conventional
resources, even if carbon policies come into being.
The economic theory behind claims that renewables will increase
employment applies (if at all) to an economy that hardly resembles
today's. Advocates of job creation almost invariably fail to note the
concomitant destruction of jobs in industries whose products are no
longer bought because consumers must pay taxes or higher prices for the
renewable power. The National Renewable Energy Laboratory's models of
job creation are curiosities devoid of policy relevance, mathematically
structured to render any possible job destruction an impossibility.
Even if we only look at jobs in renewables, their impacts on employment
are minimal. The Brookings Institution estimates slightly over 80,000
renewable energy jobs, many of which are short-term construction work.
The millions of ``clean'' or ``green'' jobs mentioned in the media are
overwhelmingly positions that would be filled even if all renewable
electricity vanished--bus drivers, refuse workers, and some building
trades, to name a few. Calling these workers part of the ``clean''
economy can only mislead the public about the likely effects of energy
and climate policy.
Any choice by government to financially support one energy source
over another is by definition an exercise in picking winners. All too
often such spending generates forces that make it very difficult to
abandon the non-winners. The stories of synfuels and ethanol are back
today in wind and solar power, which have many friends in Washington.
Whatever happens there, the real future of energy has already arrived,
and the winner was picked by the market, with virtually no help from
the District of Columbia. Independent risk-takers devised ways to
access shale gas for the simplest of reasons--there was profit to be
made by alleviating a scarcity of conventional gas. Shale is
competitive on costs, compliant with environmental rules and in the
main within state jurisdiction, under which it is producing prosperity.
The jobs shale creates are the kind that have always powered the
country, and their finance comes from the voluntary savings of
households and businesses. The nation is looking at centuries of low-
cost, clean, secure fuel that creates the kind of jobs that are really
worth creating--in the making of goods and services that people
voluntarily trade because doing so makes both sides better off. Wind
and solar largely exist because government can coerce payments for
them.
The subject matter of this hearing is a seemingly minor provision
in a far larger and more pervasive law. ARRA and many other recent laws
contain language that prioritizes facilities associated with renewable
power in ways that I believe are unwarranted. This testimony has
summarized some facts about renewable energy in order to shed light on
its true costs, benefits, and labor market effects. These facts clearly
show that this committee must rethink ARRA's statement that WAPA pay
particular attention to renewable energy. I am not testifying about the
organization or performance of WAPA, or about the costs and benefits of
any specific transmission project. Rather, I am stating that power from
renewable sources should compete for transmission resources on the same
terms as power from conventional ones.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. McClintock. Great. Thank you very much for your
testimony.
I now recognize Mr. Jimmy Glotfelty, Executive Vice
President of Clean Line Energy Partners LLC, from Houston,
Texas, to testify.
STATEMENT OF JAMES GLOTFELTY, EXECUTIVE VICE PRESIDENT, CLEAN
LINE ENERGY PARTNERS LLC, HOUSTON, TEXAS
Mr. Glotfelty. Thank you, Mr. Chairman and Ranking Member,
members of the Committee. My name is Jimmy Glotfelty. As the
Chairman said, I am Co-Founder and Executive Vice President of
Clean Line Energy Partners. I appreciate the opportunity to
provide comments with our views on H.R. 2915 today.
In its current form, we oppose this bill, but we would be
happy to work with you to find ways to address your concerns
and find a way where this program can sustain transmission
development in the West while protecting consumers and
Western's ratepayers.
We agree with the need to ensure that consumers of Western
Area Power Administration are financially protected. We also
understand the concerns really about this hearing have arisen
as a result of some DOE loan guarantee programs. We believe
they are two very different types of programs.
We strongly believe that taxpayers and Western customers
can be fully protected without repealing one of the most
important programs enacted in recent years to encourage the
development of major new electric transmission lines,
especially in the Western United States. Unlike laws that
Congress enacted to enable the development of railroads and
interstate natural gas pipelines, there has never been a
comprehensive Federal authority to develop and site interstate
transmission lines. This is precisely why this program is
extremely important.
Congress partially addressed the problem of siting
interstate transmission lines in the Energy Policy Act of 2005.
Section 1221 provided the Federal Energy Regulatory Commission
with backstop authority. Unfortunately, legal challenges and
court decisions have rendered this program largely ineffective.
Section 1222 of the Energy Policy Act of 2005 authorizes
the Federal Power Marketing Administrations, like Western, to
partner with private developers, like Clean Line Energy
Partners, to finance and develop new transmission lines. We
provide them with the capital, and we use their development
authority, siting authority, to build transmission lines. This
is an extremely viable provision that Clean Line has been
pursuing in the Eastern interconnection. However, it is
currently unclear if this authority can be effectively utilized
in the West.
Our company is privately funded. We have spent millions of
dollars in good faith developing our transmission lines in the
East and in the West. Our projects are based upon the free
market and will not get built unless market participants
purchase capacity on our lines. The greatest challenge that we
face in siting the transmission lines is obtaining necessary
cooperation from government agencies.
Once completed, our line in the West, which is called
Centennial West, will be 900 miles. It will be a high-voltage,
direct-current transmission line. And it will deliver 3,500
megawatts of clean energy from very high-capacity-factor wind
resources and perhaps solar resources to communities in
California and in the Western United States.
The development and construction of the Centennial West
Clean Line is estimated to cost $2.5 billion, and the wind
resources that will follow are in the $7 billion range. These
investments do create jobs. If you have been to a wind farm or
seen a transmission line being built, there are actual jobs
that come with this type of investment.
We have been in discussions with Western for over a year
and have executed a memorandum of understanding and are close
to executing a joint development agreement to complete this
line. Under the arrangement we are working on with Western,
Clean Line would bear all development expenses, and we would
reimburse Western for all of their expenses as well as any
environmental costs that they must bear. This will ensure that
their ratepayers, that their customers, are made whole.
Western would only use funds borrowed from the U.S.
Treasury for the project once key development milestones have
been reached, risks have been mitigated. And this is at a time
when other financial institutions believe the project is
secure, as well. We don't expect Western to finance 100 percent
of a transmission line, so what happens is Wall Street firms
have to be secure in their understanding of the line, as well.
So Western is really in a boat with a lot of other financial
institutions, and that is a risk-mitigation tool.
Western has been extremely prudent in the manner in which
the officials have implemented their transmission
infrastructure program, and I might say, in fact, a little too
cautious. The Centennial West line is estimated to provide more
than 5,000 construction jobs and 500 permanent jobs once
completed.
The wind resource in the Great Plains from Canada to Texas
is among the best in the world. For this reason, wind farms in
that area produce the least-expensive clean energy in the
country. Recent power purchase agreements signed in this region
are in the 3-cent range. Please look at the numbers. Wind is
very inexpensive. There are private-sector Wall Street firms
that suggest that it is the least cost-expensive electricity on
the market today.
I look forward to your questions. Thank you, sir.
[The prepared statement of Mr. Glotfelty follows:]
Statement of James Glotfelty, Executive Vice President,
Clean Line Energy Partners, on H.R. 2915
Mr. Chairman and Members of the Committee:
As a cofounder and Executive Vice President of Clean Line Energy
Partners, I appreciate the opportunity to provide the Committee with
our views on H.R. 2915 and the effects it will have on the development
of transmission in the western United States.
Clean Line opposes this bill in its current form. We understand the
desire to ensure that taxpayers and the customers of the Western Area
Power Administration are financially protected. We also understand the
concerns that have arisen recently with respect to some unrelated loan
and loan guarantee programs. But we also strongly believe taxpayers and
Western's customers can and will be fully protected without the need to
repeal one of the most important authorities enacted in recent years to
encourage the development of major new electric transmission lines.
Clean Line Energy Partners is a developer of long distance, high
voltage direct current electric transmission lines to connect the best
renewable energy resources in North America to communities and cities
that lack access to new, low-cost renewable power. Clean Line provides
transmission solutions to generators and load-serving utilities in
order to efficiently interconnect clean energy with consumers.
The United States is in dire need of new electric transmission
lines. Transmission is required to move electric power from generating
facilities to load centers because major renewable, nuclear, and fossil
generating facilities often are located tens, if not hundreds, of miles
from load centers where the electric power they produce is consumed.
Many of the transmission lines in the United States are decades old,
and were built when generating resources and electric demand were much
different than they are today. Moreover, new transmission is needed to
increase reliability in all areas of our grid. And yet, while many
transmission lines have been announced across the country in recent
years, very few have actually been built.
The need for new electric transmission lines and new authority to
enable development of those lines has been recognized by the industry
for many years and also has been recognized and acted upon by Congress.
Unlike laws that Congress enacted many decades ago to enable the
development of railroads and interstate natural gas pipelines across
the country, there never has been comprehensive federal authority to
develop and site interstate transmission lines. Congress partially
addressed this problem with two provisions of the Energy Policy Act of
2005. Section 1221 authorized the Federal Energy Regulatory Commission
to site transmission lines in national interest electric transmission
corridors designated by the Department of Energy, but legal challenges
and court decisions concerning DOE's and FERC's exercise of this
authority have rendered this program largely ineffective in its current
form. Section 1222 of the 2005 law authorizes the federal power
marketing administrations to partner with private developers to finance
and develop new transmission lines. However, the power marketing
administrations and DOE have not proceeded with any Section 1222
projects to date.
In contrast, the Western Area Power Administration's Transmission
Infrastructure Program (TIP), which Western put in place after
enactment of the American Recovery and Reinvestment Act and the
authorization of borrowing authority for Western, has enjoyed success.
Under this program, one transmission project is under construction and
several more are in advanced stages of development.
This leaves us in a precarious situation. At a time when we all
want energy security, when virtually all informed market participants
believe new electric transmission facilities are necessary, and when we
need to improve electric reliability, we have only one currently
successful national authority whereby public and private sector
participants can partner to build new interstate electric transmission
lines: Western's TIP program under the borrowing authority enacted in
the ARRA. We strongly believe that now is not the time to repeal that
authority.
Our company is privately funded and has spent millions of dollars
in a good faith effort to develop transmission facilities across the
United States using the legal authorities that Congress and the States
have made available. Our projects are based upon the free market and
will not get built unless market participants purchase capacity on our
lines. The greatest challenge we face is siting the transmission lines
and obtaining the necessary cooperation from government agencies.
Western has been a leader among federal agencies, under the TIP
program, in working with us and seeking to advance the development of
interstate transmission.
Clean Line is developing a transmission line in the western United
States called the Centennial West Clean Line (please see attached
project description). Once completed, this HVDC transmission line will
deliver 3,500 megawatts of clean power from very high capacity factor
renewable energy projects in New Mexico and Arizona to communities in
California and other areas in the West that have a strong demand for
clean, reliable energy. We have been in discussions with Western for
over a year and have executed a memorandum of understanding and are
close to executing a development agreement. In parallel with our
discussions with Western, we have invested millions of dollars in
routing studies, electrical feasibility processes, path rating studies,
and public outreach activity. Under the arrangement we are working out
with Western, Clean Line would bear all development costs and reimburse
Western and other federal agencies for all of their costs. Western
would only use funds borrowed from the U.S. Treasury for the project
once key development milestones have been reached and risks have been
significantly mitigated, and we expect such borrowings to be secured.
Moreover, as currently contemplated, Western would have ownership of
the assets purchased with borrowed funds. In our negotiations to date,
Western has been extremely conscientious about not exposing taxpayers
or its customers to financial risk.
Western has been extremely prudent in the manner in which its
officials have implemented the TIP program. It is our experience that
Western will not participate in a project if it is not prudent, not
supported by sufficient market demand, or does not contain strong
financial protections for customers and taxpayers. In fact, Western has
a successful track record of public/private partnerships that we as a
country should build upon, not eliminate.
The Centennial West Clean Line will transport clean power via an
approximately 900-mile overhead, high voltage direct current
transmission (HVDC) line. This line is currently planned to traverse
New Mexico, Arizona and end in California. The development and
construction of the Centennial West Clean Line is estimated to cost
$2.5 billion and will make possible another approximately $7 billion of
new renewable energy investments. The Centennial West Clean Line is
estimated to provide more than 5,000 construction jobs and more than
500 permanent jobs to maintain and operate the wind farms and the
transmission line.
Clean Line has invested thousands of hours in the development of
the Centennial West Clean Line project and has met with thousands of
landowners, stakeholders, elected officials and others who will be
impacted by our lines. We have tried to be as transparent and
straightforward as possible, and work very hard to do a good job at
siting lines and maintaining landowner relations. Currently in the
West, the TIP program managed by Western to implement the borrowing
authority enacted in the ARRA is the only viable program that will help
us site our line across three states.
The wind resource in the Great Plains, from Canada to Texas, is
among the best in the world. For this reason, wind farms in the area
produce the least expensive new clean energy in the country. Recent
power purchase agreements signed in the region have been in the range
of three cents per kilowatt-hour including the Production Tax Credit
(PTC). Accessing these resources, however, requires new transmission.
In the West, Western's TIP program is a critical piece of this
puzzle. Without a workable TIP program or other workable federal
electric transmission siting authority, it will be virtually impossible
to site a long distance, interstate electric transmission line. Doing
so requires working with each state and its own unique state laws, some
of which--as Clean Line has experienced in some states--will not permit
the development of interstate transmission lines. As a result, an
individual state can bring to a complete stop the development of a line
that is in the nation's and the region's best interests, that would put
thousands of Americans to work, that would improve electric
reliability, and that would enable the development of additional
domestic energy resources.
A stable and progressive electric transmission siting policy is the
most crucial need for the development of new transmission in the U.S.
As a result of stable policy in Texas, the private sector is building
over $6 billion of transmission to access renewables. These facilities
reduce costs and provide thousands of jobs across the state.
I urge the Committee not to move forward with repealing the
authority that enables Western to carry out its TIP program. It would
be even better if Congress would move forward with a more comprehensive
federal electric transmission siting authority. But in the meantime, it
is important that Congress leave in place the authority it has enacted
so far that enables at least some new electric transmission to be
financed and built.
In closing, Mr. Chairman, the loss of this program would
potentially mean that Clean Line's efforts, as well as numerous others
in the West, would grind to a halt. This could have a detrimental
effect on energy security and eliminate the possibility for thousands
of jobs. At a time when the American public is demanding investment in
new infrastructure and access to clean, domestically-produced energy,
we should be expanding successful programs like TIP, not eliminating
them.
______
Mr. McClintock. Thank you for your testimony.
Our final witness on this panel is Mr. William Yeatman,
Assistant Director of the Center for Energy and Environment at
the Competitive Enterprise Institute, from Washington, D.C.
Welcome.
STATEMENT OF WILLIAM YEATMAN, ASSISTANT DIRECTOR, CENTER FOR
ENERGY AND ENVIRONMENT, COMPETITIVE ENTERPRISE INSTITUTE,
WASHINGTON, D.C.
Mr. Yeatman. Chairman McClintock, Ranking Member
Napolitano, thank you very much for inviting me before you
today to testify in strong support of H.R. 2915.
This legislation is necessary primarily because there is
strong evidence that the WAPA loan authority is unnecessary. In
March of 2009, Ed Rahill, the CEO of ITC, America's largest
transmission company, testified before this Committee that his
company had no problems raising capital to build transmission
lines. He said, and I quote, ``Even in the current environment,
ITC has not found access to the debt or equity markets to be
difficult. Financing new transmission is not the problem that
needs to be overcome in order to build transmission to provide
greater market access for renewable resources,'' unquote.
Mr. Rahill's testimony begs an important question: If the
private sector is ready and willing to facilitate the
transmission of electricity from green energy sources, then why
is there a need for the WAPA loan authority?
In addition to the fact that the market renders the WAPA
loan authority unnecessary, there are several structural
reasons that suggest the loan authority is an unduly risky use
of taxpayer dollars, especially in light of our current budget
woes.
For starters, assessing the creditworthiness of
transmission projects is well outside the core competencies of
WAPA. The Western Area Power Administration was created in 1977
to market and deliver Federal hydropower to load centers. Now
it is being asked to create investment-bank-like capabilities
from scratch.
The history of much more established loan programs for
clean energy projects suggests that there is a long learning
curve. For example, the Department of Energy's Loan Programs
Office was created by the 2005 Energy Policy Act in order to
facilitate the development of low-carbon energy technologies.
Since its inception, the Loan Programs Office has been
criticized repeatedly by Federal watchdogs for management
issues. And in my written testimony, I cite all the studies.
There are five, all told: three from the GAO, Government
Accountability Office; two from the Inspector General of the
Department of Energy. Most recently, it was criticized for the
high-profile bankruptcy of Solyndra, Incorporated, which put
the American taxpayer on the hook for almost $500 million.
The Department of Energy's Loan Programs Office has had 6
years to build capacity, and it is still plagued by problems.
By comparison, the WAPA loan authority was established in less
than 3 months. That raises a red flag.
Finally, the WAPA loan authority is made even riskier by
the American Recovery and Reinvestment Act's mandate to rush
money out the door. In enacting this legislation in February
2009, the Congress' primary purpose was to jump-start the
economy, made moribund by a global recession. To this end, the
WAPA loan authority announced its first loan just 7 months
after the enactment of the stimulus and just 4-1/2 months after
it was created. In the words of WAPA loan authority manager
Craig Knoell, this timeline was, quote, ``amazingly fast,''
unquote.
However, the WAPA loan authority's mandate to spend quickly
coexists uneasily with wise fiscal management. Rushed
investments tend to be rash investments, which tend to be poor
investments.
With this in mind, it is worthwhile to consider the current
state of WAPA's first loan, which financed the Montana-Alberta
Tie Line, a 200-mile interstate transmission line. As
originally conceived, the project was slated to cost $150
million and it was supposed to be completed by the end of 2008.
In September 2009, it received the first WAPA loan for $160
million. At the time, the project's cost had risen to $213
million, so $63 million more than what it originally cost. And
it was expected to be completed in 2010, so a year after the
original--or a year later.
Then, in March 2010 testimony before this Subcommittee,
WAPA Administrator Timothy Meeks indicated that the project's
completion date had been pushed back to mid-2011, a further
delay. In June of this year, construction on the project was
halted due to a lawsuit filed by the principal contractor
against the project owner for failure to pay its bills. At the
time, the project owner indicated that the Montana-Albert Tie
Line needed to raise an additional $25 million, and it pushed
the expected completion date back to late 2011. Last month, the
project owner indicated that it needed an additional $25
million--so $50 million, all told, since June--to complete the
line.
As such, the project is 3 years over schedule and almost
double what it originally--or it will cost almost double what
it was originally estimated to cost. That strikes me--or that
raises a number of red flags for me, with respect to this first
loan.
Thank you very much for allowing me to testify, and I look
forward to answering your questions.
[The prepared statement of Mr. Yeatman follows:]
Statement of William Yeatman, Assistant Director, Center for Energy and
Environment, Competitive Enterprise Institute, on H.R. 2915
Chairman McClintock, Ranking Member Napolitano, Members of the
Subcommittee, thank you for inviting me to testify before you today in
support of H.R. 2915, the American Taxpayer and Western Area Power
Administration Customer Protection Act of 2011. I am William Yeatman,
assistant director of the Center for Energy and Environment at the
Competitive Enterprise Institute. We are a non-profit public policy
organization dedicated to advancing the principles of limited
government, free enterprise, and individual liberty. CEI specializes in
regulatory policy. We accept no government funding and rely entirely on
individuals, corporations and charitable foundations for our financial
support.
My testimony is organized in two sections. The first explains why I
believe that the Western Area Power Administration Section 402
Transmission Infrastructure Program (``WAPA loan authority'') is too
risky for American taxpayers, especially in light of our nation's
current deficit problems. In the second section, I explain the
potential unintended consequences of policies like the WAPA loan
authority that are meant to promote renewable energy.
I. The WAPA Loan Authority Is Too Risky for Taxpayers
Environmentalist Public Policy Is a Poor Substitute for the Profit
Motive
Investment banks and venture capitalists have a singular purpose:
To earn a worthwhile return on their capital investments. This is a
powerful incentive for wise fiscal management. It is their resources
that are at stake, and foolhardy investments will lose money. Thus,
private sector financing is subject to market discipline that provides
powerful incentives for sound money management.
By contrast, the WAPA loan authority has nothing to do with the
profit motive. Rather, the purpose of the program is to lend taxpayer
money to transmission projects that advance environmentalist public
policy, to the benefit of special interests--in this instance,
renewable energy developers. Specifically, the American Recovery and
Reinvestment Act created the WAPA loan authority for the purpose of
``delivering or facilitating the delivery of power generated by
renewable energy resources constructed or reasonably expected to be
constructed.''
At a fundamental level, public policy imposes much less discipline
on capital allocation than does the profit motive. To some extent, the
WAPA loan authority's mandate to facilitate green energy must compete
with the taxpayer's interest in ensuring recuperation of the original
investment. This reality is reflected by the fact that the Western Area
Power Administration needs to certify only a ``reasonable'' expectation
of repayment before it can lend taxpayer money through the WAPA loan
authority. Private sector financing, unencumbered by public policy
goals to promote green energy, has a higher threshold for repayment
than a mere ``reasonable'' chance.
As such, the WAPA loan authority lends money as would an investment
bank or a venture capitalist, but it is subject to entirely different
incentives that render it inherently riskier relative to private sector
financing.
WAPA Loan Authority Lending Is a Moral Hazard
This discrepancy in riskiness between private sector lending and
financing by the WAPA loan authority is increased by the fact that the
American Recovery and Reinvestment Act allows for the forgiveness of
loans if they cannot be repaid. Whereas private sector lenders suffer
direct financial harm if their loans default, the WAPA loan authority
is under no such constraints, because the American taxpayer in
general--rather than only the Western Area Power Administration or its
customers--are on the hook. This is a moral hazard conducive to fiscal
mismanagement.
Investment Banking Is outside the Western Area Power Administration's
Core Competencies
Another reason for concern is that lending money to facilitate
green energy projects is well outside the core competencies of the
Western Area Power Administration. In effect, it has been tasked with
creating an investment bank from scratch. The history of much more
established loan programs for clean energy projects suggests that there
is a long learning curve.
For example, the Department of Energy's Loan Programs Office was
created by the 2005 Energy Policy Act, in order to facilitate the
development of low-carbon energy technologies. Since its inception, the
Loan Programs Office has been red-flagged repeatedly by federal
watchdogs i--most recently for betting almost half a billion
dollars on Solyndra, Inc., a California-based solar power components
manufacturer that declared bankruptcy in August. The Department of
Energy's Loan Programs Office has had six years to build capacity, and
it is still plagued by problems. By comparison, the WAPA loan authority
was established in less than three months.
---------------------------------------------------------------------------
\i\ In a 2007 report, the Government Accountability Office
questioned, ``whether this program [the Department of Energy Loan
Programs Office] and its financial risks will be well managed'' See p.
4: http://www.gao.gov/new.items/d07339r.pdf
In a 2008 report, the Government Accountability Office stated that,
``The Department of Energy is not well positioned to manage [the loan
guarantee program] effectively and maintain accountability.'' See: p.1
http://www.gao.gov/new.items/d08750.pdf
In a February 2009 report, the Department of Energy Inspector
General warned that, ``[I]n a number of critically important areas, the
[Department of Energy] had not fully developed and implemented controls
necessary to successfully manage the program.'' See p. 2: http://
energy.gov/ig/downloads/department-energys-loan-guarantee-program-
innovative-energy-technologies-ig-0812
In a July 2010 report, the Government Accountability Office noted
that 50% of the conditional loan guarantees it examined had been issued
before full reviews were conducted. See p. 8: http://www.gao.gov/
new.items/d10627.pdf
In a March 2011 report, the Department of Energy Office of the
Inspector General, 15 out of 18 loan guarantees issued by the Loan
Programs Office lacked ``pivotal'' information regarding risk ratings.
See p. 2 http://www.recovery.gov/Accountability/inspectors/Documents/
IG-0849.pdf
---------------------------------------------------------------------------
The American Recovery and Reinvestment Act's Priority on Speed Is
Conducive to Rash WAPA Loan Authority Lending
The WAPA loan authority is made even riskier by the American
Recovery and Reinvestment Act's mandate to rush money out the door. In
enacting this legislation in February 2009, Congress's primary purpose
was to jumpstart an economy made moribund by a global recession.
The WAPA loan authority has explicitly adopted this purpose--that
of speedily spending taxpayer money. As noted by the promulgation of
the WAPA loan authority in the Federal Register, ``The Purpose of the
Recovery Act, which authorized this Program, is to stimulate job-
creation in the near term ii.'' [Italics added] Later in the
same notice, it stated, ``The [WAPA loan authority] anticipates a
combination of new transmission construction and upgrades to existing
infrastructure. . .in order to meet the objectives of the Recovery Act
to create jobs in the near term and rapidly develop infrastructure to
deliver renewable resources iii.'' [Italics added]
---------------------------------------------------------------------------
\ii\ Federal Register Vol. 74, No. 92, 14 May 2009, 22733
\iii\ Ibid., 22734
---------------------------------------------------------------------------
To this end, the WAPA loan authority announced its first loan just
seven months after the enactment of the American Recovery and
Reinvestment Act. In the words of WAPA loan authority Manager Craig
Knoell, this timeline was ``amazingly fast iv.'' However,
the WAPA loan authority`s mandate to spend quickly coexists uneasily
with wise fiscal management. Rushed investments tend to be rash
investments, which are almost always poor investments.
---------------------------------------------------------------------------
\iv\ Western Area Power Administration website, ``About TIF,''
http://ww2.wapa.gov/sites/western/recovery/Pages/default.aspx
---------------------------------------------------------------------------
This was evidenced recently evidenced by the high-profile July
bankruptcy of Solyndra, Inc, the recipient of the first loan guarantee
subsidized by the American Recovery and Investment Act through the
Department of Energy Loan Programs Office. An ongoing investigation by
the House Energy and Commerce Subcommittee on Oversight and
Investigations suggests that this loan was rushed in order to quickly
demonstrate results from the American Recovery and Reinvestment Act
v. Notably, the Solyndra loan was closed 10 months before
the next such loan guarantee; in the 10 months thereafter, 10 loan
guarantees were issued vi. Serious questions remain whether
the rushed schedule compromised due diligence.
---------------------------------------------------------------------------
\v\ For information on the investigation, see: http://
energycommerce.house.gov/hearings/hearingdetail.aspx?NewsID=8897
\vi\ The Department of Energy posted a timeline of Section 1705
loan guarantees on its website, available here: https://lpo.energy.gov/
?page_id=134
---------------------------------------------------------------------------
Private Financing Is Not a Limiting Factor to Renewable Energy
Development
In testimony before this Subcommittee during a March 2009 hearing,
Western Area Power Administrator Timothy Meeks justified the WAPA loan
authority as a means to break ``a vicious cycle,'' whereby, ``a lack of
funding has been the weak link in building transmission and the lack of
transmission has been the weak link in the development of renewable
generating resources vii.''
---------------------------------------------------------------------------
\vii\ Statement of Timothy J. Meeks before Subcommittee on Water
and Power, 10 March 2011, p. 4, http://naturalresources.house.gov/
UploadedFiles/MeeksTestimony03.10.09.pdf
---------------------------------------------------------------------------
This supposed impetus for the WAPA loan authority was contradicted
by testimony at the same hearing from Edward M. Rahill, CEO of ITC
Holdings, Inc, the nation's largest independent transmission company.
He indicated that there are no constraints on private sector financing
to link renewable energy projects to the nation's electricity grid. He
testified,
``Despite the current and recent turmoil in the credit markets,
ITC and its subsidiaries have been successful in every debt and
equity financing related to the ongoing operating company
investments and acquisitions since ITC was founded in 2003.
Even in the current environment, ITC has not found access to
the debt or equity markets to be difficult. . ..Financing new
transmission is not the problem that needs to be overcome in
order to build transmission to provide greater market access
for renewable resources viii.''
---------------------------------------------------------------------------
\viii\ Statement of Edward M. Rahill before Subcommittee on Water
and Power, 10 March 2011, p. 2 http://naturalresources.house.gov/
UploadedFiles/RahillTestimony03.10.09.pdf
---------------------------------------------------------------------------
If the private sector is already financing transmission adequately,
then the WAPA loan authority is not necessary. At best, it is
duplicative, and therefore crowds out market mechanisms that allocate
capital more efficiently. At worst, it is financing only those projects
that have been spurned by the market, which suggests they are a bad
bet.
Too Risky for Private Lenders, Too Risky for Taxpayers
WAPA loan authority loans are riskier than private sector
financing. As such, they should also be too risky for public sector
financing. In light of America's current deficit problems, now is not
the time to unduly chance taxpayer money on the success or failure of
novel renewable energy technologies.
II. Unintended Consequences
The WAPA Loan Authority's Mission Is at Odds with Affordable and
Reliable Electricity, Especially in light of Pending/Final
Regulations from the Environmental Protection Agency
The Western Area Power Administration's 17,000 miles of high
voltage transmission lines are a component of the nation's
interconnected electricity grid. At any given time, the power that
enters the system must equal the power that leaves the system. Supply
must equal demand, on a second to second basis, or else the system
breaks down and the lights go out.
This balancing feat is a complex engineering challenge, and it is
made much more difficult by the incorporation of renewable energy.
Unlike conventional energy sources, which can ``ramp'' electricity
generation up or down predictably due to fuel stored onsite, renewable
energy production is variable and unpredictable. After all, the wind
doesn't always blow and the sun doesn't always shine.
The primary solution to the reliability challenges engendered by
the intermittent nature of renewable energy is to back up wind and
solar generation with conventional energy generation, primarily natural
gas fired power plants, as they are able to ``ramp'' up and down the
fastest.
However, at the same time that the Obama administration is trying
to incorporate as much renewable energy into the grid as quickly as
possible, it is also implementing environmental regulations that will
radically alter the nation's electricity market by dramatically
reducing demand for coal-fired electricity. Unfortunately, the addition
of renewable energy and the subtraction of coal power work to the
detriment of the system's reliability and affordability.
A significant portion of the nation's coal-fired power plant fleet
is expected to be shuttered, due to an array of pending and final
Environmental Protection Agency regulations--including the Cross-State
Air Pollution Rule, the Utility Maximum Achievable Control Technology
requirement under Hazardous Air Pollutants program, the Regional Haze
Rule, and the regulation of greenhouse gases under the Clean Air Act.
According to the Edison Electric Institute, the breadth and speed of
EPA regulations could lead to the retirement of up to 90,000 megawatts
of coal-fired electricity generation ix. And a preliminary
assessment by the Federal Energy Regulatory Commission Office of
Electric Reliability showed 40,000 MW of coal-fired generating capacity
``likely'' to retire, with another 41,000 megawatts ``very likely'' to
retire x.
---------------------------------------------------------------------------
\ix\ Edison Electric Institute, Potential Impacts of Environmental
Regulation on the U.S. Generation Fleet, January 2011, p. v, http://
www.pacificorp.com/content/dam/pacificorp/doc/Energy_Sources/
Integrated_Resource_Plan/2011IRP/EEIModelingReportFinal-
28January2011.pdf
\x\ FERC Chairman Jon Wellington, Commissioner John Norris,
Commissioner Cheryl LaFleur, letter to Sen. Lisa Murkowski, 1 August
2011, p. 2 http://murkowski.senate.gov/public/
?a=Files.Serve&File_id=0942ce17-3b12-4643-99ba-8fe2f5a7680a
---------------------------------------------------------------------------
Something must replace this lost power, and the most plausible
alternative is natural gas. The Fukushima Daiichi disaster in Japan
helped galvanize opposition to nuclear power, and it is difficult to
foresee a near to medium term scenario whereby that industry increases
its market share in the United States. A significant expansion of the
hydropower industry is also difficult to imagine, thanks to entrenched
environmentalist opposition to new dams. The only alternative is
natural gas. Accordingly, it is reasonable to expect that there will be
a profound shift in baseload electricity generation away from coal and
to natural gas.
Thus, the current administration is pushing variable renewable
energy, which requires backup conventional energy production, primarily
natural gas, in order to maintain system reliability. At the same time,
the administration is implementing regulations that will shutter a
significant amount of coal-fired electricity generation, which will
likely lead to a precipitous increase in natural gas generation. These
are two potentially enormous sources of demand for gas, occurring
simultaneously. Of course, when demand increases, prices follow. The
result is likely to be expensive electricity.
There are additional reliability concerns. It is always a challenge
to site a new power plant, be it conventional or renewable. In the
short term, therefore, there is no guarantee that sufficient new
generation will be built to accommodate the expected loss of coal-fired
generation. As a result, it is possible that natural gas ``peaker''
power plants--those that are designed to ``ramp'' up and down quickly--
will be reassigned for baseload generation. This would reduce the
flexibility of the grid and make it much more difficult to maintain
system reliability as greater amounts of renewable generation are
incorporated.
Environmental Harm
Presumably, the purpose of promoting renewable energy is to
mitigate the environmental consequences of conventional energy
generation. Ironically, recent evidence suggests that adding wind
power--the predominate form of renewable energy--into the power supply
actually increases air pollution.
Demand for intermittent renewable energy is not set by market
forces, but by government mandates. Thirty states have renewable energy
productions quotas, known as Renewable Portfolio Standards, which
require ratepayers to use fixed percentages of renewable energy. As a
result of these mandates, most utilities operate their wind energy
generation on a ``must take'' basis. This means they add wind power
whenever it is available. As wind power is added to the power system,
conventional energy generators like coal and gas fired power plants
must ``ramp'' down. However, fossil fueled generators, and coal power
plants in particular, operate much less efficiently when they are
``ramped'' up and down, and this causes more emissions of air
pollution.
A recent study by Bentek, a Colorado-based energy market
information company, found that in Colorado and Texas electricity
markets, the incorporation of high amounts of wind energy into the grid
actually increased emissions of sulfur dioxide and nitrogen oxides
xi.
---------------------------------------------------------------------------
\xi\ Bentek, How Less Became More. . .Wind, Power and Unintended
Consequences in the Colorado Energy Market, see: http://docs.wind-
watch.org/BENTEK-How-Less-Became-More.pdf
---------------------------------------------------------------------------
______
Mr. McClintock. Well, thank you very much for your
testimony.
This concludes the formal testimony in the hearing, and we
will now move to Members' questions. And I would like to begin.
Dr. Michaels, taxpayers are being asked to risk $3.25
billion on the same technology and by the same Administration
that has just delivered the Solyndra scandal. Now, we are told
that this is a very cheap way of producing electricity. I
believe that you took a comparative look at the costs of
various forms of electricity. Is this a cheap form of
electricity? Is this a good investment for our taxpayers?
Dr. Michaels. It looks like it has a cost of zero if all
you think about is the wind turning the turbine. The problem is
that that is electricity that is almost valueless. It is almost
valueless because it can't be integrated with the system, it
can't be firmed up for reliability, unless you make a large
number of other investments. And you incur a large number of
other operating costs--in particular, gas-fired units that can
come on quickly as backup for when the wind stops blowing.
Mr. McClintock. So you have to build a separate gas
generator and keep it at constant readiness in order to back up
the intermittent power coming off of the windmills; is that
correct?
Dr. Michaels. Not quite, because each utility already has a
good-sized fleet of gas generators that is uses to adjust its
output as you go through the day. It doesn't necessarily entail
the making of a large number of additional investments.
When we are getting to the questions like 30 percent wind,
various studies like that, then you do have issues in gas
investment.
Mr. McClintock. Now, hadn't you in your written testimony
contended that, in many cases, this actually increases
emissions because of the solar mandate? Or perhaps that was Mr.
Yeatman's testimony.
Mr. Yeatman?
Mr. Yeatman. Oh, indeed, yes, sir. A recent study by
Bentek, an energy information firm in Colorado, based in
Colorado, found that there is a high amount of wind input onto
the grid that exceeds natural gas capacity that forces
utilities to switch to coal-fired power plants to back up these
intermittent wind resources due to the inefficiencies wrought
by turning up and down, ramping up and down coal-fired power
plants, which is not the way they were intended to operate. It
actually, ironically, results in an increase of emissions of
sulfur dioxide and also nitrogen oxide.
Mr. McClintock. Now, our constituents are actually being
asked by force--because we are not giving them a choice in the
matter; we are investing them in the transmission lines for
these facilities.
Now, is there a difference between the transmission lines
required for the wind and solar arrays compared to normal
transmission facilities?
Dr. Michaels?
Dr. Michaels. Wind installations--very often, you have to
have the turbine where the wind is. We are seeing a lot of
initiatives, including the one we were talking about here,
being taken. These are to reach remote units. The difficulty in
some of these cases is that they have to be reached by radial
lines--lines that don't improve the reliability of the system
and are particularly vulnerable.
Mr. McClintock. But isn't there a degradation in
transmission over long distances?
Mr. Glotfelty. Mr. Chairman, if you would let me answer
that, there is.
Mr. McClintock. Well, no, I am asking Dr. Michaels.
Dr. Michaels. For a standard AC, yes. For DC, in fairness,
there is relatively less loss, but you have to have special
engineering considerations on the system to make it work.
Mr. McClintock. So we are talking about more expensive
lines than you would use for normal transmission; are you not?
Dr. Michaels. Quite possibly, yes, sir.
Mr. McClintock. OK.
Mr. Yeatman, we are being told that the WPPSS collapse was
devastating for consumers, and it was a very risky investment.
How would you compare this investment to WPPSS? And, for that
matter, how would you compare this investment to Solyndra?
Mr. Yeatman. Well, in all honesty, I am ignorant of the
WPPSS investment, so I am ill-qualified to answer that
particular question. Certainly, with respect to Solyndra, I am
on firmer ground.
It seems as though--well, I will note this much. Within the
first 10 months--within the first 10 months of the loan
guarantee program that issued the Solyndra loan, there was one
loan, Solyndra. The 10 months thereafter, virtually--well, I
think it was 17 of the 18 loans issued by the Loans Program
Office. The appearance is that it was rushed out the door. And
we all know what happened as a result.
Certainly, with respect to this Montana-Alberta Tie Line,
the subsequent problems that the line has experienced, to this
day actually, would indicate that perhaps in an effort to get
money out the door, to comply with the stimulus mandate----
Mr. McClintock. I would simply add that the recipients of
all of this taxpayer largess appear to be quite clear that it
is a bad investment or they wouldn't have had written in to the
law a provision for loan forgiveness when these projects do not
produce the capital necessary to repay the loans, ending up
with the taxpayers holding the bag.
Thank you.
I now yield to the Ranking Member.
Mrs. Napolitano. Thank you, Mr. Chair.
Mr. Glotfelty, do you want to answer that question? You
seem ready to go. Can you do it quickly? Because I don't want
to lose time.
Mr. Glotfelty. I think the question was the difference
between AC and DC lines. In fact, AC lines are used--DC lines
are not just used for wind. They are the most efficient manner
to move large amounts of power long distances. AC lines are
used for every single type of generation in the United States.
This was a decision that went way back to Edison and
Westinghouse. But DC lines are the most efficient type of
technology to move large amounts of wind long distances.
Mrs. Napolitano. Thank you, sir.
Ms. Azar, what are the differences in developing
transmission for renewables versus non-renewables? And do these
differences justify the Federal role in development?
Ms. Azar. As indicated in my opening statement, the
development for renewables--and let me be clear, this borrowing
authority is not about renewable generation; it is about
transmission.
The development of transmission for renewables is more
difficult than developing transmission for fossil fuel
generation for two reasons.
Number one, as indicated in my opening statement, for
renewables you have to go where the fuel source is. So usually
these are long, multistate lines, which means more permitting,
more State citing issues. And, in fact, the examples given for
the MATL line and the delays there are a perfect example of why
it is more difficult to site transmission.
And, second, there is a timing issue. These lines take much
longer to build, which essentially is not true--the timing for
the development of fossil plants actually corresponds with the
timing of the development of the transmission line for fossil
plants. Whereas, for renewable lines, renewable plants can be
built in a very short timeframe, whereas the transmission lines
needed for those renewables sometimes take 10 to 15 years. So
there is a disconnect between that.
Mrs. Napolitano. Thank you. I am sorry, but I have very
limited time, so I have to kind of move on.
Ms. Azar. I understand.
Mrs. Napolitano. To both Mr. Glotfelty and you, Mr. Yeatman
states that WAPA's lending has been conducted too rapidly and
rashly. Do you agree?
And then can you opine on--because Mr. Yeatman was
indicating that there should be the PPPs, Wall Street should be
involved in this. But what would be the cost of the interest
rate Wall Street would charge versus the Treasury with WAPA's
borrowing authority, and what would that translate to for the
ratepayer/taxpayer in the household?
Ms. Azar. With regards to whether or not WAPA has been
rash, I think Mr. Glotfelty can state the frustrations that
have been expressed by the applicants because WAPA is doing so
much due diligence over these projects.
Mr. Glotfelty. I can echo that. As I said in my opening
statement, we are privately funded. We have never accepted any
taxpayer dollars, any Recovery Act dollars. We are spending our
money and my money. This is partly my company. And I want the
government to help create jobs and help move this policy along.
And I can say that I believe that they are actually moving too
slow.
Ms. Azar. Of the $3.25 billion, $2.973 billion remains to
be spent. WAPA has only requested borrowing authority for 8
percent.
Mr. Glotfelty. And to answer the second part of your
question, I believe that I have not seen any indication that
Western would like to finance an entire transmission line. I
have seen no indication of that, but I am not on the inside of
the DOE.
That means, for instance, for our line, we are going to
have Wall Street firms that will help finance the debt on this
project. Western will be a part of it if we are successful, as
well as other Wall Street firms.
So the point is, I don't know the differential in the rate,
but, in fact, there are multiple times when there are risk-
reduction measures that are taken into consideration when using
this authority.
Mrs. Napolitano. But would there be a noticeable rise in
costs to a ratepayer or to a consumer?
Ms. Azar. The borrowing authority actually is driving down
the cost of capital significantly. And, as Mr. Glotfelty
indicated, WAPA is partnering with private entities for most of
its projects.
Mrs. Napolitano. Does that mean that is going to hold the
costs down? That is what I am trying to----
Ms. Azar. That is correct.
Mr. Glotfelty. That is correct.
Ms. Azar. That is correct.
Mrs. Napolitano. OK.
Then, as I understand WAPA's transmission infrastructure
program, no projects will be funded until it has been
demonstrated there is sufficient demand and tariffs are in
place at rates designed to ensure repayment of the borrowed
funds. As briefly as you can--would you submit for the record
the process that describes how WAPA protects taxpayers? And
that is for the record, please.
Mrs. Napolitano. Thank you, Mr. Chair.
Mr. McClintock. Great. Thank you.
And Mr. Markey gets the last word.
Mr. Markey. I thank you, Mr. Chairman, very much.
Mr. Yeatman, are you aware that, by law, Western and other
Power Marketing Administrations must market power at cost, not
market-based rates?
Mr. Yeatman. Indeed, yes, sir.
Mr. Markey. Excuse me?
Mr. Yeatman. That they must, yeah, at cost.
Mr. Markey. By law. You are aware of that?
Mr. Yeatman. Yes, sir.
Mr. Markey. So it is by design and by statute that the
Power Marketing Administrations are not subject to market
discipline, which, according to your testimony, lacks, quote,
``powerful incentives for sound money management.''
So, as you know, Mr. Yeatman, there are several suggestions
out there about how we decrease the debt of our country,
especially in areas which are not subject to sound money
management and market forces. And I understand that Senator
Coburn and the Congressional Research Service have estimated
that eliminating the Power Marketing Administrations would save
$1.1 billion over 10 years.
Is that something that you could support, privatizing this,
getting it out of the public domain?
Mr. Yeatman. Indeed, yes, sir.
Mr. Markey. Now, we don't see any members of the Committee
willing to sell off the Bonneville Power Administration. I am
just guessing; I don't know. I have never heard that suggestion
coming from the minority side.
Mr. McClintock. Open to a discussion.
Mr. Markey. Open to a discussion on selling Bonneville and
whatever.
But how about a less radical approach? Based on your
position on free markets and sound financial decisions, do you
think that Power Marketing Administrations should be required
to sell their power at market rates rather than cost-based
rates in order to prevent a moral hazard conducive to fiscal
mismanagement?
Mr. Yeatman. Oh, well, certainly, with respect to the moral
hazard, I was referencing the forgiveness provision of the
section----
Mr. Markey. I understand, but it is the same principle--
that is, that it kind of induces you to do something that you
would not otherwise do because it is not market-based. It is--
--
Mr. Yeatman. Well, one is a mandate--I mean, a mandate to
sell power at cost, whereas one----
Mr. Markey. But would you change that mandate so that we
avoid the moral hazard?
Mr. Yeatman. Well, I mean, with respect to the utility
industry as a whole, I have a number of ideas as to how to open
it up----
Mr. Markey. No, I am only speaking about this one
particular--if we could cure this problem so that the moral
hazard is removed, would you support removing the moral hazard
of having the taxpayers give a false signal to the marketplace,
which then incentives use where perhaps otherwise it would not?
Mr. Yeatman. Well, I don't necessarily agree that it is a
moral hazard per se. But I will say that, yes, generally
speaking, pricing things at market rates will, indeed----
Mr. Markey. Well, I think you and I may disagree.
Mr. Yeatman.--is the most efficient allocation of
resources--or results in the most efficient allocation----
Mr. Markey. Right. Well, I don't see it as being any
different than----
Mr. Yeatman.--of natural resources and whatnot.
Mr. Markey. I don't see it as any different than Freddie or
Fannie, where you create that moral hazard for people to, you
know, take a public entity and start to think the taxpayers are
behind it and then you just, you know, do things that perhaps
you wouldn't do. So you maybe haven't thought it through, but I
think it is pretty similar.
Do you challenge the notion that Power Marketing
Administrations were created to serve a public purpose?
Mr. Yeatman. Oh, indeed, that is the codified purpose
within the law, yes, sir.
Mr. Markey. OK. So why isn't building new transmission for
wind and solar also a valid public purpose?
Mr. Yeatman. Well, I mean, I would--a public purpose--I
mean, as the testimony of the CEO, Ed Rahill, the largest----
Mr. Markey. No, I understand that. I am saying----
Mr. Yeatman. He did indicate that there is no issue, I
guess, that there is not necessarily----
Mr. Markey. No, we are not talking about not----
Mr. Yeatman.--the need for a public purpose if you can
already access--if you can already provide these services, if
they can already raise capital to invest in these transmission
lines independent of having the government finance them or
provide preferential rates, if the market can do it on its own.
Indeed, I believe the----
Mr. Markey. Ms. Azar, can you respond to that?
Ms. Azar. Yes. First of all, I would be very interested to
hear where ITC has been building transmission lines outside of
the service territory. This is not an open market. Indeed, in
my opening statement, I indicated there are lots of problems
with regards to merchant transmission developers trying to
develop outside of their service territories. So we don't have
competition in this area.
And, in fact, this borrowing authority allows WAPA to serve
over a number of States throughout their service territories.
It brings more than its purse.
Mr. Markey. OK, thank you.
Mr. Yeatman, you know, the Federal Government is talking
about, under these programs, these Solyndra-type programs, $8.3
billion in loan guarantees to the Southern Company to build
nuclear power plants after Fukushima, after the North Anna
plant accident. Do you think that that should be re-evaluated
and----
Mr. Yeatman. Indeed, yes, sir. No, I am against all such--
--
Mr. Markey. So you oppose those loan guarantees?
Mr. Yeatman. Indeed, yes, sir. I will note----
Mr. Markey. Well, can I just tell you something?
Mr. Yeatman. Yes, sir.
Mr. Markey. Out of this Republican Congress this year, they
took away the loan guarantees for wind and solar but left them
in for nuclear power.
Mr. Yeatman. I am not a Republican. I am a Libertarian,
sir.
Mr. Markey. Would you oppose that? Pardon me?
Mr. Yeatman. Indeed, any----
Mr. Markey. You would take them off for both.
Professor, would you take them off for both, nuclear and
wind and solar, the loan guarantees?
Dr. Michaels. No loan guarantees for any.
Mr. Markey. No loan guarantees for anyone, is that what you
said?
Dr. Michaels. Correct.
Mr. Markey. So when they keep in the nuke loan guarantees,
that is a mistake, huh?
OK. Thank you.
Mr. McClintock. Perhaps we can reach bipartisan agreement
on that, Mr. Markey.
Mr. Markey. We have tripartisan down here.
Mr. McClintock. We have just been joined by Mr. Garamendi,
for 5 minutes.
Mr. Garamendi. I am trying to figure out what the heck is
going on here.
Mr. Markey. It is a Massachusetts guy trying to figure out
the West Coast, is what it is.
Mr. Garamendi. Well, I can understand the quandary that you
are in. But are we trying to not provide additional lending
authority for the Western Power Administration to build things?
Is that what this is all about?
Mr. Markey. You got it. Yes, that is it.
Mr. Garamendi. Why would we do that? A very successful
program that is providing service power, is it--what is going
on here? I thought maybe I wound up in some other strange
committee. Why would you not want----
Mr. Markey. Same old strange committee.
Mr. Garamendi. What is the point?
We will start over here, just quickly, you know, 15
seconds. What is the point?
Ms. Azar. Yeah, I mean, I can't speak for the proponents of
this bill, but they are attacking the development of renewable
generation. And that is not what this borrowing authority is
about. This borrowing authority is about transmission. And so
they have created a straw man, and it is difficult, obviously,
to attack straw men.
Dr. Michaels. I am only here testifying on the matter of
renewables and not on the matter of WAPA's administration per
se.
Mr. Garamendi. Well, then it is not relevant to this? Then
why are you testifying? Because if we are doing away with the
power to borrow money to build transmission lines and you are
only talking about renewables, why are you testifying?
Dr. Michaels. Because the question of whether renewables
should have priority or not, the question of dedicating lines
for renewables is one that should be rethought.
Mr. Garamendi. So you are opposed to renewables?
Dr. Michaels. Yes, I am, generally. Not all.
Mr. Garamendi. That is another question, but let's continue
on.
Mr. Glotfelty. First of all, as the only transmission
developer up here, we are using the free market. This authority
that the Congress has given Western is absolutely critical if
we are going to build interstate transmission lines. Congress
has not developed an interstate transmission siting regime like
they have in pipelines and in railroads. And this is the only--
one of the two, but primarily the only one that will allow for
us to site interstate transmission lines in the West.
Mr. Garamendi. This bill does that?
Mr. Glotfelty. Yes, it does. This bill would repeal that
authority.
Mr. Garamendi. So you are opposed to the bill?
Mr. Glotfelty. I am opposed to this bill.
Mr. Yeatman. Yes, sir. I believe the Western Area Power
Administration's transmission infrastructure program--I oppose
it because I believe it is unnecessary. As was indicated in
previous testimony, 13 of the States within the WAPA service
territory have renewable energy mandates that are, in essence,
renewable energy production quotas. So you have a guaranteed
demand.
As I intimated in my testimony, the market is ready and
willing to meet that demand. In particular, this one gentleman
who testified before this Subcommittee in March of 2009, the
Chairman of ITC Holdings, the largest transmission company in
the country, indicated that raising finance----
Mr. Garamendi. So why are you opposed to supporting the
bill?
Mr. Yeatman. Oh, I am sorry, I support the bill. I
apologize.
Mr. Garamendi. You support the bill. Because?
Mr. Yeatman. Because the program is unnecessary. The
transmission infrastructure program itself----
Mr. Garamendi. Somebody else will build the transmission
lines without the loan guarantees?
Mr. Yeatman. Oh, it is not a loan guarantee; it is actually
direct borrowing authority from the Treasury Department. But,
indeed, yes, sir----
Mr. Garamendi. So, who----
Mr. Yeatman.--the owner of the largest transmission company
in the country----
Mr. Garamendi. Who have you lined up----
Mr. Yeatman.--before this Subcommittee, indicated that they
were willing to build the lines.
Mr. Garamendi. Excuse me. Who have you lined up to build
the transmission lines without--I guess it is not WAPA going--
who is going to build them?
Mr. Yeatman. Well, given that there is a guaranteed source
of demand for this renewable energy----
Mr. Garamendi. No. No, no----
Mr. Yeatman.--given that the renewable energy must be
delivered, I trust the market to deliver that power.
Mr. Garamendi. Do you know of any organization that wants
to build these power lines?
Mr. Yeatman. Well, again, in testimony before this
Subcommittee, the chairman of the country's largest
transmission company indicated that, indeed, they were willing
to build such power lines to deliver green energy, that
financing was not an issue, that raising capital was not an
issue. So, in light of that, why do we need a government
program to do so?
Mr. Garamendi. Now, the next question is, are they able to
do it cheaper to the consumer than the Western power group?
Mr. Yeatman. Certainly more efficiently. Well, I mean, I
suspect that the money has to come from somewhere. So be it
from the taxpayer or be it WAPA customers, I mean, ultimately
we are dealing with America's money, we are dealing with a
finite resource.
Mr. Garamendi. That argument doesn't fly. I don't think
that flies at all. I asked, will they be able to do it at less
cost than an organization that has delivered power for 70 years
at the lowest rate in--one of the lowest rates, if not the
lowest rate, in America?
Mr. Yeatman. They can do it cheaper to the extent that it
is subsidized by the taxpayer as a whole, indeed, yes, sir. But
I don't necessarily think that is saving the country money or
saving----
Mr. Garamendi. I am out of time.
And, Mr. Chairman, I thank you. I am still a bit confused
as to why we are doing this.
Mr. McClintock. Well, if the Chair could offer a
recommendation, maybe the Member would want to attend the
hearing prior to weighing in on the subject. And we thank you
for your----
Mr. Garamendi. That is a smart-ass remark----
Mr. McClintock. Well, I don't mean----
Mr. Garamendi.--and unnecessary.
Mr. McClintock. I apologize. You are right.
Mr. Garamendi. Thank you.
Mr. McClintock. You are right, and I apologize.
Mr. Garamendi. Accepted.
Mr. McClintock. I want to thank the witnesses for their
valuable testimony.
The members of the Subcommittee may have additional
questions for witnesses, and we ask you to respond to these in
writing.
The Ranking Member has a request.
Mrs. Napolitano. Yes. Mr. Chair, for the record, I have two
letters in opposition to 2915 from TransWest LLC and American
Wind Energy Association.
Mr. McClintock. And, without objection, those will be
entered into the record.
[The documents submitted for the record by Mrs. Napolitano
follow:]
Statement submitted for the record by
The American Wind Energy Association, on H.R. 2915
The American Wind Energy Association (AWEA) writes to oppose the
House Natural Resources Water and Power Subcommittee Chairman Tom
McClintock's recently introduced H.R. 2915, the American Taxpayer and
Western Area Power Administration Customer Protection Act of 2011. The
proposed legislation would repeal the Western Area Power
Administration's (WAPA) borrowing Authority under section 301 of the
Hoover Power Plant Act of 1984, which provides borrowing authority to
WAPA for purposes of construction of certain transmission facilities.
We believe that taxpayers will be fully protected without eliminating
one of the most important authorities enacted in recent years to
encourage the upgrading of our aging electric grid and, in turn, create
jobs.
The United States is in dire need of new electric transmission
lines. Many of the transmission lines in the United States are decades
old, and were built when generating resources and electric demand were
much different than they are today. A number of studies have found that
investing in our transmission grid will save homeowners and businesses
billions of dollars per year by providing them with access to lower
cost sources of electricity and protecting them from volatility in the
price of fossil fuels. Our congested grid further harms consumers by
reducing competition on the electric grid. New transmission is also
needed to increase reliability in all areas of our grid, helping to
avert major blackouts of the type we have seen in recent years as well
as the more frequent smaller-scale outages that are also very costly
for business and industry. Finally, transmission allows us to put
America's vast untapped renewable energy resources to use, providing
consumers with low-cost, job-creating, clean, domestic energy
resources.
Continuing the successful public/private concept begun with a
transmission line upgrade in central California (Path 15), which
alleviated significant transmission congestion, and embodied in the
2005 Energy Policy Act, Congress gave WAPA $3.25 billion in borrowing
authority for new or upgraded electric power transmission lines,
including transmission for renewables. Pursuant to that authority, WAPA
may permit other entities, including private parties, to participate in
the funding, construction, or ownership of transmission projects
financed under this section. It also provides for WAPA to repay the
Federal Treasury for funds borrowed using revenues derived from the use
of the projects financed under that authority.
The use of borrowing authority by Federal utilities to finance
transmission construction is not at all unprecedented. For instance,
the Bonneville Power Administration (BPA) has consistently used Federal
borrowing authority to finance transmission facilities in the Pacific
Northwest. The risks to taxpayers associated with BPA's borrowing
authority--to the extent there are any--are similar to the risks
associated with the borrowing authority granted WAPA. BPA is also under
no penalty if it fails to pay back the Treasury. Yet, BPA has managed
its transmission program to ensure that it has sufficient revenues to
make its payments. WAPA is doing the same.
The genesis for H.R. 2915 appears to be Chairman McClintock's
concern that the Treasury might be required to ``forgive'' advancements
made by WAPA if there is a balance owed to it at the end of the useful
life of a project. For the reasons discussed above, it is highly
unlikely that any balance will remain unpaid to the Treasury and,
therefore, WAPA's borrowing authority does not need to be altered.
Nevertheless, if others are troubled by the forgiveness provision,
Congress should amend the provision of the Hoover Bill to remove the
offending portion (treating WAPA the same as BPA), rather than repeal
the entire program for WAPA.
At a time when we want to increase America's energy security,
improve electric reliability, and provide access to clean,
domestically-produced energy and the associated job creation, now is
not the time to repeal WAPA's borrowing authority, which will continue
to help meet all those goals.
______
TRANSWEST EXPRESS LLC
555 Seventeenth Street
Suite 2400
Denver, CO 80202
Tel 303.299.1000
Fax 303.299.1356
VIA E-MAIL ELIVERY
September 21, 2011
The Honorable Doc Hastings, Chairman
The Honorable Edward Markey, Ranking Minority Member
Committee on Natural Resources
U.S. House of Representatives
1324 Longworth House Office Building
Washington, D.C. 20515
The Honorable Tom McClintock, Chairman
The Honorable Grace Napolitano, Ranking Minority Member
Subcommittee on Water and Power
Committee on Natural Resources
U.S. House of Representatives
1324 Longworth House Office Building
Washington, D.C. 20515
Dear Congressmen Hastings, Markey and McClintock and Congresswoman
Napolitano:
H.R. 2915--the American Taxpayer and Western Area Power
Administration Customer Protection Act of 2011--would repeal Western
Area Power Administration's borrowing authority, which was designed to
stimulate development of much-needed transmission in the West. Western
currently is using that borrowing authority to partner with Trans West
Express LLC (TWE) and jointly develop the TransWest Express
Transmission Project (TWE Project), among other transmission
infrastructure efforts.
TransWest Express LLC submits the attached statement in opposition
to H.R. 2915. See Attachment A. The statement addresses how Western's
leveraging of its borrowing authority for the TWE Project represents
exactly the type of private/public partnership Congress should
support--not the kind that Congress should seek to dissolve.
The document describes the TWE Project; highlights the project's
economic benefits including job creation; and addresses the sensibility
and safety of TWE's partnership with Western, including multiple
measures and provisions that protect federal interests.
Western chose to split its commitment to the TWE Project into two
phases--the development phase and the construction/ownership phase--to
protect taxpayer dollars. The development agreement between Western and
TWE eliminates any risk to the U.S. taxpayer. Should Western decide not
to proceed to the second construction/ownership phase of the TWE
Project, Western's development costs will be fully refunded, with
interest, by TWE. Ironically, had Western committed to the TWE Project
in its entirety upfront, then Western's participation in the TWE
Project would have been grandfathered under the language of the bill.
ATTACHMENT A
Contents
A. Executive Summary
B. TWE Project Overview
C. Estimates of Jobs Created
D. Westem Area Power Administration's Borrowing Authority
E. TWE's Partnership with Western
F. H.R. 2915 to Repeal Western's Borrowing Authority
G. Conclusion
TRAHSWEST
Further, Western's decision to participate in the development of
the TWE Project comes not in a matter of months but after nearly 2'/2
years of comprehensive due diligence, project scrutiny and
certification that the TWE Project's purpose, benefits and financial
model comport with the stringent principles set forth in Western's
Transmission Infrastructure Program. TWE responded to Western's Request
for Interest process in April 2009. TWE and Western signed a non-
binding agreement for Western to pursue ownership of half of the TWE
Project in January 2010. And it was not until September 2011 that the
first phase of the partnership was finalized following project reviews
by Western, its peer power marketing agency Bonneville Power, the U.S.
Department of Energy, and the Office of Management and Budget.
Finally, this is not a case where the U.S. government grants money
and goes away without a stake in the project's success. Western will
have the option to own 50% of the TransWest Express Transmission
Project, just like it owns and operates thousands of miles of other
transmission lines across the West, from Nebraska to California. This
is a practical, essential long-term investment that will benefit
electricity users in the West for decades to come. There is a long
history in this country of energy infrastructure projects being solely
funded by federal government funds. In the case of Western's proposed
collaboration with a private-sector partner like TransWest Express LLC,
however, Western has the opportunity to significantly leverage borrowed
federal funds, which will be repaid, to build a project critical to
developing our nation's renewable energy resources at a scale that
would not be possible if only federal dollars were used.
Sec. 402 of the American Recovery and Reinvestment Act (ARRA)
provides clear protection for customers of Western that do not utilize
projects developed in that section. ``Revenue from the use of projects
under this section shall be the only source of revenue for--(A)
repayment of the associated loan for the project; and (B) payment of
expenses for ancillary services and operation and maintenance.''
The need for large-scale, multi-state investments in the Western
U.S. electric grid goes well beyond connecting renewable electricity
supplies to the cities that need the power. Congress has recognized for
years--and sought to address the matter in the 2005 Energy Policy Act--
that transmission development simply has not been occurring at the pace
needed to meet load growth and to ensure the reliability and stability
of the electricity supply that our nation depends on for its success.
Why has this development not been occurring? Permitting is complex,
construction is extremely costly, and the current regulatory regime is
ill-suited to provide adequate incentives to private enterprise.
By combining their respective strengths and common vision for a
better, stronger, safer U.S. electric grid, Western Area Power
Administration and TransWest Express LLC can make the 725-mile, 600
kilovolt, 3,000 megawatt, $3 billion TransWest Express Transmission
Project a strategic, sensible, valuable reality. The whole partnership
is greater than either partner.
Should Western's responsibly managed, well-vetted borrowing
authority be repealed by this Congress, the successful development of
the TransWest Express Transmission Project in the timeframe and with
the energy resources that the nation needs will be at risk--as will the
thousands of union construction jobs and operations jobs, the millions
of dollars in local tax revenue that will support rural counties in the
West, and the gigawatt-hours of cost-effective electricity that Wyoming
is poised to provide to help its neighbors in the West, like Arizona,
Nevada and California.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
C. Estimates of Jobs Created
The TransWest Express Transmission Project will create, sustain and
influence thousands of jobs across the country--not only through its
construction and operation but also through the energy generation jobs
it will help facilitate in Wyoming. No new generation projects are
likely to be built in Wyoming unless transmission paths exist to get
the electricity to the markets that need it.
TWE Project jobs
The owner's engineer estimates that up to 1,000 construction-
related jobs will be created for the duration of the three-year
construction phase of the TWE Project, jobs that will follow the
transmission line as it is built. Approximately 3,000 to 5,000 indirect
jobs will be created nationwide because of the demand for materials and
services to build the power line itself.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Additional jobs will be created to build the terminals/
substations in Carbon County, Wyo., and Clark County, Nev. The owner's
engineer estimates these are the job totals for both terminal
facilities over an approximate two-year construction period.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Overall economic impacts of transmission development
The Wyoming Infrastructure Authority commissioned a study from the
National Renewable Energy Lab about the economic benefits of new
transmission development for Wyoming. According to the study results,
which were released June 14, 2011:
The development of 9,000 MW of new power transmission lines in
Wyoming for export to California and other states would add $12
billion to $15 billion in total economic output in the State of
Wyoming (construction plus 20 years of operation). An estimated
average of 4,000 to 5,900 jobs would be supported from
construction of infrastructure between 2011 and 2020 and a
total of 2,300 to 2,600 permanent jobs were estimated during
operation. New infrastructure considered includes high voltage
interstate transmission (required to export new electricity
generation from the state); wind and natural gas-fired
generation; and a collector system. The premised operating life
of the generation facilities is 20 years following
construction; however, transmission lines are expected to be
operational well beyond the economic life of generation
facilities.
With a planned capacity of 3,000 MW, the TWE Project alone could
deliver approximately one-third of the economic benefits projected by
this study.
Local communities in Wyoming, Colorado, Utah and Nevada will
benefit from tax revenues. TWE, as a 50% owner of the TWE Project, will
pay property taxes in every state and county that the transmission line
traverses, augmenting state and local government budgets. As an
example, the cost of the approximately 55 miles of transmission line
planned for Carbon County, Wyoming, is about $68.5 million. Based on
local tax rates, in year one with TWE owning 50% of the TWE Project,
TWE would pay about $259,000 in property taxes (not including the
substation/terminal property taxes). The TWE Project will cross at
least 15 counties, and a complete tax analysis is not yet available,
but nearly $10 million in additional funding would be contributed to
mostly rural counties in Wyoming, Colorado, Utah, and Nevada in just
the first year of the complete TWE Project.
There are also economic benefits to states like California where
there is increasing demand for renewable power. Studies by regional
transmission planning and analysis groups (including the WEIL Group and
WECC) indicate that substantial savings can be achieved for utilities
and their customers by accessing higher-quality, lower-cost renewables
outside of California, such as Wyoming wind.
According to WECC studies as part of the DOE-sponsored 10-Year
Regional Transmission Plan, taking 12,000 GWh/year of the lowest-
ranking California renewable resources currently planned to meet the
state's 33% RPS, and replacing this block of resources with an equal
amount of energy from high-quality Wyoming wind resources such as those
delivered by the TWE Project, would reduce the cost of this block by
approximately $600 million every year.
D. Western Area Power Administration's Borrowing Authority
Western Area Power Administration is a power marketing
administration witliin the U.S. Department of Energy that markets and
delivers clean, renewable, reliable, cost-based hydroelectric power and
related services within a 15-state region of the central and western
United States. Western owns,
Barriers
It has been widely recognized that the regulatory regimes in this
country that determine investment returns from privately funded
electric transmission projects are generally geared to intra-state and
single-service-territory transmission projects with shorter time
horizons, and do not generally provide adequate incentive for
developers to build large-scale multistate projects that will take many
years to develop. \1\ In addition, for large-scale multi-state projects
in the West, where much of the land is owned by the federal government,
a developer must clear regulatory hurdles involving multiple federal,
state and local agencies, where any one government entity can
effectively have veto authority over an entire project. For this
reason, private development of multistate large-scale electric
transmission projects in the West has been almost nonexistent. \2\
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\1\ This hurdle has been overcome to some degree within organized
regional transmission markets in the North East and Midwest, but it
remains a significant problem in the West.
\2\ See Green Power Superhighways, a joint publication of the
American Wind Energy Association and the Solar Energy Industries
Association, http://seia.org/galleries/pdf/GreenPower
Superhighways.pdf
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Congress has recognized for years that transmission development has
not been occurring at the pace needed to meet load growth and ensure
reliability for our country's security and stability and in particular
that there is an increasing need for large, long-distance transmission.
Thus, in the Energy Policy Act of 2005 (EPAct 2005), Congress directed
the Department of Energy to identify critical transmission-constrained
areas, referred to as National Interest Electric Transmission
Corridors, and it gave FERC the authority to issue permits to construct
or modify transmission facilities in a DOE-designated corridor if it
found: (1) the state in which the facility is located lacks authority
to approve the siting of the facility or to consider the interstate
benefits of the facility; (2) the applicant does not qualify for state
siting approval because it does not serve end-use customers in the
state; or (3) the relevant state agency denies or otherwise withholds
approval for more than one year or conditions its approval so as to
make the proposal economically unfeasible. \3\
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\3\ See Regulations for Filing Applications for Permits to Site
Interstate Electric Transmission Facilities, Dkt. No. RM-06-12, Order
No. 689 (2006), at P 4. Congress further required that, before issuing
a permit, FERC must find that the proposed facility: (1) will be used
in interstate commerce; (2) is in the public interest; (3) will
significantly reduce transmission congestion to the benefit of
consumers; (4) is consistent with sound national energy policy and will
enhance energy independence; and (5) will maximize the transmission
capabilities of existing towers or structures. Id
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One of DOE's first designations of a National Interest Electric
Transmission Corridor was in Western's territory, an area in southern
California and Arizona, from just north of Los Angeles to the Mexican
border south of San Diego, and then east to three counties in Arizona.
DOE is scheduled to begin a second round of national interest
designations, but a judicial decision has sharply curtailed the value
of the designation, by declaring that FERC's backstop siting authority
cannot be exercised when a state has specifically refused to approve a
project. \4\ Thus, states that act within a year can continue to
exercise veto authority over the siting of new transmission even in
declared national interest corridors.
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\4\ Piedmont Envtl. Council v. FERC, 558 F.3d 304 (4th Cir. 2009),
cert, denied sub nom. Edison Electric Institute v. Piedmont Envtl.
Council, U.S. (2010).
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Western's Transmission Infrastructure Program
The Western and BPA borrowing authority provided in ARRA was
intended to help overcome these barriers. Notably, the statute provides
for Western to partner with private investors in developing
transmission projects. As noted in the testimony from Western's
Administrator Tim Meeks in March, Western has established a
Transmission Infrastructure Program (TIP) to implement its borrowing
authority. \5\ One of the primary goals of the TIP is to ensure
repayment of funds for any projects built under the program. Project
and program principles guide Western's funding of partnerships to
develop transmission infrastructure that delivers renewable energy to
markets across the West. Western's participation in individual projects
is based on these criteria:
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\5\ http://www.wapa.gov/recovery/programs.htin
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Facilitates delivery to market of power generated by
renewable resources constructed or reasonably expected to be
constructed.
Is in the public interest.
Will not adversely impact system reliability or
operations, or other statutory obligations.
Reasonable expectation that the project will generate
enough transmission service revenue to repay the principal
investment; all operating costs, including overhead; and
accrued interest.
Have at least one terminus within Western's service
territory.
Provides economic development benefits, including job
creation.
Satisfies Western's Open Access Transmission Tariff.
Technical merits and feasibility.
Financial stability and capability of potential
project partners.
Project readiness.
Participation in region-wide or interconnection-wide
planning groups or forums.
Of particular relevance, in implementing TIP, Western has required
that, before Western draws funds from Treasury pursuant to its ARRA
borrowing authority, the project must demonstrate demand, key project
documents must be executed, and tariffs must be developed with rates
designed to ensure repayment of borrowed funds. \6\
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\6\ See, e.g.. http://www.wapa.gov/fedreg/FRNpdfs/frn2010/
75FRN63826.pdf (Notice of request for Statements of Interest from
entities interested in purchasing transmission service over TransWest
Express Transmission Project).
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E. TWE's Partnership with Western
Western's partner in the TWE Project, TWE, is a wholly owned
affiliate of The Anschutz Corporation (TAC), a privately held company
headquartered in Denver, Colorado. TAC was founded by Philip F.
Anschutz in 1965, initially as an oil and gas exploration company.
Today, TAC is a multibillion-dollar diversified company with worldwide
investments in the fields of energy, ranching and agriculture, real
estate, lodging, transportation, sports and entertainment,
entertainment venues, film production, movie theaters, and newspaper
and internet publishing. TAC supports the TWE Project both financially
and strategically.
In April 2009, TWE submitted a response to Western's request for
proposals under TIP. \7\ Western's evaluation concluded that the TWE
Project met the TIP criteria and provides Western with an opportunity
to participate in a viable, large-scale interstate transmission
project. The TWE Project will deliver a significant amount of economic
renewable resources to the largest renewable energy markets in the West
and may link two of Western's regional service territories.
---------------------------------------------------------------------------
\7\ Western received more than 200 responses to its Request for
Interest.
---------------------------------------------------------------------------
Significantly, TWE has agreed to reduce Western's risk by
contracting to purchase 1,250 MW of the 1,500 MW of capacity that
Western would own. These steps all but guarantee that revenue from the
TWE Project will be there to pay back the U.S. Treasury for any funds
borrowed in connection with Western's ownership of the TWE Project. In
addition, the results from Western's Request for Statements of Interest
published in the Federal Register in October 2010 establish that there
is overwhelming interest from generation developers in Wyoming in the
remaining 250 MW to justify Western's potential ownership in the TWE
Project and its participation in the development phase.
F. H.R. 2915 to Repeal Western's Borrowing Authority
On September 14, 2011, U.S. Representative Tom McClintock (CA-4)
introduced H.R. 2915, which would repeal Western's borrowing authority
to build electric transmission under section 301 of the Hoover Power
Plant Act of 1984. \8\
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\8\ H.R. 2915 does not repeal Bonneville Power's authority even
though it was also granted under the Recovery Act.
---------------------------------------------------------------------------
The justification for H.R. 2915 relies upon the recent bankruptcy
of Solyndra, which as discussed above was a loan guarantee for a solar
company gone bad--a situation that is not comparable to Western's use
of its borrowing authority, along with significant private capital, to
build transmission. Although the bill's repeal would not apply to
projects funded pursuant to this authority that have been approved by
the Secretary or Deputy Secretary of the U.S. Department of Energy
before September 15, 2011, or projects deemed ``projects in execution''
in Western's May 17, 2011, Quarterly Report on Borrowing Authority
Projects, Western's partnership with TransWest Express LLC would be
impacted by the repeal.
Under the current language in H.R. 2915, Western could go forward
through the development phase, but the bill would, in effect, render
the Development Agreement with TWE moot. Under the terms of the DA, if
Western does not go forward to the second phase of ownership and
construction for any reason including lack of funding, then TWE has to
repay all the monies expended by Western up to that date with interest.
So, there would be no point in Western participating in the development
stage if there is no possibility of it participating in the second
phase.
Western chose to split its commitment to the TWE Project into the
two phases to protect taxpayer dollars. By requiring TransWest Express
to refund all monies paid by Western in phase one should Western choose
not to participate, Western was guaranteeing that the loan forgiveness
provision--a provision also relied upon as justification for H.R.
2915--that would apply to funds expended to ``study'' projects would
not be used. Ironically, had Western combined the two phases and
committed to the project in its entirety, then Western's participation
in the TWE Project would have been grandfathered under the language of
the bill. Instead, Western was more cautious, mindful of its duty to
protect taxpayer funds.
Western's participation in the TWE Project--one of the most
important transmission projects in the country--will be a major
contributor to its success. The elimination of Western's funding
authority under H.R. 2915 would dissolve this public/private
partnership based on an unfortunate but incomparable default by
Solyndra. The attention of Congress should be focused on areas where
there is a true risk of taxpayers being stuck footing the bill for bad
investments, not on solid, well-vetted projects backed by solid private
capital and solid project planning and economics.
______
Mr. McClintock. The hearing record will be open for 10
business days to receive these responses.
Mr. McClintock. And if there is no further business,
without objection, the Subcommittee stands adjourned.
[Whereupon, at 3:55 p.m., the Subcommittee was adjourned.]