[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
     INCREASED ELECTRICITY COSTS FOR AMERICAN FAMILIES AND SMALL 
        BUSINESSES: THE POTENTIAL IMPACTS OF THE CHU MEMORANDUM

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

                           OVERSIGHT HEARING

                               before the

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                        Thursday, April 26, 2012

                               __________

                           Serial No. 112-107

                               __________

       Printed for the use of the Committee on Natural Resources



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                     COMMITTEE ON NATURAL RESOURCES

                       DOC HASTINGS, WA, Chairman
            EDWARD J. MARKEY, MA, Ranking Democratic 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                      Betty Sutton, OH
Scott R. Tipton, CO                  Niki Tsongas, MA
Paul A. Gosar, AZ                    Pedro R. Pierluisi, PR
Raul R. Labrador, ID                 John Garamendi, CA
Kristi L. Noem, SD                   Colleen W. Hanabusa, HI
Steve Southerland II, FL             Paul Tonko, NY
Bill Flores, TX                      Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
PJon Runyan, NJ
Bill Johnson, OH
Mark Amodei, NV

                       Todd Young, Chief of Staff
                      Lisa Pittman, Chief Counsel
               Jeffrey Duncan, Democratic Staff Director
                David Watkins, Democratic Chief Counsel
                                 ------                                

                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Thursday, April 26, 2012.........................     1

Statement of Members:
    Hastings, Hon. Doc, a Representative in Congress from the 
      State of Washington........................................     1
        Prepared statement of....................................     3
    Markey, Hon. Edward J., a Representative in Congress from the 
      State of Massachusetts.....................................     4
        Prepared statement of....................................     6

Statement of Witnesses:
    Bladow, Joel, Senior Vice President, Transmission, Tri-State 
      Generation and Transmission Association, Inc., Westminster, 
      Colorado...................................................    48
        Prepared statement of....................................    49
        Response to questions submitted for the record...........    52
    Corwin, R. Scott, Executive Director, Public Power Council, 
      Portland, Oregon...........................................    42
        Prepared statement of....................................    44
    Crisson, Mark, President & CEO, American Public Power 
      Association, Washington, D.C...............................    21
        Prepared statement of....................................    23
        Response to questions submitted for the record...........    27
    English, Hon. Glenn, CEO, National Rural Electric Cooperative 
      Association, Arlington, Virginia...........................     7
        Prepared statement of....................................     9
    Humble, Monty, President & COO, Brightman Energy LLC, Austin, 
      Texas......................................................    30
        Prepared statement of....................................    31
    Marks, Hon. Jason, Commissioner, New Mexico Public Regulation 
      Commission, Santa Fe, New Mexico...........................    12
        Prepared statement of....................................    14
        Response to questions submitted for the record...........    19

Additional materials supplied:
    Azar, Lauren, Senior Advisor to the Secretary, U.S. 
      Department of Energy, Statement submitted for the record...    76
    Hastings, Hon. Doc, Chairman, Committee on Natural Resources, 
      et al., Letter to The Honorable Steven Chu, Secretary, U.S. 
      Department of Energy, submitted for the record.............    79
    Public Power Council, Portland, Oregon, Statement submitted 
      for the record.............................................    82
                                     



    OVERSIGHT HEARING ON ``INCREASED ELECTRICITY COSTS FOR AMERICAN 
    FAMILIES AND SMALL BUSINESSES: THE POTENTIAL IMPACTS OF THE CHU 
                             MEMORANDUM.''

                              ----------                              


                        Thursday, April 26, 2012

                     U.S. House of Representatives

                     Committee on Natural Resources

                            Washington, D.C.

                              ----------                              

    The Committee met, pursuant to notice, at 10:05 a.m., in 
Room 1324, Longworth House Office Building, Hon. Doc Hastings 
[Chairman of the Committee] presiding.
    Present: Representatives Hastings, Duncan of Tennessee, 
Bishop, Lamborn, Fleming, McClintock, Duncan of South Carolina, 
Gosar, Southerland; Markey, DeFazio, Napolitano, Costa, Lujan, 
and Garamendi.
    The Chairman. The Committee will come to order. The Chair 
notes the presence of a quorum, which under Rule 3(e) is two 
Members, and we have vastly exceeded that.
    The Committee on Natural Resources is meeting today to hear 
testimony on an oversight hearing on ``Increased Electricity 
Costs for American Families and Small Businesses: The Potential 
Impacts of the Chu Memorandum.''
    Under Rule 4(f), opening statements are limited to the 
Chairman and the Ranking Member. However, I ask unanimous 
consent that if any Members wish to submit an opening 
statement, they have that statement to the Committee by the 
close of business today. Without objection, so ordered.
    The Chairman. I will recognize myself for five minutes.

    STATEMENT OF THE HON. DOC HASTINGS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    The Chairman. Today's hearing is about protecting millions 
of electricity consumers from potentially expensive Washington, 
D.C. mandates put together under the cover of darkness and 
without any input from those that are impacted.
    This hearing will not only allow for those inputs to be 
heard, but follows up on a bipartisan Pacific Northwest 
congressional delegation letter that asked legitimate questions 
about the Energy Secretary's March 16 Memorandum. The 
Memorandum in question directs substantial changes to the Power 
Marketing Administrations.
    The core mission of the Bonneville Power Administration in 
the Pacific Northwest and the other three PMAs is to provide 
low-cost, renewable hydropower to millions of families and 
small businesses, and to do so with sound business practices.
    This mission has worked well for generations and nothing 
seems to be broken, yet the Energy Secretary has chosen to rope 
the PMAs into a larger ideological agenda, an agenda I believe 
will raise energy costs during these troubling economic times.
    Americans are already struggling to fill up their tanks due 
to the rising price of gasoline. The last thing they need to do 
is to pay more every time they switch on a light switch.
    While some of the Memorandum's goals are laudable, the memo 
raises serious concerns about the manner and scope of how it 
would dramatically change the PMAs' missions.
    For example, the Memorandum suggests that PMA missions and 
rates should be changed to incentivize electrical vehicle 
deployment, something that is normally handled at the local and 
retail levels.
    For example, family farmers in my rural District, in my 
view, should not be forced to pay higher electricity bills so 
that people in downtown Seattle can plug in expensive electric 
vehicles just because the Energy Secretary says so.
    This and other matters in the memo raise legitimate 
questions as to whether the PMAs even have the legal authority 
to implement these directives. Yet, the Energy Department has 
bluntly refused to perform a legal analysis of what authorities 
it has or does not have.
    This continues the impression that unjustified Executive 
Orders are a common practice within this Administration.
    Many PMA customers, from those in big cities to those 
served by rural electric cooperatives, from the Pacific 
Northwest to the Southeast, believe that these directives will 
increase their costs while providing little or no benefits to 
them.
    The Governor of South Dakota recently wrote a letter to the 
Secretary stating, and I directly quote, ``The Department's 
orders would essentially dismantle the Federal hydropower 
system as it exists today and jeopardize the cost-based 
structure which has been the cornerstone of affordable 
electricity in South Dakota markets.''
    The concerns bridge political parties. As I referenced 
earlier, two weeks ago, 19 bipartisan Members from the Pacific 
Northwest delegation wrote to Secretary Chu asking that no 
actions be taken on these directives until the Department 
proves it has worked in a robust and transparent process with 
Congress and ratepayers.
    Yesterday, this Committee was proud to work with our 
colleagues from Montana, Mr. Rehberg and our colleague from 
Washington State, Mr. Dicks, who led the effort in the House 
Appropriations Committee, to approve an amendment to suspend 
the Memorandum's new activities.
    Secretary Chu issued this Memorandum. It is in his name, 
which is why he was personally invited to testify today about 
the potential to drive up electricity costs. It is unfortunate 
that he is in Europe at a clean energy conference and has 
declined to testify today and answer questions.
    While Secretary Chu's personal electric bill may not 
increase as a result of his memo, those testifying today will 
explain firsthand how theirs probably will.
    Their expert opinions should have been sought out prior to 
the memo's issuance to help avoid this unfortunate situation, 
and we welcome their testimony.
    I also want to welcome members of the Northwest Public 
Power Association and members of the Northern California Power 
Agency that are here in Washington, D.C., and many of them are 
in the audience today.
    The electric bills of families and small businesses that 
depend on power from the PMAs should not be increased because 
the Federal Energy Secretary would like to toy and experiment 
with various energy schemes and mandates.
    American wallets are already being stretched thin as they 
struggle to make ends meet in this difficult economy. The last 
thing they need is another hastily written, unjustified 
Washington, D.C.-knows-best mandate that inflicts further 
economic pain and increases their power bills.
    The American people deserve answers and transparency from 
their Government. They also deserve the right to know why their 
energy costs are increasing, and that is the reason for this 
hearing today.
    With that, I recognize the distinguished Ranking Member.
    [The prepared statement of Mr. Hastings follows:]

          Statement of The Honorable Doc Hastings, Chairman, 
                     Committee on Natural Resources

    Today's hearing is about protecting millions of electricity 
consumers from potentially expensive Washington, D.C. mandates put 
together under the cover of darkness and without any input from those 
most impacted.
    This hearing will not only allow for those inputs to be heard, but 
follows up on a bipartisan Pacific Northwest congressional delegation 
letter that asked legitimate questions about the Energy Secretary's 
March 16 Memorandum, which directs substantial changes to the Power 
Marketing Administrations (PMAs).
    The core mission of the Bonneville Power Administration in the 
Pacific Northwest and the other three PMAs, is to provide low-cost, 
renewable hydropower to millions of families and small businesses. And 
to do so with sound business principles. This mission has worked well 
for generations and nothing seems to be broken, yet the Energy 
Secretary has chosen to rope the PMAs into a larger ideological agenda. 
An agenda I believe will raise energy costs during these troubling 
economic times. Americans are already struggling to fill up their tanks 
due to the rising price of gasoline, and the last thing they need is to 
pay more every time they flip on the light switch.
    While some of the Memorandum's goals are laudable, the memo raises 
serious concerns about the manner and scope of how it would 
dramatically change the PMAs' mission. For example, the Memorandum 
suggests that PMA missions and rates should be changed to incentivize 
electric vehicle deployment, something normally handled at the local 
and retail levels. Family farmers in my rural district should not be 
forced to pay higher electricity bills so people in downtown Seattle 
can plug in expensive electric vehicles just because Secretary Chu says 
so.
    This and other matters in the memo raise legitimate questions as to 
whether the PMAs even have the legal authority to implement these 
directives. Yet, the Energy Department has bluntly refused to perform a 
legal analysis of what authorities it has or doesn't have. This 
continues the impression that unjustified Executive Orders are a common 
practice for the Obama Administration.
    Many PMA customers--from those in big cities to those served by 
rural electric cooperatives, from the Pacific Northwest to the 
Southeast, believe that these directives will increase their costs 
while providing little or no benefits to them.
    The Governor of South Dakota recently wrote a letter to the 
Secretary stating that ``the Department's orders would essentially 
dismantle the federal hydropower system as it exists today and 
jeopardize the cost-based structure which has been the cornerstone of 
affordable electricity in South Dakota markets.''
    The concerns bridge political parties. As I referenced earlier, two 
weeks ago, 19 bipartisan members from the Pacific Northwest 
Congressional delegation wrote to Secretary Chu asking that no actions 
be taken on these directives until the Department proves it has worked 
in a robust and transparent process with Congress and ratepayers.
    And yesterday, we were proud to work with our colleagues Denny 
Rehberg from Montana and Norm Dicks from Washington State, who led the 
effort in the House Appropriations Committee to approve an amendment to 
suspend the memorandum's new activities.
    Secretary Chu issued this Memorandum--it is in his name--which is 
why he was personally invited to testify today about its potential to 
drive up electricity costs. It's unfortunate that he is in Europe and 
has declined to testify and answer questions. While Secretary Chu's 
personal electric bill may not increase as a result of his memo, those 
testifying to us today will explain firsthand how theirs will. Their 
expert opinions should have been sought out prior to the memo's 
issuance to help avoid this unfortunate situation. We welcome their 
testimony.
    The electric bills of families and small businesses that depend on 
power from PMA's should not be increased because the federal Energy 
Secretary would like to toy and experiment with various energy schemes 
and mandates.
    Americans wallets are already being stretched thin as they struggle 
to make ends meet in this difficult economy. The last thing they need 
is another hastily written, and unjustified Washington, DC-knows-best 
mandate that inflicts further economic pain and increases their power 
bills. The American people deserve answers and transparency from their 
government. They also deserve the right to know why their energy costs 
are increasing. This hearing is designed to help provide those answers.
                                 ______
                                 

   STATEMENT OF THE HON. EDWARD MARKEY, A REPRESENTATIVE IN 
            CONGRESS FROM THE STATE OF MASSACHUSETTS

    Mr. Markey. Thank you, Mr. Chairman, very much. Mr. 
Chairman, when it comes to modernizing America's electric grid, 
our Power Marketing Administrations have and must continue to 
play an important role in moving our nation toward a cleaner, 
smarter, and more efficient electrical generation transmission 
and distribution system.
    Last month, Secretary Chu announced a vision of moving our 
Federal Power Marketing Administrations forward to be leaders 
in building America's powerhouse.
    I believe that the devil is in the details on how we 
accomplish these grid modernization goals and how we continue 
to meet the Power Marketing Administrations' unique missions.
    You cannot get anywhere without a vision and a plan. The 
Secretary's announcement is a first step that lays the 
foundation for renewable energy, energy efficiency, demand 
response, smart grid, and other innovations to become 
fundamental pieces of our electricity system.
    The Power Marketing Administrations can and should work 
toward those objectives. In fact, in testimony before the 
Subcommittee, the Bonneville Administrator, Stephen Wright, 
told us that they are already doing it. They are already doing 
it, yet the Republicans oppose this vision.
    Where Secretary Chu sees opportunity for efficiency and 
improved access to transmission and increased market 
competition, Republicans see a different opportunity.
    They see an opportunity to restrict the ability of clean 
energy and demand response to compete in the market. They see a 
political opportunity to engage in conspiracy theories about 
the Administration trying to raise energy prices.
    The Republicans are so committed to the idea that 
modernization equals higher energy costs that they wrote it 
directly into the title of today's hearing.
    Unfortunately, the Republicans have missed the point. 
Better planning, wider coordination, and using the best 
technologies are ways of ultimately reducing costs to 
consumers.
    Secretary Chu understood this, which is why he wrote it 
into the second sentence of his memo, this is from Secretary 
Chu, ``Taking greater advantage of energy efficiency, demand 
resources, and clean energy while at the same time reducing 
costs to consumers requires a transition to a more flexible and 
resilient electric grid, and much greater coordination among 
system operators.''
    Here is the reality. The Chu memo is about competition. It 
is about free and fair open markets. It is about economic 
efficiency. It is about all the things Republicans pretend to 
be for.
    Today, Republicans did not invite their free market friends 
from the Heritage Foundation and the Cato Institute to testify. 
That would make it much stickier to defend inefficiency, 
socialist power, and that is what all these Power Marketing 
Administrations are, they are all socialists right to their 
core, socialist power systems, and restrictions to free 
competition, of all the things to a socialist in America, this 
is at the top of the list, that I am very concerned about.
    I hate to see it go undiscussed in terms of what we can do 
to break down that socialistic Power Marketing Administration 
rather than focusing upon competition, free market, and 
innovation, which has to be the hallmark of what makes America 
great, and anything that is socialistic has to be examined on 
an ongoing basis to make sure that does not slow down the 
growth, the efficiency and the innovation in our country.
    Also, notably absent from our hearing today is a 
representative from the Department of Energy. While I supported 
the Chairman's request to the Secretary himself be here in 
person today to explain his memo, I do not support the 
Chairman's decision to not allow any other representative from 
the Department to testify in his place.
    He would have been great to have the number two guy from 
the Department of Energy here, but no, he was not invited.
    There are legitimate questions to be asked about exactly 
how this vision can and should be implemented.
    Not having the Department present to address those 
questions makes this a venue ripe for conjecture and 
misinformation.
    I do hope we have the opportunity to hear directly from the 
Department on this subject in the future.
    Here is the bottom line the way I see it. Thomas Edison, 
the father of the light bulb and the first power plant, would 
still understand much of our electrical grid if he were alive 
today.
    We have a long way to go in adapting the infrastructure and 
operating systems to allow a level playing field for new 
companies, new businesses, new models, and new technologies to 
take hold.
    I thank the Chairman for calling this hearing, and I hope 
this is the first of many Committee hearings that we can 
examine the way in which we can look at our public Power 
Administrations so that we can make sure they are positive 
forces of change in operation of our nation's grid, and kind of 
modify their socialistic origins to embrace this capitalistic 
system within which we live.
    I thank the Chairman.
    [The prepared statement of Mr. Markey follows:]

     Statement of The Honorable Edward J. Markey, Ranking Member, 
                     Committee on Natural Resources

    Thank you, Mr. Chairman.
    When it comes to modernizing America's electric grid, our Power 
Marketing Administrations have and must continue to play an important 
role in moving our nation towards a cleaner, smarter, and more 
efficient electrical generation, transmission, and distribution system.
    Last month, Secretary Chu announced a vision for moving our federal 
power marketing administrations forward to be leaders in building 
America's Powerhouse.
    I believe that the devil is in the details on how we accomplish 
these grid modernization goals and how we continue to meet the Power 
Marketing Administration's unique missions.
    But you can't get anywhere without a vision and a plan. The 
Secretary's announcement is a first step that lays the foundation for 
renewable energy, energy efficiency, demand response, smart grid, and 
other innovations to become fundamental pieces of our electricity 
system.
    The Power Marketing Administrations can and should work towards 
these objectives. In fact, in testimony before the Subcommittee, the 
Bonneville Administrator--Stephen Wright--told us that they're already 
doing it!
    Yet Republicans oppose this vision. Where Secretary Chu sees 
opportunity for efficiency and improved access to transmission and 
increased market competition, Republicans see a different opportunity. 
They see an opportunity to restrict the ability of clean energy and 
demand response to compete in the market. They see a political 
opportunity to engage in conspiracy theories about the Administration 
trying to raise energy prices.
    Republicans are so committed to the idea that modernization equals 
higher energy costs that they wrote it directly into the title of 
today's hearing.
    Unfortunately, Republicans have missed the point. Better planning, 
wider coordination, and using the best technologies are ways of 
ultimately reducing costs to consumers. Secretary Chu understood this, 
which is why he wrote it into the second sentence of his memo: ``Taking 
greater advantage of energy efficiency, demand resources, and clean 
energy--WHILE AT THE SAME TIME REDUCING COSTS TO CONSUMERS--requires a 
transition to a more flexible and resilient electric grid and much 
greater coordination among system operators.''
    Here's the reality: the Chu memo is about competition. It's about 
free and fair and open markets. It's about economic efficiency. It's 
about all the things Republicans pretend to be for. But today, 
Republicans didn't invite their free-market friends from the Heritage 
Foundation and the Cato Institute to testify. That would make it much 
stickier to defend inefficiency, socialist power systems, and 
restrictions to free competition.
    Also notably absent from our hearing today is a representative from 
the Department of Energy. While I supported the Chairman's request that 
the Secretary himself be here in person today to explain his memo, I do 
not support the Chairman's decision to not allow any other 
representative from the Department to testify in his place.
    There are legitimate questions to be asked about exactly how this 
vision can and should be implemented.
    Not having the Department present to address those questions makes 
this a venue ripe for conjecture and misinformation. So I do hope we 
have the opportunity to hear directly from the Department on this 
subject in the future.
    Here's the bottom line the way I see it: Thomas Edison--the father 
of the light bulb and the first power plant--would still understand 
much of our electrical grid if he were alive today. We have a long way 
to go in adapting the infrastructure and operating systems to allow a 
level playing field for new companies, new business models, and new 
technologies to take hold.
    I thank the Chairman for calling this hearing and I hope it is the 
first of many the Committee holds to examine ways in which our Power 
Marketing Administrations can be positive forces of change in the 
operation of our nation's grid.
                                 ______
                                 
    The Chairman. I thank the gentleman very, very much for his 
remarks. Sometimes open remarks yield to new enlightenment, and 
I see that we have a whole lot of common ground that I had no 
idea we had before, and that will give us an opportunity to 
pursue it in many, many ways.
    To me, this is wonderful.
    [Laughter.]
    The Chairman. With that, I really want to welcome our 
distinguished panel today. We have The Honorable Glenn English, 
former Member of this body from Oklahoma, CEO of the National 
Rural Electric Cooperative Association.
    We have The Honorable Jason Marks, Commissioner of the New 
Mexico Public Regulation Commission from Santa Fe, New Mexico.
    Mr. Mark Crisson, CEO of American Public Power Association 
here in Washington, D.C.
    Monty Humble, President and Chief Operating Officer of 
Brightman Energy in Austin, Texas.
    Mr. Scott Corwin from my area in the Northwest, Executive 
Director of the Public Power Council out of Portland, Oregon.
    Mr. Joel Bladow, Senior Vice President of Transmission of 
Tri-State Generation and Transmission out of Colorado.
    Gentlemen, you have, I know, from time to time testified in 
front of this Committee. We have the five-minute rule. Your 
whole statement will appear in the record but I would ask you 
keep your oral remarks to five minutes.
    The timing lights are thus, when the green light goes on, 
you have four minutes and you are doing well. When the yellow 
light comes on, that means you have one minute left, and when 
the red light comes on, sometimes horrible things happen.
    I would just ask if you can keep your remarks to that, and 
with that, I would like to recognize Mr. Glenn English. Mr. 
English, you are recognized for five minutes.

               STATEMENT OF GLENN ENGLISH, CEO, 
        NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION

    Mr. English. Thank you very much, Mr. Chairman. I 
appreciate that. Having known Mr. Markey for a long time and a 
great admirer of certainly his diligence and his vigilance, I 
have to say I was not certain--this is a revelation to me about 
his looking after our concerns over socialism. Appreciate that, 
Mr. Markey.
    Let me just say, Mr. Chairman, perhaps to put this a little 
bit in context and put it in a light that I am not sure I heard 
either the Chairman or the Ranking Member touch on, I think 
this goes back to the time in which rural electric cooperatives 
were created, and PMAs were created.
    This was a rather unique period in our history. I think it 
may be a little lesson for us today.
    What happened during those days in creating two tremendous 
success stories for this country, making it possible to bring 
electric power to rural areas of this nation where no one else 
wanted to deliver and where many said it could not be done.
    This was done through a partnership between Government and 
its citizens, between those people who are directly impacted. 
It gave people the opportunity to do it for themselves.
    If you look at both electric cooperatives and the PMAs, 
there is this element of doing it for yourself. It is the local 
people coming together, banding together. They are the folks 
that did this thing.
    This is a tremendous success story, and I would suggest it 
is a very good model to be used today. I do not hear that much 
today.
    What we hear today so often is let's get somebody else to 
pay for it, and by the way, we will push it off on the kids, in 
the form of a national debt, or get somebody else to pay for it 
that is not me.
    I can remember there was a Senator, Chairman of the Senate 
Finance Committee, Chairman Russell Long, years ago, used to 
talk about taxes. He said ``Do not tax you, do not tax me, tax 
that fellow behind the tree.''
    That is kind of the mentality, I think, we have this day. 
Let's push it off on the kids, let's push it off on somebody 
else, anybody but me pay for it.
    Well, I think that is what we have to keep in mind as we 
move forward with some of these institutions that have been 
around a long time that have been great success stories.
    I want to remind the Committee that electric cooperatives 
and municipals primarily, there were some other folks involved, 
too, but primarily those two groups made it possible to go out 
and build these dams, and to get them paid for.
    We agreed that indeed we would go forward and guarantee 
that we would buy the power, not only buy it at market rates, 
we would even buy it at above market rates, because we saw that 
being very important to those communities.
    The people who were being affected by the floods, the 
people who were going to be benefitted by irrigation, the 
people that were going to be benefitted by recreation, and only 
the people that were going to be benefitted by a reliable 
source of electric power were willing to pay more than market 
rates because what they saw this as being is the future, an 
investment. It has been a very wise investment indeed.
    This whole premise was based on the fact this was a local 
thing, local folks. The Federal Government came in and helped 
make it possible.
    This partnership was formed in order to create these 
entities to have this tremendous success story. Ever since, Mr. 
Chairman, what we have had is the local folks working with the 
PMAs locally to try to determine how can we best impact the 
lives of the customers of the PMAs, the citizens that are most 
directly affected.
    Throughout the years, that is the way it has worked. Any 
time we have had improvements, yes, you have had 
appropriations, but you have also had that compensated and paid 
for with higher rates, and you have had the preference 
customers that are willing to pay more to bring about those 
kinds of improvements, doing it locally, the local people.
    I agree, Mr. Markey, that without question, we need to move 
forward and to improve the electric utility system of this 
country.
    I agree new technology has to come into play. I agree that 
the PMAs can play a major role in making that happen.
    We still have this fundamental issue. Who is going to pay 
for it? That is what this is really all about--who is going to 
pay for it?
    I am not sure whether the Secretary has that tied down yet. 
We do not know. In all honesty, that memo was a little bit 
vague, but it certainly got the attention of preference 
customers, certainly got the attention of electric co-op 
members, because what they sense is somebody is going to make 
those of us who are not receiving the direct benefits pay for 
somebody else's benefits.
    That we are seeing a change in policy that is coming about. 
I hope that is not true. I hope that what we are going to see 
is Secretary Chu recognizing the success that we have in the 
past of those people who receive the benefits pay for the 
investment.
    If that should be the case, I think we have a great model 
to follow. If that is the case, all those elements that Mr. 
Markey was so concerned about and all those objectives that he 
had, I think, can be reached.
    I would suggest it is those people who are going to be 
receiving the benefits that should they pay, be making the 
investment so they can receive the rewards in the future.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. English follows:]

            Statement of The Honorable Glenn English, CEO, 
            National Rural Electric Cooperative Association

    Mr. Chairman and members of the Committee, thank you for holding 
this hearing and for providing me the opportunity to testify. We 
appreciate the committee's work to ensure that our federal hydropower 
infrastructure and the Power Marketing Administrations remain a vital 
part of America's energy backbone. It is most appropriate that this 
hearing's focus will be mainly on the recent memo from Secretary of 
Energy Chu to the administrators of the four Power Marketing 
Administrations, or PMAs: Bonneville Power Administration headquartered 
in Portland, OR; Western Area Power Administration in Lakewood, CO; 
Southwestern Power Administration in Tulsa, OK; and Southeastern Power 
Administration in Elberton, GA. Co-ops were some of the first 
purchasers of federal hydropower, and today more than 600 rural 
electric cooperatives are PMA power customers.
    In my testimony, I want to highlight the importance of the PMAs for 
both electric customers and taxpayers; discuss elements of Secretary 
Chu's March 16 memo; and provide recommendations for how Congress and 
the Administration can work with customers to strengthen the federal 
hydropower resource and the PMAs
    The Power Marketing Administrations are unique entities, spanning 
geographically diverse regions of the nation. They also have differing 
authorizing statutes, many of which have been layered over time as new 
projects were constructed. Since each of these regions is so complex 
and policies are developed in partnership with the federal power 
customers, PMAs have been statutorily headquartered in the geographic 
areas in which they serve, rather than in Washington, DC. Secretary 
Chu's memo seems to bring an end to that practice, which is a big 
concern to our members. The federal power customers and the electric 
consumers they serve are not convinced that a ``Washington-knows-best'' 
approach will result in improved delivery of electricity.
    The National Rural Electric Cooperative Association (NRECA) is the 
national service organization representing the interests of cooperative 
electric utilities and their consumers. Electric cooperatives are not-
for-profit, private businesses governed by their consumers. These 
consumers are unique in the electric industry in that they are members 
of their cooperative and therefore own their utility. There are more 
than 900 electric cooperatives which serve more than 42 million 
consumers in 47 states.
    NRECA estimates that cooperatives own and maintain 2.5 million 
miles or 42 percent of the nation's electric distribution lines 
covering three-quarters of the nation's landmass. Cooperatives serve 
approximately 18 million businesses, homes, farms, schools (and other 
establishments) in 2,500 of the nation's 3,141 counties. Our member 
cooperatives serve over 5.75 million member owners in Congressional 
Districts represented on this Committee.
    Cooperatives still average just seven customers per mile of 
electrical distribution line, by far the lowest density in the 
industry. These low population densities, the challenge of traversing 
vast, remote stretches of often rugged topography, and the increasing 
uncertainty in the electric marketplace pose a daily challenge to our 
mission: to provide a stable, reliable supply of affordable power to 
our members, your constituents.

The Role of Federal Hydropower
    Historically, one of the keys to providing affordable electricity 
by cooperatives across the country has been access to the electricity 
produced at federal dams and marketed by the four Power Marketing 
Administrations.
    More than 600 electric cooperatives in 34 states purchase PMA-
marketed hydroelectric power. Other federal power customers include 
municipal electric utilities, irrigation districts, tribes, and state 
and federal installations such as universities and military bases. 
According to statute, the price for the power is set at ``. . .the 
lowest possible cost to consumers.''
    The business relationship between electric cooperatives and PMAs 
represents a longstanding partnership between electric cooperatives and 
the federal government. It is a model that works well for providing 
consumers across the country with reliable, affordable electricity. It 
is also a good deal for taxpayers, as it provides a mechanism through 
which federal investment is continually repaid by users of the federal 
power system.
    Hydroelectric power is produced at 134 federal dams that are 
operated by the U.S. Army Corps of Engineers and the Bureau of 
Reclamation. Power Marketing Administrations market that electricity at 
a wholesale level at a price that pays for all of the taxpayers' 
original investment, plus interest, and ongoing costs. Specifically, 
the rates charged to federal power customers cover:
          the cost of repaying capital investments including 
        renewals and replacements, with interest;
          power-related annual operating and maintenance costs 
        of dam operations;
          transmission and marketing of federal power;
          and financial support of some non-power related 
        authorized project purposes.

Considerations for PMAs' continued strength
    Secretary Chu's memo to the Power Marketing Administration heads on 
March 16 proposed major changes to the way the PMAs do business. While 
specific direction will be provided to each of the PMAs in subsequent 
memos, there are guidelines which should be considered before issuing 
any directives or changing the primary focus of the PMAs. Changes to 
existing policy and direction should be made only after a full and open 
public process with opportunities for the PMA customers to provide 
input. We believe the Secretary should remember three simple 
principles: affordability; fairness; and upholding the PMAs' core 
mission.

Affordability
    As not-for-profits, electric cooperatives provide the most 
affordable and reliable electricity possible to their consumer-members. 
Simply put, every time the input costs increase for a co-op, electric 
bills must also increase to make up the difference. If changes are made 
that increase the costs of PMA-marketed electricity, it stands to 
reason that customers' cost-based rates would also increase.
    There is no question that rising electric bills hurt American 
families and businesses. Since the incomes of co-op customers lag 14% 
below the national average, cooperatives work to keep rates affordable 
for our consumermembers at all times. Since we are finally starting to 
see signs of economic optimism after years of recession, this is no 
time to be driving up the cost of electricity.
    The March 16 memo recognizes that the so-called modernization 
effort will likely be costly, and that costs will be ``phased in'' to 
minimize disruption. Phasing in expenses does not address the issue of 
increasing costs to consumers with no associated benefits. Any changes 
to the PMAs' strategic planning processes should be considered 
carefully, and new capital expenditures planned should be specifically 
discussed with the customers who will pay those expenses.
    While I am concerned about the rate-raising impacts of this memo 
and its vague but expensive-sounding policies, the costs to the 
American taxpayer are also unknown. It seems that Congress should give 
this memo and future policies a good hard look before giving DOE and 
the PMAs the go-ahead to proceed.

Fairness
    Throughout Secretary Chu's memo, there are examples of how the PMAs 
could be restructured to be more efficient. It is not clear from the 
memo which parties will benefit from the changes proposed, or who will 
pay for them.
    The entire federal transmission system the PMAs use to market power 
is paid for through rates charged to users and beneficiaries. We 
support the construction of new transmission infrastructure--including 
poles, wires, computers, people, and other components--where it makes 
sense. These investments should be made to improve system performance 
and reliability, not to give one type of generator or customer an 
advantage. Further, the cost of those improvements should continue to 
be borne by the beneficiaries. This long standing practice of assigning 
costs based on benefits received should be maintained.

Uphold the PMAs' Core Mission
    In his memo, Secretary Chu outlines that PMAs will become involved 
in a wide range of businesses including test beds for cyber security, 
advancing electric car deployment, and energy efficiency. These are 
valid policy goals, and in fact they are ones that many of our member 
co-ops are pursuing. But to ask existing consumers, and taxpayers, to 
foot the bill for these pursuits is well outside the PMAs' mission. It 
would be bad public policy to use the PMAs as technology laboratories, 
forgetting their primary mission of marketing federal power.
    Electric cooperatives are a good example of how the electric 
utility industry is changing. We have members across the country that 
are leading smart grid technology efforts; incorporating demand 
response; and reducing load by incorporating energy efficiency 
programs. We have cooperatives both developing renewable energy 
projects and purchasing renewable energy of all kinds including wind, 
solar, geothermal, biomass, and clean renewable hydropower. Electric 
co-ops have either installed or contracted for more than 4,000 MW of 
renewable capacity.

Improving PMAs and the federal hydropower resource
    We need to take a step back, and identify how we could all 
collectively work together to improve the PMAs and the federal 
hydropower investment overall. Congress and this administration could 
make a significant impact on the energy security of our country by 
investing in the federal hydropower resource. Congress and the 
Administration should:
          Use existing authorities to prudently integrate newly 
        developed resources into the existing federal transmission 
        systems, while improving reliability and alleviating 
        transmission shortfalls;
          Improve access to federal lands to speed construction 
        of transmission and distribution lines;
          Recognize the importance of clean, renewable, 
        affordable hydropower as an important part of our nation's 
        energy policy; and
          Make a greater federal commitment to our hydropower 
        resource. The President's Budget Request and appropriations by 
        Congress must prioritize the safety and efficiency of federal 
        dams and power-related resources as a priority.
    The federal power program pays its own way. Unlike most other 
federal programs, appropriations for the federal power program are 
repaid to the U.S. Treasury by federal power customers. Historically, 
deficit reduction measures have curtailed appropriations for the 
federal power program, despite the fact that all of the costs of the 
federal power program are repaid. These curtailments threaten the 
reliability and efficiency of federal hydropower assets. However, the 
federal power customers, in partnership with the PMAs and generating 
agencies, have contributed funds to reduce this threat. Continued 
federal appropriations must remain the primary support for sustaining 
the federal power program, but should not preclude alternative funding 
methods to complement these appropriations.
    By working together, Congress, the Administration, and the federal 
power customers can address the multiple goals of the federal 
hydropower resource and the PMAs, and maximize the benefit of the 
system for all.
                                 ______
                                 
    The Chairman. The time of the gentleman has expired. Our 
next witness is from New Mexico, and I want to recognize my 
colleague from New Mexico, Mr. Lujan, for purposes of 
introduction.
    Mr. Lujan. Mr. Chairman, thank you very much. It is my 
pleasure to introduce my colleague, Commissioner Jason Marks, 
from New Mexico. Commissioner Marks and I both served in the 
New Mexico Public Regulation Commission together before I was 
elected to Congress.
    It is essentially the equivalent of public utility 
commissions across the country. The PRC is an elected body 
which oversees utilities, telecommunications, insurance and 
transportation, among other things.
    Working together, we were able to make New Mexico a leader 
in renewable energy generation by making it a part of the 
state's energy portfolio and increasing the state's renewable 
portfolio standard, a similar responsibility that Senator Udall 
and Senator Bingaman are championing here in the Congress, 
which we refer to as a renewable electricity standard.
    We laid a strong foundation to encourage development of a 
clean energy economy that creates good jobs in our communities 
while making sure we never forgot about energy efficiency.
    We can see those efforts starting to pay off in our state.
    I want to thank my colleague, Commissioner Marks, for being 
here today, and I look forward to his discussion today.
    Thank you, Mr. Chairman, and I yield back.
    The Chairman. Mr. Marks, you are recognized for five 
minutes.

            STATEMENT OF JASON MARKS, COMMISSIONER, 
            NEW MEXICO PUBLIC REGULATION COMMISSION

    Mr. Marks. Chairman Hastings, Mr. Markey, members of the 
Committee, thank you for this opportunity. I am honored to have 
my first appearance in this August body introduced by my good 
friend and colleague, Mr. Lujan from New Mexico.
    As public utility commissioners, my colleagues and I are 
charged with keeping electric rates affordable while 
maintaining system reliability.
    The West has a long tradition of states engaging regionally 
with industry and others to discuss ways to better utilize the 
electric grid to reduce costs.
    A regional energy imbalanced market or EIM has been on a 
collaborative agenda for several years after first being 
introduced to us by industry. Commissioners quickly became 
interested because of the potential to save large amounts of 
money for the consumers in our states.
    The Federal Government through the Power Marketing 
Administrations can play a key role in western EIM discussions.
    I welcome Secretary Chu's memo indicating WAPA's 
participation and his leadership in directing the PMAs to work 
with the states and others to achieve shared goals of 
delivering reliable power supplies to consumers at low cost.
    My written testimony describes the EIM concept in more 
detail. To summarize, a western EIM would be voluntary for 
participants, would not be an RTO or imply the subsequent 
creation of an RTO, would only be pursued based on a solid 
financial case with tightly controlled costs and assured net 
benefits. Based on early data, it could save customers in 
excess of $100 million annually with savings shared broadly 
across the region.
    Finally, an EIM needs critical massive participation in 
order to be successful. The broader the participation, 
including that of the PMAs, the more opportunities that arise 
for cost saving transactions.
    Today, the Western Interconnection has 37 separate 
balancing authorities. Each balancing authority works 
continuously and separately to ensure that electric supplies 
are in balance in fluctuating real time demand.
    An EIM, however, looks at the balance between demand and 
supply across multiple BAs. Some imbalances will offset each 
other. Remaining imbalances will be handled by dispatching the 
lowest cost generation available across the broad region.
    Cost savings to consumers will be realized from reduced 
fuel costs, less wear and tear on generating plants from rapid 
cycling, and reduced need for reserves.
    Existing transmission lines will be utilized more fully 
with appropriate compensation.
    The larger the balancing footprint with a greater diversity 
of resources and loads, it will make it easier and cheaper to 
use variable generation resources such as wind power.
    We need not fear that the EIM will somehow suck in the low-
cost electric resources from the region leaving customers 
paying high market prices for their basic energy supply.
    The decision on how much capacity to offer into the EIM 
would be up to each public or investor owned utility that has 
generation. Individual transactions would not happen unless 
they were beneficial to both sides.
    Besides, the EIM is not that kind of a power market. An EIM 
would not be an RTO. It would not be centralized unit 
commitments, day ahead markets, capacity markets, regional 
transmission tariffs or so on.
    If these other RTO aspects were on the table, many western 
commissioners, myself included, would be among the most vocal 
opponents.
    Last year, an EIM costs/benefits study was performed by the 
WECC. The WECC study came up with a very broad range for EIM 
costs and a somewhat narrower range of benefits.
    The PUC EIM group that I chair was formed to refine that 
analysis. Our group has representatives from 13 states. We have 
opened up our activities to any and all interested 
stakeholders.
    Working with DOE, we asked NREL to conduct a new analysis 
of financial benefits using more sophisticated production cost 
models. We have obtained informational bids for implementing 
and operating an EIM from two qualified entities, the SPP and 
the CAISO, based on a sample market design we commissioned.
    At some point, we expect to hand this work back to industry 
members of an EIM who will then make the actual decisions on 
market design and governance.
    The informational bids we received indicate the cost of 
operating an EIM is about $28 million a year. NREL's 
calculation of benefits will be released in May.
    Until then, using the WECC benefits in conjunction with the 
new cost information, it appears that there could be an excess 
of $100 million in net financial benefits from an EIM.
    Critical mass and continuity in an EIM are keys to cost 
savings. Participation of the PMAs in a Western EIM would lead 
to greater benefits and lower costs to the benefit of consumers 
across the West, including those served by the PMAs' public 
power customers.
    Thank you. I am happy to answer any questions.
    [The prepared statement of Mr. Marks follows:]

 Statement of Jason Marks, Commissioner, New Mexico Public Regulation 
Commission, and Chair, Western Public Utility Commissioners' EIM Group 
                               (PUC EIM)

    As public utility commissioners, I and my colleagues are acutely 
concerned with keeping electric rates affordable, while maintaining 
reliability. The west has a long tradition of states engaging 
regionally with industry and other stakeholders to discuss ways to 
better utilize the electric grid to reduce costs. The regional energy 
imbalance market (EIM) concept has been on our collaborative agenda for 
several years and grows out of other efforts to more closely integrate 
western grid operations. It appears that at least $100 million in 
annual cost savings (and quite possibly more) could be realized with an 
EIM, with benefits to the customers of both investor-owned and public 
power entities that choose to participate in such a voluntary market 
for balancing energy.
    The participation of the Western Area Power Administration in a 
western EIM can lead to greater benefits for consumers across the west, 
including those served by Western's public power customers. I welcome 
Secretary Chu's memorandum indicating WAPA participation and directing 
the power marketing administrations to work with the states and others 
to formulate cooperative paths to achieving our common objectives of 
delivering reliable power supplies to retail consumers at low costs.

The Function and Benefits of an EIM
    Today in the Western Interconnection, we have 37 separate balancing 
authorities. (Figure 1) Each works continuously to keep electric 
generation in balance with fluctuating loads. The regional EIM being 
considered will offer several advantages over this balkanized status 
quo. (Figure 2)
    The imbalances that must be addressed within each balancing 
authority (BA) can be either too much or too little electric supply 
relative to the real-time demand. By summing real-time demand and 
supply across multiple BAs, we can expect that a portion of the 
deviations will wash-out on their own, reducing the need for active 
dispatch by the EIM operator. It's likely that often when one BA is 
long, another BA will be short, and so rather than the first BA 
curtailing generation at the same time as the second BA increases it, 
we can let the excess supply in the first area meet the excess demands 
in the second. Of course, the EIM will work within the physical 
constraints of the transmission system and not just assume that any 
positive imbalance in the interconnection can offset a negative 
imbalance somewhere else. And also of course, generators will be paid 
when their electricity winds up serving customers in another BA.
    The second inherent benefit of a regional EIM is that the EIM 
operator can address intra-hour balancing requirements using the lowest 
cost generating resource from a broader range of options, thus lowering 
the cost to electrical consumers. The customers of the utility needing 
extra electricity in a balancing transaction will benefit by getting 
the lowest-cost dispatch from across the whole region, instead of just 
what would have been available within the BA. And the customers of the 
utility that supplied the balancing electricity should also benefit by 
the fact a sale that would not otherwise have occurred has now been 
made, providing in most cases a revenue credit against the fixed costs 
of the generating plant.
    The larger footprint of a regional EIM, with greater diversity of 
resources and loads, is also expected to make it easier and cheaper to 
make use of variable generating resources such as wind power. An EIM 
can also lead to more efficient use of the existing transmission 
infrastructure.
    To summarize, every five minutes, the proposed energy imbalance 
market will dispatch the lowest-cost resources available to eliminate 
generation and load imbalances across the EIM's footprint. Cost savings 
come from reduced fuel costs, as the generating plants with the highest 
efficiencies (known as ``heat rates'') and lowest cost fuels are used 
more. Additional savings are expected from less wear and tear on 
generating plants from rapid cycling and from reduced need for 
reserves. Existing, but underutilized, transmission lines will be used 
to carry the lower-cost electricity to where it is needed in the 
region, and so the owners of those lines such as the Western Area Power 
Administration (WAPA) will gain additional revenues that can be used to 
reduce costs to their customers.

An EIM is not an RTO
    The regional EIM that is being considered would be purely 
voluntary. Each existing BA would be able to decide whether to join the 
EIM and each utility or other owner of generation would be able to 
decide how much--if any--of its plant capacities it wished to make 
available to the EIM for dispatch.
    The regional EIM would be a market for intra-hour balancing energy 
only. The EIM would be a far cry from a full-fledged RTO (regional 
transmission organization). The existing practices of self-generation 
and bilateral contracts by each utility to meet its own capacity and 
energy needs would not be disturbed. There would not be centralized 
unit commitment, day-ahead markets, capacity markets, regional 
transmission tariffs, etc.
    If some of these other RTO aspects were on the table, many western 
utility commissioners--myself included--would be among the most vocal 
opponents. The vertically-integrated, cost-based model that we use 
keeps electricity costs to consumers low and bypasses the capacity-
creation challenges we see in the organized markets. But that a western 
EIM looks like one of the functions RTOs perform is not a good reason 
to walk away from the potential of hundreds of millions of dollars in 
savings to consumers across the west (outside of California) from more 
cost-efficient intra-hour balancing.
    Concerns have been raised that an EIM could evolve into an RTO over 
time. Many parts of the west have particular reasons for being 
suspicious of plans to form a western RTO. Legal provisions can be 
crafted for the governance structure of an EIM to ensure that ``mission 
creep'' does not occur, and to specifically protect EIM participants 
from being involuntarily forced into RTO.

Cost Benefit Studies and the Formation of the PUC EIM Group
    Last year, an EIM cost-benefit study was performed under the 
auspices of the Western Electric Coordinating Council (WECC). The WECC 
study came up with a very broad range for EIM costs and a somewhat 
narrower range of benefits. (Figure 3) The WECC study results left open 
the possibility that EIM could lead to significant savings. But if 
actual costs came in at the higher end of the range, there would 
negative economic benefits.
    The PUC EIM group that I chair was formed in order to carry forward 
and refine the analysis of an EIM. Our group commissioned the creation 
of an illustrative market design. Then, using this design as a fixed 
point of departure, we solicited informational bids from two existing 
market-operators, the Southwest Power Pool (SPP) and the California 
Independent System Operator (CAISO), on what they would charge to 
implement and operate such a market. Concurrently, with the financial 
assistance of the Department of Energy, we commissioned the National 
Renewable Energy Laboratory (NREL) to conduct a more refined analysis 
of potential EIM benefits using a new production cost modeling tool 
called PLEXOS, running on a ten-minute timescale.
    The PUC EIM group includes representative from 13 state utility 
commissions. (Figure 4) We have opened up our activities to any and all 
interested stakeholders. We have conducted an extensive series of 
public webinars on each aspect of our project. We solicited and 
addressed comments on the illustrative market design and we've also 
begun loose coordination with WSPP, a membership organization that is 
looking at governance options for a voluntary western EIM, with a 
specific focus on preventing mission creep.
    State utility commissioners recognize that, should a regional EIM 
be created, market design and governance will be prerogatives of the 
industry members. Our role in the process has been to facilitate, not 
to dictate, because--representing the interests of millions of retail 
electric consumers in the unorganized part of the west--we believe that 
there are substantial amounts of cost savings that would be left on the 
table if the EIM conversation was to stop.
    The informational bids we have received from SPP and CAISO are both 
significantly lower than the engineering estimates that came out of the 
WECC study. (Figure 5) Because these are informational bids from 
entities that currently own and operate platforms that can be adapted 
to handle the business of a regional EIM, they can be given greater 
weight than the earlier estimates, which were done in the abstract and 
with uncertainty about whether market operations would be contracted 
out to an existing entity. The cost of operating an EIM would be about 
$28 million per year based on the SPP proposal.
    The results of the PUC EIM engagement with NREL to calculate the 
financial benefits of an EIM will be released in early May. NREL's 
analysis using a 10-minute dispatch simulation could show higher 
benefits than what was found in the WECC study, which was limited to 
one-hour cycles. Using only the WECC benefits in conjunction with the 
better information on costs that we have now obtained, it appears there 
would be in excess of $100 million in net financial benefits from an 
EIM.

Conclusion
    Based on the information available to-date, a western EIM would 
appear to be a very attractive option to improve the utilization of the 
existing electric grid. Net financial benefits to electricity customers 
appear to be in excess of $100 million a year, shared throughout the 
region. Fears about excessive or runaway costs are being answered by 
the illustrative market design and illustrative bid process undertaken 
by the PUC EIM group, which has identified two potential vendors that 
are willing and able to operate the market for relatively modest costs 
and start-up fees. Governance alternatives that can provide necessary 
reassurances against mission creep are being developed and shared with 
interested stakeholders.
    Two principles guide those of us involved in the EIM conversation. 
The first is that the decision to proceed needs to be data-driven. An 
EIM should be pursued if (but only if) it shows significant net 
financial benefits to our constituents outside the margin of 
forecasting error. The second is that participation in an EIM must be 
voluntary. My expectation is that there will be a positive financial 
case for both investor-owned and public power to participate in a 
regional EIM.
    An EIM needs a critical mass of participants in order to be 
successful. The broader the participation of load and generation, the 
more opportunities that arise for cost-saving transactions. Costs to 
participants will be lower if the fixed costs of a single EIM can be 
spread over a broader footprint. Conversely, alternatives in which 
multiple balancing markets are operated will inherently lead to 
increased fixed costs.
    The Power Marketing Administrations are key players for this 
initiative due to the PMAs size and scope, the public power 
constituencies they serve, and their unique legal and regulatory 
posture. While the detailed cost/benefit calculations have yet to be 
prepared, we can safely assume that a larger footprint, with more 
participants and more contiguity, will translate into greater economic 
benefits and less cost per unit. I look forward to working with the 
PMAs, and their customers in working together to achieve our common 
goals of delivering reliable power supplies to all consumers at low 
costs.

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                                 __
                                 

   Response to questions submitted for the record by Jason A. Marks, 
    District 1 Commissioner, New Mexico Public Regulation Commission

    Below are my responses to the questionnaire forwarded by Chairman 
Doc Hastings.
1.  Commissioner Marks, the concept of an Energy Imbalance Market as 
        you heard today, can be controversial. Commissioner, what is 
        your response that this could increase rates for consumers? 
        Would you advocate for an EIM if it showed a negative benefit 
        for consumers?
    The primary purpose for pursuing an energy imbalance market (EIM) 
is to decrease costs and reduce the rates that consumers would 
otherwise need to pay for their electricity. In theory, an EIM can 
reduce costs by reducing the need to cycle plants inter-hour, reducing 
reserve requirements, and by ensuring that incremental power needs are 
supplied using the lowest-cost power available across a broader 
footprint than a single balancing authority.
    Results of a production cost modeling analysis of a Western EIM 
were released earlier this month by the Department of Energy's National 
Renewable Energy Laboratory. The technical assumptions and approach 
used by NREL were peer-reviewed by a team of industry experts, 
including representatives of several public power utilities. NREL 
estimated the operating savings of an EIM at $167 million annually. A 
supplemental NREL analysis using a different modeling approach 
indicated savings in excess of $1 billion. The PUC EIM group is working 
to understand the applicability of the higher savings estimate.
    As I understand it, EIM skeptics do not allege that electric supply 
costs would be increased with an EIM. The EIM skeptic case is that the 
overhead costs of building and operating an EIM could exceed the 
operation savings. The PUC EIM Group agrees that controlling costs and 
having certainty about cost are critical aspects of deploying a Western 
EIM. By seeking informational bids from existing entities that already 
provide similar services, we have been able to remove much of the 
uncertainty about out-of-control costs from the EIM decision-making 
process. Based on the bid from Southwest Power Pool, which is the 
higher of the two we received, annual costs for a Western EIM, 
including amortization of start-up expenses, would be around $40 
million. Thus, the information we have to-date suggests a positive 
cost-benefit ratio of 4:1, with an almost certain likelihood of net 
savings to the region's consumers.
    My support and advocacy for a Western EIM is predicated on an 
expectation of positive benefits for consumers. I would oppose an EIM 
at this time if were likely that it would yield negative benefits to 
consumers.

2.  If the benefits of an EIM are shown, what effect is an EIM likely 
        to have on federal expenditures and revenues, if the PMAs were 
        to be involved?
    The operation of an EIM relies upon moving low-cost power around 
the region using the excess capacity of existing transmission lines. 
EIM protocols under discussion would ensure that utilities' 
transmission rights to serve their own customers' load, as well as 
other contracted transfers would take priority on the transmission 
system. EIM would not displace any other power transfers, but would 
send power across transmission lines when surplus capacity was 
physically available (and the transfer was economic). Under an EIM, 
transmission owners would be compensated for this use of their 
transmission lines and facilities. Revenues received for hosting EIM 
power transfers would be additional or incremental to the compensation 
transmission owners currently receive. The federal PMAs, as owners of 
transmission lines and facilities, would be in line to receive some of 
these new revenues when their facilities are used for EIM power 
transfers.
    Public power utilities that own significant transmission assets 
could also expect to see additional revenues from the use of their 
lines.
    Secretary Chu's memorandum directs PMAs to incur short-term costs 
for analysis and potential implementation of an EIM. Based on my 
conversations with knowledgeable parties, I believe that such expenses 
will not rise to a material level; rather I take the Secretary's words 
as meant to show a definite commitment to the process.

3.  What could this mean for the ability to integrate more system 
        efficiencies and renewable energy into the system?
    Research and analysis we are receiving indicate that the reserves 
needed to back up variable renewable energy generation sources are 
significantly reduced with an EIM. An EIM would permit a greater amount 
of renewable energy to be integrated into the Western grid, and would 
lower the costs of doing so.

4.  Commissioner Marks, whether it is an EIM, or more broadly, the 
        implementation of energy policy, what would you say is the role 
        of public outreach and comment?
    As an elected utility commissioner, it is my business to not just 
understand the legal, financial, and engineering context in which 
energy policy is made and executed, but also to understand public 
opinion and preferences. The general public is broadly and strongly in 
support of initiatives to modernize our energy supply system. 
Regardless of political affiliation, ordinary citizens in overwhelming 
proportions (e.g., 90%) favor much more use of solar power and other 
forms of clean renewable energy. Notably, public preferences in favor 
of more renewable energy are sustained even after detailed, but 
unbiased, information and education is provided about costs and other 
constraints with renewables; see for example the results of the 2011 
Arizona Public Service/Morrison study). Polling consistently shows that 
electric customers are willing to pay a premium to accelerate the 
deployment of cleaner power sources.
    The public also generally supports technical innovation in the 
power sector (albeit with some concerns over privacy when it comes to 
issues like ``smart meters''). Thus, in many respects, the general 
public is ahead of industry and even political leadership in wanting to 
see our country move to a technologically-advanced energy economy built 
on sustainable, non-polluting resources, and which provides well-paying 
American jobs.
    Unfortunately, the views and preferences of paid representatives of 
entities with direct financial interest in the outcome of various 
energy policy debates tend to dominate too many discussions at both 
utility commissions and legislatures. We need to keep the public 
closely involved in the development and implementation of energy 
policy. And this involvement needs to be bi-directional, with both 
outreach and education to communicate to the public, combined with 
ample opportunities to receive feedback from consumers and others 
affected by our policy decisions.
    Thank you for the opportunity to respond to these questions. If you 
have any other questions or need for more information, please feel free 
to contact my office.
                                 ______
                                 
    The Chairman. Thank you very much for your testimony.
    Next, we will recognize Mr. Mark Crisson, CEO of the 
American Public Power Association.
    Mr. Crisson, you are recognized for five minutes.

                STATEMENT OF MARK CRISSON, CEO, 
               AMERICAN PUBLIC POWER ASSOCIATION

    Mr. Crisson. Thank you, Mr. Chairman. Good morning, Mr. 
Chairman, members of the Committee.
    I represent the American Public Power Association, which 
represents the interests of over 2,000 community owned not for 
profit electric systems throughout the country.
    We are in more than 49 states and serve 46 million 
customers.
    We appreciate you making this a priority and taking the 
time to explore the issues raised by Secretary Chu's 
Memorandum.
    Since two-thirds of our members do not generate their own 
power and have to rely on wholesale power purchases, this is a 
critical issue for our members.
    We are very concerned about being able to secure an 
affordable, low-cost supply of wholesale power.
    We have 600 of our members in 33 states that purchase 
wholesale power from the four Federal Power Marketing 
Administrations.
    The rates that our members pay for this power is cost 
based. They pay all the costs of generation, including the 
interest in the O&M associated with the projects.
    This system of repayment of the Federal Government through 
rates charged to power customers has worked well for decades. 
This is known as the ``beneficiary pays principle.'' This is 
fundamental to the success of the power marketing agencies.
    Our concern is that the directives proposed in Secretary 
Chu's memo would violate this principle, potentially increasing 
costs to millions of ratepayers around the country.
    The mission of the PMAs for decades has been to provide 
affordable, reliable power from renewable resources consistent 
with best business practices.
    Any time there has been changes proposed to this mission 
that might somehow change or jeopardize it, it has been done 
with very careful evaluation, very rigorous scrutiny of the 
potential impacts, and then only with congressional involvement 
and approval.
    The changes proposed in this memo, however, are done 
without any customer or congressional input.
    I am not going to summarize all of the changes proposed in 
this memo in the interest of time, but let me just give a 
couple of examples that concern us.
    One is the mandated use of otherwise discretionary third 
party transmission financing authority. The proposal is kind of 
vague. We are not exactly sure what is going to happen here, 
but there is the potential for all the costs of this 
transmission being born by the customers of the PMAs without 
any commensurate benefits.
    Another concern we have is the idea of incentivizing 
through rate design a number of activities, such as energy 
efficiency, deployment of electric vehicles, which is really 
more properly a retail activity, not a wholesale activity.
    By the definition of ``incentive,'' that conjures the 
notion of discounts or something that departs from cost based 
rates. This is a real concern.
    Finally, to the comments of Mr. Marks a moment ago, there 
is a proposal for Western to pursue membership in something 
called an ``energy imbalance market.''
    I know this Committee does not deal very often if at all 
with the issues of power markets and their operations. Let me 
be clear on this point.
    This market would be a bid based market. What that means is 
that the participants in this market would bid into this 
market. They do not have to bid their actual costs. They can 
bid anything. The price that clears the market is the highest 
of those costs, and everybody receives that.
    Right out of the box, you have departed from cost based 
rates and what has traditionally been a system that has worked 
very well for decades. It is a major concern for us.
    There is the study that was mentioned earlier about the 
costs and benefits. Let me just say that there is a lot of 
uncertainty about just what might happen in this case.
    I would just mention that the WECC study that Mr. Marks 
referred to indicated that under one scenario, there would be a 
net cost of $1.25 billion to customers over ten years.
    Those costs are deemed to be under estimated by a 
subsequent review that was done by DOE's own Argonne Labs, who 
feel that those costs are probably too low.
    Public power utilities are industry leaders in a lot of the 
areas that are discussed in the Chu memo. We support 
renewables, energy efficiency. We understand the imperatives of 
the 21st Century.
    We think progress can be made here without jeopardizing the 
legacy of our Federal PMAs and subjecting customers to higher 
power costs.
    Let's keep in mind that the PMAs have delivered in 
abundance the most affordable, reliable renewable resource of 
all, hydropower, for years.
    We need to find a better way forward. We stand ready to 
work with DOE to support new multi-purpose transmission 
consistent with regional planning processes.
    We urge DOE to expand the role for hydroelectric power as 
part of the nation's clean energy portfolio.
    Progress in these areas would do much to both support 
renewable resource development and enhanced PMA affordability 
and reliability.
    We urge Secretary Chu and DOE to work with Congress, to 
work with PMA customers, to ensure the PMAs can continue to 
successfully provide low-cost, reliable hydropower for years to 
come.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Crisson follows:]

              Statement of Mark Crisson, President & CEO, 
                   American Public Power Association

    The American Public Power Association (APPA), based in Washington, 
D.C., is the not-for-profit service organization for the nation's more 
than 2,000 community-owned electric utilities. Collectively, these 
utilities serve more than 46 million Americans in 49 states (all but 
Hawaii).
    APPA was created in 1940 as a nonprofit, non-partisan organization 
to advance the public policy interests of its members and their 
customers, and to provide member services to ensure adequate, reliable 
electricity at a reasonable price with the proper protection of the 
environment. Since two-thirds of public power utilities do not generate 
their own electricity and instead buy it on the wholesale market for 
distribution to customers, securing low-cost and reliable wholesale 
power is a priority for public power. Most public power utilities are 
owned by municipalities, with others owned by counties, public utility 
districts, and states. APPA members also include joint action agencies 
(state and regional consortia of public power utilities) and state, 
regional, and local associations that have purposes similar to APPA.
    APPA participates in a wide range of legislative and regulatory 
forums. It advocates policies that:
          ensure reliable electricity service at competitive 
        costs;
          advance diversity and equity in the electric utility 
        industry;
          promote effective competition in the wholesale 
        electricity marketplace;
          protect the environment and the health and safety of 
        electricity consumers; and
          safeguard the ability of communities to provide 
        infrastructure services that their consumers require.
    Approximately 600 of APPA's members in 33 states purchase 
hydropower from the four federal Power Marketing Administrations 
(PMAs). The PMAs market the hydropower produced at large federally-
owned dams operated by the U.S. Army Corps of Engineers and the Bureau 
of Reclamation. Each of these public power utilities has a unique 
contractual arrangement with the PMA from which they receive power. 
Some of these utilities get all of their power needs met through the 
PMA, while others only get a portion--augmenting the federal hydropower 
with their own generation sources which include natural gas, coal, 
nuclear, other hydropower facilities and non-hydro renewable sources 
such as wind, solar, geothermal and biomass. What they have in common 
is that the rates they pay for the PMA-marketed hydropower cover ALL of 
the costs of generating and transmitting the power, interest on the 
federal investment in the project, and ongoing operation and 
maintenance. In some cases, the power customers also subsidize other 
purposes of the dams, such as irrigation and recreation.
    For the public power utilities that purchase hydropower marketed by 
the PMAs, this system of repayment of the federal investment, through 
rates charged to electricity customers, has worked well for decades. As 
modifications and updates are made to federal dams, the power customers 
who receive the benefits of these upgrades repay the government for 
them. This principle, long-referred to as ``beneficiary pays,'' is a 
core underpinning of the PMAs' operations. Another principle is that of 
``preference'' which is essentially a ``right of first refusal'' to 
access PMA power that has been granted under federal law to not-for-
profit utilities--public power and rural electric cooperatives--and a 
few other not-for-profit entities such as military installations and 
publicly-owned universities. This sound public policy principle is 
based on the concept that our nation's river systems, and many of the 
dams that have been built on them, are public goods and thus the 
benefits of these facilities must flow broadly to consumers on a cost-
based, not-for-profit basis. This concept has had bipartisan support 
since the inception of federal hydropower in the early 1900s.
    The four PMAs--the Bonneville Power Administration (Bonneville or 
BPA), Western Area Power Administration (Western or WAPA), Southwestern 
Power Administration (Southwestern or SWPA) and Southeastern Power 
Administration (Southeastern or SEPA) -market wholesale power to 
approximately 1180 public power systems and rural electric cooperatives 
in 33 states, serving over 40 million electricity end-users. 
Electricity customers in the following states receive a portion of 
their power from the PMAs: BPA: Washington, Oregon, Idaho, Montana 
(part). WAPA: Arizona, California, Colorado, Iowa, Kansas (part), 
Minnesota, Montana (part), North Dakota, Nebraska, New Mexico, Nevada, 
South Dakota, Texas (part), Utah, Wisconsin, Wyoming. SWPA: Arkansas, 
Kansas (part), Louisiana, Missouri, Oklahoma, Texas (part). SEPA: 
Alabama, Florida, Georgia, Illinois, Kentucky, Mississippi, North 
Carolina, South Carolina, Tennessee, Virginia.
    APPA members, as purchasers of significant quantities of wholesale 
power marketed by the PMAs, are directly impacted by changes to the 
federal power program. The PMAs, as described above, are based on a 
system of cost pass-throughs, whereby federal investment is repaid, 
plus interest, through electricity rates. As the costs to the federal 
government to provide these essential hydropower services increase, 
wholesale and retail electricity rates are raised correspondingly. APPA 
has consistently opposed changes to the structure and mission of the 
PMAs that would have resulted in higher electricity rates for its 
members and their customers. These changes have often been attempts to 
either privatize the PMAs, or to raise the federal wholesale rates to 
market-based rates, as opposed to the cost-based rate methodology under 
which the PMAs have operated so effectively for so long. Today, 
however, PMA customers face a more subtle, yet equally problematic, 
challenge.
    On March 16, 2012, Department of Energy (DOE) Secretary Steven Chu 
released a six-page memorandum outlining several proposed changes to 
the PMAs. These proposed changes would impose unnecessary and 
inappropriate cost increases on federal hydropower customers, and 
therefore on millions of electricity customers. During a March 20, 
2012, PMA budget hearing held by the Water and Power Subcommittee of 
this committee, Subcommittee Chairman Tom McClintock (R-CA) questioned 
who would pay for these proposed changes and whether the proposal would 
force a shift from the ``beneficiary pays'' principle that has 
consistently governed the PMAs' operation. Chairman McClintock's 
question is well taken and APPA believes that the changes proposed by 
Secretary Chu would in fact both increase costs to federal hydropower 
customers and violate the historic, and highly effective, principles 
under which the PMAs have operated.
    Secretary Chu proposes the following four changes to the PMAs:
    First, he would require the forced implementation of new 
transmission through third party financing mechanisms (WAPA, SWPA) and 
borrowing authority (WAPA). Section 1222 of Energy Policy Act of 2005 
(EPAct05) authorizes WAPA and SWPA, and the Transmission Infrastructure 
Program (TIP) created in the 2009 American Reinvestment and Recovery 
Act (ARRA) authorizes WAPA, to partner with non-customer groups to 
develop transmission within their systems. The Section 1222 authority 
has never been used (although WAPA and SWPA are currently evaluating 
applications for its use) and TIP has been criticized in a report by 
DOE's Inspector General for mismanagement and not being operated in a 
transparent and efficient manner.
    Despite both the explicit flexibility in Section 1222 for the 
relevant PMAs to exercise discretion regarding the use this authority 
and the problems identified with the TIP program, Secretary Chu 
nevertheless seeks to mandate these programs by administrative fiat. 
EPAct05 and the ARRA authorized, but did not mandate, third party 
financing mechanisms, clearly allowing the PMAs, in collaboration with 
the customers, to balance the interests of their existing hydropower 
customers with third party financing proposals. In this new centralized 
mandatory regime directed from DOE headquarters, however, PMA customers 
could be forced to take on the costs of all system-wide transmission 
upgrades. Any benefit they would receive from these improvements would 
certainly be incommensurate with the costs they would be forced to pay. 
This is a blatant violation of the ``beneficiary pays'' principle, 
which has consistently governed enhancements to PMA operations.
    Secretary Chu also seeks legislation to grant WAPA a new borrowing 
authority to finance capital expenses. Currently, WAPA finances 
construction activities through annual appropriations and some customer 
funding. By removing these established funding processes, which allow 
for both congressional and customer input, decisions regarding capital 
improvements to WAPA facilities also would be shifted to DOE 
headquarters. APPA is concerned that removing Congress, the customers, 
and stakeholders further from this decision-making process will result 
in, again, a net increase in costs to be borne by WAPA customers for 
which they would receive disproportionate benefits. Also unaddressed in 
Secretary Chu's memo is the budget scoring problem these undertakings 
would face and the budget offsets that would necessarily be required 
for their implementation.
    Second, Secretary Chu proposes to ``improve the PMAs' rate 
designs.'' To do so, he envisions changing the PMAs' rate structures to 
incentivize programs for energy efficiency and demand response, the 
integration of variable resources, and preparation for electric vehicle 
deployment. In this context, the word ``incentive'' is simply 
synonymous with and a euphemism for cost-shifting. APPA is concerned 
that both these ``incentives'' and the restructuring of the PMA rates 
will artificially and inappropriately raise the cost of providing 
federal hydropower, resulting in corresponding wholesale and retail 
rate increases. This proposal essentially means PMA customers would be 
subsidizing wind development and energy efficiency and demand response 
programs, whether or not they receive any benefits from these programs. 
Furthermore, energy efficiency, demand response, and electric vehicle 
integration are primarily retail issues, not wholesale issues--the PMAs 
provide power at wholesale, while retail decisions are made at the 
local and state levels. In effect then, Secretary Chu's proposal would 
substantially encroach on the jurisdiction of state utility 
commissions, state legislatures, and local governments.
    Secretary Chu's third proposal is to improve collaboration with 
owners and operators of the grid through steps such as entering into an 
energy imbalance market (EIM). Some western energy markets are 
experiencing problems with the increased development of variable 
renewable energy resources (i.e., wind and solar that vary depending on 
the availability of the resource and therefore must be integrated onto 
the electric grid whenever they are available, day or night) promoted 
through federal tax incentives and renewable portfolio standards in 
some states. Since the physics of electricity dictate that it must be 
generated at the same time that it is used, integrating these variable 
resources poses a challenge to maintaining electric reliability (i.e., 
ensuring that the lights stay on at all times) and to the cost of 
electricity to consumers. Many of these resources are under development 
even though the economic recession has reduced demand for electric 
generation in many areas in the West. While there are several efforts 
underway in the West to address integration of these variable resources 
at reasonable and affordable cost to consumers, creation of an EIM is 
being touted by wind developers and by the DOE as the only way to 
handle renewable energy integration. Though DOE representatives express 
interest in alternatives to an EIM, it appears that the EIM proposal is 
being fast-tracked by DOE through its oversight of the PMAs.
    It is against this backdrop that a variety of efforts have been 
offered to address the problems associated with incorporating variable 
renewable energy resources in the West. One of the proposals pushed by 
wind generators initially via the Western Electric Coordinating Council 
(WECC), a group that oversees electric reliability in the region, is an 
EIM. As proposed, such an EIM would be a sub-hourly, real-time, 
centrally-dispatched energy market intended to improve the integration 
of increasing levels of variable generation from renewable resources. 
The theoretical benefit of an EIM is that the larger array of 
generation available for dispatch would provide a greater balance of 
intermittent resources and reduce the need for backup power. For 
example, if the wind or sunlight is low in one region of the EIM it 
might be greater in another area, thus reducing the total variability. 
But this benefit can only be fully achieved if there is adequate 
transmission capacity from the sources of generation to the demand for 
power. Critical details of the EIM such as governance, the market 
operator, market monitoring, and mitigation have not yet been 
determined by either the stakeholders who have proposed it or DOE.
    A major concern with the creation of an EIM is its potential to 
quickly evolve into a Regional Transmission Organization (RTO). Public 
power utilities located in areas of the country with electricity 
markets run by RTOs and Independent System Operators (ISOs)--
collectively referred to as ``RTOs''--have experienced ongoing 
difficulties that adversely affect the consumers they serve. These 
problems include: complex and costly market-pricing mechanisms; price 
volatility; an absence of cost-effective measures to assure generation 
resource adequacy (i.e., the availability of back-up power); limited 
data availability; increased participation by financial entities that 
do not produce power or serve load (i.e.; customers); findings of price 
manipulation without compensation to consumers; governance structures 
that are not always responsive to stakeholder concerns; and, burdensome 
administrative costs. The Federal Energy Regulatory Commission (FERC), 
the entity in charge of regulating the RTO markets, has not recognized 
or addressed these concerns despite its mandate under the Federal Power 
Act to ensure that wholesale electricity rates are just and reasonable. 
The creation of an EIM sets the West on the path to energy markets that 
are subject to significantly increased jurisdiction by FERC, which 
would in turn result in a loss of jurisdiction to state and local 
authorities.
    WECC's stated intent is that such an EIM would not be a federally 
jurisdictional entity such as an RTO like those in the East. However, 
this ignores the history of RTOs, which developed incrementally, step-
by-step, beginning with energy imbalance markets and expanding to 
include other complex and costly markets. The only other case where an 
EIM is operated without the more complex RTO markets is the Southwest 
Power Pool (SPP), which recently filed a request with the FERC to 
incorporate many of the problematic features of a full-blown RTO. This 
is an example of how an EIM is likely to lead to an RTO and should 
serve as a warning to the West to reject any EIM proposal. In the West, 
an RTO was a central feature of Enron's business plan, but the proposal 
was soundly defeated (except in California, which has an intrastate 
RTO, known as the CAISO) in the lead up to passage of the Energy Policy 
Act of 2005.
    An EIM for the West would be costly and unnecessary. A WECC-
commissioned study found that the infrastructure and operating costs of 
EIM (with the features proposed to WECC) implementation and operation 
could, in some scenarios, outweigh the estimated benefits, with the net 
costs potentially reaching $1.25 billion in net present value terms 
over the first 10 years. These costs do not include the additional 
costs incurred were EIM to expand into a full RTO. Secretary Chu argues 
that an EIM ``should [ultimately] reduce costs for WAPA's customers.'' 
In describing this proposal, however, he admits that collaborative 
processes such as an EIM will increase costs immediately in the near 
term. Whether or not the costs of instituting an EIM do eventually 
decrease, APPA believes that any increased costs are untimely and 
unnecessary, especially when they will be passed along to PMA customers 
via higher electricity rates. It is not necessary for consumers in the 
WECC region to incur the costs associated with the creation and 
operation of an EIM.
    There are many efforts being undertaken or under development in the 
West to integrate variable renewable resources that do not entail the 
formation of a complex, centralized market. Such efforts include intra-
hourly scheduling and the Intra-Hour Transaction Accelerator Platform 
(ITAP) to facilitate intra-hourly transactions, Dynamic Scheduling 
Systems to allow participants to trade capacity and energy on a dynamic 
basis, the use of reserve sharing to back-up variable resources, and 
improved forecasting (to know when the wind will blow and the sun will 
shine). These ongoing and planned initiatives will likely achieve the 
majority of the benefits of an EIM at a fraction of the costs. 
Moreover, two of the critical needs for integration of variable 
resources--construction of transmission and ensuring sufficient 
generation capable of providing ``fast start'' and ``flexible ramping'' 
(both needed to be able to bring power generation on and offline 
quickly)--will not be resolved by the formation of an EIM.
    Currently, electricity in the region is sold under regulated rates 
that are based on costs. Utilities either provide generation from 
resources they own or they purchase power through competitively 
negotiated bilateral contracts for power. The movement from cost-based 
to socialized market-based pricing will only lead to higher costs for 
customers. In this proposal, Secretary Chu also recommends the PMA take 
steps in addition to EIM such as coordination with balancing 
authorities, cooperation between public and private power, and regional 
planning. Such activities would result in significant duplication of 
effort (and cost) because the PMAs are undertaking many (if not all) of 
these steps already.
    Secretary Chu's fourth and final proposal is for DOE to work with 
Congress to ``modernize oversight'' of the PMAs. While noting the 
complexity of the authorizing statutes of the PMAs, Secretary Chu urges 
Congress to create revolving funds to be used for transmission 
improvements within WAPA and SWPA (BPA already has a revolving fund and 
SEPA has no transmission). Secretary Chu argues that WAPA and SWPA are 
at risk for reliability problems if Congress does not grant them the 
``financial rights and responsibilities to go along with their existing 
responsibilities for keeping the lights on.'' APPA does not believe 
that WAPA and SWPA have difficulty providing reliable, cost-based 
power. New revolving funds for WAPA and SWPA will result in both 
greater costs and an increase in bureaucratic top-down decision-making 
with limited input from Congress or the customers. Increased costs mean 
higher electricity rates. Moreover, adding to the already-complex 
organizational structures of the PMAs when Congress has expressed no 
desire to do so seems to be yet another flaw in Secretary Chu's 
proposal.
    In concluding his memo, Secretary Chu argues that ``the federal 
government should be leading the way for a modern, secure, and reliable 
electric transmission grid.'' Besides the four proposals outlined 
above, he argues that the PMAs should: be ``test beds'' for 
cybersecurity technologies; take greater advantage of ``clean'' energy 
(over and above ``clean,'' renewable and low-cost hydropower); and take 
greater advantage of modern communications and control technologies. 
The Secretary clearly believes that aggressively forcing all PMA 
customers (and possibly all taxpayers in general) to pay for the 
integration and transmission of renewable resources, such as wind and 
solar power, will result in a system-wide ``upgrade.'' APPA disagrees. 
For an Administration that prides itself on an ``all of the above'' 
energy strategy, Secretary Chu's clear preference for enhancements to 
unreliable wind and solar power--at the expense of hydropower and paid 
for by hydropower customers--is contradictory.
    Portions of Secretary Chu's memorandum do contain admirable goals. 
However, the PMAs are currently taking many of the steps Secretary Chu 
urges in his memo. Furthermore, the PMAs have consistently provided 
clean, renewable, cost-based hydropower for decades under the principle 
that enhancements to PMA operations should be paid for by the customers 
who benefit from the improvements. Instead of allowing the PMAs to 
coordinate with federal power customers to make well-thought out and 
pragmatic improvements to the federal projects from which they receive 
the benefits of hydropower services, Secretary Chu seeks to undertake 
significant new programs without input from PMA customers or Congress. 
These proposals will result in increased electricity rates for BPA, 
WAPA, SWPA, and SEPA customers. APPA supports the current framework 
under which the PMAs operate and will work to ensure these processes 
continue unimpeded. These plans for the PMAs are untimely, unwise, and 
unnecessary.
                                 ______
                                 

    Response to questions submitted for the record by Mark Crisson, 
           President & CEO, American Public Power Association

Questions from Representative Jeff Denham
  Given that California has already been implementing an overly 
        aggressive renewable energy mandate; wouldn't the ratepayers in 
        my district be stuck with an even bigger energy bill for little 
        to no benefit, especially since renewable energy is capital 
        intensive and expensive?
    In addition to the state's renewable portfolio standard (RPS), we 
understand that California has enacted a law requiring that 75 percent 
of renewable energy resources used to meet that RPS largely originate 
from in-state generation. Our members in California (one of the largest 
energy markets in the Western U.S.) who purchase power from the Western 
Area Power Administration (WAPA)--one of the four federal Power 
Marketing Administrations (PMAs)--have expressed concerns that 
additional integration of renewable energy and efficiencies envisioned 
in the DOE memo may not materialize as DOE asserts because California 
utilities will effectively be required to use in-state renewable to 
meet the state's RPS mandate in the coming years. This adds to concerns 
our California members share with consumer-owned utility systems across 
the country regarding potential costs likely to be incurred by PMA 
customers pursuant to the directives in the DOE memo. California 
utilities that purchase WAPA power could end up paying for integration 
of out-of-state renewables and, at the same time, be blocked from using 
those renewables to meet the state's RPS mandates. As a result, they 
could effectively be paying twice: once for renewable resources needed 
to meet state RPS obligations and again for unneeded renewable 
resources acquired by WAPA and unusable in the California market.
  And, I want to make it clear for those in my district, aren't 
        ratepayers the ones that are going to have to pay the bill for 
        this administration's directive to the Power Marketing Agencies 
        that we are discussing here?
    Yes, because the vast majority of electric utilities that purchase 
PMA power are not-for-profit public power utilities and rural electric 
cooperatives, any increases in operating expenses by the PMAs would be 
passed on to the end-use electric ratepayers.
  Doesn't this one-size-fits-all approach completely stifle the 
        flexibility needed to manage our local power areas in the best 
        manner to keep costs from overwhelming ratepayers, especially 
        during these tough economic times and in places like my 
        district where unemployment is high and power rates are already 
        taxing families' pocket books due to the state renewable 
        mandate?
    The PMAs themselves are not government agencies in the traditional 
sense of the term. They are instead government enterprises that serve a 
specific purpose--marketing (and transmitting for three of the four) 
federal hydropower--and whose services are paid for by the utilities 
that purchase this resource for power use. Any of the costs associated 
with running the PMAs--including the capital assets associated with 
marketing and transmitting the power and the employees of the PMAs, are 
paid for by the PMAs' utility customers and, in turn, their ratepayers, 
as alluded to in your question above. This includes any debt, plus 
interest, associated with the PMAs' capital assets. Therefore, the 
general taxpayer does not pay for the PMAs to operate.
    This arrangement, in place for decades, has resulted in an 
extremely collaborative process between the PMAs themselves and their 
utility customers that is regionally specific. In the WAPA region, 
which covers much of the West, the utility customers interact with the 
WAPA regional offices that market power from particular ``projects'' 
that typically involve several dams on a river system or systems. For 
California, the hydropower marketed by WAPA is from the Central Valley 
Project (CVP).
    In addition, the PMA customers in each region have coordinated 
heavily with their regional congressional delegations to report on the 
status of this collaborative relationship between the PMAs and their 
customers. To borrow an analogy from one of the other panelists at the 
hearing on April 26, the PMA customers could be viewed as the 
``shareholders'' of the PMAs, and their regional congressional 
delegations as the ``board of directors.''
    This context is necessary to understand the local (from the 
perspective of the utility customers and ratepayers) and regional (from 
the perspective of the PMAs) nature of this relationship and the way it 
has worked to ensure the needs of the region are met at the lowest 
possible cost. The not-for-profit nature of the PMA customer utilities 
exposes their ratepayers to any price increases or volatility in the 
PMA rates, which incentivizes the utilities to scrutinize the PMAs' 
operations and expenditures. The PMAs in turn understand that if they 
are not responsive to their customers their ``board of directors'' in 
Congress may become involved. This has resulted in a unique and 
beneficial situation for ratepayers in the PMA regions and a culture of 
responsiveness that contributes to accountability and efficiency within 
the PMAs. While there is always room for improvement, this 
collaboration can result (and has resulted) in positive changes over 
time.
    Secretary Chu's memo is, therefore, a misguided attempt to take 
these local and regional decision-making processes and turn them into a 
top-down, Washington, D.C.-centric approach, which is unlikely to 
result in the same collaboration and efficiency described above. 
Instead, we believe that a one-size-fits-all approach such as that 
delineated in the memo is likely to increase costs and decrease 
efficiencies. As you note, this is particularly acute during a time of 
economic hardship such as we are currently experiencing.
  Has Congress provided the Department of Energy with the 
        authority to implement this over-reaching political initiative 
        by Secretary Chu that pushes a socializing agenda for America's 
        energy production and distribution grid?
    APPA is currently working with other customer groups to review the 
existing statutory authority that governs the operations of the PMAs, 
and, in particular, WAPA (which the Secretary has stated will be the 
first PMA to be ``modernized''). It is a more complex endeavor than one 
might imagine because many of the projects (and even specific dams) 
have their own organic statutes. The preliminary analysis indicates 
that certain of the initiatives set out in the Secretary Chu memo could 
conflict with the statutory obligations of WAPA.
    Regardless of the statutory authority, however, from a historical 
process and political standpoint, whenever the PMAs and/or their 
customers--individually or collectively--have sought major policy 
changes to these agencies, they have done so with congressional 
oversight, debate, and approval. Therefore, whatever the limits of 
DOE's statutory authority are, the Secretary's lack of consultation 
with the congressional authorizing committees (and other relevant 
committees) is, at the least, inappropriate.
  Has the cost-benefit analysis of the Energy Imbalance Market 
        (EIM) shown to be the best option for the ratepayers? And, has 
        a full and complete study of the EIM been finished to make a 
        fully educated decision about such a major shift in energy 
        delivery, or is it just assumed by Secretary Chu to be in 
        ratepayers' best interests in his memo?
    There has not yet been a cost-benefit analysis that accounts for 
the full scope of all EIM costs and benefits. As described in greater 
detail below, studies completed so far contain a number of 
methodological flaws that are likely to overstate the benefits and 
underestimate the costs. These studies, therefore, do not provide 
support for the conclusion that an EIM will provide net benefits to 
consumers, and it is therefore not possible to make any decision on an 
EIM with certainty at this time.
    Thus far the only fully completed analysis of the EIM costs and 
benefits was commissioned by the Western Electricity Coordinating 
Council (WECC) staff. The results of this analysis presented a range of 
the present value of net benefits over a 10 year period, with a high of 
$941 million in net benefits and of net costs of $1.25 billion. This 
study, however, appears to have overstated the benefits and understated 
the costs. The benefits analysis, performed by Energy and Environmental 
Economics, Inc. (E3), found that the largest category of benefits, 
accounting for 60 percent of the total benefits, is the reduction in 
the need for ``flexibility reserves,'' which are extra generation 
resources standing by to come on line quickly when wind or solar 
resources drop off sharply, as occurs often. The reduction in 
flexibility reserves was assumed to result from the reduction in such 
variability from access to a larger array of renewable energy 
resources. For example, if the wind or sunlight is low in one region of 
the EIM it might be greater in another area, thus reducing the total 
variability. But this benefit can only be fully achieved if there is 
adequate transmission capacity, a highly unrealistic assumption. An 
April 2012 analysis by Argonne National Laboratory criticizes this E3 
assumption, noting that the presence of transmission congestion would 
negate this benefit.
    The other source of benefits estimated by E3 was from the savings 
resulting from the dispatch of lower cost generation resulting from a 
centralized dispatch of all generation. But this benefit assumes that 
if lower cost resources are used, these owners would sell power at a 
price no higher than their costs and pass through the savings to 
consumers, which ignores the fact that in centrally-operated 
electricity markets, prices almost always exceed costs. In fact, the 
study never looked at or calculated the prices that would be produced 
by the EIM and paid for ultimately by consumers.
    The costs analysis, performed by Utilicast, LLC, includes just the 
infrastructure and staff costs incurred in the implementation of an EIM 
by the market operator and market participants, which include local 
utilities, balancing authorities, generation owners and transmission 
providers. These costs, however, ignore the central fact that the 
history of Regional Transmission Organization (RTO) development in the 
East clearly shows that an EIM is highly likely to become a full RTO 
over time (note that California has the only RTO in the West, the 
California Independent System Operator). The complexities of the 
constantly changing market rules, lengthy stakeholder meetings, Federal 
Energy Regulatory Commission proceedings, and settlement talks that are 
an inevitable part of an RTO will produce much greater infrastructure, 
labor and time costs than estimated by Utilicast.
    Since the completion of the WECC-commissioned benefit-cost analysis 
last fall, the focus of the EIM discussion has shifted to the PUC EIM, 
a group of individual state utility commissioners that was formed by 
the Western Governors Association (WGA). The PUC EIM appears to be an 
advocate of an EIM and is working on issuing revised benefits and costs 
analyses. DOE's National Renewable Energy Laboratory (NREL) also 
recently released a new benefits analysis, as requested by the PUC EIM, 
containing the same flaws as the E3 study described above. Moreover, 
when NREL could not produce significantly higher benefits, it created 
an entirely new ``baseline'' assumption that current balancing 
authorities dispatch generation only once an hour, which NREL 
acknowledged is not accurate. PUC EIM is also attempting to replace the 
WECC costs study with a much narrower version of the costs--one that 
consists solely of the incremental market operator costs that would be 
incurred if one or two existing RTOs, the Southwest Power Pool (located 
in the middle of the country, not the desert Southwest) or the 
California ISO were to operate the EIM. In addition to ignoring the 
costs of moving to a full RTO despite being operated by an existing 
RTO, these estimates also leave out individual utility infrastructure 
and labor costs, and are therefore greatly understated.
    Some of APPA's members in the Northwest, in conjunction with the 
Northwest Power Pool, are undertaking a study of an EIM as well as 
other alternative proposals to EIM that would potentially help to 
integrate variable renewable generation. These studies are expected to 
be completed at the end of the calendar year.
  What is the problem that Secretary Chu is trying to fix with 
        the initiatives laid out in the March 16 memo? Is it a 
        transmission issue, and, if so, will this memo increase 
        transmission siting approvals and expedite the process to get 
        power lines built where they are needed? Also, Will there be an 
        improvement in power delivery reliability from this memo's 
        directives?
    In response to your first question, we do not believe there is a 
problem that needs fixing with regard to the PMAs. There is a 
particular policy position that is implied in the DOE memo--the desire 
for the PMAs to prioritize integration of variable renewable resources 
potentially at the expense of the core mission of the PMAs to market 
renewable hydropower. The integration of these resources has become an 
operational concern across utilities, not just in the context of the 
PMAs, because of their variability and the need to have back-up 
generation to accommodate these variations. APPA's members in both the 
PMA regions and in non-PMA areas are working with each other and with 
other stakeholders to address these integration issues. These efforts 
are ongoing and do not require DOE directives to proceed.
    As you correctly surmise, one other challenge is accessing wind 
generation, which is often located far away from population (or 
``load'') centers. New transmission lines are sometimes required to 
reach these resources, and the challenges associated with planning, 
siting, and paying for transmission lines have not gone away. However, 
the PMAs, as federal agencies, have the ability to site transmission 
lines using federal eminent domain authority.
    In terms of your question on reliability, hydropower can often be 
one of the most reliable resources because, unless there are drought 
conditions or other statutory constraints on the resource (such as 
Endangered Species Act considerations, which are pervasive in some 
parts of the country), it can almost be used as a large and resilient 
``battery'' for the region, to be turned on and off relatively easily 
if need be. For example, during the August 2003 Northeast blackout, the 
Niagara and St. Lawrence hydropower stations of the New York Power 
Authority remained in service, serving load in western New York, 
despite system conditions that took other generators in the region off-
line. These hydro-electric resources were critical to the restoration 
of the bulk power system in the rest of New York and Ontario, whereas, 
for safety reasons, other types of power plants had to slowly be cycled 
back on. The operational flexibility of these hydroelectric resources 
were invaluable to the citizens of New York that summer, by helping to 
restore the stability of the system and giving other resources the 
ability to ramp back on. So, if the Secretary Chu memo detracts from 
the core mission of the PMAs to market and make reliable federal 
hydropower resources available to WAPA's customers, it is possible that 
bulk power reliability could be adversely impacted in ways that are 
difficult to foresee.
    Furthermore, should the PMAs be used as the vehicle to site 
transmission lines for wind generation, there is no guarantee that 
those lines will be used to benefit regional reliability. For example, 
a line being proposed in the SWPA territory (the PMA serving the 
Arkansas Texas, Oklahoma, Missouri, Kansas, Louisiana region) to access 
wind power, is a direct current (DC) line, which makes it primarily 
able to deliver power from point ``a'' to point ``b'' unless special 
interfaces are constructed to allow movement between this type of line 
and an alternating current (AC) line. Alternating current lines, by 
contrast, are typically used to enhance regional power flow and 
reliability. The line in question is seeking to use the third party 
financing authority created in the Energy Policy Act of 2005 as an 
option for the PMAs. While APPA has supported this authority as an 
option, it does not support its use to support ``fly-over'' projects 
that provide little or no benefit to the regions through which they 
pass. The line in question is still under review by SWPA.
                                 ______
                                 
    The Chairman. Thank you very much for your testimony. Next, 
I will recognize Mr. Monty Humble, who is President and COO of 
Brightman Energy, LLC, out of Austin, Texas.
    Mr. Humble, you are recognized.

STATEMENT OF MONTY HUMBLE, PRESIDENT AND COO, BRIGHTMAN ENERGY, 
                              LLC

    Mr. Humble. Thank you, Mr. Chairman, members of the 
Committee. I appreciate being invited to testify here as a 
member of the private business community.
    I have educated myself to some extent on the issues here. I 
will say the PMAs certainly have a reasonable concern about 
exactly how this would be implemented, or the preference 
customers do.
    I hope that we will not lose sight of the larger issue 
here, which is that our electric grid definitely needs to be 
improved. There are issues of reliability, issues that impact 
national security. There are inefficiencies in the grid, and 
given the interconnected nature of the grid, a small problem in 
one place can cascade into a very large problem for a large 
number of people.
    For example, in 2003, some untrimmed trees underneath 
transmission lines in Ohio resulted in a cascade that took all 
of seven minutes to affect 50 million people and cost $6 
billion.
    There is no way to isolate one part of the grid or one 
group of customers from the rest of the grid. It is a national 
problem and we are all in it together.
    As well, there are new issues that we are discovering, 
particularly the issues related to cyber security. Most of the 
electric system relies on SCADA controls. The virus or worm 
illustrated the damage that can be done by an attack on SCADA 
systems.
    Just last night as I was boarding a plane in Los Angeles to 
come over here, a friend sent me an email detailing a security 
hole in one company's SCADA systems, in effect, an unplugged 
back door way into access the controllers.
    There are a number of security holes that need to be 
addressed. Again, they affect or potentially could affect our 
entire electrical system, which in turn as the Defense Science 
Board has pointed out, would affect all of our military 
operations, particularly as we bring more military operations 
back to the United States and operate from here.
    At the same time, there are tremendous opportunities 
available to us with respect to the electric grid. The grid, 
first off, modernization would be an enormous economic 
development opportunity. It would create jobs.
    We found in Texas where we have chosen to invest about $8 
billion in our grid that it has created a large number of jobs, 
created a large amount of economic activity.
    Brattle has done a study that indicates that national 
investment would do the same thing.
    The important thing to remember about the powers that were 
given to the PMAs by the Congress in 2005, during a time when 
the Republicans had the Majority, and again in 2009, during the 
time when the Democrats had the Majority, those powers, Section 
1222 of EPAct 2005 and Section 402 of the stimulus bill, both 
require that the private capital that is attracted be attracted 
in such a way that it not impact the preference customers.
    The preference customers have a legitimate right not to be 
asked to pay for new transmission upgrades that do not benefit 
them.
    I am sorry, I am losing my voice.
    At the same time, we have an opportunity to attract large 
amounts of private capital to the grid.
    Last year, I delivered a letter to the Senate with 84 
company signatures, the vast majority of those companies were 
traditional utility companies or related utility companies. 
They are eager to invest private capital in modernization of 
the grid if they are not foreclosed from doing so.
    I thank you very much for the time and the opportunity to 
appear.
    [The prepared statement of Mr. Humble follows:]

   Statement of Monty Humble, President & COO of Brightman Energy LLC

    Chairman Hastings, Mr. Markey, and members of the Committee, thank 
you for inviting me to testify at this hearing today. The United States 
transmission system needs serious attention, and this hearing will help 
to provide that attention.
    As I begin, I want to share two anecdotes with the Committee. 
Unfortunately, these are neither fictional nor amusing. They are 
stories that I have personally experienced as an energy developer who 
is trying to invest private capital to produce electricity for which 
there is a competitive market.
    This winter, my company, Brightman Energy LLC was evaluating 
whether to buy and complete development of a 100 megawatt wind energy 
project in the Pacific Northwest. The project had all of its permits in 
place, it was on private land, and the landowner was excited about the 
potential royalties from a wind farm. It was in a rural area where jobs 
are hard to find, and where land is cheap so the local governments 
struggle to finance local schools and law enforcement. The power was 
contracted to sell to a private utility company that had conducted an 
auction for power, and the project that my company was considering had 
been determined by the utility and its regulator to be an acceptable 
supplier of power. We had a project that was built on private land by a 
private developer and had a contract to sell power to a private utility 
company. All the permits and approvals were in place. As we did our due 
diligence on the project, we discovered that included in the project 
budget was a line item for a payment of nearly $50 million to purchase 
a transmission entitlement from the holder.
    For those who do not know what a transmission entitlement is, let 
me explain. In the Western Electricity Coordinating Council (basically 
the area from the front range of the Rocky Mountains to the Pacific 
Ocean and from northern Canada to the border with Mexico) a good deal 
of transmission capacity sits idle most of the time. Ratepayers pay for 
this idle capacity, but it is not available for use because someone has 
the contractual right to use the transmission capacity. As a result, 
even if the capacity is not being used by the entity that is 
contractually entitled to use it, it sits. Since we have not perfected 
the ability to store electricity in large quantities, denying 
transmission access is the same as denying access to a resource.
    In the case of the project that we were considering, the entity 
that had the right to use the transmission line wanted to be paid tens 
of millions of dollars in order to let the project use the transmission 
line capacity that the seller was not using. Since the transmission 
line was not subject to FERC jurisdiction, the seller was free to name 
its price, any price, without oversight. In plain English, it was 
charging monopoly rents because it could and because the transaction 
was not subject to regulatory oversight, and let me be clear--the 
payment did not cover the actual transmission tariff that was to be 
paid to the owner of the transmission line. That was a separate charge 
payable to the transmission owner.
    One byproduct of this method of allocating transmission access is a 
significant underutilization of transmission assets. Studies of 
physical power flows consistently show that major transmission pathways 
in the WECC are loaded at less than 75% of their capacity a significant 
part of the time (see Figure 1 attached). This unused transmission 
capacity represents economic inefficiency. It is paid for by 
ratepayers. At the same time, ratepayers are also denied access to 
competing sources of electricity that could compete in wholesale 
markets and drive electricity prices down.
    The second anecdote involves several projects that I have worked on 
in Texas. For those of you who are not deeply familiar with the United 
States electric system, there are three electrically isolated, separate 
grids that provide electric service in the United States, the Eastern 
Interconnect (which covers the United States from the Atlantic Ocean to 
the front range of the Rocky Mountains with the exception of Texas), 
the WECC (which I mentioned earlier), and the Texas interconnection 
(also frequently referred to by the name of the operator of that grid, 
Electric Reliability Council of Texas or ERCOT). Each of the three US 
electrical grids is isolated from the other two--for reasons related to 
the physical properties of electricity, it is not possible to have an 
AC connection from one grid to the other (see Figure 2 attached).
    As some of you may know, Texas has been very fortunate to benefit 
from significant wind development, with over 10,000 megawatts of 
installed wind generation capacity. While this has benefited Texas 
consumers because we have a competitive market for electricity, and the 
wind generators have to compete like everyone else for customers, it 
has made it hard for developers like my company to make a profit for 
our investors. As a result, we have considered various options to 
export electricity generated in Texas. My company has also considered 
building transmission lines to provide access for other wind developers 
who wanted to export power. Each time I have suggested that we contact 
Western Area Power Administration to see if Western would be interested 
in participating in the development of transmission in ERCOT, I have 
been told that Western would not be interested because a transmission 
line in ERCOT would not connect up to the rest of Western's 
transmission system.
    I do not know whether this actually represents the position of 
Western because I have never had a direct conversation with them, but 
if it does (and presumably the people I spoke to would have some basis 
for their statements), it seems like a very odd position for Western to 
take since its Congressionally mandated service territory includes a 
large part of Texas as you can see from the map attached as Figure 3. 
Taken literally, Western would never build a transmission line in ERCOT 
because that transmission line would never connect to the rest of the 
Western system because it is not physically possible to connect an AC 
line across the boundary from WECC to ERCOT. And yet Congress surely 
had something in mind when it provided that almost one half of the 
State of Texas would be within the Western service territory.
    These two anecdotes illustrate fundamental issues facing the power 
marketing administrations. In preparing to testify here today, I have 
communicated with many people involved in the transmission business and 
energy markets. Most of those with whom I spoke recognize that the PMAs 
are taking steps to move beyond their historical roles, but there is a 
feeling that the PMAs can take additional steps that would benefit 
their customers, and more importantly, the end consumers--families and 
small businesses--of power that the PMAs market. The additional steps 
would include leadership in making changes in the way energy markets in 
the West operate to encourage market competition and increased 
efficiency in grid operations. These market oriented reforms would 
reduce the cost of inefficient utilization of resources and reduce 
costs to consumers.
    Today the PMAs almost exclusively serve their preference customers, 
and yet they hold powers that Congress has granted to them to do so 
much more. Those powers were granted by both Republican majority and 
Democratic majority Congresses. Section 1222 of the Energy Policy Act 
of 2005 provided to Western the authority to enter into public/private 
partnerships to build new transmission lines throughout the Western 
service territory. Section 402 of the American Reinvestment and 
Recovery Act provided new borrowing authority to Western to use for 
development of new transmission assets. In each of these laws, Congress 
very carefully considered the interests of the preference customers, 
and directed that the new authorities be exercised only in ways that 
could never cause the preference customers to experience increased 
rates as a result of the Congressionally granted authorities.
    Western has used these powers to begin construction of one 
transmission line, and is exploring others, but there is a desire on 
the part of private transmission developers to work with Western in 
bringing additional private capital to transmission development in the 
Western service territory. BPA is using its powers to integrate wind 
energy into its transmission system and to construct new transmission 
lines, but there is a feeling among many that BPA can do more to 
encourage efficient, market driven, resource utilization decisions to 
address imbalances in the market between generation and load.
    Let me be clear--no one is advocating radical change. The private 
participants are not seeking to make the PMAs subject to FERC 
jurisdiction, nor are they advocating the creation of a new FERC 
jurisdictional RTO/ISO in the parts of the PMA service territories 
where one does not now exist. We do, however, feel that operational 
changes, such as an energy imbalance market (which can be implemented 
on a voluntary basis without creation of an ISO), would result in 
greater efficiency and better resource utilization, saving money for 
consumers and small businesses. These are not radical proposals. They 
have been implemented successfully in the East, in Texas, and in the 
Midwest.
    Before I founded Brightman Energy, I had the great good fortune to 
work for Boone Pickens, and I was lucky to have the opportunity to work 
with him as he developed the Pickens Plan. You may remember that the 
original Pickens Plan when it was announced in July 2008 focused 
equally on renewable electricity and natural gas vehicles. What we 
found when we researched renewable electricity was that the United 
States had vast resources of wind and sunlight that could be employed 
for the production of electricity, but that electricity could not be 
delivered to customers in many cases because the transmission 
infrastructure did not exist in the remote areas that were most 
suitable for development of renewable resources. For over three years, 
I was a frequent visitor to Washington seeking improved transmission 
policies. During that time, I found myself working with other companies 
that also had an interest in improving transmission policy. For 
example, last summer I delivered a letter to the Senate leadership 
signed by 84 companies who supported FERC Order 1000, which directs the 
development of regional agreements for the planning and allocation of 
costs for new transmission projects. Interestingly, most of those 
companies were traditional utility companies, not renewable companies. 
Time and time, we found that the concerns related to transmission 
policy applied to transmission no matter what sort of electricity the 
transmission wires carried.
    The issues with the US transmission grid are well documented. They 
include basic reliability issues like those that resulted in the 2003 
blackout in the Upper Midwest and Mid-Atlantic regions. They include 
concerns that the Defense Science Board has raised about the impact of 
grid reliability on the ability of our military to perform its critical 
missions. They include concerns about vulnerability of the grid to 
cyberattacks and electromagnetic pulses. They include missed 
opportunities to invest private capital in productive transmission 
assets that would create jobs and economic efficiency. They include 
well documented inefficiencies that increase costs to consumers and 
small businesses due to waste of resources and impediments to 
competition.
    The federal power marketing administrations have service 
territories that include all of the WECC and ERCOT footprints, with 
over 32,000 miles of transmission lines. The WECC and ERCOT grids are 
each self contained, but fully integrated within their respective 
geographic boundaries. Each part of the WECC and ERCOT grid is 
vulnerable to a malfunction elsewhere in that grid. The PMAs do not 
operate in a vacuum, nor are they islands unto themselves, apart from 
the main. Consequently, if the nation would be made better served, more 
competitive, and more secure through changes to the bulk electricity 
system, the PMAs will have to be a part of those changes.
    According to a 2009 report on the transmission grid by the 
Congressional Research Service,
        The need for modernization is illustrated by the causes of the 
        August 14, 2003 northeastern blackout. The blackout, which 
        interrupted service to 50 million people in the United States 
        and Canada for up to a week, started with transmission line 
        trips (automatic shutdowns) and resulting overloads on the 
        FirstEnergy utility system in Ohio. The blackout was not the 
        result of insufficient transmission capacity or deteriorated 
        equipment as identified by the United States--Canada 
        investigating task force, the blackout was caused by factors 
        such as the following:
          FirstEnergy and the NERC reliability region within 
        which it operated did not understand the strengths and 
        weaknesses of the FE system. FirstEnergy consequently operated 
        its system at dangerously low voltages.
          FirstEnergy's system operators lacked the 
        ``situational awareness'' that would have revealed the blackout 
        risk as lines began to trip. The operators were blinded by 
        monitoring and computer system breakdowns, combined with 
        training and procedural deficiencies which led to those 
        failures going undetected until it was too late.
          FirstEnergy did not adequately trim the trees under 
        its transmission lines. As a result, three key transmission 
        lines tripped when they sagged (as the lines are designed to do 
        as they heat up with use) and came in contact with trees.
          The Midwest Independent System Operator (MISO), the 
        RTO [regional transmission operator] that manages the grid in 
        FirstEnergy's service area, did not have the real-time 
        information necessary to assess the situation on FirstEnergy 
        system and provide direction to the utility.
        Once the FirstEnergy system collapsed, overloads and power 
        swings spread out across the Northeast, causing a cascading 
        series of transmission line and power plant trips that left 
        tens of millions of people without electricity. One reason the 
        outage spread over such a wide area was because many power 
        plants were equipped with unnecessarily sensitive automatic 
        protection mechanisms that tripped the units prematurely. The 
        speed of the cascade allowed almost no time for manual 
        intervention. The elapsed time from the start of the cascade 
        (i.e., when failures began to radiate out from the collapsed 
        FirstEnergy grid) to its full extent was about seven minutes.

        In summary, as discussed in the official blackout report and 
        other analyses, the 2003 blackout was not caused by a utility 
        having built too few transmission lines, or because power line 
        towers and substations were falling apart. The blackout was 
        apparently due to such factors as malfunctioning if not 
        obsolete computer and monitoring systems, human errors that 
        compounded the equipment failures, mis-calibrated automatic 
        protection systems on power plants, and FirstEnergy's failure 
        to adequately trim trees.

        One part of a strategy for preventing repetitions of the 2003 
        blackout is to modernize the grid from a reliability 
        standpoint. This will not always entail building more power 
        lines. One analysis written shortly after the 2003 blackout 
        concluded that ``The common contributing factor to the recent 
        blackout, based on investigations to date, is confusion-
        communication breakdowns both technical and human....[W]e 
        maintain that much can be solved by updating technology and by 
        changing procedures followed within the operating companies. 
        This fix is cheaper and much more immediate than huge 
        investment in new power lines. (emphasis added. Internal 
        footnotes omitted)
    It only required seven minutes for a problem caused by improperly 
trimmed trees to become a problem affecting 50 million people, and 
costing an estimated $6 billion. It is not realistic to believe that 
the PMAs can operate unconcerned about the rest of the electric grid. 
Improved coordination between the PMAs and other grid operators and 
owners is essential; given the balance of risks and costs, this is only 
prudent.
    A 2008 report from a Defense Science Board Task Force stated that

        Military installations are almost completely dependent on a 
        fragile and vulnerable commercial power gird, placing critical 
        military and Homeland defense missions at unacceptable risk of 
        extended outage.
    Specifically, the report noted that ``critical mission at 
[Department of Defense] installations have expanded significantly in 
recent years,'' rendering the current assumptions about the importance 
of civilian grid reliability obsolete. Mission changes for the military 
include both increased reliance on bases in the US for real time 
support of combat operations, and increased roles for the military in 
Homeland security, including both responses to terrorist attacks and to 
natural disasters such as Hurricane Katrina. At the same time,
        For various reasons, the grid has far less margin today than in 
        earlier years between capacity and demand. The level of spare 
        parts kept in inventory has declined, and spare parts are often 
        co-located with the operational counterparts putting both at 
        risk from a single act. In some cases, industrial capacity to 
        produce critical spares is extremely limited, available only 
        form overseas sources and very slow and difficult to transport 
        due to physical size.
    The report identified four sources of risk to the grid that could 
compromise national security by compromising the ability of the 
military to fulfill its missions--overload, vulnerability to natural 
disasters, sabotage or terrorist activity, including cyber attacks 
aimed at the SCADA systems that operate the grid, and fuel supply 
disruptions at generation facilities.
    Each of these vulnerabilities has been seen in recent years. The 
2003 blackout described above resulted in part from overloaded 
transmission lines overheating and sagging into trees. Hurricane 
Katrina wiped out much of the electrical system along the Mississippi 
Gulf Coast, requiring substantial and lengthy rebuilding efforts to 
restore power. The Stuxnet worm, although it was aimed at different 
SCADA systems, clearly demonstrated the vulnerability of those systems 
to cyber attack, and not all of the SCADA systems associated with 
operations of the gird have been protected from potential attacks.
        The Task Force noted that in addition to degrading national 
        military and homeland defense capabilities, failure of the grid 
        for any extended period could significantly affect national 
        economic and social stability. Pumps that move natural gas and 
        oil through pipelines rely on electricity, as do refineries, 
        communications systems, water and sewage systems, hospitals, 
        traffic systems, first response systems, border crossing 
        detection systems and major transportation hubs such as 
        airports.
    Again, the PMAs are significant participants in addressing a 
critical issue--national security--identified by the Department of 
Defense.
    A May 2010 study prepared by General Electric for the Department of 
Energy determined that the WECC could save approximately $1.7 billion 
per year in operating costs by improving coordination among WECC 
operators so that spinning reserves (generating units that are 
operating but not serving load in order to be available to prevent 
blackouts that would otherwise occur from unexpected loss of 
generation) could be shared over a wider area. The WECC has studied the 
potential benefits of an energy imbalance market, which could address 
this issue, and found that the potential benefits would be significant, 
and would outweigh the costs of creating and administering such a 
market. Further, implementation of an EIM would not require the 
creation of an RTO/ISO entity subject to FERC jurisdiction. The Western 
Interstate Energy Board, an adjunct to the Western Governors 
Association, also prepared a study regarding the potential benefits of 
creation of an EIM market.
        With spinning reserves determined on a zonal basis [simulating 
        current, fragmented control areas], WECC simulated operating 
        costs were about $2 Billion higher than with the reserves 
        shared over larger regions for the 10% In-Area case. This is 
        expected to increase with higher penetration levels. In this 
        example, the total system spinning reserve was held constant. 
        It was simply allocated over multiple zones. As the statistical 
        analysis showed, the volatility and uncertainty are much higher 
        for the smaller balancing areas, which mean that even more 
        spinning reserve would be required to accommodate renewable 
        generation. This would drive costs up even more. Because of the 
        significant operating benefits of balancing area cooperation, 
        this may be a fertile area for further investigation in another 
        study.
    The study also noted that the operational challenges associated 
with meeting state mandated renewable portfolio standards in the WECC 
could be ``likely insurmountable'' without additional coordination 
between balancing areas in the WECC.
    The economic benefits to consumers and small business of well 
planned transmission system additions and operational changes have been 
documented. According to The Brattle Group, those benefits include not 
only improved reliability, but also less frequently recognized 
benefits--additional market benefits such as enhanced market 
competition and liquidity, additional reliability/operational benefits 
such as insurance and risk mitigation cost savings, additional 
investment and resource cost benefits such as capacity benefits, long-
term resource cost advantages and synergies with other transmission 
projects, and external benefits such as favorable impacts on fuel 
markets, environmental and renewable access benefits and economic 
benefits from construction and tax collections.
    The Brattle Group cites as an example the economic evaluation of 
the Palo Verde-Devers Line No. 2 which indicates that the total 
benefits of the transmission upgrade were more than double the benefits 
considered in determining whether to build the line as show in the 
attached Figure 5.
    The State of Texas has made a substantial investment in new 
transmission assets over the last three years. The Perryman Group, a 
respected Texas based econometric firm that frequently advises state 
leadership and the Texas Public Utility Commission, performed a study 
of the expected economic impact of those transmission benefits and the 
follow on economic activity. The findings of that report included the 
following:
          The combined construction impact of new power 
        transmission facilities as well as wind turbine construction 
        following the initial implementation of the CREZ initiative [an 
        $8 billion privately funded Texas transmission system 
        expansion] on business activity in Texas is projected to total 
        $30.6 billion in output (gross product) and some 383,972 
        person-years of employment. This economic activity leads to 
        notable incremental tax receipts over the development period; 
        [The Perryman Group] estimates the gains to include about $1.6 
        billion for the State and $329.1 million for various local 
        governments.
          Another perspective is on a per-customer basis. 
        Depending on the levels of overall generation fuel prices, the 
        typical residential customer at project maturity will save 
        between $160.93 and $354.94 per year (fully adjusted for the 
        associated transmission costs), resulting in a stimulus to the 
        economy of $454.44 to $995.60 in total spending and $216.76 to 
        $478.03 in gross product. (emphasis added)
          The CREZ transmission investment will also help 
        solidify Texas' position at the forefront of wind power, 
        renewables, and associated industries. Incremental gains in the 
        cluster stemming from the CREZ transmission investment could be 
        expected under reasonable assumptions to include $8.6 billion 
        in total annual spending, $3.8 billion in output (gross 
        product) per annum, and 41,181 jobs.
    Another study performed by The Brattle Group to analyze the 
potential effect of $12 billion to $16 billion annually of privately 
funded transmission investments in the United States and Canada found 
that the likely effect of those investments in the transmission grid 
would be the creation of 150,000 to 200,000 full time jobs in the 
United States and another 20,000 to 50,000 jobs in Canada, as well as 
$30 billion to $40 billion in additional annual economic activity. An 
additional knock on impact would be the creation of another 130,000 to 
250,000 full time jobs as a result of new generation development that 
would follow from the availability of new transmission. The Brattle 
Group study also found:
        In addition to these employment and economic stimulus benefits 
        from constructing the facilities and manufacturing equipment, 
        strengthening of the transmission grid provides important other 
        benefits, including:
          Reduced transmission losses, production cost savings, 
        enhanced wholesale power market competition and liquidity, and 
        associated wholesale power price reductions;
          The economic value of increased reliability, 
        insurance against high-cost outcomes under extreme market 
        conditions, and increased flexibility of grid operations;
          Generation investment cost savings and access to 
        lower-cost renewable generation;
          Reduced emissions and fossil fuel consumption; and
          Economic benefits from increased federal, state, and 
        local tax income.
        These simulations show that every $1 billion of U.S. 
        transmission investment supports approximately 13,000 full-
        time-equivalent (``FTE'') years of employment and $2.4 billion 
        in total economic activity. If the $1 billion is spent over the 
        course of one year, this means the investment will support 
        approximately 13,000 FTE jobs in that year. Furthermore, our 
        analysis suggests that the average transmission investment from 
        2011 through 2030 will likely range from $12 billion to $16 
        billion per year or $240 billion to $320 billion over the next 
        20 years (in 2011 dollars) assuming current barriers to 
        planning, permitting, and cost recovery of regional 
        transmission projects can be overcome. A significant portion of 
        this range will depend on the scope of future renewable 
        portfolio standards and the type of renewable generation 
        projects that will be developed.

        As summarized in the table below, this level of U.S.-wide 
        transmission investment supports 150,000 to 200,000 FTE jobs 
        and $30 billion to $40 billion in annual economic activity. The 
        table shows that approximately one-third of this employment 
        benefit is associated with the direct construction and 
        manufacturing of transmission facilities. Two-thirds of the 
        total impact is associated with indirect and induced employment 
        by suppliers and service providers to the transmission 
        construction and equipment manufacturing sectors.

        [GRAPHIC] [TIFF OMITTED] T3981.006
        

        As noted, a portion of the projected transmission 
        investments will also enable development of the renewable 
        generation projects needed to meet existing and potential 
        future state or federal Renewable Portfolio Standard (``RPS'') 
        requirements. This renewable generation investment is estimated 
        by various studies to support approximately 2.6 million to 5 
        million FTE-years of employment, or on average 130,000 to 
        250,000 FTE jobs during each year over the projected 20-year 
        renewable generation construction effort, in addition to the 
        direct impacts of manufacturing and constructing the 
        transmission itself. Additional employment benefits are 
        associated with the operations phase of these projects.
    The Brattle Group report also found a wide range of additional 
benefits that accrued to electric system customers who were not 
directly benefitted by job creation or economic activity stimulated by 
transmission investments.
        Once transmission facilities are constructed and placed in 
        service, they support a wide range of additional benefits, from 
        increased reliability, to decreased transmission congestion, to 
        renewables integration, and increased competition in power 
        markets. These benefits of major transmission investments often 
        are wide-spread geographically across multiple utility service 
        areas and states, are diverse in their effects on market 
        participants, and occur and change over the course of several 
        decades. The benefits we derive from today's transmission grid, 
        such as the ability to operate competitive wholesale 
        electricity markets, could barely be imagined when the 
        facilities were built three or four decades ago.

        It is important to recognize that the scope of transmission-
        related benefits extends beyond the main driver of a particular 
        investment. For example, transmission investments are often 
        driven by the need to address reliability concerns and, thus, 
        help increase the reliability of the power system. Reliability 
        benefits were consequently often viewed as the primary source 
        of benefits. However, with the emergence of transmission 
        projects targeted to relieve transmission congestion or to 
        integrate renewable generation projects, it is increasingly 
        understood that transmission investments provide a wide range 
        of benefits, such as reducing the cost of supplying electricity 
        or allowing the integration of lower-cost renewable resources. 
        Thus, while many transmission investments may be driven 
        primarily by a single concern, such as reliability, congestion 
        relief, or renewable integration, the benefits of these 
        transmission investments generally extend well beyond the 
        benefit associated with the primary investment driver. For 
        example, reliability-driven projects will also reduce 
        congestion and often support the integration of renewable 
        generation. Similarly, a transmission project driven by 
        congestion relief objectives will generally also increase 
        system reliability or help to avoid or delay reliability 
        projects that would otherwise be needed in the future. It is 
        the interrelated but collateral nature of these benefits that 
        often makes them difficult to quantify. There are a number of 
        studies quantifying the economic value of benefits for 
        individual transmission projects, which we use to indicate the 
        potential magnitude of these benefits in the following 
        discussion.

        The post-construction assessment of the Arrowhead-Weston 
        transmission line in Wisconsin, which was energized by American 
        Transmission Company (``ATC'') in 2008, provides a good example 
        of the broad range of benefits associated with an expanded 
        transmission infrastructure. The primary driver of the 
        Arrowhead-Weston line was to increase reliability in 
        northwestern and central Wisconsin by adding another high 
        voltage transmission line in what the federal government 
        designated at the time as ``the second-most constrained 
        transmission system interface in the country.''... By also 
        reducing congestion, ATC estimated that the line allowed 
        Wisconsin utilities to decrease their power purchase costs by 
        $5.1 million annually, saving $94 million in net present value 
        terms over the next 40 years. Similarly, ATC estimated that 
        $1.2 million were saved in reduced costs for scheduled 
        maintenance since the Arrowhead-Weston line went into service. 
        . .. The construction of the line supported 2,560 jobs, 
        generated $9.5 million in tax revenue, created $464 million in 
        total economic stimulus and will provide income to local 
        communities of $62 million over the next 40 years. The 
        increased reliability of the electric system has provided 
        economic development benefits by improving operations of 
        existing commercial and industrial customers and attracting new 
        customers. Lastly, the Arrowhead-Weston line also provides 
        insurance value against extreme market conditions as was 
        illustrated in a NERC report which noted that if Arrowhead-
        Weston had been in service earlier, it would have averted 
        blackouts in the region which impacted an area that stretched 
        from Wisconsin and Minnesota to western Ontario and 
        Saskatchewan, affecting hundreds of thousands of customers.

        The most commonly quantified ``economic'' benefits of 
        transmission investments are reductions in simulated fuel and 
        other variable operating costs of power generation (generally 
        referred to as ``production cost'' savings) and the impact on 
        wholesale electricity market prices (generally referred to as 
        locational marginal prices or ``LMPs'') at load-serving 
        locations of the grid. These production cost savings and ``Load 
        LMP benefits'' are typically estimated with production cost 
        simulation models that simulate generation dispatch and power 
        flows subject to defined transmission constraints. In a recent 
        assessment of RTO performance by the FERC, the majority of RTOs 
        cited reduced congestion as a main benefit from expanding 
        transmission capacity. For example, PJM noted that market 
        simulations of recently approved high voltage upgrades indicate 
        that the upgrades will reduce congestion costs by approximately 
        $1.7 billion compared to congestion costs without these 
        upgrades.

        Transmission investments can enhance the competitiveness of 
        wholesale electricity markets by broadening the set of 
        suppliers that compete to serve load. While the magnitude of 
        savings depends on market concentration and how much load is 
        served at market-based rates (rather than through cost-of-
        service regulated generation), studies have found that the 
        economic value of increased competition can reach 50% to 100% 
        of a project's costs. . .. Transmission expansion can increase 
        market liquidity by increasing the number of buyers and sellers 
        able to transact with each other. This will lower the bid-ask 
        spreads of electricity trades, increase pricing transparency, 
        and provide better clarity for long-term planning and 
        investment decisions. For example, we found that bid-ask 
        spreads for bilateral trades at less liquid hubs are 50 cents 
        to $1.50 per MWh higher than the bid-ask spreads at more liquid 
        hubs. At transaction volumes ranging from less than 10 million 
        to over 100 million MWh per quarter at each of more than 30 
        electricity trading hubs, even a 10 cent per MWh reduction of 
        bid-ask spreads due to a transmission-investment-related 
        increase in market liquidity saves $4 million to $40 million 
        per year and trading hub, which would amount to transactions 
        cost savings of approximately $500 million annually on a 
        nation-wide basis.

        Transmission investments, even if not driven by reliability 
        concerns, will generally increase reliability on the power 
        system. This increase in reliability provides economic value by 
        reducing service curtailments and avoiding high-cost outcomes 
        during extreme system conditions. The cost of reliability 
        problems and their ``expected unserved energy'' can be measured 
        with estimates of the ``value of lost load,'' which can exceed 
        $5,000 to $10,000 per curtailed MWh. The high value of lost 
        load means that avoiding even a single reliability event that 
        would result in blackout is worth ranging from tens of millions 
        to billions of dollars. . .For example, the Chair of the 
        CAISO's Market Surveillance Committee estimated that if 
        significant additional transmission capacity had been available 
        during the California energy crisis from June 2000 to June 
        2001, its value would have been as high as $30 billion over 
        this 12 month period. Similarly, a detailed analysis of the 
        insurance benefit of a 345 kV transmission project found that 
        the project's probability-weighted savings from reducing the 
        impacts of extreme events equated to approximately 20% of the 
        project's costs.

        Transmission projects can provide ``investment and resource 
        cost benefits'' by displacing or delaying otherwise needed 
        capital investment, allowing the integration of lower-cost 
        generation resources, and reducing the cost (or increasing the 
        value) of subsequent transmission projects. For example, 
        transmission investments that allow the integration of wind 
        generation in locations with a 40% average annual capacity 
        factor reduce the investment cost of wind generation by one 
        quarter compared to the investment requirements of wind 
        generation in locations with a 30% capacity factor. 
        Transmission investments may also allow the development of 
        generation with lower fuel costs (e.g., mine mouth coal plants 
        or natural gas plants built in locations that offer higher 
        operating efficiencies), better access to valuable unique 
        resources (e.g., hydroelectric or pumped storage options), or 
        lower environmental costs (e.g., better carbon sequestration 
        and storage options). . .. Additional generation capacity 
        investment savings also are provided by reducing losses during 
        peak load and, through added transfer capabilities, the 
        diversification of renewable generation. Recent studies show 
        that peak-loss-related capacity benefits can add 5% to 10% to 
        estimated production cost savings. The Eastern Wind Integration 
        and Transmission Study (``EWITS'') showed that regional 
        transmission overlays can increase the capacity value of wind 
        generation by roughly 5 percentage points (i.e., from an 
        average of 23% without regional transmission upgrades to 28% 
        with regional upgrades). Similarly, regional overlays can 
        diversify the geographic footprint of intermittent renewable 
        and balancing generation resources, which leads to lower 
        renewable balancing costs. . ..

        Transmission investments often create benefits beyond reducing 
        the delivered wholesale cost of power. These ``external'' 
        benefits include impacts on fuel markets (reduced fuel prices), 
        environmental benefits (reduced emissions), and reducing the 
        cost of public policy requirements (such as the cost of 
        renewable generation). For example, the Southwest Power Pool 
        estimated that transmission investment that allow for the 
        interconnection of additional wind generation would lead to a 
        reduction of regional natural gas prices, a customer benefit 
        that offset approximately one quarter of the transmission 
        costs.
    In summary, the federal PMAs have been given significant powers by 
the Congress in EPAct 2005 and ARRA, and those powers were designed by 
Congress to permit the PMAs to attract private investments in 
transmission without placing the preference customers at risk of higher 
rates to pay for new projects that are not planned to provide new 
service to the preference customers. The steps proposed by Secretary 
Chu in his memorandum are modest, and seek the implementation of 
operational changes that will provide well documented benefits to rate 
payers. The new private investment in transmission that the PMAs can 
attract will create jobs, stimulate additional economic activity, and 
provide significant benefits and savings to ratepayers of all classes.
    Again, thank you Mr. Chairman for holding this hearing today, and 
giving me the opportunity to testify before the Committee on this 
important subject.
    I am happy to answer any questions you may have.

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                                 __
                                 
    The Chairman. Thank you very much for your testimony. Next, 
I will recognize Mr. Scott Corwin, Executive Director of the 
Public Power Council out of Portland.
    Mr. Corwin, you are recognized.

  STATEMENT OF SCOTT CORWIN, EXECUTIVE DIRECTOR, PUBLIC POWER 
                            COUNCIL

    Mr. Corwin. Thank you, Mr. Chairman, members of the 
Committee. I am Scott Corwin, Executive Director of PPC, as the 
Chairman said.
    We represent electric cooperative and public agency 
utilities in the Northwest that have preference rights to buy 
power from the Bonneville Power Administration.
    It seems to us that while correctly noting that the PMAs 
can be and are leaders in the new challenges facing the 
industry, that the DOE memo represents to some extent a 
solution in search of a problem.
    To understand our concerns with the DOE memo, it is 
important to understand that BPA is a statutory creature with 
specific missions that are not supported by taxpayer dollars. 
Customers pay for the costs incurred by this pass through 
entity.
    Because of the public and regional nature of the assets, 
the process around them is very public and regional, and yes, 
arduous.
    We do not always agree in the region. All families have 
their fights.
    BPA, its customers, the states, the tribes, the Army Corps, 
the Bureau, the Regional Northwest Power and Conservation 
Council, and many others work together to fulfill increasingly 
complex mandates, all while trying to ensure reliable, 
affordable prices to bring benefits to citizens through cost 
based power.
    The region's congressional delegation functions as a type 
of board of directors. They have a long history of working in a 
bipartisan way for the good of the region. We very much 
appreciate the letter they sent on April 11 expressing concerns 
with the DOE Memorandum and some of their work just this week 
on the appropriations language.
    The PPC shares their concerns. We worry about the risk of 
higher costs without reciprocal benefit. Redesigning rates to 
achieve policy goals has the potential to impose costs on BPA 
ratepayers without offsetting benefits, which is unfair to 
citizens in the region.
    Also, under statute, BPA has an imperative to achieve 
objectives at ``the lowest possible rates to consumers 
consistent with sound business principles.''
    BPA's purposes can only be refined with specific authority 
from Congress, preserving the core tenets of public preference 
and cost based rates.
    In several respects, the DOE Memorandum suggests new 
missions for BPA that would raise questions as to whether they 
are appropriate to the region or outside the agency's statutory 
authority or may impose undue risks to consumers.
    Examples, the section on improving PMA rate designs has the 
look of planned rate increases that could conflict with BPA's 
statutory mandate for cost based rates.
    Electric vehicle deployment, for example, is being pursued 
by retail utilities in the Northwest. It is not a necessary new 
role for a wholesale power supplier.
    The cumulative effect of statements directing PMAs to 
centralize functions, implement new rate designs, and pursue 
broader projects hints at an unnecessary and costly expansion 
of regulatory reach, possibly despite the footnote in the memo 
to the contrary, possibly suggesting a regional transmission 
organization, an RTO, which has been carefully vetted and 
rejected over many years in the Northwest because of costs, 
operational and jurisdictional concerns.
    Finally, because the memo reads as conclusory, there is 
little recognition of what is already happening without new 
statutes or directives.
    BPA has the highest percentage of penetration of wind power 
of any balancing authority in the entire country. It has seen a 
ten fold increase on its system just since late 2006.
    Just in the last year, BPA and its customer utilities 
achieved 130 average megawatts of new energy efficiency. The 
BPA has built and operates over 15,000 circuit miles of high 
voltage transmission lines, and has 217 miles of new 500 KV 
lines, 82 miles of 230 KV lines, and three new substations all 
underway right now.
    For 75 years, PMAs in partnership with their customers have 
addressed new challenges, and there is more progress being made 
every day.
    We urge that future initiatives be regionally based, 
consistent with current statutes and responsibilities, and that 
they avoid creating costs to ratepayers without reciprocal 
benefits.
    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

    Good morning, Chairman Hastings, Ranking Member Markey, and Members 
of the Committee. My name is Scott Corwin. I am the Executive Director 
of the Public Power Council (PPC). We are 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).
    Since the beginning of the federal power program in the West, not-
for-profit rural electric cooperatives and public agencies have had the 
priority or preference right to purchase federal power on behalf of 
their consumers because they have a mandate to pass the benefits 
through to the citizens who are their owners. In the Columbia River 
Basin there are 130 of these utilities serving customers in seven 
western states. They have a close and symbiotic relationship with BPA 
and directly feel the brunt of increased costs passed through by BPA.
    I thank you very much for the invitation today because it allows 
the opportunity to testify about the way we do business, and on the 
manner in which consumer-owned utilities work with Power Marketing 
Administrations (PMAs). At their best, the PMAs reflect the essence of 
the core customers they serve: utilities that are service-oriented, 
cost-conscious, and consumer-focused because they are created for and 
owned by the people they serve.
    It is difficult to know exactly what to make of the Department of 
Energy Memorandum to the PMAs sent on March 16 of this year. On a very 
general level, one might view portions of the memo as posing questions 
around new industry challenges that face many utilities. We do not 
disagree that the PMAs can be, and are, leaders in the industry. 
Indeed, the PMAs already are stepping up to meet new directions in 
energy, as discussed below, including aggressive pursuit of new 
technologies, integration of renewable resources, and visionary 
achievements in energy efficiency. We note as well that the DOE Memo 
aptly recognizes, at least at one point, the need for a continuing 
commitment to cost-based rates.
    However, the Secretary's memo also steps beyond a general 
recognition of the PMAs direction and alludes to several ominous 
directives that could add additional costs. Today, I would like to 
explain our concerns, and why we view the memo as implying new 
endeavors that could set the PMAs off-course from their core mission, 
could increase costs to customers without reciprocal benefit, and could 
do more harm than good by separating the PMAs from the important 
regional deliberations that have guided them throughout history in 
pursuit of their statutory goals.

The Regional Nature of PMAs
    For generations people have gathered around the great waters of the 
Northwest for food, for transportation, for irrigation, for recreation, 
and then for power. As in other areas with great waterways, this 
uniquely public resource of navigable water creates a unique source of 
clean and renewable power to be shared among the citizens of the region 
from whence that power was derived. Thus were formed the Power 
Marketing Administrations to ensure the power value of these public 
resources was sent to those within the region best able to pass the 
benefits through to the end consumer.
    The PMAs and the treasured assets with which they are entrusted, 
being funded regionally, are not just another tool for federal policy 
pursuit. These are statutory creatures with a rich history from which 
evolved specific missions, specific goals, and specific purposes. 
Because of the public and regional nature of the assets, the process 
around them is very public and regional. In a sense, the people were 
asked to take ownership and stewardship of the mission for these local 
assets, and their representatives in Congress likewise work to protect 
the assets and the needs of the citizens within the region.
    BPA and its customers have worked and struggled together with the 
Army Corps of Engineers and the Bureau of Reclamation to keep this 
power supply reliable and affordable while fulfilling myriad statutory 
and regulatory mandates. We have nurtured this incredible renewable 
resource of hydropower, and it has helped enable new renewable 
resources. We have achieved staggering levels of energy conservation to 
make more efficient use of existing resources. And, we have become the 
world's foremost experts in anadromous fish passage.
    In recent decades, we've been faced with a host of new challenges 
in the form of volatile energy markets, transmission constraints, new 
intermittent generation, environmental concerns including emissions and 
renewable portfolio standards, a renewed focus on system reliability, 
energy security concerns, and unstable economic conditions. The PMAs 
have met these challenges and are forging ahead into the new frontier 
as well as any large utility can in this setting.
    It is the 75th Anniversary of BPA this year, and not coincidentally 
it is also the 75th Anniversary of many of PPC's member utilities. Over 
this time, the primary mission of BPA is and always has been to provide 
reliable electricity at affordable prices. Throughout their history 
they have accomplished this mission well, partnering with consumer-
owned utilities to bring economic benefit to citizens of the region 
through cost-based power. Today, they continue to do so even as they 
evolve to meet new challenges.

The Memo and BPA as a Pass-Through Entity
    This impressive record of the PMAs, and their continued progress, 
makes it difficult to know how to view a memo that seeks a new vision 
for them. One could imagine a vision document with broad goals and a 
process laid out in which to engage in further discussion. However, the 
March 16 memo from Secretary Chu moved into fairly specific action 
items, and alluded to future directives that did not appear to fully 
recognize the regional dynamic of these entities or their current 
activities. It seems in part to be a solution in search of a problem, 
and is a threat of top-down approaches and more involvement from 
Washington, D.C.
    To fully understand why consumers are very concerned about 
potential changes to the mission or function of PMAs, one must truly 
understand how PMAs work with their customers. While federal in nature, 
BPA is not supported by taxpayer dollars. Rather, customers pay for all 
of the power costs incurred by BPA. The agency is a pass-through entity 
with respect to its costs and obligations. And, consumer-owned 
utilities likewise must pass costs on to their consumers. Because of 
this, extensive regional processes have grown up around budget and rate 
setting, and any major policy that the agency pursues.
    Power costs borne by PMAs are borne by the region, so the regional 
view weighs heavily in the decision-making. Along with this regional 
consideration is a close relationship with the region's representatives 
in Washington, D.C.--the Northwest Congressional delegation. In a 
simplified analogy, if the power customers who have paid for the 
Federal Columbia River Power System are the shareholders, the region's 
Congressional delegation is viewed as the Board of Directors. These 
directors have a long history of working in a bipartisan way for the 
good of the region. The Northwest Congressional delegation has 
responded time and again to defend the value of the Columbia River 
system. We very much appreciate the letter that they sent on April 11, 
2012 expressing concerns about the DOE Memorandum.
    We have found that directives from outside the region rarely work 
as well as solutions crafted by regional parties with knowledge of the 
unique nature of each power system. Lending context to ratepayer 
concerns about the DOE memo is the long history of proposals to shift 
the mission of the PMAs, and shift the value from these regionally 
funded entities. Over the years this has taken the form of federal 
deficit reduction proposals that would have the effect of imposing a 
regional tax to benefit the federal budget. It has also taken the form 
of pressure from FERC and others to create new forms of standardized 
markets or bureaucratic institutions that threatened to add higher 
costs to customers in exchange for worse access to power from the 
federal system.

Specific Concerns with the Department of Energy Memorandum
    The March 16, 2012 memorandum released by Department of Energy 
Secretary Chu outlines a vision and policy direction for the federal 
Power Marketing Administrations (PMAs). While short on specific policy 
prescriptions, the document raises significant concerns in a number of 
areas with its promise of ``subsequent memoranda'' and ``directives.''

Cost Concerns in the Northwest
    While the Northwest has been hit hard during the last few years 
(Oregon and Washington unemployment stayed above the national average 
at the end of March), BPA, with its relatively lower-cost power supply 
and legally mandated cost-based rates, has been an important economic 
engine. Any additional costs on BPA customers without corresponding 
benefits risks sacrificing the power rates that have been a lifeline 
for the Northwest economy. After recovering some from the enormous 
increase following the West Coast energy crisis in the last decade, BPA 
power rates have started to go up again with an almost eight percent 
increase last year, and potential for a double digit increase next 
year.
    Under statute, BPA has an imperative to focus on the least-cost 
means of achieving policy objectives that fall within its authority. 
Redesigning rates to achieve various policy goals has the potential to 
threaten the important rate design principle of ``cost causation'' in 
which costs are paid by the parties that cause the action. Direction to 
pursue policy objectives that would impose costs on BPA ratepayers 
without offsetting benefits is a dangerous threat to the region.

Scope, Legal Authority, and Regulatory Oversight
    The core mission of each of the PMAs is to market power generated 
at federal multi-purpose dams to public power systems. BPA is to do 
this at ``the lowest possible rates to consumers consistent with sound 
business principles.'' 16 U.S.C. Section 838g. Over the years, the 
authority of BPA has been refined and expanded. But, in each case 
Congress has given specific authority and direction to BPA.
    Moreover, each refinement of BPA's mission has carefully respected 
the core tenets of preference and cost-based rates, as well as BPA's 
core role as a the key wholesale power supplier for vast areas of the 
Northwest. In several respects, the DOE Memorandum suggests new 
missions for BPA that would raise questions as to whether they are 
appropriate to the region, are outside the agency's existing statutory 
authority, or pose undue business risk to consumers. For example:
          Technology--On page three of the memo, BPA and the 
        other PMAs are directed to serve as ``test beds'' for 
        innovative cyber security technologies. While BPA is certainly 
        feeling the brunt of new NERC reliability and security 
        standards, testing and proving technologies is a better role 
        for DOE labs, not an agency that has 100% of its costs 
        recovered from ratepayers.
          Rates--On page four of the memo there is a 
        particularly concerning heading of ``Improving the PMA's Rate 
        Designs''. This calls for rates to ``incentivize'' several 
        policy objectives. This has the look of artificial rate 
        increases, and one wonders how this would not conflict with 
        BPA's statutory mandate for cost-based rates. Moreover, 
        initiatives in the memo, such as electric-vehicle deployment, 
        are being pursued by retail utilities in the Northwest, and are 
        not necessary new roles for this wholesale power supplier.
          EIM--On page five, DOE discusses PMA participation in 
        a West-wide market to address energy imbalances resulting from 
        intermittent renewable generation. The value to BPA customers 
        of a west-wide, FERC jurisdictional market of this kind has not 
        been shown, and the concept raises multiple questions around 
        governance and legality of BPA participation. Instead, parties 
        within the footprint of the Northwest Power Pool are pursuing 
        capture of additional flexibility and capacity across their 
        systems to address energy imbalance. Part of that work includes 
        further coordination on a host of initiatives already underway 
        to create efficiencies among utilities.
          FERC--The cumulative effect of statements throughout 
        the memo directing PMAs to centralize functions, implement new 
        rate designs, address ``rate pancaking'', and pursue broad 
        regional planning and coordination on operations of the grid 
        all hint at an unnecessary and costly expansion of regulatory 
        oversight and direction by both the Department of Energy and 
        the Federal Energy Regulatory Commission (FERC).
          RTOs--Indeed, the above combination of elements in 
        the memo undermines its assurance in a footnote that it is not 
        proposing a move toward a Regional Transmission Organization 
        (RTO) in these regions. The RTO concept has been carefully 
        vetted and rejected over many years in the Northwest because of 
        cost and jurisdictional concerns.
          Regional Process--Throughout the document, there are 
        conclusions reached as to policy direction that appear to skip 
        the usual regional analysis and collaboration in policy 
        development, and overlook the statutory limitations for PMAs on 
        cost recovery, mission, and geographic scope.

BPA and Customer Achievements to Date
    The specter of BPA and the other PMAs being told to take steps to 
support new directions that may or may not have value to regional 
customers is all the more troubling given that BPA continues to achieve 
so much in this arena without new statutes or directives.
          BPA has achieved the highest rate of wind penetration 
        of any balancing authority in the country (42 percent by 
        generation to peak load). In March, BPA's system passed the 
        mark of 4,400 megawatts of wind generation, and expects to have 
        5,000 megawatts of this variable resource connected to its 
        system by 2013, several years ahead of estimates. This is a 
        ten-fold (1000 percent) increase over the amount of wind on the 
        BPA system in August of 2006 (Figure 1).
          BPA and its customer utilities achieved 130 average 
        megawatts of energy efficiency last year, exceeding targets and 
        adding to the nearly 5000 average megawatts of efficiency 
        achieved by the Northwest region since passage of the Northwest 
        Power Act in 1980. In addition, BPA now has a tiered rate 
        structure that effects efficiency, and there are dozens of 
        demand response projects underway in the Northwest.
          BPA owns and operates over 15,000 circuit miles of 
        high voltage transmission lines. The agency responds to new 
        needs and requests through extensive regional processes that 
        analyze many considerations such as environmental impact, 
        system operational impact and reliability, cost, risk, 
        potential for recovery of cost, feasibility, and alternative 
        options. As of the start of the fiscal year, BPA had underway 
        217 miles of new 500 kilovolt lines, 82 miles of rebuilding for 
        230 kilovolt lines, and 3 new substations.

Conclusion
    The Power Marketing Administrations and their utility customers 
have worked well together for 75 years in a regionally focused process 
of policy development. These processes are reflective of a 
collaborative spirit, and of the many operational, economic, and 
political dynamics unique to each region. Together, the PMAs and their 
customers have created an impressive record in addressing the many new 
challenges facing the energy industry, with more progress being made 
each day.
    While it is unclear how the Department of Energy memo on PMAs may 
be implemented, it raises significant concerns about potential costs 
and regulatory burdens. Future initiatives must continue to be 
consistent with each PMA's statutes and responsibilities, and must not 
create costs to ratepayers without reciprocal benefits. With so much 
progress already underway, it would be a shame to override regional 
solutions in favor of one-size-fits-all proposals from D.C. that may, 
in the end, not fit anyone.
    Thank you very much for the opportunity to testify today. I look 
forward to answering any questions.

[GRAPHIC] [TIFF OMITTED] T3981.012

                                 __
                                 
    The Chairman. Thank you very much, Mr. Corwin, for your 
testimony. Next, I will recognize Mr. Joel Bladow, who is the 
Senior Vice President, Transmission, Tri-State Generation and 
Transmission out of Colorado.
    Mr. Bladow?

STATEMENT OF JOEL BLADOW, SENIOR VICE PRESIDENT, TRANSMISSION, 
             TRI-STATE GENERATION AND TRANSMISSION

    Mr. Bladow. Thank you, Mr. Chairman. My name is Joe Bladow 
out of Colorado. I again appreciate the opportunity to testify 
today and talk a little about the impact we see at Tri-State.
    Up on the screen gives you a sense of how spread out we 
are. We consist of 44 members that own us. We are not for 
profit. There is about 1.5 million consumers that buy 
electricity from our members.
    You see how vast that geography is, about 200,000 square 
miles in four states. In our spread out area, we have about 
five consumers per mile of line. A typical investor owned 
utility has about 40. You can see for us, keeping our costs 
down and keeping it affordable for those folks is not easy and 
very difficult at times to do.
    There have been many concerns raised about the Chu memo, 
and there are just a couple of points I would like to make.
    One would be I have been in building transmission for about 
30 years now. The issue you see in building transmission is who 
is going to pay for it a lot. That has been mentioned before.
    Will the beneficiaries pay for it or will they get somebody 
else to pay for it, as Mr. English pointed out.
    I think more transmission is better if the folks willing to 
pay for it are the ones that pay for it. Just building 
transmission for somebody else is not really good for the folks 
that get stuck with the bill.
    As a not-for-profit, every cost increase we have goes right 
to our members' bills. If there are nuggets in Mr. Chu's memo 
in terms of things we can do better to save a buck, if you 
will, for our members, we will be supportive and will be 
interested to see how we do that.
    We are always looking to save the dollars, because that 
goes right to the bottom line. There is no we save some dollars 
and it goes to shareholders, no, it goes to our bottom line.
    To date, there really is not enough information in that 
memo to understand is there a buck to be saved or are there 
just dollars to be spent.
    Another thing is the leadership role of the PMAs. I would 
distinguish between leadership role and experimental. The PMAs 
are not DOE laboratories. When DOE labs do experiments, they do 
a lot of science. Sometimes it works out, sometimes it does not 
work out.
    The PMAs have real assets, real customers. They operate 
real systems. When things go bad, my consumers, our people's 
lights go out. That means the cash registers do not work at the 
local store, the schools let out. Those are things that we want 
to avoid, but that is what happens when you experiment on a 
real system.
    We are real concerned about trying things out on an 
operating utility, an operating system.
    Tri-State amongst other utilities, the public power 
sectors, invested a lot in renewables. We have paid our own way 
to integrate wind, solar, distributed generation to our 
members.
    We pay for that, and that is fine, but we just do not want 
to pay for other people's integration. Those who benefit need 
to pay.
    Another issue is all the costs that go into the PMA rates, 
all the things they spend, we pay for as customers. There is no 
side kitty of appropriated dollars. It all comes into our 
rates.
    Even the process of examining these efficiencies on a 
national level, that will go into our rates. We will be paying 
the cost of any type of public process and stakeholder on this. 
We would much rather pay the cost on a more regional based one 
that really identifies local issues and local problems.
    Another issue that has been brought up is the energy 
imbalance market and the benefits or perhaps problems with it.
    Where it has been implemented in other parts of the 
country, they always have built a foundation, and the 
foundation is how are we going to use the transmission system 
in order to enable the market.
    In this case, there is a proposal for an energy imbalance 
market without any foundation under it, and to put the 
foundation under it, you have to basically have an RTO. You 
have to have a transmission agreement in order to build an 
energy imbalance market.
    When engaged in that process and when asked the question of 
an energy imbalance market how are we going to deal with the 
transmission, the answer inevitably is we will get to that down 
the road.
    That is a very fundamental piece. Our concern is once we 
understand the building blocks, we can then determine is that 
good or bad. A lot of the cost savings that are referred to, 
there may be general cost savings, the problem is there are 
winners and losers, and when you are on the short end of the 
stick and you are paying for somebody else, it does not look 
like such a good idea, and that is one of our concerns.
    We have had decades of relationship with Western Power 
Administration. It has been very positive. We pay. We work with 
them. They meet the needs of our consumers in the regions.
    Hopefully going forward, and I appreciate the Chairman 
calling this hearing, that we get that dialogue going again so 
we can identify the true savings.
    With that, I would be happy to answer any questions.
    [The prepared statement of Mr. Bladow follows:]

    Statement of Joel Bladow, Senior Vice President, Transmission, 
        Tri-State Generation and Transmission Association, Inc.

    Mr. Chairman, Ranking Member Markey, my name is Joel Bladow. I 
currently serve as Tri-State Generation and Transmission Association's 
Senior Vice President for Transmission. I appreciate having the 
opportunity to testify before the committee on the impact the ``Chu 
Memorandum'' will have on Tri-State's ability to provide affordable and 
reliable electricity to small businesses and residential consumers 
throughout the Intermountain West.
    Tri-State is a not-for-profit wholesale electric cooperative based 
in Colorado. Our mission is to provide reliable, cost-based wholesale 
electricity to our 44 not-for-profit member systems (electric 
cooperatives and public power districts) while maintaining high 
environmental standards. Our members serve 1.5 million predominantly 
rural consumers over 200,000 square miles of territory in Colorado, 
Wyoming, Nebraska and New Mexico. To meet our membership's electricity 
needs, Tri-State generates or purchases power produced by coal, natural 
gas, and hydropower, as well as from intermittent renewables like solar 
and wind. Since the end of 2010, we have integrated just over 30 
megawatts of solar from the Cimmaron Solar facility in Northern New 
Mexico and 50 megawatts of wind from Duke's wind farm in Burlington, 
Colorado. Recently, we signed a 20 year agreement to purchase all 67 
megawatts of generation from the Colorado Highlands Wind Project 
located in Logan County, Colorado. In addition to these larger scale 
projects, Tri-State's board of directors has established policies to 
encourage local renewable developments on our member systems. Under 
this policy our members have added, or are scheduled to add, another 42 
megawatts of distributed local renewables to our portfolio. Tri-State 
is not unique with respect to the integration of traditional sources of 
coal, natural gas, federal hydropower and intermittent resources. Other 
customers of the Western Area Power Administration (WAPA) have a 
similar generation portfolio.
    We are proud of the great strides we have taken to integrate 
intermittent renewable and local distributed generation into our 
production fleet. However, our most important source of renewable 
generation is still the reliable hydropower generated at the multi-
purpose projects of the U.S. Army Corps of Engineers and Bureau of 
Reclamation and marketed by WAPA. Hydropower purchased from WAPA 
accounts for approximately 12% of our generation needs. Since it is 
such a crucial component of fulfilling our mission to provide 
affordable and reliable electricity to the rural membership we serve, 
we are very concerned about the directives for WAPA and the other power 
marketing administrations laid out in the Chu memo of March 16th.
Affordability and Reliability
    As I noted, Tri-State's 44 members serve the predominantly rural 
areas of our four state service territory, which includes New Mexico, 
Nebraska and Wyoming in addition to Colorado. On average these member 
systems serve five consumers per mile compared to 37 consumers per mile 
served by investor owned utilities. Many of the tribal customers served 
by our member systems reside in the poorest economies in the country. 
We are similar to other electric cooperatives nationwide that as a 
whole maintain 41% of the electric distribution network, yet only have 
12% of the consumers to shoulder the costs of building and maintaining 
this infrastructure. In times of economic recovery our consumers--
whether it be the residential customer struggling to pay their mortgage 
or the small business struggling to meet payroll--cannot be burdened 
with additional costs leading to unaffordable electricity. 
Unfortunately, we believe the Chu memorandum will add costs to our 
consumers' electricity bill, not reduce them.
    Secretary Chu's statement about WAPA's potential participation in 
an Energy Imbalance Market (EIM) is an example of an additional cost 
associated with his memo. The memo acknowledges ``WAPA[and its 
customers] may incur costs during the initial transition to EIM. . .'' 
It is disconcerting that the Department of Energy is pushing WAPA into 
an EIM--with its customers shouldering the costs--before the studies 
indentifying the costs and benefits have been completed and peer 
reviewed
    While it is troubling in and of itself that our not-for profit 
member systems could face rate increase(s) resulting from the Chu 
directives--it is even more troubling that our members would shoulder 
these costs for the benefit of for-profit utilities. Tri-State has 
developed a significant renewable portfolio and our member-systems have 
complemented this portfolio by developing distributed generation 
projects working with local developers in the communities in which they 
serve. Our members have borne the cost of this development and the 
integration of these projects into our network. If the Chu memo is 
implemented, our members will not be rewarded for this effort, but 
rather would be required to help pay the costs for other utilities' 
renewable integration costs. For example, in Colorado the majority of 
the electricity demand is in the Denver Metropolitan Area. However, the 
utility providing electricity to this region has almost no interstate 
transmission connections which would help reduce their integration 
costs. The Chu approach would reward this utility by allowing it to use 
WAPA's interstate transmission system without compensating Tri-State 
and WAPA's other customers that paid for the construction and continue 
to pay for the maintenance of the system through their rates.
    As disconcerting as it is that Tri-State and its member systems 
could face increased rates as a result of the ``Chu'' Memo, we are 
equally concerned about the effect that some of the directives could 
have on the reliability of the Western Grid. WAPA has real wholesale 
customers to serve, a real transmission system to maintain, and real 
reliability obligations to comply with. It is not a ``laboratory'' like 
Los Alamos or the National Renewable Energy Laboratory. We are 
concerned about the Chu memo's apparent desire to turn WAPA into a 
``test bed'' for conducting research on such things as cyber-security, 
solar flares, and rate design. These actions not only take away from 
its mission of providing cost-based federal power to its customers, but 
could affect WAPA's commitment to reliability and undoubtedly, raise 
customer rates in order to pay for the experiments. In addition to the 
cost impacts, the human resources that maintain and operate WAPA's 
extensive transmission system will be diverted to implementing these 
new policy initiatives at the expense of the existing system and the 
customers they serve.

Customer Collaboration and Congressional Oversight
    Over the years, Tri-State and the other WAPA customers have had an 
open dialogue routinely consulting with each other on operational, 
planning and other matters affecting the PMA. However, when Secretary 
Chu released his ``visioning'' memo--the ``vision'' was created and 
presented without talking to any of the hundreds of existing federal 
power customers, including Tri-State, that have existing systems that 
utilize these resources. The Department of Energy (DOE) has indicated 
that there will be stakeholder meetings to discuss the implementation 
of the concepts in the memo. Given the complete absence of dialogue 
between the customers and DOE prior to the release of the memo how 
seriously should Tri-State and other customers take these meetings? 
Will the process be a monologue from DOE to the existing customers and 
not a dialogue with the existing customers that will shoulder the cost 
burden of these experiments? If this consultation had occurred, the DOE 
would have realized that creating rate structures that incentivize 
certain retail consumer decisions is problematic, at best. 
Traditionally, retail suppliers, consistent with governing body and 
state regulations, have identified and determined which program best 
meets the needs of their consumers. A ``one size fits all'' federal 
mandate from the DOE on energy efficiency, demand response, and 
electric vehicle programs preempts the local decisions and community 
programs that are already in place and are the foundation of local 
control. Tri-State's member systems have numerous programs--each 
tailored to the local economies and consumers they serve--to help 
reduce costs and create jobs. A top down approach is unnecessary and 
counterproductive to the goal of providing our members with affordable 
and reliability electricity in these tough economic times.
    Assuming a new role as a clearinghouse for energy efficiency, 
demand response and electric vehicles would be new for the PMAs. The 
DOE has proposed establishing a revolving fund for WAPA and the 
Southwestern Power Administration in order to pay for these new 
functions. So, on the one hand DOE did not consult with WAPA's 
customers before releasing its proposal to significantly realign the 
mission of the PMAs and now it would like to implement these new roles 
by establishing a revolving fund for two of the three PMAs, which would 
take away Congressional oversight. Given the approach the DOE took in 
releasing the Chu memo--Tri-State believes that establishing a 
revolving fund for WAPA, and thus reducing Congressional oversight, 
would not be a productive move at this time.

Conclusion
    In general, the memorandum released by Secretary Chu on March 16th 
envisions a future where WAPA and the other PMAs become the technology 
and policy test beds for the industry with the development costs borne 
by PMA customers. At a time in the utility industry where there has 
been, and continues to be, rapid change with many new players and 
market segments (renewable developers, demand service management 
providers, smart meter deployment, independent transmission companies, 
independent transmission operators, etc.), do the PMAs really need to 
be ``re-directed'' away from their traditional mission of marketing and 
delivering cost-based federal power from federal multi-purpose 
facilities? I would suggest that utilities with load serving 
obligations, as well as local governments and electric cooperative 
boards, are the best entities to determine how much consumers are able 
to afford in these anemic economic times--not the ``one size fits all'' 
mandated approach from the DOE.

[GRAPHIC] [TIFF OMITTED] T3981.013

                                 __
                                 

 Response to questions submitted for the record by Joel Bladow, Senior 
  Vice President, Transmission, Tri-State Generation and Transmission 
                           Association, Inc.

1.  Mr. Bladow, Page 2 of your testimony implies that Tri-State members 
        would wind up paying more to subsidize renewable energy 
        integration costs for IOUs. Would there still be an objection 
        if (a) there are any actual additional costs to WAPA from the 
        balancing electricity moving on a WAPA transmission line that 
        has a lot of left over physical capacity and (b) if WAPA 
        receives some payment for the use of this line from the EIM 
        transaction that it wouldn't have otherwise received?
    Mr. Markey, Tri-State and the 44 member rural electric cooperatives 
and public power districts (ppds) to which we provide wholesale 
electricity have done much to develop the transmission and distribution 
infrastructure in Colorado, Wyoming, Nebraska and New Mexico. Much of 
this development has been in geographic areas once seen as unattractive 
to other electric utilities. Since Tri-State and our member systems are 
not-for-profit consumer-owned utilities, the development of this 
generation and transmission network has manifested itself in the retail 
electricity bills electric cooperative and ppd consumers pay each 
month. These rates also include repayment for the development, 
operations, maintenance, and replacement costs of significant portions 
of the WAPA transmission system in our geographic area. Tri-State and 
our members did not develop this infrastructure and support WAPA's 
development because of a promised return on investment, but because 
they were necessary to provide affordable and reliable electricity to 
our membership. None of the analysis or proposals for markets in Tri-
State's area has factored in the concept that WAPA or Tri-State would 
get transmission revenue for use of their large interstate transmission 
systems. The economic analysis is based on the free use of the 
transmission system by the energy imbalance market. If implementation 
of the EIM were to pay WAPA, or Tri-State their tariff rate, as all the 
existing customers pay, Tri-State would have no objection to the 
additional use of the transmission system and the lower average cost 
all users would pay.
                                 ______
                                 
    The Chairman. Thank you. Thank you all very, very much for 
your testimony. We will now begin the rounds of questioning, 
and I will recognize myself for five minutes.
    My first question is to Mr. Corwin and Mr. Bladow. Under 
Federal law, the PMAs have to sell hydropower at cost best 
rates within sound business principles. These rates apply to 
the capital investment, to the transportation infrastructure, 
and interest in operation and maintenance.
    It has been said that the Chu memo and the directives from 
the Chu memo will run contrary to these cost based statutes.
    Since both of you represent a number of utilities, could 
you explain how that would happen? Mr. Corwin, I will start 
with you.
    Mr. Corwin. Thank you, Mr. Chairman. That is correct. The 
rates are set on a cost basis for the Bonneville Power 
Administration and other PMAs because these are again pass 
through entities. There is no other place for the costs to go 
but to the ratepayers and public agencies and cooperatives have 
to pass those on to them.
    The Chu memo in a couple of places certainly points in a 
different direction, especially the rates' incentive portion of 
the memo, mostly pages four and five is where they dive into 
that.
    You can envision a whole host of scenarios, and Mr. Bladow 
just described a couple, where you have folks having to pay for 
projects where there has not been proven reciprocal benefit 
back to that set of customers.
    Mr. Bladow. I would add to that. They talk about 
eliminating pancaking for Western Area Power Administration's 
case, which really means we will blend the rates amongst 
various projects. Western is made up of numerous independent 
projects.
    When you do that, you in essence are shifting costs between 
projects. It still may be cost based on paper, but reality, 
what you have done is you have added costs that do not benefit 
the one entity, and you end up shifting that.
    That is our concern with the costs.
    The Chairman. Thank you for that. My next question is for 
Mr. English and Mr. Crisson.
    The PMAs, the four PMAs, while they are created by 
Congress, are all different, the complexity of those four are 
all very different, but there is at least a commonality that I 
have heard throughout my experience here and what I have heard 
today.
    Those commonalities are cost based rates, the beneficiary 
pays, and whatever decisions or changes, they should be 
regionally based decisions.
    Do you agree basically with that concept of how the PMAs 
are? Mr. English, we will start with you.
    Mr. English. I definitely do, as I said in my testimony, 
Mr. Chairman, basically this is a long history here, and this 
is a partnership. It was established as a partnership. We need 
to keep that in mind. It has been tremendously successful.
    Each PMA as you point out is different. It is unique. It 
has special problems. That partnership between the local PMA 
and those customers that are using that power has been a great 
way in which we can deal with local problems.
    The Chairman. Mr. Crisson?
    Mr. Crisson. Yes, Mr. Chairman, I would agree with that 
assessment. Most of the PMAs can look to a situation where the 
customers and the PMA itself enjoys a very good working 
relationship, a collaborative relationship, in which they 
discuss issues of mutual concern.
    There have been times when the roles, authorities, 
responsibilities of the PMAs have been changed, but in my 
experience, that is usually a prolonged, multi-year process 
that involves significant dialogue and discussion within a 
region, involvement of Congress, and then ultimately 
authorization by approval of Congress.
    The Chairman. To the extent that the Chu memo deviates from 
that basic concept, what effect would that have in your view on 
the ratepayers? Mr. English?
    Mr. English. I think it has the potential of having an 
enormous impact on the local ratepayers. Again, as I stated in 
my testimony, our major concern here is this is getting to be a 
huge cost shift, that the PMA customers are basically being 
placed in a position to pay for benefits for people who are not 
customers.
    This is a major break with what has been the history of 
this program and what it has been all about. Quite frankly, the 
issue of fairness these days does not get discussed much. That 
is terribly unfair, and certainly contrary to what I think were 
implied promises made by the Federal Government back when PMAs 
were started and we agreed to pay higher than market rates.
    The Chairman. Real quickly, Mr. Crisson, do you agree with 
that?
    Mr. Crisson. I would concur with that. This memo has been 
characterized as a vision statement. I would argue it is more a 
series of directives. There are a lot of unknowns and 
uncertainties here. We are very concerned about what might come 
out of all this.
    The other clear concern we have about this is it signals a 
different way of doing business. We have a good working 
relationship. We have a collaborative relationship. We do not 
want that to change.
    The Chairman. Thank you very much. My time has expired. I 
recognize the gentleman from Oregon, Mr. DeFazio.
    Mr. DeFazio. Thank you, Mr. Chairman. Thank you for holding 
this very important hearing.
    I would note we did send a letter raising a number of 
issues that have been discussed here, a number of the members 
of the Northwest Delegation sent to Secretary Chu. We have had 
no response. I would hope if we do receive a response, perhaps 
we might then invite them to come and elaborate upon that at a 
future hearing.
    The Chairman. Will the gentleman yield?
    Mr. DeFazio. Yes.
    The Chairman. Listen, we are going to start this process, 
and talking to those that are affected, I am quite frankly 
surprised there has not been a response to our letter. Yes, we 
will follow up accordingly.
    Mr. DeFazio. Thank you, Mr. Chairman.
    We have particular problems with wind integration in the 
Northwest. In reading Mr. Humble's testimony here, I am just 
curious. You are not specific. Would you care to be specific 
about who held the right to the transmission capacity, who 
tried to, as you said, extort monopoly rents?
    Mr. Humble. That is covered by a non-disclosure agreement. 
I cannot do that.
    Mr. DeFazio. All right. There is no implication that this 
was a result of the policies of our power marketing agency, the 
Bonneville Power Administration, is that correct?
    Mr. Humble. I do not think the Bonneville Power 
Administration sanctioned it. No, sir.
    Mr. DeFazio. OK. The energy you were going to generate, can 
you disclose, was that going to be--I assume it was going to be 
dispatched to California. That seems to be the big market.
    Mr. Humble. That is correct.
    Mr. DeFazio. OK. Here is the issue, in the Northwest, we 
have a peculiar problem called ``high wind/high water.'' We 
have little too much wind, at the same time, we sometimes have 
too much water, and then we have a salmon issue and a judge who 
wants to take out our dams. We have to be very careful how we 
manage those dams.
    I think our regional Power Marketing Administration is 
trying to work with the wind developers. We are definitely not 
anti-wind. We have to figure out how to integrate them.
    You are pointing to times where the system is under 
utilized, but there are also peak times where the system is way 
over utilized in terms of transmission.
    I would ask Scott Corwin if you would care to perhaps 
elaborate on our particular problem. I do not see the Chu memo 
as being helpful. He mentions wind integration, but I do not 
see any helpful suggestions or guidance there.
    Mr. Corwin. Thank you, Congressman. I do not see any 
either, especially with respect to the over supply situation 
that you mentioned, where you have a whole lot of hydro coming 
down a system and fish constraints on the system, and then wind 
power coming on in the low load hours.
    There are pieces that people are working on to get at some 
of the issues and the efficiencies that Mr. Humble mentions, 
but what we are doing in the Northwest is trying to do it on a 
regional basis, getting folks together, getting the different 
balancing areas, the different generators together around the 
room to see how they can coordinate and try to capture 
efficiencies.
    We are not looking for a top down solution or a west-wide 
market on that at the moment.
    Mr. DeFazio. We are still paying how much more because of 
the last west-wide market created by California in the Enron 
era? We are still stuck with some contracts.
    Mr. Corwin. Yes. That was the last time our rates went up 
46 percent at BPA.
    Mr. DeFazio. We are very skeptical of RTOs. I helped lead 
the fight against the RTO in our region. I do believe we are 
working in good faith with an extraordinary amount of wind 
development in the region now.
    Since Mr. Humble cannot be specific, whatever particular 
entity held whatever particular transmission right to access 
perhaps then the high voltage interstate grid, that is an 
interesting issue. I cannot really address it if I do not know 
more specifics and how we could make the system more efficient 
there.
    I have suggested in talking to some wind developers in the 
past, you know, you are getting a tax subsidy. You get a 
production tax credit.
    We have problems with our high water where we are 
fulfilling your contracts but those developers then cannot 
collect their tax subsidy. We have to curtail, and that is a 
problem for developers because they have certainly penciled out 
this whole thing depending upon that commitment when they 
generate.
    I think there are ways perhaps to modify if we ever do deal 
with production tax credits again legislatively, mandatory 
curtailment, things like that. You are raising other issues 
that I cannot quite get at because I do not understand the 
legal barriers there.
    I think this really merits a lot more discussion, Mr. 
Chairman.
    The Chairman. I agree with the gentleman on that. His time 
has expired. I recognize the gentleman from Louisiana, Mr. 
Fleming.
    Dr. Fleming. Thank you, Mr. Chairman. I thank the gentlemen 
for joining us today on this.
    Several times in this Committee, I have cited a quote by 
Secretary Chu made in 2008, when he shared his intentions to 
``Somehow figure out how to boost the price of gasoline to that 
of the level of Europe.''
    I find it ironic that he conveniently cannot be with us 
today to defend his memorandum and instead he is traveling in 
Europe where, of course, gasoline is today $8 a gallon.
    Fundamentally, Secretary Chu and I disagree on the role of 
Government and how it best serves the people. In my opinion, 
he, as well as President Obama and Secretary Salazar, are out 
of touch with the American people who are desperate for lower 
energy costs.
    I find his Memorandum to be another example of how this 
Administration seeks to ensure the rising costs of energy.
    On the one hand, Secretary Chu is willing to commit 
taxpayer dollars to a now bankrupt Solyndra, and on the other 
hand, is trying to change some of the most fundamental 
functions of PMAs.
    His response to these criticisms, of course, is to simply 
not appear in this hearing today.
    Let me see if I get this right. I listened carefully to 
your testimonies. The way PMAs have worked for years is to 
decentralize the authority over the electricity production, 
that there is a collaborative relationship between the 
authorities and the customers, and that it has been a win-win 
situation for decades, that there is tremendous efficiencies 
enjoyed.
    At the same time, customers are willing to pay a premium 
price for electricity for some other tradeoff's, all very 
voluntarily.
    What I understand from Secretary Chu's Memorandum is 
instead, we begin to centralize all of this. We begin to 
potentially shift costs to other areas, and certainly, we bring 
out of touch the customer with the authority somehow perhaps 
transferring costs or maybe even transferring wealth, if you 
will, to others, where there is no accountability for that 
cost.
    Mr. English, I would love to have your perception and 
certainly let me know where I am wrong on that.
    Mr. English. I do not think anyone can say you are wrong 
because quite frankly we do not know what this memo means at 
this particular point.
    I have to say that we are alarmed because of the fact that 
we fully recognize that now the preference customers are 
getting great benefits for investment they made years ago. We 
gambled. We paid higher than market prices at that point. We 
helped pay off the debt to make sure the dams did get built.
    This was kind of a little do it yourself project. Now, we 
are getting the benefits because you have very reasonably 
priced power, no question about it.
    In fact, we think there could be far more power generated 
through these facilities, but we do not find a great deal of 
enthusiasm for making the kinds of investments and upgrades to 
improve that overall efficiency.
    I do not think there has ever been a reluctance on the part 
of preference customers in stepping up and helping pay for 
that, to pay for it.
    What we are talking about here is a different ball game, I 
think. What we are concerned about here is that this is looked 
upon as a cash cow. We will go raise money off preference 
customers to go pay for other projects that we know we cannot 
get paid for any other way.
    With tight budgets, that is a tempting target. No question. 
You are right, it totally destroys what has been a very 
effective relationship locally, dealing with a lot of very 
individualistic problems faced by local PMAs.
    Dr. Fleming. If I understand this correctly, you had the 
preference customers who paid higher than market rates to 
really invest in the future?
    Mr. English. Exactly.
    Dr. Fleming. That is to say we are going to take out the 
capital costs, we are going to do this because we know down the 
road that we are going to lower our costs, we can then, of 
course, be more competitive in the marketplace. We can pass the 
savings along even to our customers.
    Now that they have done the deal, now the Government is 
reneging on this by saying as you say we have all this cash, we 
can now invest it using the values that we in Washington 
perceive as being good, such values as perhaps investing in 
Solyndra like companies, which of course did not turn out very 
well, did it?
    In fact, I think if I understand correctly, there was a 
total of $34 billion from the stimulus that went into all sorts 
of alternative energy and ``investments,'' much of this which 
has turned out into bankrupt companies.
    What I foresee and what I think you are telling me here is 
those who made the good business decisions and are now 
benefitting from it, Washington is now breaking the deal and 
want to put our hands, we in Washington, our hands in the till, 
pull the money out and put it into other things that are 
unproven, perhaps even dangerous for the future.
    Mr. English. Let me just say I do not know if I would go 
quite that far, but we are fearful. Let me also say that I 
think what we are also laying on the line is that was a darn 
good business model to follow. People reaping the rewards.
    We fully understand today, today's society, we do not have 
many people who want to pay for anything that they get, any 
benefits. I want free lunch. That is what we used to call it 
back in my days, free lunch.
    In this case, we are suggesting that it was a good model 
for preference customers years ago, this would be a good model 
for folks today who may want to expand and go into new ventures 
to follow as well.
    This partnership between Government and private folks makes 
sense, but they ought to pay for it, not somebody else.
    Dr. Fleming. Thank you. I yield back.
    The Chairman. The time of the gentleman has expired. The 
Chair recognizes the gentlelady from California, Mrs. 
Napolitano.
    Mrs. Napolitano. Thank you, Mr. Chair. Very interesting 
conversations. I certainly wish somebody, Secretary Chu or his 
folks would be here to listen and understand what some of the 
concerns are from the witnesses.
    To Mr. Corwin, it is my understanding that BPA has a 
revolving fund that allows the agency to move forward with 
capital projects. Do you believe their ability to self finance 
has removed any oversight by Congress and its customers?
    Mr. Corwin. No, it has not. We do a lot of customer 
oversight. I spent most of last week in customer oversight over 
there on the capital spending process at BPA.
    Mrs. Napolitano. Right. I agree with that. Mr. Crisson, as 
has been mentioned, my concern personally is that if the 
Administration does not ask for funding or if Congress does not 
authorize funding and the power users do not want to pay for it 
and there is no ability for Western to effectively manage aging 
infrastructure, how do you believe we can effectively manage 
the issue of aging infrastructure? How do we propose to deal 
with it?
    Mr. Crisson. Congresswoman, we are not saying there should 
not be any way to proceed with financing infrastructure. Our 
concern with the Chu memo is the directive nature of it.
    Mrs. Napolitano. Can we call him ``Secretary Chu?'' He does 
have a title.
    Mr. Crisson. Secretary Chu. The concern there is because 
the memo is not very specific, we are very concerned that 
proceeding with what is outlined there may produce significant 
costs, where the benefits are not clear, and raising a 
situation where the customers may pay for benefits that are not 
commensurate with what they are receiving.
    Mrs. Napolitano. You are concerned about the transparency 
of the memo, to be able to have people who are actually 
operators have input? Am I correct?
    Mr. Crisson. I think that is a good way to put it, yes, 
ma'am.
    Mrs. Napolitano. Thank you. The Secretary's Memorandum 
outlines some very good goals. As Ranking Member of the 
Subcommittee on Water and Power, I agree with some of the 
points he has made.
    In order for a process to be successful, it is imperative 
that we ensure our constituents are included in the process.
    I am sending a letter. I understand Mr. DeFazio has already 
sent a letter, to which he has had no reply. I am sending mine. 
I am hoping we get a reply because there are some issues, some 
questions that we have.
    We agree with some of the points that you have made, but I 
still have an issue with the infrastructure itself because I 
visited a couple of the PMAs. There is aging infrastructure, 
and there is a need for it, and you are being asked or the PMAs 
are being asked to receive renewables, and yet there is not 
that infrastructure ready to be able to be implemented or at 
least connected.
    Those are issues that I have great concerns about. I am 
sorry Mr. DeFazio left. I was going to ask him. If California 
did not have the need, what would you do with that power. 
Sorry, I am from California.
    Anybody want to address that?
    Mr. English. Ma'am, I will take a crack at that. Let me 
just say here I think there are some other issues.
    We are involved in renewables, electric cooperatives are, 
big time. We would argue probably we are doing on a per capita 
basis as much if not more than anybody else in the industry. We 
are very proud of that.
    We believe in efficiency. We think efficiency has a big, 
big role to play.
    Mrs. Napolitano. And you are.
    Mr. English. Exactly. Thank you. The point that we are 
getting to here is this thing--I probably should not say it--
there is suspicion, as I said, that the Secretary is really 
looking for a cash cow, looking for a way to ride on the backs 
of the PMAs to accomplish a task for other people other than 
the beneficiaries.
    You are talking about that aging infrastructure. You are 
absolutely right on, and we agree. We think following that same 
model that we had in the past, and which we have that 
partnership between the Federal Government and the preference 
customers, should be followed to seriously upgrade those 
facilities.
    Mrs. Napolitano. Right. I do believe the stakeholders have 
to be involved.
    Mr. English. You are right.
    Mrs. Napolitano. That is something that we are very, very 
concerned about. I just want the politics left out of it. This 
water has no color. It is our economy.
    Mr. English. Amen.
    Mrs. Napolitano. With that, I yield back.
    The Chairman. I thank the gentlelady. The Chair now 
recognizes the gentleman from Colorado, Mr. Lamborn.
    Mr. Lamborn. Thank you, Mr. Chairman. Mr. Bladow, thank you 
for coming here from Colorado. Good to see you, and all the 
other witnesses as well.
    Were the PMA customers at all consulted on this proposal? 
Since they are the ones who are going to be asked to pay for 
PMA programs, it seems they should have some kind of 
involvement in this whole process. Has that happened up until 
now?
    Mr. Bladow. Mr. Lamborn, no. From Tri-State's perspective, 
we are one of WAPA's largest customers, and we are very 
disappointed that there was no reaching out, no discussion to 
help understand what issues we are trying to address, and what 
may be important to us.
    It seems to be somebody else's agenda to set the course. It 
is important for us that we get involved and make sure that 
whatever process the Department does follow, they have 
indicated they will have a stakeholder process, that we are 
actually involved and they are actually willing to listen to 
what the needs are, not what they perceive the needs are.
    Mr. Lamborn. OK. Thank you. The Chairman asked you about 
cost sharing. Let me drill down a little more specifically.
    Who would pay the costs if there are hard costs, and there 
sounds like there are, with this proposal?
    Mr. Bladow. At the end of the day, all of the PMAs' costs 
are recovered through rates. Even the Federal appropriations 
they may get is rolled into the rates.
    Whatever comes out of this, we will end up paying in our 
rates and our consumers will pay in their rates, all of the 
preference customers, so for us, it is very important to make 
sure we have some insight and have some ability to influence 
where those dollars are spent, and make sure the benefits flow 
from whatever dollars they spend.
    Mr. Lamborn. Would one alternative, if not the ratepayers, 
the only other alternative that I am aware of would be an 
appropriation from Congress.
    Mr. Bladow. Yes, it is either the ratepayers or the 
taxpayers have to pay, as Mr. English said, somebody else has 
to pay.
    Mr. Lamborn. All right. Thank you. For Mr. Crisson or Mr. 
English, I am concerned that sometimes we have well intended 
but maybe unrealistic bureaucratic fiats coming down from on 
high, telling the private sector, telling the economy how they 
should operate with the goal of saving money, but those who are 
actually on the ground doing the business day to day may not 
agree there is a tangible cost savings at the end of the day.
    Is it possible that is what is going on here?
    Mr. Crisson. Yes, Mr. Congressman. It is possible. 
Certainly, the memo was directive in nature. It was not very 
clear. We are very concerned about exactly what might come out 
of that.
    Let me just say, I think I speak for my members when I say 
we are not adverse to exploring a lot of the things that are 
suggested in the memo. In fact, a lot of the PMAs are doing 
this already.
    It is the way we go about it that is important. For 
example, taking a transmission project, Mrs. Napolitano was 
talking about a minute ago, if we had a process in which there 
was a rigorous examination of the costs and benefits, there was 
input from the customers who are ultimately going to have to 
pay for this, there was agreement there was a positive 
analysis, that the risks were manageable, that it was a product 
of a regional planning process that not only addressed needs 
for renewables but reliability, congestion management, I think 
our members' reaction to that would be very positive.
    We are the ones responsible at the end of the day for the 
reliability of the system. We want to see the right investments 
made.
    The way we are going about it in this memo is a concern.
    Mr. Lamborn. Mr. English, let me transition my next 
question, although feel free to address this one as well.
    When I see in the Secretary's memo on page four, among 
other things, he wants to start preparation for electric 
vehicle deployment, once again, well intended, but not 
something that the free market is really responding to.
    I look at the volt. Some of the car companies, maybe it was 
the pressure from the bailouts. I do not know. They are 
producing vehicles that the public is not really responding to, 
is not buying.
    Yet, that is going to be something that the Secretary wants 
you to start paying money apparently to start preparing for.
    What is your response?
    Mr. English. Well, I do not think this is the result of 
some bureaucratic exercise, no. I think without question what 
we have here is a political objective, and I think we ought to 
recognize it as such. That is what it is.
    I agree with the political objective. I think we need 
electric cars. I think we need to certainly fully develop all 
of our renewable resources, electric cooperatives are doing it, 
and let me also say I think we are rather foolish in trying to 
say that hydro is not a renewable. It is, and we ought to take 
credit for it.
    I think we ought to fully utilize every bit of electric 
power we can get out of those facilities, and that should count 
toward our overall effort. Makes sense.
    In this particular case, as was pointed out, basically what 
this comes down to is a question of who is going to pay for 
this. That is what we are talking about.
    It is an objective we want to make, I do not think folks 
feel very comfortable they are going to be able to bring a big 
dollar item before this Congress, gets taxes increased, to be 
able to pay for it, or to increase the deficit. It is not 
likely to happen.
    I think what we have is well, those preference rates over 
there are pretty good, pretty reasonable. It will not hurt to 
jack those preference rates up in order to pay for this 
particular political objective.
    It may be an expedient way to deal with it, but I have to 
say it certainly is not a fair way and completely destroys this 
relationship that you have locally that has been a tremendous 
success.
    If something has worked and it has worked well, why not use 
it as a model rather than blow the thing up. That is what I am 
afraid we are doing.
    Mr. Lamborn. Thank you all.
    The Chairman. The time of the gentleman has expired. The 
Chair recognizes the gentleman from New Mexico, Mr. Lujan.
    Mr. Lujan. Thank you, Mr. Chairman. Mr. English, do you 
support Federal investment in infrastructure across America?
    Mr. English. I think we need to invest in our 
infrastructure all across America. There is no question. I 
would wholeheartedly agree with all those who say our grid 
needs to be substantially upgraded and improved. There is no 
question about it.
    I would wholeheartedly agree that we need an investment 
with regard to the generation of electric power in this 
country.
    I think we need to approach it on the basis of a sound 
energy policy rather than bits and pieces that quite frankly 
probably have a lot of political objectives tied to them or who 
is supporting it and who is not.
    Mr. Lujan. Should the Federal Government invest in 
transmission projects across America?
    Mr. English. As far as investing, again, I would go back to 
the model that we used whenever you developed electric 
cooperatives in this country. It would be great if you could 
make loans to do that where necessary.
    I am not sure how much is going to be necessary. The big 
problem you have in transmission in this country right now is 
getting right-of-way.
    Mr. Lujan. You support low interest loans and grants for 
Federal transmission projects?
    Mr. English. I think it makes sense. It makes sense, yes, 
particularly at these times of low interest rates. We ought to 
be investing like crazy.
    Keep in mind, that is not your problem. Your problem is 
siting.
    Mr. Lujan. I appreciate that. This Committee passed a 
measure that would fund an effort to be able to provide Federal 
guaranteed loans to transmission projects in the country. I am 
glad to see we are on the same page. We need to maybe get you 
back over here. We will find a way to do that.
    Mr. Bladow, when you are putting the contracts together, 
and I cannot see the witness, I apologize, when you are putting 
projects together or your contracts associated with rates for 
co-op members in the 44 coops that you represent, do you go get 
input from the co-op members before you put the contract 
together?
    Mr. Bladow. Yes, what we have is our Board of Directors is 
made up of a representative from every one of our members.
    Mr. Lujan. Those are elected members. Do you go to the 
members around the country when you put those contracts 
together before they are presented to the Board for approval?
    Or does the staff of Tri-State put together a contract and 
proposes it to the Board for consideration?
    Mr. Bladow. What we do is, for example, right now, we are 
actually examining extending our contracts with our members, 
and on the committee looking at that, we have Board members 
from our members, not Tri-State Board members, but members, and 
we also have managers, and we also have Board members.
    We always try to have a very good cross section. We assume 
that our member representatives, whether it be a Board member 
or manager, is looking to their communities and getting input 
from their communities and what is important to them, so we can 
bring all that together.
    Mr. Lujan. Before it is adopted, you show it to them, 
right?
    Mr. Bladow. Before it is adopted, our Board shows it to our 
members' Boards.
    Mr. Lujan. Should not this memo be shown to you before it 
is issued as a directive? This is not a directive, everybody. 
It is not.
    The Secretary talks in this memo about the importance of 
making sure we are modernizing our grid.
    Last time I checked, the complexity associated with the 
deliverability of power in this country, there are computers in 
there, some of them are older, some of them are newer. There is 
access to the outside world via the Internet through broadband 
connections.
    If there was a cyber attack that was issued on any one of 
us anywhere in the country, I am terrified of what would 
happen, and what that could do to destroy commerce in America.
    I think all we are asking here, Mr. Chairman, is what can 
we do to do things smarter, and how can we do these 
collectively with taking the rhetoric out.
    The importance of transmission projects in the country, 
making sure we are truly doing the right things.
    Are you all aware of ``line lost?'' Is that a term that is 
familiar to everybody?
    Mr. Chairman, ``line lost'' is a term with the electrons as 
they are moving through these power lines that we lose every 
day.
    How much in rates do you account for line lost? Mr. Bladow?
    Mr. Bladow. Well, when we set our rate, we account for how 
much we lose.
    Mr. Lujan. Ten percent? Is that about the average?
    Mr. Bladow. Typically, it is about five percent.
    Mr. Lujan. Five to ten, I think, is what I see across the 
country.
    Mr. Chairman, you want to talk about a hidden cost to 
American taxpayers, to American consumers, to American 
businesses, we are just losing electrons because of old 
infrastructure. There has to be a smarter way to do it.
    Commissioner Marks, I apologize. I did not have time to get 
to all these questions. I will make sure I submit them to you.
    As we talk about the questions that this conversation 
brings up, if you could explain, you talk about advocating for 
EIM.
    What does this mean to the ability to integrate more system 
efficiencies and renewable energy into the system, and what 
would you say about the role of public outreach and comment?
    Mr. Marks. Mr. Lujan, as you correctly point out, this is 
not about fiat. This is about asking the PMAs, which sit in the 
middle of all other customers just geographically, to say work 
with your neighbors for mutual benefit. We are not asking 
anyone to pick up someone else's costs. We are asking folks to 
work together for ultimate savings.
    As my colleagues on this panel recognize, we are all trying 
to integrate more renewables. We know wind, which is big in the 
Northwest and it is big in Colorado and Wyoming, it is 
intermittent.
    If we can spread that intermittency across more customers, 
across the West, it is cheaper for all of us to integrate.
    This is a matter of working together for mutual benefit 
instead of hiding in our own bunkers.
    Mr. Lujan. Appreciate it. Mr. Chairman, I appreciate the 
time. The memo also says it looks like there is room to create 
some regulatory certainty with looking at these old statutes 
from 1902 and trying to reduce them.
    I think that is something we can agree on as well, we can 
find some efficiencies that maybe we can work on together, Mr. 
Chairman.
    The Chairman. The time of the gentleman has expired. The 
Chair recognizes the gentleman from California, Mr. McClintock.
    Mr. McClintock. Thank you, Mr. Chairman. First, I would 
like to ask unanimous consent to submit for the record letters 
from the Northern California Power Agency, the Balancing 
Authority of Northern California, which represents the Modesto 
Irrigation District, the Cities of Redding and Roseville, and 
the Sacramento Municipal Utilities District.
    They are extremely concerned with the impact that the Chu 
memo policies will have on consumer electricity rates, which I 
might add are already amongst the highest in the nation.
    The Chairman. Without objection, they will be part of the 
record.
    [NOTE: The letters submitted for the record have been 
retained in the Committee's official files.]
    Mr. McClintock. That leads me to my first question, 
gentlemen. What does this mean to the bills that my 
constituents would be getting from their electricity utilities?
    Mr. Crisson. Mr. McClintock, part of the concern we have is 
we do not know the extent of the impact because of the 
uncertainty.
    We are very concerned about some specific language in the 
Secretary's memo.
    One example would be the direction to incentivize----
    Mr. McClintock. I want to get to that in a second. 
Basically, are my constituents' bills going up or going down as 
a result of these policies?
    Mr. Crisson. I think it is much more likely they will go 
up.
    Mr. McClintock. How much? A lot or a little?
    Mr. Crisson. It depends on the extent to which the memo is 
implemented. It could go up a lot.
    Mr. McClintock. I wonder what is going on really here. Is 
this not an ideological preference by elements on the radical 
left for wind and solar electricity above all other sources, 
regardless of the costs, and the costs are considerable?
    It is expensive in its own right. Affordable electricity 
has been around for 170 years, and in 170 years of research and 
development and God knows how many billions of dollars of 
subsidies, we have not yet invented a more expensive way of 
producing electricity, just on its own.
    Then on top of that, you have to factor in the transmission 
costs because of the low output of wind and solar and because 
of the remote locations most of these facilities are on.
    We have to pay a premium for special high tension 
transmission lines over vast distances, solely to accommodate 
solar and wind. We have land costs which are considerable. Just 
to replicate the power output of the Diablo Canyon nuclear 
facility in California, we would have to add some 36 solid 
square miles of solar panels, and it is unreliable.
    The moment that a cloud passes over a solar array or the 
wind drops off from a wind farm, the power drops to zero. When 
that happens, we have to be able to instantly replace that 
power or the grid collapses.
    In addition to the wind and solar facility, we have to have 
back-up facilities available, ready to come on line in an 
instant, which often means running gas and coal fired plants, 
keeping them at ready stand-by for that moment when the clouds 
pass over solar arrays.
    This is enormous expense. There is no possible way anyone 
in his right mind would actually pay for this.
    What do you do? You have to do two things. You have to hide 
the actual cost of this from consumers, and at the same time, 
you have to artificially increase the price of conventional 
electricity supplies that are vastly less expensive. 
Hydroelectricity, natural gas, coal and nuclear.
    Is that essentially what is going on here?
    Mr. Crisson. Let me respond in this way. We are very 
concerned about the increasing cost of integrating renewables 
into our system. When we talk to our members, this has risen to 
the top of their list.
    As you approach double digits in terms of percent capacity 
represented by wind, for example, you get this increasing 
amount of variable generation, much of it off peak, which means 
it does not coincide with the need for load, so it represents a 
real problem as to how you use it in a cost effective fashion.
    Mr. McClintock. Is that essentially what is going on here, 
are we hiding the cost of wind and solar from consumers?
    Mr. Crisson. I find it very puzzling and confusing that an 
Administration that touts an all-of-the-above energy policy 
would favor providing incentives for intermittent wind and 
solar at the expense of hydropower and hydropower customers.
    Mr. McClintock. That is because this has nothing to do with 
science or with the economies. It has everything to do with a 
religious fervor on the radical left.
    I do agree with the Ranking Member on one point, this is a 
battle of two visions. I find the vision of this Administration 
dreary and depressing.
    It is a future of increasingly severe Government induced 
shortages, higher and higher electricity and water prices, 
massive taxpayer subsidies to politically well connected and 
favored industries, and a permanently declining quality of life 
for our children who are going to be required to stretch every 
drop of water and every watt of electricity in their bleak and 
dimly lit homes.
    Mr. Chairman, I know you share with me a different vision, 
of clean, cheap and abundant hydroelectricity. Great new 
reservoirs for water storage, a future where families can enjoy 
the prosperity of abundant electricity, a nation whose children 
look forward to a green lawn, a backyard garden, affordable air 
conditioning in the Summer and heat in the Winter, and brightly 
lit homes and cities, and abundant affordable groceries.
    This is a battle of two very different visions. It is a 
choice that must be made not only by this Committee or this 
Congress but by the American people.
    The Chairman. The time of the gentleman has expired. I 
certainly agree with that concept. The Chair recognizes the 
gentleman from California, Mr. Garamendi.
    Mr. Garamendi. I am trying to understand what this is all 
about. Is this about the generation of hydropower, gentlemen, 
or is this about the transmission of electricity in the Western 
United States? Which of the two is it?
    Mr. English. It is who is going to pay. That is what it is 
about, who is going to pay. Is it going to be the preference 
customers who made the investments so many years ago, who have 
followed a policy throughout their history in which they worked 
with the local PMAs to deal with their local problems, and they 
pay for whatever improvements and costs they might have.
    The issue that we come down to is with regard to any 
additional benefits that may go to people who are not those 
preference customers, who is going to pay.
    Is that cost going to be shifted off to the preference 
customer, and are they going to have to pay for benefits that 
others may enjoy or is it going to be those who get the 
benefits.
    Mr. Garamendi. I thank you for that description. Can you 
tell me who the others are?
    Mr. English. That is the whole point. I do not think anyone 
knows at this particular point. I think what we are talking 
about is what is going to be the policy.
    The alarm and the concern, at least from our point of view, 
from the rural electric's point of view, is the fact that since 
the very passage of the legislation here in this Congress 
establishing building those dams, establishing the PMAs, 
providing flood control for local people, providing irrigation 
to local people, providing recreation to local people, and 
providing electric power to local people, those folks will pay 
for those benefits.
    That has been what we have been doing throughout history. 
We paid above market rates.
    The second issue here is it appears that we are 
interrupting what has been that history, that relationship 
between those customers and the PMAs and dealing with local 
problems.
    It appears that what we are getting into here are 
additional areas that may benefit people other than the local 
folks. It appears. Let me just say this.
    I think to be honest about this, none of us know right now. 
We just do not know. The only thing we are saying is the 
Secretary's memo is out of whack with the way we have been in 
business up to this point.
    Mr. Garamendi. Thank you. We just do not know?
    Mr. English. We just do not know.
    Mr. Garamendi. OK. We ought to do our best to find out how 
the Secretary would implement this, and who is to pay.
    All of the fuss and fury and interesting political 
statements that have been made here about policies and religion 
really are not yet appropriate.
    What is appropriate is for us to understand that changes 
are afoot, that solar and wind is very much of the all-of-the-
above strategy. Correct, Mr. Chairman?
    As is hydro and other sources of power.
    The question really is how to integrate all of the above 
strategies, which I hear from my colleagues all of the time, 
into the power available, electrical power available, across 
the United States and particularly across the Western United 
States, and how to do it in a way that is fair and equitable, 
taking into account the history and in some cases the 
additional cost that may be incurred in the transmission of 
that power.
    So I think this hearing could be extremely useful in 
ferreting out the underlying concerns which I believe all of 
you have expressed, at least what I have heard by watching and 
attending half a dozen other meetings, and then moving toward a 
rational discussion, absent all of the religious fervor, and 
figuring out how to make it happen.
    Now, so you have had your comments. If any of the others 
would like to take 18 seconds to add.
    Mr. Corwin. I can try in 18 seconds.
    I think it is true there is not a lot of clarity here yet, 
but the linkages, since you have talked about transmission 
versus power, in some of the examples in the memo are ominous, 
and there is linkage.
    I answered a question earlier about the revolving fund, but 
there is process to try to oversee that, but will they listen? 
There is not a lot of actual oversight or power by the 
customer. So does limited borrowing authority for BPA, for 
example, get used to bring those new resources to load, or does 
it get used for reliability purposes or for core customers to 
move power to load?
    And those are tough questions.
    Mr. Garamendi. Excuse me. The Chairman is about to hammer 
us both down, but before he does----
    The Chairman. You are right.
    Mr. Garamendi [continuing]. Those are all legitimate 
questions, and this is a really important issue, and the memo 
does put on the table--excuse me, Mr. Chairman, if I might--
does put on the table an important series of issues. It sets 
out proposals or directions, but does not define the outcome. 
It is up to us to try to do that in a rational, thoughtful way 
so that we can achieve an ``all of the above'' strategy that is 
fair and equitable to everybody.
    Thank you, Mr. Chairman, for the extra time.
    The Chairman. The time of the gentleman has expired. I 
would just note that it has been noted several times. I know 
you had other meetings. Since that initial memo, there has been 
absolutely no follow-up for any clarification. Mr. DeFazio 
brought up the issue that 19 bipartisan Members from the 
Northwest sent a letter immediately after the memorandum, and 
we have had no answers.
    So while we welcome that dialogue, frankly, the dialogue 
has not been there at all.
    Dr. Gosar. Mr. Chairman.
    The Chairman. The gentleman from Arizona, Mr. Gosar.
    Dr. Gosar. Thank you.
    Mr. English, as a former Congressman, you are very aware of 
how Congress authorized the power projects and the PMAs that we 
are talking about today. When it came to changing the PMAs, the 
missions, Congress even stepped in, in 2005 and 2009. 
Regardless of how you feel about it, it had its oversight and 
they stepped in and made those changes.
    Then comes this Chu memo which seeks to radically change 
the PMAs by administrative fiat, and with little input from 
customers and Congress. Do you agree with that statement?
    Mr. English. I think that that statement is a fair 
statement. I am concerned that this is not business as usual.
    Dr. Gosar. Well, I mean, precedence gives us that 
denotation, right? When you see an Administration leading by 
administrative fiat, the apple does not fall far from the tree, 
does it?
    Mr. English. Right, and having been around this town for a 
long time and the fact that both Democrats and Republicans here 
in Congress from the areas that were affected, I do not believe 
were aware that the memo was coming. You know, as I said, it 
raises red flags, and I think that is what you are hearing us 
all say. We are alarmed. We do not know for sure exactly how 
this is going to proceed. We do not know if it is a trial 
balloon just to see, you know, how people react to it. If so, 
well, they have gotten a strong reaction, I think.
    Dr. Gosar. Oh, I see this over and over again. I mean, I 
have seen this from dictations from the Department of Justice. 
I have seen this all the way across the board and very astute 
about that.
    And, by the way, I am a dentist impersonating a politician. 
So I mean, I am a businessman, and so I understand some of 
these things. But do you believe that Congress should be giving 
up its role in oversight?
    Mr. English. Oh, absolutely not.
    Dr. Gosar. It should be fighting in every aspect for it, 
right?
    Mr. English. Exactly. I had oversight responsibilities when 
I was here in Congress. I believe strongly that that is 
something that Congress does not do enough of. That is my 
personal belief. We need to do more of that. Congress should, 
as opposed to legislating. I think there is a lot of work to be 
done in that area, and I think in cases like this, as I said, 
if Congress does not engage, if people do not speak out, then I 
do not see that we have any complaint.
    Dr. Gosar. Well, you know, when I was listening to the 
Ranking Member talking about the socialistic aspect, I thought 
to myself, boy, that is quite the opposite of what I am seeing 
here for those, you know, like California that has not 
advocated an ``all of the above'' policy, they have predicated 
certain energy policies. They want people or States like 
Arizona to carry their water in more than one way.
    So I find it very offensive into that aspect.
    Mr. English. Can I very quickly make a comment on that?
    Dr. Gosar. Sure.
    Mr. English. Let me just say very quickly I think the issue 
that we have here is that this was a partnership. It started 
out as a partnership. Historically it has been a partnership, 
and the concern is that that partnership is going to be 
disturbed, you know, due to the fact the memo seems to be out 
of character with what we have historically done, Congress and 
the customers.
    Dr. Gosar. So then it becomes a business model, does it 
not?
    Mr. English. It does.
    Dr. Gosar. So let's say that I am a dentist and I have a 
practice. Somebody wants to come in. They have to purchase into 
that agreement, do they not?
    Mr. English. They do.
    Dr. Gosar. That is common sense application.
    Mr. English. You are right.
    Dr. Gosar. So it seems to me like that when we have new 
players on the field, they have to buy their way into the 
system.
    Mr. English. Well, we would like to think so. As I said, we 
have been paying for this for years. Customers have so new 
people coming in the field, they ought to get to enjoy the 
opportunities to invest the same as those who have been 
preference customers.
    Dr. Gosar. Well, I am glad that you say that, you know, 
because this Administration believes that Big Brother knows 
everything and should dictate everything, and I kind of want to 
go back that ever since this Chu memo in my State, everybody 
has been in an uproar because if we look at water policy 
throughout the United States, Arizona is very elaborate at 
having one of the most elaborate water policies throughout the 
country and very dynamic in how they understand that 
utilization of water. Banking, our canal system is probably one 
of the best around in the world today.
    But everybody in my State started screaming because they 
knew exactly where this was coming. You know, the State does a 
pretty good job, and I think, Mr. Marks, you kind of represent 
what you do in New Mexico, and that is with our Corporation 
Commission. You know, they are very dynamic about understanding 
the intricacies, and are you not a little possessed, I mean, 
kind of upset, Mr. Marks, that somebody would tell you how to 
do your business that is very specific to New Mexico or to 
Arizona versus what you would have up here in the Northwest, a 
business model?
    Mr. Marks. Mr. Gosar, yes. I mean, that is one of the 
reasons why the State Commissioners, we do not like this RTO 
idea, which the other tiers do not like, but we also do not 
want to just close our minds to ways to save money.
    Dr. Gosar. But is there not a better way instead of being 
dictatorial about it, is to come in and embrace true leadership 
which brings parties to the table to ask solutions instead of 
demanding them?
    I am a little bit tired of the one size fits all, and it 
seems like it is characteristic of this Administration over and 
over and over again, that we have to read what is in the 
communication. And do you know what? Leadership comes with a 
cost, and it comes with communication, and we ought to be 
asking for it.
    And that means you. I mean from you representing a State 
because I know from my Corporation Commission they demand 
nothing less because it is an intricate relationship on the 
State's rights and into a region's rights. And the Federal 
Government does not know all, and I think that is what is so 
offensive because of what we see for Main Street America.
    Mr. Marks. Congressman, I have colleagues on your 
Commission, and your Commission and my Commission, we share the 
feature of being elected, and so we know we have to answer to 
our voters, to our constituents, to the people. That is what we 
all need to do, and we need to solicit their input.
    And my Commissioner group brings in folks from the 
different Commissions, and we are opening ourselves up to 
consultation, dialogue with the various industry and other 
stakeholders, consumer stakeholders, because I agree with you. 
It cannot be top-down. It needs to be collaborative.
    Dr. Gosar. But that is exactly what this memo----
    The Chairman. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Utah, Mr. Bishop.
    Mr. Bishop. First of all, I would like to thank the 
gentlemen who are here on the panel. I have done some work in 
the past with rural electrics and co-ops, but at the same time 
this is not an area of my expertise. So I have found this 
fascinating.
    Mr. Chairman, you know, when we were serving on the 
Transition Team, we tried to change our rules to make it 
possible for greater control, greater attendance at these 
committees. One of the things I find sad is that we need 
greater attendance on these committees because this is the 
exact kind of information that I think all of the Members here 
need to have.
    And I promise I will not ask a question in the last five 
seconds of my time.
    There are a couple of things that I see are overarching in 
the discussion we have had today. The first one is even though 
no one knows where this is going, there seems to be, for lack 
of a better word, a lack of trust in the future that we go. And 
we recognize that once a bureaucracy or administration starts 
down a path, changing that path becomes extremely difficult.
    So I think what you are doing is raising some concerns and 
red flags now before we get further down that path, and I think 
that is appropriate to do so.
    I find the questions come in a couple of areas. I think, 
Mr. Bladow, you mentioned that the issue is whether the 
ratepayers pay for these improvements or taxpayers pay for the 
improvements. I think one of the concerns I do have is that if 
it is the ratepayers who are paying, that is, in essence, some 
kind of a hidden tax and a hidden tax that goes on a separate 
group as opposed to across the board, which is what a tax 
increase or a tax benefit would do. It becomes something 
hidden, and it is something that is not paid by necessarily 
those who can most effectively agree with it.
    So let me ask you, Congressman, in your written testimony 
you mentioned that rural co-op customers' income is 
approximately 14 percent below the national average. Do you see 
anything in this proposal by the Secretary that takes that 
factor into account?
    Mr. English. I do not think so. As I said, just having been 
around this town a while and certainly had dealings with the 
government for over 35 years, what this looks to me like, what 
it smells to me like is that the preference customers have a 
very good rate as far as electric power they have. It does not 
matter that they earned it.
    Mr. Bishop. So this becomes what, in essence, would be 
somewhat of a hidden tax?
    Mr. English. Yes. We are a cash cow. We are a minority. So 
it is easy to target us.
    Mr. Bishop. And I realize that the fact that there are 
rural co-ops in the first place is because of unique 
circumstances and situations about the demographics as well as 
the geography that created them.
    The second issue is, in lack of a better term, maybe simply 
the concept of power. Mr. Crisson, does this proposal by the 
Secretary in your estimation empower local efforts or does it 
consolidate power back in Washington as to make future 
decisions?
    Mr. Crisson. Yes, sir. That is one of our concerns, is that 
it is very directive, top down in nature, and it seems to 
discount and undermine the partnership, the collaborative 
relationship that exists in all PMA regions between the PMAs 
and its customers.
    Mr. Bishop. All right. Let me ask because I am going to 
quit this one on time here. I am sorry, but we will do that.
    You mentioned in your testimony that power customers do 
subsidize other purposes of dams, such as irrigation and 
recreation. Are you concerned though, and I think the 
Congressman also mentioned this, that there will be additional 
purposes added into this proposal other than the traditional 
ones that are subsidized by your ratepayers?
    Mr. Crisson. Yes, that is one of our primary concerns.
    Mr. Bishop. Can I ask you a specific one as well from your 
written testimony? You mentioned that in the 2005 Act, Section 
1222 gave some flexibility and authority on problems that would 
be identified by the TIP Program, but you see these programs 
rather being mandated by administrative fiat.
    Has Section 1222 been effectively used, that section?
    Mr. Crisson. At this point, not to my knowledge, no.
    Mr. Bishop. And the same kind of consideration about the 
FERC's role, that it is supposed to be recognized to address 
concerns as to wholesale electric rates to make sure they are 
just and reasonable. Is that another thing that has been 
effectively addressed in this proposal or is that still 
something that is outstanding?
    Mr. Crisson. No, we are concerned that it puts just and 
reasonable rates at risk.
    Mr. Bishop. All right. I thank you.
    I think in the discussion here there has been something 
that has been some overarching themes that are coming through 
here dealing with power, in essence, dealing with rates, who 
actually pays it, whether it is hidden tax, dealing with other 
opportunities we have of going forward, and all I can say is 
that is one of the reasons why I still use legal pads when I 
try to write something.
    Thank you. I will yield back.
    [Laughter.]
    The Chairman. The gentleman yields back his time. The Chair 
recognizes the gentleman from California, Mr. Costa.
    Mr. Costa. Thank you very much, Mr. Chairman. I am sorry I 
have not been able to participate in this hearing to the degree 
I would like to because I am very concerned about the potential 
impact that the proposed Chu memo might have on Western Power 
and utilities that I represent.
    The gentleman from New Mexico, Mr. Jason Marks, I 
understand has been having the good opportunity to answer a lot 
of the questions here this morning. Are you a supporter of the 
memo, as I understand it?
    Mr. Marks. Mr. Costa, I am not here to defend the entire 
memo, but I support the aspects of Secretary Chu's memo that 
support the project that I have been working on, which----
    Mr. Costa. All right. Well, hold on there for a second, 
and, Mr. Chairman, I am sure it has been already suggested 
here, but let me add my voice to that. I think we need to have 
the Secretary here to explain the whole proposal because I 
think that the department, at least from my perspective, has 
not done a good job as it relates to explaining the rollout of 
the memo, the purpose, and if you have already made that 
determination----
    The Chairman. Would the gentleman yield?
    Mr. Costa. Yes.
    The Chairman. There have been several exchanges on that. In 
my opening statement, I mentioned very specifically that since 
Secretary Chu was the author, that is why we invited him 
specifically, and then there has been follow-up with letters, 
particularly from the Northwest, on a bipartisan basis where we 
have not gotten an answer.
    Mr. DeFazio and I had an exchange on that. The intent is 
when we get some more information, we will move accordingly.
    I yield back.
    Mr. Costa. All right. Well, to reclaim my time, I would add 
my signature to that letter if it is still available as a 
remedy. The Secretary and the department need to brief members 
of this Committee because of the impacts.
    In terms of the initiatives that have been laid out in the 
memo, again, Mr. Marks, what are we trying to fix?
    Mr. Marks. Mr. Costa.
    Mr. Costa. Briefly.
    Mr. Marks. I am not known for that, unfortunately, but, Mr. 
Costa, we are not talking about new generation. We are not 
talking about new renewable energy mandates in this memo. This 
memo is we have some existing constraints on an existing 
system. How can we use it better?
    Mr. Costa. Well, let me stop you there.
    Mr. Marks. How can we save money?
    Mr. Costa. Let me stop you there because in California, as 
you know, I mean, we have had a devastating attempt on a regime 
in 2000-2001 that dramatically raised rates, and we are still 
trying to come back from. So there is a lot of fear that this 
is, you know, as Yogi Berra once said, deja vu all over again.
    Utilities in the central and Northern California, as well 
as in the Pacific Northwest, are working together to identify 
all the tools in our energy toolbox, such as intra-hour 
scheduling, new electronic bulletin boards to facilitate energy 
transmission agreements, better integrate our renewal resources 
into the grid. So I am at a loss and I do not expect you to 
answer for the Secretary, but why this regional approach among 
utilities working together is, I think, more viable than a top 
down approach that I think the Secretary Chu's memo suggests.
    Mr. Marks. From our perspective, those initiatives you 
mentioned, those are some things that we have been looking at 
as well. The region, and I am talking about the bigger region, 
the entire West has been looking at those things. I have been a 
Commissioner----
    Mr. Costa. But we are doing those things.
    Mr. Marks. We are still studying them, Mr. Costa.
    Mr. Costa. No, but I am talking about my utility companies 
are doing these things, and they see this as really an attempt 
to tell them how to operate. I mean, they have a lot of 
motivation to do this in California. We have an AB-33 approach, 
as you may know, to obtain 30 percent renewable portfolios by 
the year 2020, and we have a lot of good practices that we have 
done, but this is very frustrating.
    What is likely to be the cost of a West-wide EIM, and who 
will pay those costs? Have you made any determinations on that?
    Mr. Marks. Yes, Mr. Costa. We have solicited informational 
bids from two market operators, one of which is the California 
ISO. The other one is the SPP, and the SPP is the easiest to 
explain. They have said $28 million a year, and that combined 
with the benefits that we have seen suggest that their 
potential net benefits are over $100 million a year.
    Mr. Costa. Well, I would like to look at those numbers. My 
time has expired, but, Mr. Chairman, I have some additional 
questions that I would like to submit on behalf of the Modesto-
Turlock Irrigation District as well as other utilities in the 
San Joaquin Valley so that we can get answers to those 
questions.
    I understand the other witnesses who have testified here 
today share similar concerns as members of the Committee. So I 
have not asked you those questions, but clearly, we need to 
have the Secretary testify before the Committee and get a far 
better understanding of what is being proposed, and I would 
work with you and, I think, a bipartisan effort on this to 
ensure that. It would be very helpful in trying to get to the 
bottom of this.
    The Chairman. As we normally do at the end, further 
questions will be submitted. I will ask the witnesses to 
respond.
    The Chair recognizes the gentleman from South Carolina, Mr. 
Duncan.
    Mr. Duncan of South Carolina. Who has waited patiently, Mr. 
Chairman, and do not mind at all because this area of power 
generation is important to me.
    First off, let me just say that SEPA is an important power 
provider to my constituents, especially my rural cooperatives, 
and Northwest South Carolina, Third Congressional District.
    We understand that. There is another issue with power 
generation that I would just like to mention. It may be a 
little off subject, but I think it definitely has bearing here, 
and that is the Corps' management of the lakes, especially Lake 
Hartwell, I will point that out, that we are seeing the lake 
levels on Lake Hartwell diminish, the downstream flows that 
really are affected by policies, not only with just DOE but the 
Corps of Engineers itself, FERC, EPA.
    There is a Savannah River study that we are waiting on. It 
is costing the taxpayers millions of dollars to study the 
downstream flows to protect the sturgeon that have not been 
seen or breeds at different times.
    There are just a lot of different factors there that are 
affecting that Corps lake, and affecting the quality of life, 
economic development, all these things.
    For the record, I just want to mention I believe the 
private sector can better manage those lakes, better manage the 
power output of the hydro dams there, can better manage the 
economic benefit, and definitely yield a good return to the 
taxpayer.
    The rates that are charged by SEPA are turned around and 
used to repay the debt of building those dams on that lake.
    We are seeing Secretary Chu wanting to increase these rates 
to in my opinion to redistribute the wealth, to take those 
rates, that wealth, created through rate increases and fairly 
and equitably to use them, in the gentleman from California's 
words, redistribute that to other power sources that they 
particularly believe in, and that is wind, solar, other green 
energies.
    They want to hold up the Dutch as an example of a country 
that generates its power through wind. You know what, wind and 
solar are intermittent.
    I think the other gentleman from California made a 
tremendous point there about the intermittency of wind and 
solar. Cloud cover, the wind stops.
    The best replacement source for the Dutch is the 
hydroelectric power they buy from Norway, Sweden and some of 
the other countries. They need 24/7 baseload power so that 
switch cuts on power, cuts on the lights, cuts on whatever in 
their homes.
    They get that baseload 24/7 power from hydro primarily.
    We are sitting here seeing the Secretary wanting to 
increase rates to support an energy source, green energy wind 
and solar, that as the other gentleman from California said, is 
not close to transmission lines and other things.
    I appreciate your comments, and the gentleman from the 
West, the Northwest, saying you all have reinvested in your 
transmission lines. You have done things right. You do not 
necessarily need to increase your rates to do that.
    I guess the point I wanted to make is we are seeing--Mr. 
Garamendi said policies that define an outcome, they are trying 
to define the outcome for us. They are trying to push us toward 
more wind and solar hydrogen.
    I do not necessarily agree that man made global warming. I 
do not believe we are running out of the resources God gave us 
in this country. I do not agree with the President when he says 
he wants to increase American energy production and less 
dependence on oil.
    I believe we have those resources here. I think this is 
about a lot of different political philosophies.
    I want to ask Mr. Corwin just one quick question. Under the 
Federal law, Power Marketing Administrations have to sell 
hydropower at cost based rates with sound business principles.
    I am a business man. I think you guys can apply sound 
business principles that say this is what it costs us to 
generate power, this is what it costs us to transmit that 
power, this is what our overhead margins are to pay the 
salaries of the guys operating it, and anything over that we 
are going to use to pay back our debt.
    How does injecting this memorandum and this policy by 
Secretary Chu affect the way you will run your business and how 
will it run contrary to the cost based rate structures that you 
have now?
    Mr. Corwin. We are hoping that it does not get implemented 
in a way that disallows us to continue that. It has worked very 
well just as you described.
    The mandate is for cost based rates throughout history. 
That has served us well in keeping the system running for 
customers.
    Mr. Duncan of South Carolina. My time is about out. I will 
say anything above cost rate structures that you have where you 
cover your costs and you cover your debt rate payment means a 
tax increase on the constituents of the Third District that are 
buying power.
    They do not want to see their taxes go up either through 
paying higher rates or paying higher taxes to benefit Solyndra 
and other businesses that are not proven.
    Do not take our tax dollars and make investment decisions 
for us. Let us make those decisions ourselves.
    With that, Mr. Chairman, I yield back.
    The Chairman. The gentleman yields back. I did note he was 
very patient here, and I do very much appreciate that.
    I want to ask just a clarification. We heard a great deal 
about the PMAs and how they are organized. The essence of how 
they are all organized is they would pay back whatever loans 
they got from the Federal Government through whatever activity, 
whether it is electricity, irrigation, and so forth.
    The clarification I want, because I may have heard 
something different, is the exchange between Mr. Lujan and Mr. 
English.
    Mr. Lujan was talking in terms of loans and grants, and he 
also said Federal guarantees. Mr. English, your response to 
that was affirmative, and yet that seems contrary to what you 
have said the historical model was, where there was no 
guarantees.
    Which is it?
    Mr. English. Well, I think the issue was that we have 
appropriations and we pay back through those rates, the rate 
increase. That is the model that has been used, and as far as 
the PMAs, that is absolutely true.
    I believe what he was asking and he did not specifically 
restrict this to PMA transmission, he is talking about 
transmission in general.
    We certainly believe even through the electric cooperative 
program that there should be investment by the Federal 
Government through guarantees in general.
    As far as the PMAs are concerned and particularly as far as 
the model that we have used in the past, as far as preference, 
there is no question we have had appropriations, and we have 
incorporated that into the rates, and that has been paid back.
    That has been a tremendous success, and anything, 
transmission or otherwise, related to the PMAs to benefit the 
customers of PMAs, I think that model should be followed.
    The Chairman. That still should be followed.
    Mr. English. Yes.
    The Chairman. It is very subtle, but it is a very extremely 
important policy decision if that should be deviated from.
    Mr. English. Exactly. I would also say, Mr. Chairman, that 
as we talk about--this has troubled me just a little bit. We 
have talked about transmission within the context of the PMA, 
which historically speaking has meant within the local 
membership there, the local customers, and within that region, 
as opposed to going beyond that region, which is a much larger 
transmission problem that this country faces.
    That is obviously where we are going to have to take on 
something much larger.
    Congressman Lujan, I think he did not qualify that and say 
he was talking about preference or PMA transmission. He was 
talking about transmission generally.
    The Chairman. What I heard, and I appreciate we probably 
hear different things, I heard it as it relates to PMAs.
    Mr. English. That was my error. I appreciate the Chairman 
raising that so I could clarify it.
    The Chairman. OK. Listen, I want to thank all of you. As so 
many times happens when we have hearings like this, there are 
follow up questions.
    I would ask if you get follow up questions, please respond 
in a very, very timely manner.
    I want to again thank all of you. I think this has been an 
extremely informational hearing, and I suspect we will hear 
more about this as more information comes in front of us.
    With that, thank you all. The panel is dismissed. Without 
objection, with no more business, the Committee stands 
adjourned.
    [Whereupon, at 12:07 p.m., the Committee was adjourned.]

    [Additional material submitted for the record follows:]

          Statement submitted for the record by Lauren Azar, 
       Senior Advisor to the Secretary, U.S. Department of Energy

    Chairman Hastings, Ranking Member Markey, I submit this testimony 
for the record on the Federal Power Marketing Administrations (PMAs), 
and specifically, Secretary Chu's March 16, 2012 Memorandum (Memo) 
setting forth ``foundational goals'' that the Department of Energy 
(DOE) is considering for the PMAs. The Memo outlines broad concepts for 
achieving these goals in a manner that will be customized to reflect 
the uniqueness of each PMA. DOE will begin its review to address the 
goals of the Memo with the Western Area Power Administration (WAPA). 
The core of this process will be a robust collaboration among each PMA, 
its stakeholders, customers, and its congressional delegations. DOE 
intends to move sequentially and will assess our approach to the other 
PMAs in light of our experience with WAPA. We hope to initiate the WAPA 
review soon and anticipate it will take until late 2012 to complete.

PMA PRIMARY MISSIONS: POWER MARKETING AND TRANSMISSION
    The PMAs have two primary obligations: (1) marketing electricity to 
preference customers so as to encourage the most widespread use of 
federal power at the lowest possible rates to consumers, consistent 
with sound business principles\1\, and (2) maintaining and operating 
their portion of the Nation's transmission grid.\2\ Below, I will 
describe these obligations and how they relate to the Secretary's Memo 
in more detail, but it is important to note from the outset that the 
overwhelming majority of the goals set forth in the Memo relate to the 
PMAs' transmission infrastructure and not to the marketing of federally 
generated power to the preference customers.

Power Marketing
    Beginning in the late 1800s, the federal government began to build 
dams with hydroelectric power generation. The dams were initially built 
primarily for flood control, navigation, or irrigation, while in some 
systems the selling of the electricity was a secondary consideration. 
Today, the electricity generated by these federal facilities is 
incredibly valuable: with water as its fuel source, it is generally 
inexpensive\3\ and produced without air-pollution emissions. As the 
demand for clean energy grows, so does the value of these federal 
assets. The Secretary is committed to taking good care of the federal 
hydropower system and the clean energy it represents.
    Congress has mandated the electricity generated by federal 
hydroelectric plants be sold at cost. Congress also specified who in 
each region should get priority access to this federal electricity, 
namely the ``preference customers.''\4\ Understandably, the preference 
customers have a strong interest in protecting their ability to 
purchase cost-based, clean federal electricity. Other consumers in the 
PMA regions, however, do not have access to this federal electricity, 
thus forcing them to build their own generation or purchase electricity 
on the open market.\5\ To be clear, preference customers also rely on 
the open market to purchase electricity over and above their allocation 
of federal hydropower to fulfill their customers' electricity needs. 
Hence, both preference and non-preference customers benefit from a 
robust and competitive electricity marketplace. (Herein the 
``electricity marketplace'' refers not only to the buying and selling 
of electrons but also includes all facets of generating, delivering, 
and consuming electricity.)
    The Secretary has expressed his continued commitment to comply with 
all applicable laws relating to the rates for the sale of electricity 
to preference customers, which include cost-based rate structures. This 
commitment will not waiver as the individual plans are developed. The 
DOE will continue to support the PMAs' fundamental obligations to 
operate and maintain the federal hydropower assets and sell their power 
to preferred customers at cost.

Transmission
    In addition to selling federally generated electricity, three of 
the four PMAs own and operate 33,700 miles of transmission lines that 
comprise a significant portion of the Nation's power grid.
    To bolster the competitiveness of the electricity marketplace and 
to ensure the grid's resilience, Congress in 1992 and 2005 passed 
comprehensive legislation creating obligations on grid operations and 
reliability. As explained below, the Secretary's Memo is intended to, 
among other things, ensure the PMAs are complying these obligations. In 
cases in which Congress exempted the PMAs from some of these 
requirements, DOE has further required that the PMAs comply with 
transmission requirements, to the extent allowed under the PMAs' 
enabling statutes, to enable market competition and ensure grid 
resilience. That policy remains in place to this day.
    As part owners and operators of the Nation's transmission grid, the 
federal government must maintain its aging facilities and, if 
necessary, update or replace them. The Secretary is committed to 
ensuring the PMAs' transmission is managed to support cost-effective 
transmission expansion, grid reliability and open, non-discriminatory 
access consistent with the PMAs' statutory requirements. The federal 
government can and should be leading the way in ensuring that our 
Nation has a reliable transmission grid that eliminates barriers to a 
competitive marketplace.
    To be clear, anyone using the PMAs' transmission lines pays for 
that use, whether or not they are preference customers. As is true for 
any transportation system supporting a marketplace, at a minimum, our 
Nation's transmission system should accomplish the following for the 
electricity marketplace:
          Efficiently and reliably deliver electricity;
          Eliminate barriers to competition and operate in a 
        non-discriminatory fashion; and
          Accommodate the emergence of new technologies and 
        market opportunities/segments.\6\
    The transmission proposals described in the Secretary's Memo would 
seek to accomplish all of these goals, through actions that are in 
harmony with the PMAs' enabling statutes. Furthermore, the overwhelming 
majority of the proposed activities described in the Secretary's Memo 
relate to the PMAs' obligations and goals for transmission and not to 
the marketing of federally generated power to the preference 
customers.\7\

TODAY'S ELECTRICITY MARKETPLACE
    Today's electricity marketplace differs markedly from that of even 
10 years ago. For example:
        (1)  State Renewable Portfolio Standards (RPS): Thirty-seven 
        states8 have now enacted RPS standards (mandatory) or goals 
        (voluntary). In other words, 37 states have decided to 
        incentivize the production of electricity from renewable 
        sources, which often are variable resources. The electricity 
        transmission system should be flexible enough to accommodate 
        these new sources of generation into the grid.
        (2)  Security threats: It should come as no surprise that our 
        Nation faces increasing security threats and the electric 
        sector is no exception. By establishing an electric reliability 
        organization and mandating the enactment of reliability 
        standards, as well as its interest in cybersecurity standards, 
        Congress has mandated a hardening of our electric 
        infrastructure against physical threats, natural disasters, and 
        cyber attacks. Protecting the transmission grid is particularly 
        important. Blackouts not only threaten human health and safety, 
        but also cause immense economic injuries to our Nation's 
        businesses.
        (3)  Technological Advances: As consumers adopt new 
        technologies and practices such as rooftop solar, electric 
        vehicles, and demand-response applications both the 
        transmission grid and the electricity marketplace will face 
        challenges and opportunities.
    To effectively respond to the continued changes in the electricity 
marketplace, DOE is considering potential actions the PMAs can 
implement, within the limits set by their enabling statutes.

CONSUMERS' BILLS
    The evolving nature of the electricity system requires the owners 
and operators of the transmission grid to adapt. As owners and 
operators of a significant part of the transmission grid, the PMAs 
should explore more effective ways to invest in the future and keep 
pace with the changing marketplace. Our overall goal is to keep 
consumer bills as low as possible while ensuring our Nation has the 
infrastructure needed to remain competitive in a global economy and 
accommodate regional choices to meet consumer demand.

CONCLUSION
    As I stated at the beginning of my remarks, as we consider these 
issues, DOE intends to work closely with each PMA, its stakeholders, 
customers, and Members of Congress. This will be a robust collaborative 
process that is sensitive to the unique character and enabling statutes 
of each PMA.

ENDNOTES
\1\  This standard to encourage the most widespread use of Federal 
        power at the lowest possible rates to consumers, consistent 
        with sound business principles is often simply referred to as 
        ``cost-based rates'' or ``at cost''. The truncated versions are 
        used hereafter.
\2\  The PMAs have many responsibilities beyond these two missions. For 
        example, BPA has a third primary mission: fish and wildlife 
        protection.
\3\  The relative expense of federal hydropower differs from system to 
        system. As a consequence, it is not ``inexpensive'' for every 
        system.
\4\  ``Preference Customers'' refers to municipalities and other public 
        corporations and agencies.
\5\  BPA is unique for two reasons. First, it has a few non-preference 
        customers who are grandfathered and able to purchase federal 
        electricity. Second, certain non-preference customers of BPA 
        receive, from the power revenues, annual benefits for their 
        rural areas.
\6\  These bulleted items refer to both legal requirements and policy 
        goals.
\7\  As a consequence, the Secretary's Memo will have minimal 
        applicability to the Southeastern Power Administration, which 
        owns and operates no transmission.
\8\  In addition to these 37 states, the District of Columbia and 
        Puerto Rico both have an RPS.
                                 ______
                                 
    [A letter to The Honorable Steven Chu, Secretary, U.S. 
Department of Energy, from The Honorable Doc Hastings, 
Chairman, Committee on Natural Resources, et al., submitted for 
the record follows:]

[GRAPHIC] [TIFF OMITTED] T3981.014

[GRAPHIC] [TIFF OMITTED] T3981.015

[GRAPHIC] [TIFF OMITTED] T3981.016

                                ------                                


    [A statement submitted for the record by the Public Power 
Council, Portland, Oregon, follows:]

                          Public Power Council

                      82S NE Multnomah, Suite 122S

                           Portland, OR 97232

                              503.S95.9770

                            Fax 503.239.5959

             Key Concerns with DOE Memorandum on PMA Policy

                               April 2012

    On March 16, 2012, Department of Energy Secretary Chu released a 
memorandum outlining a vision and policy direction for the federal 
Power Marketing Administrations (PMAs). While short on specific policy 
prescriptions, the document raises significant concerns in a number of 
areas.
Scope, Mission and Legal Authority of the PMAs
    The core mission of each of the PMAs is to market power generated 
at federal multipurpose dams to public power systems at the lowest 
possible rate consistent with sound business principles. Over the 
years, the authority of the PMAs has been refined and expanded. For 
instance, BPA has authority to acquire resources (with a prescribed 
priority for resource selection) to meet the load of regional 
utilities, operate a program to enable the residential and small farm 
customers of the region's private utilities to share in the benefits of 
the hydropower system, and to mitigate the impacts on fish and 
wildlife. Yet, in each case Congress has given specific authority and 
direction to BPA.
    Moreover, each expansion of BPA's mission has still respected the 
core tenets of preference and cost-based rates, as well as BPA's role 
as a wholesale power supply entity. In several respects, the DOE 
Memorandum suggests new missions for BPA that are outside the agency's 
existing statutory authority:
          BPA and the other PMAs are directed to serve as 
        ``test beds'' for innovative cyber security technologies. 
        Testing and proving technologies is a role for DOE labs, not an 
        agency that has 100% of its costs recovered from ratepayers.
          DOE is calling for changes in BPA rate design to 
        ``incentivize'' policy objectives. By definition, an incentive 
        is a payment that is greater than simple cost-recovery--which 
        conflicts with BPA's statutory mandate for cost-based rates.
          DOE implies that BPA should participate in a West-
        wide market to address energy imbalances resulting from 
        intermittent renewable generation. By law, BPA is restricted to 
        operations within the watershed of the Columbia and Snake 
        Rivers.
          BPA and the other PMAs are being told to take steps 
        to support, encourage and facilitate renewable generation--even 
        when that renewable generation is not being used by BPA 
        ratepayers. This is all the more troubling given that BPA has 
        already achieved the highest rate of wind penetration of any 
        balancing authority in the country.
          Some of the directed rate incentives--like electric 
        vehicle deployment--are issues for retail electric utilities, 
        not wholesale power and transmission providers like BPA.
    Throughout the document, BPA statutory limitations on cost 
recovery, mission and geographic scope are either blurred or ignored.

Regulatory Oversight
    In several respects, Secretary Chu's memorandum envisions a world 
in which BPA and the other PMAs are subject to expanded regulatory 
oversight and direction by both the Department of Energy and the 
Federal Energy Regulatory Commission (FERC):
          Although the document states in a footnote that 
        creation of and participation in a Regional Transmission 
        Organization (RTO) is not being advocated, there are several 
        policy initiatives advanced that clearly lead towards that 
        conclusion. The memorandum calls for elimination of rate 
        ``pancaking,'' merging of balancing authorities, formation of 
        an ``energy imbalance market,'' and broad regional transmission 
        planning. Each of these elements leads to discussion of an 
        RTO--and the full jurisdiction of FERC that would result. The 
        Northwest has repeatedly rejected RTO formation, because of 
        both cost concerns and the fear of ceding control to FERC.
          The memorandum also implies a number of rate design 
        elements that the PMAs will implement. In several cases these 
        rate issues are outside the scope of BPA's authority, and in 
        each case the policy's inclusion is being pre-determined 
        without any regional discussion and outside the lawful rate-
        setting process.
          DOE appears focused on one-size-fits-all solutions, 
        rather than deferring to regionally-derived (and less 
        expensive) alternatives. Just as the Northwest Power Pool is 
        reviewing and implementing tools to better address energy 
        imbalances resulting from intermittent renewable generation, 
        the DOE memo implies a mandate for a West-wide, market-based 
        ``solution.''

Cost Concerns
    BPA, with its lower-cost power supply and legally mandated 
provision of cost-based rates, has been an important economic engine 
for the Northwest. The DOE memorandum ignores the legal requirements 
for cost-based rates, and may lead to additional costs on BPA customers 
without providing corresponding benefits, and also risks sacrificing 
the low-cost rates that have been a lifeline for the Northwest economy:
          The memo suggests various initiatives--like a West-
        wide energy imbalance market--that appear to decide on a policy 
        approach irrespective of cost. BPA should focus on the least-
        cost means of achieving policy objectives that fall within its 
        statutory authority.
          BPA is told to provide ``incentives''--payments in 
        excess of costs--in redesigning its rates to achieve various 
        policy goals.
          The important rate design issue of ``cost 
        causation''--costs are paid by the parties that cause the 
        action--is repeatedly ignored. Instead, BPA appears to be 
        directed to pursue policy objectives that would impose costs on 
        BPA ratepayers without providing offsetting benefits.

Conclusion
    While the broad policy goals of the memorandum may be laudable, DOE 
appears to be unconcerned that its policy goals may be moving BPA in a 
direction that is outside the agency's statutory mission, increases 
FERC jurisdiction and reduces regional oversight, and imposes 
unwarranted costs on Northwest ratepayers.

                                 
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