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



 
  AMERICAN ENERGY INITIATIVE, PART 13: ELECTRIC TRANSMISSION ISSUES, 
  INCLUDING TOPICS RELATED TO THE SITING, PLANNING, AND ALLOCATION OF 
           COSTS FOR ELECTRICITY TRANSMISSION INFRASTRUCTURE

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON ENERGY AND POWER

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 13, 2011

                               __________

                           Serial No. 112-97


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov




                  U.S. GOVERNMENT PRINTING OFFICE
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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   GENE GREEN, Texas
  Vice Chairman                      DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma              LOIS CAPPS, California
TIM MURPHY, Pennsylvania             MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire       TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia                MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana              Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 7_____

                    Subcommittee on Energy and Power

                         ED WHITFIELD, Kentucky
                                 Chairman
JOHN SULLIVAN, Oklahoma              BOBBY L. RUSH, Illinois
  Vice Chairman                        Ranking Member
JOHN SHIMKUS, Illinois               JAY INSLEE, Washington
GREG WALDEN, Oregon                  KATHY CASTOR, Florida
LEE TERRY, Nebraska                  JOHN D. DINGELL, Michigan
MICHAEL C. BURGESS, Texas            EDWARD J. MARKEY, Massachusetts
BRIAN P. BILBRAY, California         ELIOT L. ENGEL, New York
STEVE SCALISE, Louisiana             GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   LOIS CAPPS, California
PETE OLSON, Texas                    MICHAEL F. DOYLE, Pennsylvania
DAVID B. McKINLEY, West Virginia     CHARLES A. GONZALEZ, Texas
CORY GARDNER, Colorado               HENRY A. WAXMAN, California (ex 
MIKE POMPEO, Kansas                      officio)
H. MORGAN GRIFFITH, Virginia
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Ed Whitfield, a Representative in Congress from the 
  Commonwealth of Kentucky, opening statement....................     1
    Prepared statement...........................................     3
Hon. Bobby L. Rush, a Representative in Congress from the State 
  of Illinois, opening statement.................................     5
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, opening statement.......................................     6
Hon. John Shimkus, a Representative in Congress from the State of 
  Illinois, opening statement....................................    13
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................    20
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, prepared statement................................   168

                               Witnesses

Jon Wellinghoff, Chairman, Federal Energy Regulatory Commission..    21
    Prepared statement...........................................    23
    Answers to submitted questions...............................   171
Lauren Azar, Senior Advisor, Office of the Secretary, Department 
  of Energy......................................................    39
    Prepared statement...........................................    41
    Answers to submitted questions...............................   182
Greg White, Commissioner, Michigan Public Service Commission.....    69
    Prepared statement...........................................    71
Philip B. Jones, Commissioner, Washington Utilities and 
  Transportation Commission......................................    78
    Prepared statement...........................................    80
John DiStasio, General Manager and Chief Executive Officer, 
  Sacramento Municipal Utility District, on behalf of Large 
  Public Power Council...........................................    94
    Prepared statement...........................................    96
    Answers to submitted questions...............................   192
Steven A. Transeth, Principal, Transeth & Associates, PLLC, on 
  behalf of Coalition for Fair Transmission Policy...............   108
    Prepared statement...........................................   110
    Answers to submitted questions...............................   202
Nicholas A. Brown, President and Chief Executive Officer, 
  Southwest Power Pool, Inc......................................   121
    Prepared statement...........................................   123
Joseph Welch, Chairman, President, and Chief Executive Officer, 
  ITC Holdings Corporation.......................................   132
    Prepared statement...........................................   135

                           Submitted Material

Statement, dated October 13, 2011, of the American Public Power 
  Association, submitted by Mr. Terry............................     8
Statement, dated October 13, 2011, of Glenn English, Chief 
  Executive Officer, Natural Rural Electric Cooperative 
  Association, submitted by Mr. Whitfield........................    14


  AMERICAN ENERGY INITIATIVE, PART 13: ELECTRIC TRANSMISSION ISSUES, 
  INCLUDING TOPICS RELATED TO THE SITING, PLANNING, AND ALLOCATION OF 
           COSTS FOR ELECTRICITY TRANSMISSION INFRASTRUCTURE

                              ----------                              


                       THURSDAY, OCTOBER 13, 2011

                  House of Representatives,
                  Subcommittee on Energy and Power,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:36 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Ed 
Whitfield (chairman of the subcommittee) presiding.
    Members present: Representatives Whitfield, Shimkus, 
Walden, Terry, Burgess, Bilbray, McMorris Rodgers, McKinley, 
Gardner, Pompeo, Griffith, Barton, Rush, Dingell, Engel, Green, 
Matsui, and Waxman (ex officio).
    Staff present: Charlotte Baker, Press Secretary; Ray Baum, 
Senior Policy Advisor/Director of Coalitions; Anita Bradley, 
Senior Policy Advisor to Chairman Emeritus; Allison Busbee, 
Legislative Clerk; Patrick Currier, Counsel, Energy and Power; 
Andy Duberstein, Deputy Press Secretary; Cory Hicks, Policy 
Coordinator, Energy and Power; Dave McCarthy, Chief Counsel, 
Environment and Economy; Jeff Baran, Democratic Senior Counsel; 
and Caitlin Haberman, Democratic Policy Analyst.

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

    Mr. Whitfield. Good morning, and I want to call this 
hearing to order.
    Today we will focus on Federal transmission issues, 
including permitting, planning and pricing of electricity 
transmission infrastructure.
    Additional investments in transmission infrastructure 
certainly will help our country meet anticipated future energy 
needs. But there are hurdles, particularly for wires that cross 
State lines and require agreement of multiple stakeholders.
    Two recent transmission-related developments will help us 
evaluate the challenges facing the buildup of transmission 
infrastructure in this country. First, the Department of Energy 
recently considered whether to designate to the Federal Energy 
Regulatory Commission certain authorities granted to DOE by 
Congress in the Energy Policy Act of 2005. The proposal would 
have delegated to FERC DOE's authority to designate certain 
areas as National Interest Corridors. FERC already has backstop 
siting authority to site transmission facilities within those 
corridors, so the delegation would have placed all of the 
National Interest Corridor authority under FERC's jurisdiction. 
Secretary Chu's decision this week to not delegate this 
authority to FERC is quite timely because I noticed in my 
comments here, he had not made that decision yet when they 
wrote this. So I have to change my views.
    The other transmission issue before us today is FERC's 
recently finalized Order 1000, which outlines changes to 
regional transmission planning and cost allocation. Although 
many of the implications of Order 1000 cannot be fully known or 
appreciated until compliance filings are made with FERC next 
year, it is important to evaluate the potential impact this 
final rule may have on stakeholders. Order 1000 seeks to 
provide flexibility to regions with respect to how regions 
should plan and pay for new transmission. There are a number of 
issues. For example, my home State of Kentucky, we do not have 
a renewable portfolio standard and I have some counties in my 
district that are in a regional transmission organization and 
others are not, so those counties could conceivably get stuck 
paying the bill for renewable energy transmission from States 
that do have a renewable portfolio standard without any direct 
benefit.
    So we have a great panel of witnesses this morning. We have 
a lot of diverse views, as a matter of fact, on this issue, but 
I certainly want to thank our first panel for being here today, 
the Honorable Jon Wellinghoff, who is chairman of the Federal 
Energy Regulatory Commission, and Ms. Lauren Azar, Senior 
Advisory, Office of the Secretary, U.S. Department of Energy. 
So we look forward to your testimony as well as testimony of 
all of our witnesses as we set out to explore this important 
issue and how it is going to work as we move forward and what 
the impact is going to be and a lot of different stakeholder 
interest.
    [The prepared statement of Mr. Whitfield follows:]

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    Mr. Whitfield. With that, Mr. Rush, I recognize you for 
your opening statement.

 OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Rush. I want to thank you, Mr. Chairman, and I want to 
also thank Chairman Wellinghoff and Ms. Azar as well as the 
other expert witnesses on the second panel for appearing before 
this subcommittee today.
    Mr. Chairman, today we are holding a hearing focusing on 
Federal transmission issues as they relate to siting, planning 
and cost allocation for electricity transmission 
infrastructure. The basis of this hearing is FERC Order 1000, 
which was finalized in June 2011, which addresses three main 
issues: planning, cost allocation and the Federal right of 
first refusal for incumbent transmission provides. Order 1000 
establishes three new requirements regarding cost allocation. 
First, it requires that each regional transmission planning 
process establish a regional cost allocation method for 
transmission lines selected in the regional transmission 
planning for the purposes of cost allocation. This cost 
allocation method must satisfy six principles: those who do not 
benefit from a transmission project do not have to pay for it. 
That is the first principle. The second principle is the cost 
allocation must be at least, and I quote, ``roughly 
commensurate'' with estimated benefits. The third cost 
allocation method is the benefit-to-cost thresholds must not 
exclude projects with significant net benefits. Fourthly, 
allocations of cost outside a region are not permitted unless 
the other regions agree. The fifth measure is the cost 
allocation methods and identification of beneficiaries must be 
transparent. And lastly, number six, different allocation 
methods can apply to different types of transmission 
facilities.
    The second requirement is that neighboring regions must 
select a common interregional cost allocation method for new 
interregional transmission lines based on the same six 
principles that I have previously outlined.
    The third and final requirement allows for participant 
funding of new transmission lines where costs of a new 
transmission line are allocated only to entities that volunteer 
to bear those costs but under Order 1000 this cannot be the 
regional or interregional cost allocation method.
    Mr. Chairman, many of the issues covered under Order 1000 
are very technical in nature, to say the least, but I applaud 
you for holding this hearing and understanding all these 
technicalities. So we are going to hear directly from many of 
the stakeholders who have been charged with implementing and 
who would be most impacted by these proposals. Many of these 
issues surrounding Federal electricity transmission break down 
by region rather than by party. I look forward to the question-
and-answer segment to learn more about how Order 1000 will 
affect my State, the State of Illinois, specifically, as well 
as the Midwest region in general. So I am very eager to hear 
testimony from Chairman Wellinghoff as well as the other 
witnesses, and I look forward to a very informative, 
inspirational, education and robust discussion on these very 
important issues, Mr. Chairman. It is so good to be back in a 
hearing with you once again.
    With that, I yield back the balance of my time.
    Mr. Whitfield. Thank you, Mr. Rush. Mr. Rush always 
complains we don't have enough hearings.
    At this time I would like to recognize the chairman 
emeritus of the full committee, Mr. Barton of Texas, for 5 
minutes.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman.
    It is very understandable that you may not have heard the 
decision that Secretary Chu made since you have been doing such 
good work on the floor the last several weeks on so many 
issues. It is understandable that you might not have heard that 
he made the decision to keep the siting authority at the 
Department of Energy. We want you to keep doing the good work 
and we will send you notes as developments occur on these other 
issues.
    Let me say on the siting issue that I think the Secretary 
made the right decision. While I think it is reasonable for 
FERC to get the authority given the fact that since the court 
case in Virginia several years ago the Department of Energy has 
not exercised its authority that we gave them in the Energy 
Policy Act of 2005. There was a reason that we had a split 
responsibility, and I was the chairman of the conference 
committee and we thought about it quite a bit. We wanted the 
Department of Energy as an independent agency to make a 
transparent decision that a certain corridor needed to have new 
transmission and then we wanted the FERC once that designation 
was made to be responsible for working with the stakeholders 
and to develop the actual permitting process and the specific 
siting process. We thought it was best to have two different 
groups do each part of the process. Since the court decision, 
the Department of Energy has not really tried to designate any 
new corridors, and I would encourage you, Madam Senior Advisor, 
to work with the Secretary and the others in the department. If 
you need additional legislation language, I am sure we can do 
that on a bipartisan basis. But I think the system and the 
current law will work if we start to try to make it to work.
    The one thing that I did question about the request or the 
delegation is, I think it is Congress's role to make those 
decisions and I don't think the Executive Branch can just 
delegate the explicit authority given to it under law.
    With regard to FERC Order 1000, as Mr. Rush indicated, that 
is a fairly complicated piece of work. As a past chairman of 
this subcommittee and also of the full committee, I have been 
involved for over 20 years with these issues and I can tell you 
folks here in the audience that it is no surprise it is very 
complicated. My main problem with FERC Order 1000 is that it 
appears that under certain conditions an entity could be forced 
to pay for something that they don't want to participate in, 
don't receive a benefit from and yet they can still be forced 
to pay. I think that is a problem and I think it needs to be 
looked at.
    Overall, though, I think FERC Order 1000 is a noble attempt 
to try to bring some order out of what has been a somewhat 
chaotic system with all the various RTOs and MSIOs and 
independent marketers and still some parts they are in 
regulated markets. It is a miracle that anything ever gets 
sited and anything ever gets done.
    So Mr. Chairman, it is good for you and Mr. Rush to be 
continuing these hearings. Hopefully we will shed some light on 
the issue.
    With that, I want to yield to Mr. Terry. I think he has got 
a unanimous consent request.
    Mr. Terry. Thank you, Mr. Chairman Emeritus. I do ask 
unanimous consent that I may submit for the record the APPA 
letter report.
    Mr. Whitfield. Without objection.
    Mr. Terry. Thank you. Yield.
    [The information follows:]
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    Mr. Barton. And I would yield to Mr. Shimkus for my final 
minute.

  OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Mr. Shimkus. And just to welcome the first panel and concur 
with Mr. Barton's analysis. I served on the conference 
committee also in 2005. I know what our intent was. I know what 
the courts have ruled, which is against the intent of Congress, 
for expedited siting. Even if you believe in the new green 
world, you need new transmission and we need to be able to get 
across State lines. So I think there will be a lot of folks in 
support of that.
    Chairman Wellinghoff, good to see you again. I still have 
concerns with reliability if you want most of the coal plants 
in this country to be decommissioned. I also have concerns, as 
you know, on the projection on the gigawatts, yours versus the 
EPA, as we discussed last time, and the transmission is another 
big key to this. If we want reliability, we have to have 
transmission, so hopefully we will be allies on this, and I 
yield back my time.
    Mr. Whitfield. The gentleman yields back his time.
    I would also ask unanimous consent to enter into the record 
the statement of the National Rural Electric Cooperative 
Association. Without objection.
    [The information follows:]
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    Mr. Whitfield. At this time I would like to recognize the 
ranking member of the full Energy and Commerce Committee, Mr. 
Waxman of California.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you, Mr. Chairman, not only for 
recognizing me but for working with us on today's hearing on 
electric transmission.
    This is a vital issue. One reason it is so important is the 
relationship between transmission and renewable energy. 
Renewable energy is one of the cornerstones of a clean energy 
economy. Over the next decade, the global clean energy market 
is going to be worth $2.3 trillion and we cannot afford to 
surrender this market to China or other countries with 
aggressive clean energy policies.
    But to compete effectively, we will need to increase 
dramatically the amount of energy generated from renewable 
sources. The good news is that our Nation has tremendous 
renewable resources. There are excellent wind resources in the 
middle of the country and substantial solar resources, 
particularly in the southwest. In fact, every region of the 
country has renewable resources that can be tapped to expand 
renewable energy generation and reduce carbon pollution.
    The challenge is that some of the best renewable resources 
are often located in remote areas, far from the cities and 
population centers that need clean electricity. And that brings 
us to the issue of transmission. We are not going to achieve 
our job creation and pollution reduction goals without new 
transmission to connect our renewable resources to the electric 
grid. There is no question that transmission is not the only 
solution. Energy efficiency and other methods of reducing 
electricity demand will play a crucial role.
    Distributed clean energy generation is important, but I 
don't think anyone seriously questions the need for some new 
transmission lines if we are going to dramatically expand our 
use of renewable energy.
    In approaching this issue, we need to preserve a strong 
role for local and State interests and expertise but we also 
need to ensure that important interstate transmission lines 
aren't blocked for purely parochial reasons.
    This is a tough issue. It is an issue that has been the 
subject of spirited debate during the past several years. The 
Federal Energy Regulatory Commission recently tackled two key 
aspects of this issue in its Order 1000. FERC staff submitted a 
separate proposal to the Department of Energy related to FERC's 
authority to site certain transmission lines when States fail 
to do so. This is commonly referred to as Federal backstop 
siting authority. Right now, the Department of Energy conducts 
studies of transmission congestion and then designates National 
Interest Electric Transmission Corridors. Within those 
corridors, FERC has authority to site lines if the State 
permitting agency fails to act on a permitting application for 
one year.
    I opposed this provision in 2005 and I think the last 6 
years have demonstrated that it was the wrong approach. It 
focused exclusively on congestion rather than on other 
important factors like reliability and expanding renewable 
generation. It was structured in a way that interfered with the 
traditional authorities of State permitting agencies. There was 
no link to regional planning, and the Federal backstop siting 
authority even applied to transmission that didn't cross state 
lines. Under the prior Administration, DOE also abused the 
process by designating massive corridors that included whole 
States.
    FERC staff proposed that Secretary Chu delegate DOE's 
authorities to FERC so that FERC could breathe new life into 
this flawed provision. Yesterday, Secretary Chu decided not to 
delegate DOE's authority as FERC proposed. I think that was the 
right decision. However, Secretary Chu and Chairman Wellinghoff 
also announced that they will work together to improve 
implementation of this provision. Today's hearing is a good 
opportunity for the committee to better understand the details 
of how this new approach would work.
    A broad range of views is represented on both of today's 
panels and I look forward to the perspectives of our witnesses 
on FERC's efforts to improve transmission planning and lower 
cost allocation barriers to building new transmission.
    Thank you, Mr. Chairman, and yield back the balance of my 
time.
    Mr. Whitfield. Thank you, Mr. Waxman.
    We have with us today the Honorable Jon Wellinghoff, who is 
Chairman of the Federal Energy Regulatory Commission, and as I 
also stated, Ms. Lauren Azar, who is the Senior Advisor, Office 
of the Secretary at the Department of Energy. Welcome to both 
of you. We look forward to your expert testimony, and Mr. 
Wellinghoff, I will recognize you for your 5-minute opening 
statement.

    STATEMENTS OF JON WELLINGHOFF, CHAIRMAN, FEDERAL ENERGY 
REGULATORY COMMISSION; AND LAUREN AZAR, SENIOR ADVISOR, OFFICE 
             OF THE SECRETARY, DEPARTMENT OF ENERGY

                  STATEMENT OF JON WELLINGHOFF

    Mr. Wellinghoff. Thank you, Mr. Chairman and Ranking Member 
Rush and members of the committee. Thank you for having me here 
today. My name is Jon Wellinghoff and I am the Chairman of the 
Federal Energy Regulatory Commission.
    The development of an efficient electric transmission 
system benefits consumers by reducing barriers to trade with 
and among regions, thereby enhancing competition in wholesale 
electric markets. With this goal in mind and recognizing that 
significant transmission investment is likely to be made in the 
foreseeable future, the commission recently issued Order 1000. 
Order 1000 revisits the commission's transmission planning and 
cost allocation requirements to ensure that they are adequate 
to support more efficient and cost-effective transmission 
investment decisions moving forward. Through these changes, 
Order 1000 will foster competitive markets to benefit 
consumers, strengthen our national security and help revitalize 
our economy.
    I would like to highlight three major points about Order 
No. 1000. First, Order No. 1000 emphasizes regional flexibility 
and regional action. Within a general framework, each 
transmission planning region determines its own transmission 
needs by building upon an open and transparent process that is 
already in place and each region will propose cost allocation 
methods. Order No. 1000 does not establish preset regional 
boundaries not does it prescribe how those regions plan their 
systems. Nothing in Order 1000 requires either interconnect-
wide plan or interconnect-wide cost allocation. Second, Order 
1000 states that those who do not benefit from new transmission 
facilities should not pay. Third, Order 1000 is about 
establishing effective processes for transmission planning and 
cost allocation, not about requiring specific outcomes of those 
processes. Order 1000 does not favor renewable energy resources 
nor would such a preference be consistent with the Federal 
Power Act or the commission's open access transmission policy. 
Order 1000 does not require or subsidize the use of green 
energy.
    Order 1000 also recognizes the States' vital role in 
protecting consumers. Order 1000 recognizes the unique 
perspective that States can provide in regional transmission 
planning processes. Nothing in Order 1000 is intended to 
preempt or otherwise affect State laws or regulations with 
respect to construction of transmission facilities.
    Through the reforms adopted in Order 1000, the commission 
seeks to ensure that the Nation's electric grid is prepared to 
meet the challenges and realize the opportunities of the 21st 
century. Order 1000 will reduce the inefficiencies that exist 
today in today's transmission planning processes and the 
uncertainty created by the lack of clear cost allocation 
methods for regional and interregional transmission facilities. 
Effective regional transmission planning and interregional 
transmission coordination along with cost allocation reforms as 
required by Order 1000 will help improve reliability, reduce 
congestion, increase the deliverability of existing power 
supplies, allow new domestic power supplies to be developed, 
and help ensure that consumers have greater access to efficient 
lower-cost electricity at just and reasonable rates.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Wellinghoff follows:]
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    Mr. Whitfield. Thank you, Chairman Wellinghoff.
    Ms. Azar, you are recognized for 5 minutes.

                    STATEMENT OF LAUREN AZAR

    Ms. Azar. Thank you, Mr. Chairman and Ranking Member Rush. 
It is a pleasure to testify before you on an issue of utmost 
importance: upgrading our electric infrastructure.
    Today, I start my fifth month as Senior Advisor to 
Secretary Chu. The Secretary hired me primarily to accomplish 
one task: build new electric infrastructure. Transmission and 
storage are my focus. As an attorney involved with permitting 
of new transmission lines and a former commissioner at the 
Wisconsin Public Service Commission, I come from the trenches.
    Transmission is akin to mortar in a foundation. This Nation 
requires a robust and resilient grid to connect its building 
blocks. You need look no further than your own briefcases to 
understand that our Nation's demand for electricity is changing 
and doing so dramatically. How many gadgets do you carry that 
require charging on a frequent basis, and when did you start 
carrying them?
    To propel this Nation forward in the global economy, we 
must build a grid for the 21st century and we must build it 
fast. Everyone knows the adage that Thomas Edison could 
understand the mechanics of our current grid but what most 
don't realize is that our grid can be visualized as a plate 
balancing on top of a stick. When something is placed on one 
side of the plate, a weight of an equal amount must be placed 
on the other side to ensure stability. If too much 
counterweight is placed, then the plate topples. The plate is 
the grid; the weights and counterweights are generation and the 
demand for electricity. The placement of those weights and 
counterweights happens second by second. For about the last 130 
years, we built the infrastructure necessary to ensure the 
plate doesn't topple. While I will talk about the need for more 
transmission generally, and it sounds like this committee 
agrees with that, this Nation also needs to develop a new type 
of grid, one that can't be described by plates, sticks and 
weights.
    While my written testimony discusses some of the barriers 
to building more transmission, I would like to focus my 
comments on three things the DOE is currently doing to remove 
those barriers.
    First, the power marketing administrations. The 
department's PMAs are at the forefront of our transmission 
authorities. Bonneville Power, or BPA, owns more than 15,000 
miles of transmission, and the Western Area Power Marketing 
Administration, or WAPMA, owns 17,000. The Recovery Act 
provided both PMAs with resources to, among other things, build 
new transmission. Both are moving forward expeditiously yet 
with due diligence to do just that. Section 1222 of EPAct 2005 
granted authority to Western and Southwestern to partner with 
the private sector to construct and upgrade transmission 
facilities in their service territories. Both the borrowing 
authority and Section 1222 allow the Secretary through the PMAs 
to help build transmission.
    Secondly, the backstop siting has already been discussed in 
the opening statements. Earlier this week, Secretary Chu and 
Chairman Wellinghoff have announced they have agreed to 
collaborate in their implementation of the Federal backstop 
siting law, which was also created in EPAct 2005. After vetting 
a proposal that he delegate his authorities to FERC, Secretary 
Chu declined to do so but is working with the chairman to 
develop processes to make the law more effectively. In addition 
to its collaboration with FERC, DOE recognizes that it can 
administer its 216(a) powers faster, better, with more 
transparency and more efficiently. Consequently, among other 
things, DOE will be doing the following: identify targeted 
areas of congestion based on the evaluation of existing 
information and on comments submitted by stakeholders; identify 
narrower congested areas than the broad areas that had been 
previously studied and solicit statements of interest from 
transmission developers while considering what national 
corridors to designate.
    Number three, the rapid response team for transmission. 
Just last week, the Obama Administration announced it would 
accelerate the evaluation of seven proposed transmission 
applications. The RRTT leverages a nine-agency collaborative 
that was established through a 2009 MOU. As an aside, that MOU 
was yet another authority based on another authority granted in 
EPAct 2005, Section 216(h). The nine agencies of the 2009 MOU 
have agreed to do the following and agree to the pilot 
projects: ID all Federal agencies with jurisdiction over 
transmission, coordinate the calendars of those agencies, 
establish milestones and target dates for permit evaluation, 
dedicate staff, and this may be one of the most important 
aspects of it, dedicate staff that is going to evaluate the 
transmission permit applications, and that staff is going to be 
trained in transmission issues such as transmission 
technologies, transmission economies and how transmission is 
developed and to create an online dashboard that will document 
the status. These seven projects will serve as demonstrations 
of the streamlined Federal permitting and increase cooperation.
    In closing, as someone who is passionate about the need to 
modernize our grid, I look forward to answering your questions.
    [The prepared statement of Ms. Azar follows:]
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    Mr. Whitfield. Thank you very much, and we appreciate your 
testimony. We actually didn't have an opportunity to read your 
testimony because it came in pretty late last night, but thank 
you for going through it with us this morning.
    Mr. Wellinghoff, would I be correct in saying that one of 
the reasons for issuing Order 1000 was a result of the Illinois 
decision in the 7th Circuit Court of Appeals? Was that one of 
the reasons that you all decided to issue Order 1000 or was 
that just one of the many reasons?
    Mr. Wellinghoff. Mr. Chairman, I don't believe that court 
case was a reason for issuing Order 1000. Certainly, Order 1000 
talks about costs and benefits, and the 7th Circuit case talks 
about costs and benefits as well, but I am not sure it was a 
reason for issuing Order 1000.
    Mr. Whitfield. Well, one of the reasons I bring that up, I 
was reading in that decision, and the court made some 
references about the lack of analysis on benefits and 
reliability and so forth, and as I was reading some of the 
comments of the witnesses that will be on other panels, they 
were also talking about the lack of clarity in Order 1000 on 
establishing benefits and calculating benefits, and I was 
curious from your perspective, do you feel like it is valid to 
criticize Order 1000 on the lack of clarity of the way you 
determine benefits or do you feel like that is something that 
you will address before it becomes final?
    Mr. Wellinghoff. The order is final, although it is subject 
to rehearing. We certainly will look at those comments with 
respect to clarity but it is sort of the glass half empty, the 
glass half full. Some people think there is not enough clarity, 
other people think there is not enough flexibility. What we 
wanted to try to do is preserve as much flexibility as possible 
for the reasons to ultimately determine what they believed were 
appropriate benefits in their bucket of benefits for that 
particular region. So Order 1000 was structured in a way to 
give the regions maximum flexibility. There are some people who 
are asking for more clarity, but if we give more clarity, that 
means more direction from Washington, more oversight from 
Washington and more specificity by us, and there is a lot of 
people who would then push back the other way on that. So it 
can go either way on that.
    Mr. Whitfield. Right. You are just trying to reach a fine 
balance, right?
    Mr. Wellinghoff. Yes.
    Mr. Whitfield. Would you describe how Order No. 1000 will 
impact utilities and stakeholders in traditionally regulated 
regions such as the Northwest and Southeast as opposed to 
organized wholesale markets?
    Mr. Wellinghoff. Well, I think it will be similar in the 
sense that both of those areas, those distinct areas, will have 
to have regional planning authorities, and in fact, they do. 
Even in the areas that do not have organized markets--the West, 
Northwest, that you talked about, Southeast as well--they do 
have now regional planning authorities that could qualify under 
Order 1000 as part of the Order 1000 process. So I don't see 
that there will be specific large differences between the two. 
Both areas will have to comply with the premise of Order 1000. 
However, Order 1000 as I mentioned before has sufficient 
flexibility so that those regions can tailor their regional 
activities to fit their regional needs.
    Mr. Whitfield. Ms. Azar, you have been over there, I think 
you said 5 months maybe. Is that right?
    Ms. Azar. Just completing four.
    Mr. Whitfield. When we talk about transmission needs of the 
country, there certainly are a lot of different studies about 
that, and what analysis have you seen since you have been at 
the Department of Energy that would reflect exactly how many 
transmission lines do we need, how many new ones do we need and 
what is the condition of the transmission infrastructure in the 
country in general, would you say? You know, we hear some 
criticism that it is an old system, it is outdated. What is 
your analysis just from your professional experience in that 
area about where do we really stand today on transmission needs 
in America?
    Ms. Azar. There are a variety of needs, and, you know, I 
don't rely on any one specific analysis because what I can tell 
you is, any specific analysis is based on assumptions that are 
guesses for what the future looks like, and we know it is going 
to be wrong, right? But we need to figure out a way in which to 
build the infrastructure that is going to work in the most of 
our guesses with what the future looks like, the most robust, 
the most resilient and the most flexible.
    Our needs are great, not just to build transmission itself 
to convey the electrons but we need a lot of different kinds of 
technologies for the grid to make it more resilient against 
things like what happened in San Diego, and I don't like to be 
an alarmist but what happened in San Diego with regards to the 
blackout in Arizona, California and New Mexico should never 
have happened. That was--you know, we plan the electric grid to 
accommodate at least one bad thing happening, and one bad thing 
happened but the grid went down there and so that tells me that 
we do have issues more than just meets the eye.
    Mr. Whitfield. And that was a result of one individual 
mistake being made, right?
    Ms. Azar. That is correct.
    Mr. Whitfield. OK.
    Ms. Azar. And he was not intending harm.
    Mr. Whitfield. OK. Mr. Rush, you are recognized for 5 
minutes.
    Mr. Rush. I want to thank you, Mr. Chairman.
    Chairman Wellinghoff, what role does Order 1000 provide for 
as relates to State regulators in the regional transmission 
planning process?
    Mr. Wellinghoff. It actually provides for a robust role for 
State regulators. In fact, includes in there a provision for 
cost recovery for allowances for State regulators to actually 
participate. So we are making every provision we can to ensure 
that they are included as part of the stakeholder process. They 
are included in the process in regional planning. In fact, I 
have had discussions with State regulators and I explained to 
them that they in fact can decide what their region will look 
like. I mean, they are the ones who really have the power. I 
have literally told them, they have the power to determine how 
these regions are formed and what the regions will consist of, 
and so as such, they really can step up and take the ball and 
run with it, and we have given them that opportunity in Order 
1000.
    Mr. Rush. So what has been their overall general response? 
Are they generally in favor of Order 1000?
    Mr. Wellinghoff. The ones I have talked to in the West have 
been pretty enthusiastic about that idea because they have sort 
of flexible regions in the West that have changed over time, 
and so this is an opportunity I think for some of the 
regulators in the non-RTO regions in the West to take hold. In 
the East, they have already more established RTO regions so 
usually those market regions are the planning authorities, and 
in fact, in those areas in the East, the regulators are 
participating in those RTO regions very heavily already, so 
they seem to be oK with it.
    Mr. Rush. And that would also include most of the Midwest 
also?
    Mr. Wellinghoff. Yes.
    Mr. Rush. Order 1000 relies heavily on regional 
transmission planning processes to develop and implement cost 
allocation methods for new transmission facilities. How will 
FERC ensure that it does not delegate too much authority to 
regional stakeholders?
    Mr. Wellinghoff. Well, through a number of ways. Certainly 
by the overall guidelines that we have set forth in Order 1000, 
by the review process that we have with respect to the planning 
processes that will come back and the cost allocation processes 
that will come back. We have to approve those in a compliance 
order and also through the complaint process where if any of 
the regions are engaging in this planning in a way that goes 
outside of those boundaries, anyone can come to FERC, file a 
complaint and we can resolve the issue. So we ultimately have 
the ultimate decision-making authority with respect to those 
activities, even though we have given the regions all this 
flexibility. I mean, we let them go off and hopefully they can 
solve their own problems but if they can't, FERC is the 
ultimate arbiter of the final activity there.
    Mr. Rush. The courts have held that cost allocation methods 
must satisfy, and I quote ``cost causation principle.'' Can you 
explain what your understanding of that principle is? How does 
the emphasis on beneficiaries in Order 1000 meet that test?
    Mr. Wellinghoff. Yes, I can. It is my understanding that 
the D.C. Circuit and also the 7th Circuit case have indicated 
that people who benefit can be in essence those cost causers. 
So to the extent, and again, we have made it very clear in the 
rule, to the extent that there are benefits, then costs can be 
allocated to individuals that benefits are determined but the 
determination of those benefits, and this goes back somewhat to 
the clarification question of the chairman, the determination 
of those benefits and how those benefits will be structured 
will be up to the individual regions of how they will determine 
what will actually be benefits, but there can be that causation 
link between costs and benefits, as I understand it from a 
number of circuit court decisions.
    Mr. Rush. Mr. Chairman, I want to thank you, and I yield 
back the balance.
    Mr. Wellinghoff. Thank you.
    Mr. Whitfield. Thank you, Mr. Rush.
    At this time I recognize Mr. Terry for 5 minutes.
    Mr. Terry. Thank you.
    Mr. Wellinghoff, help me, because I am uncertain what a 
region is and how it is developed, and it is all interstate? Is 
it allowed under the order for States to band together? I just 
can't get my mind around the definition of region, so work me 
through that.
    Mr. Wellinghoff. Certainly. I would be happy to. The way we 
have defined a region in the Order 1000 is pretty open. It 
allows the States to determine what they want to be a region. 
The minimum we have said, it has got to be at least two 
utilities, so you can't just have one utility be a region. You 
have to plan with more than another utility. But ideally, it 
can be as large as PJM, which is a very large regional 
transmission organization that goes all the way from New Jersey 
to Chicago, extremely large, 133,000 megawatts of power under 
control, or it could be as small as two utilities in the 
Southeast. I believe that there is two or three utilities in 
the Southeast that have decided to form themselves into a 
region. I think South Carolina Electric and Gas and one other 
utility, I believe, have decided to form themselves into a 
region, and again, this is ultimately with the approval and 
assent of their State public utility commissioners. Those 
utility commissioners make determinations----
    Mr. Terry. But they can only do within the one State so if 
it is multi-State, is that where FERC comes in and organizes?
    Mr. Wellinghoff. Well, no. If it is within one State, it is 
still only related to interstate transmission, and transmission 
in that State of a certain voltage----
    Mr. Terry. And you are saying----
    Mr. Wellinghoff (continuing). And certain characteristic in 
nature is determined to be interstate transmission. So you 
could have, you know, within one State transmission that is 
still interstate transmission under FERC's jurisdiction. But 
with respect to a utility's participation in that particular 
entity, a State commission is going to have a big say in that 
as well.
    Mr. Terry. Ms. Azar, does DOE have any concerns about the 
unyielding nature of the definition of region?
    Ms. Azar. DOE is supportive of the Order 1000. We think it 
is a good step towards getting transmission built. As the 
chairman has indicated, they had to weigh and balance a lot of 
different interests in this and are trying to give flexibility 
at the same time being prescriptive, and I think we will be 
able to tell with time if they reached the balance 
appropriately that allowed us to build transmission.
    Mr. Terry. Mr. Wellinghoff, does FERC Order 1000 allow for 
a preference in energy depending on how it is generated? For 
example, will clean energy have a preference over, let us say, 
coal-generated electricity?
    Mr. Wellinghoff. No.
    Mr. Terry. None at all?
    Mr. Wellinghoff. The regions will determine how to plan for 
the transmission they need, and that transmission will be 
driven by market forces. So whatever the market forces are with 
respect to the particular resources that are developed in that 
region, those will be the resources that will get on those 
transmission lines.
    Mr. Terry. OK. So there is no mechanism to say public 
policy requires that clean energy be used?
    Mr. Wellinghoff. The market forces will be driven by market 
things like fuel prices and other characteristics and also will 
be driven by both State and Federal public policy 
determinations as they are in all the States in this country. 
There are some 30-odd States that have renewable portfolio 
standards, for example. Those are in essence market forces that 
have been created by State legislatures that set forth certain 
resource decisions in the markets.
    Mr. Terry. Ms. Azar, any comment?
    Ms. Azar. No. With regards to public policy, public policy 
when it is required and mandated is used in transmission 
planning to determine what sort of infrastructure we need, and 
whether it be, you know, a requirement that, you know, a 
certain State complies with a renewable portfolio standard, 
that would be one thing that the utilities have to comply with. 
So in order to predict what the future looks like, you are 
going to assume that that is true. The same thing that if, for 
instance, a State would come up and say look, you need to 
assume that clean coal technology is going to work and that is 
what our future is going to look like, transmission planning 
would incorporate that kind of public policy and Order 1000 
requires that.
    Mr. Terry. Thank you. Yield back.
    Mr. Whitfield. Thank you, Mr. Chairman.
    At this time I will recognize the gentleman from Michigan, 
Mr. Dingell, for 5 minutes.
    Mr. Dingell. Mr. Chairman, I appreciate your courtesy and I 
commend you for this hearing.
    These questions are to Mr. Wellinghoff. First, welcome. 
Second, I hope you will answer these questions yes or no 
because that will enable us to get a lot more on the record. 
One, does Order 1000 provide subsidies for renewable energy or 
transmission lines to carry renewable energy? Please answer yes 
or no.
    Mr. Wellinghoff. No.
    Mr. Dingell. Does Order 1000 provide incentive rates for 
renewable energy lines? Yes or no.
    Mr. Wellinghoff. No.
    Mr. Dingell. By the way, thank you for your cooperation. No 
disrespect is intended here.
    Mr. Wellinghoff. I am happy to answer for you.
    Mr. Dingell. Does Order 1000 require anybody to pay for 
transmittal for which they receive no benefit? Yes or no.
    Mr. Wellinghoff. No.
    Mr. Dingell. Does Order 1000 require anybody to use or 
build renewable energy generation? Yes or no.
    Mr. Wellinghoff. No.
    Mr. Dingell. My home State of Michigan has a renewable 
portfolio standard that must be met by in-State generation. In 
other words, a wind farm in South Dakota cannot be used to meet 
Michigan RPS requirements. Would a regional planning evaluation 
under Order 1000 take into account laws like that of Michigan? 
Yes or no.
    Mr. Wellinghoff. It would be up--that is a hard yes or no 
one. It would be up to the regional planning group to make that 
decision.
    Mr. Dingell. OK. And wherever we get to the point where we 
have some difficulty on this yes or no, I would expect that you 
would submit some additional comments for the record if you 
please.
    Mr. Wellinghoff. I would be happy to do that, Mr. Dingell.
    Mr. Dingell. Now, in Order 1000, FERC notes that after 
Order 890 was issued in 2007, conferences and requests for 
comments were held in 2009. Did these conferences or comments 
include discussions of issues that were ultimately included in 
Order 1000?
    Mr. Wellinghoff. I believe so but I will have to submit 
something to you on that to make sure.
    Mr. Dingell. And again, I apologize for this, but time is 
so limited here.
    Were public utilities allowed to participate in the 
conferences or requests for comments?
    Mr. Wellinghoff. I believe so.
    Mr. Dingell. By delegating much of the responsibility for 
transmission planning and cost allocation to multiple and 
diverse regions, do you risk dilution of consistence and 
supportable national energy policy? Is that a risk?
    Mr. Wellinghoff. I don't believe so, no. I believe that I 
have a lot of faith in the regions.
    Mr. Dingell. And I in you and I hope that you will feel 
free to add additional comments.
    Order 1000 states FERC's intention was not to disrupt the 
progress made with respect to transmission planning and 
investment in transmission infrastructure. However, isn't the 
act of requiring regions to develop inter- and intraregional 
planning processes disruptive?
    Mr. Wellinghoff. There is an assumption to your premise of 
your question that is incorrect. Order 1000 does not require 
interregional planning.
    Mr. Dingell. OK. And I don't want you to be hesitant about 
disagreeing with me if you do.
    Claims have been made on both sides of this issue that the 
policies in Order 1000 will either greatly increase rates on 
consumers or will help keep rates down. Which do you think will 
be the case?
    Mr. Wellinghoff. I think it will improve efficiencies and 
keep rates down.
    Mr. Dingell. Well, we have completed this in 1 minute--or 
rather we have 1 minute and 15 seconds.
    Ms. Azar, do you have any comments to make on the points 
that we have just had?
    Ms. Azar. No. Thank you, sir.
    Mr. Dingell. Mr. Wellinghoff, the statutory authority for 
Order 1000, is that the Federal Power Act or is that other 
enactments that we have made such as some of the conservation 
energy legislation that we have passed in the last couple 
years?
    Mr. Wellinghoff. It is the Federal Power Act, sir.
    Mr. Dingell. Only?
    Mr. Wellinghoff. Yes.
    Mr. Dingell. OK. Do you need additional statutory authority 
to make this work or to enforce that properly or to see to it 
that the process goes forward?
    Mr. Wellinghoff. I do not believe so.
    Mr. Dingell. Mr. Chairman, I yield back 26 seconds. Thank 
you.
    Mr. Whitfield. Thank you very much, Mr. Dingell.
    Mr. McKinley, you are recognized for 5 minutes.
    Mr. McKinley. Thank you, Mr. Chairman.
    I haven't had a chance to read your 620 pages of this order 
yet, but from what I can gather, everyone else is going to have 
trouble understanding that as well and some of the questions 
that have already come up suggest there are still a lot of 
questions, like the regional planning. In your testimony, you 
say it does not establish regional boundaries but yet in the 
testimony you said there has to be regional planning. Who is 
going to set that? I am a little confused, just like 
Congressman Terry, as to who sets these boundaries. Are these 
going to be like the football conferences that they keep 
changing all the time? Can we have overlapping regions? I 
thought I gathered a little of that earlier. Can you describe 
just a little bit about what those councils could be, these 
planning groups? If it is not set up, who sets them up? The 
companies themselves, these two companies?
    Mr. Wellinghoff. To my knowledge, everyone in the country, 
these are already set up. In some places, they are part of the 
processes of the organized wholesale markets, the regional 
transmission organizations or the independent system operators. 
In other places where those don't exist and there is six of 
those under our jurisdictions, where they don't exist, which is 
primarily the Southeast and the West except for California, 
they have the States and the utilities and the transmission 
owners and other stakeholders have already formed themselves 
largely into regions, but if the State utility commissioners or 
other----
    Mr. McKinley. So is West Virginia-which one are we in? 
Which region are we in then if you say that they are already--
--
    Mr. Wellinghoff. I believe you are in PJM.
    Mr. McKinley. And PJM would be?
    Mr. Wellinghoff. A regional transmission organization that 
goes all the way from New Jersey to Chicago.
    Mr. McKinley. OK.
    Mr. Wellinghoff. It has been in place for many years.
    Mr. McKinley. One of your answers I found was interesting 
because it was back to Congressman Dingell's question. You said 
there is no subsidy, but I am a little confused about it and 
you can help me out here with this because of the Caparden 
article that came out in July. So what you are saying is that 
prior to renewables the cost is X to the customers in West 
Virginia, but then when we bring renewables on and it becomes 
cost X plus something else, isn't that a subsidy?
    Mr. Wellinghoff. I am sorry. I am not familiar with the 
Caparden article
    Mr. McKinley. Well, it was published on July 28th and it 
said this is going to be the--that your ruling will be the most 
progressive clean energy action the Federal Government will 
take this year resulting in thousands of miles of new line to 
bring renewable energy to your home. I am not opposed to new 
energy but I think that we all have to--you said there is no 
subsidy but it sure smells to me like in these 620 pages that 
there is a subsidy in here somehow for renewable energy because 
if the cost prior to renewables is X, it is going to increase 
once we put a new transmission line into a wind farm that that 
cost is going to increase, so why isn't that a subsidy? Is that 
just Washington talk?
    Mr. Wellinghoff. Mr. McKinley, I have read all 620 pages 
and I can assure you there is no subsidy in there for 
renewables.
    Mr. McKinley. If their cost goes up by having renewables 
because we are putting a line in for a wind farm and now I have 
to pay more, why is that not a subsidy?
    Mr. Wellinghoff. Again, I take you back to the 620 pages. 
There is nothing in there with respect to one kind of----
    Mr. McKinley. Is this about the definition of benefit?
    Mr. Wellinghoff. No, it is not about the definition of 
benefit at all. It is ultimately about what is in the 620 
pages, which has nothing to do with a particular resource. It 
has to do with planning and allocation of transmission costs.
    Ms. Azar. Congressman, can I weigh in here?
    Mr. McKinley. Please.
    Ms. Azar. I just wanted to point out in PJM alone, the lack 
of transmission cost your constituents and the other 
constituents in PJM, $1.4 billion in 2010 alone, and by 
building more transmission and getting the system to be more 
efficient, we are not going to be letting that money on the 
table anymore and so there is ways in which, you know, money is 
going to be saved as we are bringing on new generation that is 
moving us into the new economy.
    Mr. McKinley. I am just trying to understand the effect, 
what the likelihood of increased cost is going to be under 
Order 1000 to the residents of West Virginia.
    Ms. Azar. I actually think they will go down.
    Mr. McKinley. Mr. Wellinghoff, can you tell me, is it 
likely? What is the cost going to be to the residents?
    Mr. Wellinghoff. I think as Ms. Azar has indicated, to the 
extent that we can reduce congestion in West Virginia, we can 
provide access to West Virginia to lower cost resources, 
ultimately your costs will be lower.
    Mr. McKinley. So Order 1000 you think is going to lower 
utility costs?
    Mr. Wellinghoff. Order 1000 will allow for the planning and 
cost allocation of efficient transmission. Efficient 
transmission can in fact lower cost.
    Mr. McKinley. Do you think it will?
    Mr. Wellinghoff. I can give you one particular example in 
northern New Jersey, for example.
    Mr. McKinley. I don't care about northern New Jersey.
    Mr. Wellinghoff. Well, it is an example----
    Mr. McKinley. I asked about West Virginia, the 1st District 
of West Virginia.
    Mr. Wellinghoff. Again, efficient transmission and markets 
will lower your cost.
    Mr. Whitfield. The gentleman's time is expired.
    Mr. Griffith, you are recognized for 5 minutes.
    Mr. Griffith. Our districts don't touch but I am in the 
same neighborhood as Mr. McKinley, so I do have concerns there 
because, you know, it is hard to cheaper than what we used to 
have, and I understand some environmental concerns, and I if 
understood you correctly, Mr. Wellinghoff, the 620 pages, and 
I, like Mr. McKinley, have not had an opportunity to get 
through all 620 pages of it, but as I understand from your 
testimony previously, the 620 pages doesn't have anything to do 
with that, that has to do with public policy decisions made at 
the State and Federal level. Is that correct?
    Mr. Wellinghoff. I am sorry. I don't understand the 
question.
    Mr. Griffith. Doesn't the fact that if costs go up because 
we are bringing in renewable energy and new sources of energy, 
that is not because of your transmission line? If I understood 
your testimony correctly, that is not because of the 
transmission line or the 620 pages of Order 1000 but because of 
other public policy decisions made by the State and Federal 
Governments.
    Mr. Wellinghoff. Any public policy decisions that influence 
the markets will influence the costs in those markets.
    Mr. Griffith. All right. So let me ask you, if we are 
building a small wind farm on top of a mountain in my district, 
who pays for that electricity to get to the grid? Is that 
something that is paid for by the developer of the wind farm or 
is that going to be picked up by the region? And I am also in--
I always get the initials backward--but PJM.
    Mr. Wellinghoff. If it a gen tie line, a line going from 
the wind farm into a particular transmission line, which gen 
ties are not part of Order 1000, then the developer will pay 
for the line.
    Mr. Griffith. Now, apparently in March you stated that ``I 
believe that additional Federal authority with respect to 
transmission planning, site and cost allocation would 
significantly increase the likelihood that those needed 
facilities would be constructed in a timely manner.'' In Order 
1000, you assert that FERC already has this authority, and you 
indicated in answering to Mr. Dingell that the authority came 
out of the Federal Power Act, and I am wondering, just so I can 
save myself a lot of time, where will I find that authority in 
the Federal Power Act and was it there before and you hadn't 
stumbled across it, or what is different between now and March?
    Mr. Wellinghoff. I am sorry. What specific authority are 
you referring to?
    Mr. Griffith. OK. Mr. Dingell asked you about the authority 
to do the things that you need to do.
    Mr. Wellinghoff. It is under the Federal Power Act, but I 
didn't understand the first part of your question. I am sorry.
    Mr. Griffith. OK. I am looking at a statement here that was 
given to me that says that in March you testified that ``I 
believe that additional Federal authority with respect to 
transmission planning, siting and cost allocation would 
significantly increase the likelihood that those needed 
facilities would be constructed in a timely manner,'' and I am 
just wondering, guide me through how I reconcile March to now.
    Mr. Wellinghoff. OK. That is a fair question, and I am not 
certain--I will tell you quite frankly, I am not certain what 
my reference was there. I perhaps was referring to the issue of 
siting, which is not under Order 1000. Order 1000 only relates 
to planning and cost allocation. There has been a lot of 
discussions about siting back and forth, the recent decision by 
Secretary Chu and others, so I may have been referring to 
siting specifically.
    Mr. Griffith. And maybe we can have a conversation later or 
maybe we can figure out how you can rectify that.
    Mr. Wellinghoff. I would be happy to.
    Mr. Griffith. I am not trying to get a ``gotcha.'' I am 
just trying to sort it all out because I am one of those people 
that, you know, I may not get to it today but I am going to 
read through the 620 pages at some point, and it would save me 
a lot of time instead of having to read through the whole power 
act and figure out what part gives you authority, if you could 
get somebody to get me a cite for that so I can read that as 
well.
    Mr. Wellinghoff. I would be happy to do that.
    Mr. Griffith. Thank you very much. I appreciate it.
    Mr. Wellinghoff. Thank you.
    Mr. Griffith. Mr. Chairman, with that I will yield back my 
time.
    Mr. Whitfield. Ms. Azar, I want to just ask you one 
question. You had made a comment about moving into the new 
economy, and could you just explain to us what is your 
perspective of the new economy?
    Ms. Azar. Well, the new economy includes things like this, 
that we are powering up and it is likely a dramatic increase in 
the use of electricity through electric vehicles, through 
continued development of gadgets like this, and also things 
like cybersecurity where we want to make sure that our grid is 
resilient and strong and that we are competing with--able to 
compete with the global economy. So we need a resilient grid. 
We need, you know, good resources and we need it to be at a 
reasonable cost.
    Mr. Whitfield. Thank you.
    Mr. Shimkus, you are recognized for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. I apologize. I had to 
go to the floor and spend 5 minutes talking about Yucca 
Mountain, which is another favorite topic of mine. I know, Mr. 
Wellinghoff, you understand that.
    Some general questions to the Department of Energy. Do you 
have any views on FERC Order No. 1000?
    Ms. Azar. Yes. In general, the Department of Energy 
supports FERC Order 1000 as a good step forward in trying to 
get transmission built. I think time is going to tell whether 
or not it is sufficient. They tried to balance some very 
difficult interest there.
    Mr. Shimkus. In your testimony, you identified that it 
takes about 10 years to build transmission and approximately 3 
years to build new generation facilities. I have been a member 
15 years. I have still got some general facilities that we are 
trying to get built, so I don't know where those--maybe that is 
after all the permitting.
    Ms. Azar. It just depends on what the generation is. I 
mean, natural gas and, you know, certain kinds of renewables 
can be built very quickly. Nuclear and baseload coal plants 
take much longer.
    Mr. Shimkus. What implications do the differing development 
periods have on resources planning? In other words, you have 
got 10 and 3----
    Ms. Azar. Significant differences. You know, transmission 
planning--usually when people are doing planning, it is a lot 
easier to plan in the near term than the long term, and so when 
you are thinking about some dramatic changes in, you know, how 
energy is going to move, how our populations are going to move, 
how our economy is going to move, it is a lot more difficult to 
predict where we are going to be in the future, and so when you 
are thinking about transmission, and it takes so much longer to 
build transmission, you are looking in the far term and so 
predicting with accuracy is not something that frankly is a 
goal predicting, you know, essentially designing a system that 
is going to accommodate a lot of different hypothetical futures 
is what we do in transmission. That is not what you do when you 
are trying to decide what kind of generation to build and where 
to build that.
    Mr. Shimkus. And why I am going down this line of 
questioning is that we do know with clean air, interstate 
transport rule or whatever the name of it is, that there is 
generation that is going to be retired. In fact, there was an 
announcement that two coal-fired power plants would go offline, 
about 600 megawatts in total that will not be available, as in 
the last hearing, baseload generation. I think it affects 
reliability concerns.
    But it sounds like we may be able to build at least some 
new generation in the near term but new transmission lines to 
connect this generation as you were just answering could be put 
off.
    Ms. Azar. No, no, I didn't say put off. There is a 
disconnect between the planning horizons which actually creates 
difficulties. It doesn't mean transmission should be put off. 
It is actually the exact opposite. Because transmission takes 
so long to plan and build, we need to do it now so that we can 
accommodate new generation.
    Mr. Shimkus. That is a better way to put it, and I 
appreciate. With that disconnect, that does affect reliability. 
I mean, if you have generation and you don't have transmission, 
I mean, the whole baseload debate----
    Ms. Azar. I think you and I are using the term 
``reliability'' differently. With regards to how reliable the 
system is, that is exactly what we--what is why we do the 
planning.
    Mr. Shimkus. But the disconnect between the building of new 
generation and the transmission lines can cause problems.
    Ms. Azar. It can cause difficulties, correct.
    Mr. Shimkus. Do you believe the 9th Circuit decision in the 
California Wilderness Coalition versus DOE impaired DOE's 
ability to carry out its duties under Section 216 of the 
Federal Power Act?
    Ms. Azar. I think we need to do it differently, and we are 
doing it differently.
    Mr. Shimkus. And what do you believe are the primary 
barriers to building transmission in this country?
    Ms. Azar. How long do we have?
    Mr. Shimkus. I have 48 seconds.
    Ms. Azar. All right. There is a lot of different barriers. 
It depends on different regions, and I set forth just some of 
them in my written. I apologize that I didn't get it to you 
sooner but we didn't have enough notice for getting it in on 
time. With regards to the barriers, things like market power, 
things like, you know, the lack of willingness of load-serving 
entities to want to sign power purchase agreements for merchant 
generation for us to allow to do the proper planning is another 
one. Yes, you keep looking at the clock, which makes me more 
and more nervous. I would be happy to talk with you, sir, 
offline or submit further comments on the record.
    Mr. Shimkus. No, we appreciate it. Thank you for your time.
    I yield back.
    Mr. Whitfield. Thank you very much.
    Mr. Green, you are recognized for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. Welcome to our panel.
    Chairman Wellinghoff, Texas has led the way in identifying 
competitive renewable energy zones and ensuring the development 
of adequate transmission infrastructure to bring the new 
renewable resources from those renewable rich zones to the 
concentrated loads in our urban area. Is it fair to say that 
Order 1000 provides a structure for other regions of the 
country to likewise identify and build transmission 
infrastructure that is needed to bring new renewable resources 
online?
    Mr. Wellinghoff. Mr. Green, I would agree that Texas is a 
great model. You have done a great job down there in Texas. 
Even though FERC has no jurisdiction with respect to 
transmission planning and cost all and Order 1000----
    Mr. Green. We are all familiar with ERCOT.
    Mr. Wellinghoff (continuing). Does not apply to Texas 
specifically, but certainly the types of things that Texas has 
done with building the $5 billion worth of transmission in 
Texas are the types of things that other regions could look at. 
They will have that opportunity in planning processes and 
processes that are set forth and structured in Order 1000 for 
those other regions, yes.
    Mr. Green. Transmission development is done incredibly 
well, as you said, in Texas using your regional approach. Are 
you surprised by some of the criticism of the order?
    Mr. Wellinghoff. Well, there is always going to be 
criticism to anything that is suggested from a Federal 
regulatory standpoint. Again, we are trying to give as much 
flexibility to those regions as possible, and sometimes giving 
flexibility, you get criticism coming back the other way, as I 
indicated from the question of the chairman earlier about 
clarity. If you give too much flexibility, people think you are 
not being clear enough, and if you give too much clarity, 
people think you are being too restrictive. So again, we are 
trying to strike a balance, trying to give those regions that 
balance they need to do what they need to do to ensure they get 
the transmission built to economically reduce costs for 
consumers.
    Mr. Green. Well, I know we have done great with growth of 
wind power in west Texas, but it doesn't do any good in west 
Texas. The customers are in Dallas-Fort Worth, Houston, 
Galveston, San Antonio, so that commitment there. Mr. Transeth, 
who will be testifying on our next panel on behalf of the 
Coalition for Fair Transmission Policy, writes that ``FERC 
Order 1000 is deficient not so much on what it says but more 
what it doesn't say. Under the Order, the commission delegates 
to regions the ability to determine how transmission planning 
will be conducted and how costs will be allocated with very 
little, if any, guidance on the parameters of such important 
decisions.'' Mr. Transeth also writes, ``In particular, the 
order provides no guidance to regions on how benefits should be 
defined, thus leaving open the very real possibility regions 
can adopt extremely broad definitions and result in unfounded 
conclusions that everyone benefits from new transmission and 
should all pay, thus socializing the transmission costs.'' What 
do you say to this criticism?
    Mr. Wellinghoff. Well, FERC will provide the ultimate 
guidance to the extent that a particular region can make 
decisions, can't arrive at their own decisions with the 
flexibility that we have given them. It will fall back to FERC 
to ultimately set forth a cost allocation methodology and make 
those decisions, and we have made that clear in the order. So 
again, I think the criticism is unfounded because again, we do 
try to give the regions the amount of flexibility and the 
amount of room that they need to do what they need to do for 
the regions, but again, if that clarity and preciseness is 
needed in the sense that they can't make the decision 
themselves within the structure that we have given in Order 
1000, then ultimately when those compliance plans come in 
showing that they haven't made a decision, FERC will make the 
decision for them. I don't relish that. I don't think that is 
the best way to do it, but again, that is the ultimate end of 
the line where the buck stops with FERC.
    Mr. Green. For the most part our Texas grid is regulated 
under ERCOT, an RTO that is actually regulated at the State 
level and not by FERC. A small part of Texas falls in the 
Southwest Power Pool, though, and it is my understanding that 
SPP first began its process for determining its regional 
planning process shortly after FERC first proposed its regional 
planning and cost allocation rule in 2010. Was the SPP 
methodology approved by FERC?
    Mr. Wellinghoff. We set some parameters out in Order 890 
with respect to planning, so to that extent, and they did file 
a compliance plan for Order 890, so to that extent, we did 
review their planning process. We certainly haven't reviewed 
the one that would be under Order 1000 as of yet, and I believe 
you have got Nick Brown from SPP who is going to testify here 
before you today.
    Mr. Green. Have any other RTOs sent updated planning and 
cost allocation methodology to FERC for approval since the rule 
was first proposed in 2010, and if so, were those approved? Was 
there pushback in the region on the methodology, et cetera? 
First of all, I guess, were updated plans and cost allocation 
submitted to FERC?
    Mr. Wellinghoff. There have been some submitted. Some are 
pending before us, which I can't talk about because they are 
pending cases before us, but there have been some submitted.
    Mr. Green. Some have been approved?
    Mr. Wellinghoff. I believe some have been approved, but 
there are a number that are pending right now before us as 
well.
    Mr. Green. And the last thing, although I am out of time, 
Mr. Chairman, has there been pushback on the methodology?
    Mr. Wellinghoff. Certainly there has been differing sides 
on the methodology, and again, that is what FERC does is, we 
resolve those issues as to the differing positions on 
particular methodologies.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Whitfield. At this time I recognize the gentleman from 
Colorado, Mr. Gardner, for 5 minutes.
    Mr. Gardner. Thank you, Mr. Chairman, and thank you as well 
to the witnesses.
    Mr. Wellinghoff, a question for you. Are you familiar with 
the cap-and-trade legislation that passed the House a couple 
years ago?
    Mr. Wellinghoff. No, I am not.
    Mr. Gardner. Were you familiar with any of the amendments 
that were added to it in terms of transmission siting issues, 
the manager's amendment?
    Mr. Wellinghoff. I don't believe so, no.
    Mr. Gardner. There was an amendment that was added in the 
negotiations at the end of the process, and I will read you a 
summary of the amendment. It basically passed onto the bill. It 
provided FERC with siting authority for the construction of 
certain high-priority interstate transmission lines constructed 
in the western interconnection and amended the National 
Interstate Electric Transmission Corridor. The DOE/FERC 
delegation proposal, is that the same kind of idea? If you 
aren't familiar with that amendment, perhaps you could get back 
to me.
    Mr. Wellinghoff. I would be happy to get back to you on 
that.
    Mr. Gardner. Thank you very much. And then I will be asking 
this question later as well to some other witnesses, but it is 
my understanding that the order, the FERC Order 1000, requires 
each public utility transmission provider to participate in the 
regional transmission planning process. While some regions of 
the country have regional transmittal organizations that could 
run such a process, others do not. Could you explain to me how 
the regional planning requirement would work for States like 
Colorado that aren't part of----
    Mr. Wellinghoff. Could you explain to me which ones don't 
have those--my understanding is everyone--Colorado, in fact, is 
in one of the western regional planning entities. I am not 
sure. There is a couple out there, I am not sure which one it 
is in, but in fact, they are already in one and they are 
already conducting regional planning.
    Mr. Gardner. Well, perhaps I can get back to you with 
further details of the question. It is my understanding from a 
number of the public utility providers that they are not right 
now in an RTO.
    Mr. Wellinghoff. They are not in an RTO but they are in a 
regional planning entity. There are regional planning entities. 
RTOs and regional planning entities aren't necessarily the same 
thing. A lot of RTOs do the regional planning but in other 
areas where they don't have RTOs, they just have regional 
planning entities that in essence are an informal group of 
utilities who come together with stakeholders including State 
commissioners and transmission owners and consumers and others 
that participate in these processes. There is one called West 
Connect and there is ColumbiaGrid, and there is a number of 
other ones in the West, and I know that Colorado----
    Mr. Gardner. Perhaps you could follow up with your office a 
little bit more with this question because there are some 
concerns from my constituents.
    Mr. Wellinghoff. Sure.
    Mr. Gardner. I yield back my time, Mr. Chairman.
    Mr. Whitfield. Thank you. At this time I recognize the 
gentleman from Texas, Dr. Burgess, for 5 minutes.
    Mr. Burgess. Thank you, Mr. Chairman, and thanks to our 
witnesses for being here.
    Mr. Wellinghoff, kind of following up on what Mr. Gardner 
was asking, the regional planning entity, Texas, as I 
understand it, is sort of its own regional planning entity. Is 
that correct?
    Mr. Wellinghoff. ERCOT is the regional planning entity, and 
in fact, they are again outside of our jurisdiction and not 
under Order 1000.
    Mr. Burgess. As it should be. And just to follow up on some 
of the stuff that Mr. Green was asking, are there implications 
for Texas about the rule that is being discussed this morning? 
So ERCOT is outside but there are other areas that will be 
affected?
    Mr. Wellinghoff. There is a very small piece. I believe 
that it is in SPP that is already part of the SPP planning 
process and participates and will be affected to the extent 
that they are part of what SPP already does and then what SPP 
needs to conform to vis-`-vis Order 1000.
    Mr. Burgess. Now, one of the things that we see happening 
in Texas is of course all of the wind occurs in places where 
people don't live and people live in places where the wind 
doesn't blow, so getting the power from the wind farms in west 
Texas to the population centers in the metroplex requires an 
east-west transmission line, which is essentially going to 
bisect my district. Now, the planning for that, is that all 
handled at the State level through the public utility 
commission?
    Mr. Wellinghoff. In Texas?
    Mr. Burgess. In Texas.
    Mr. Wellinghoff. I believe so but I am not that familiar 
with----
    Mr. Burgess. So FERC is not involved in the----
    Mr. Wellinghoff. No.
    Mr. Burgess. There is not a Federal role in the siting of 
those transmission lines?
    Mr. Wellinghoff. No.
    Mr. Burgess. It occurs at the State level?
    Mr. Wellinghoff. That is correct.
    Mr. Burgess. Mr. Chairman, in the interest of comity, I am 
going to yield back the balance of my time.
    Mr. Whitfield. You are so kind. Thanks.
    Mr. Walden, you are recognized for 5 minutes.
    Mr. Walden. Thank you, Mr. Chairman, and I thank you for 
holding this hearing. I have got a couple of questions here.
    Picking up a bit on what my colleague from Colorado asked 
about the western regions, now, it is my understanding, non-
jurisdictional utilities such as municipalities and the 
Bonneville Power Administration have raised various concerns on 
rehearing of FERC Order 1000. specifically, for BPA, the 
Transmission System Act of 1974 charges the BPA Administrator 
with determining what transmission investments are necessary 
and appropriate. BPA has also expressed concerns to FERC that 
this responsibility is non-delegable. Also, BPA's capital is 
limited. The Administrator is required to include proposed 
expenditures in his budget submission to the Congress. BPA has 
expressed concerns to FERC that obligations of its capital must 
be decided upon by the Administrator consistent with that 
statutory budget process.
    So Mr. Wellinghoff, can you assure me the commission will 
thoroughly consider and be responsive to these concerns?
    Mr. Wellinghoff. I can assure you of that.
    Mr. Walden. You can?
    Mr. Wellinghoff. Yes.
    Mr. Walden. Good. Thank you, sir. As you know, the Pacific 
Northwest had implemented extensive and transparent 
transmission planning processes that have identified several 
transmittal lines that need to be built to address transmission 
congestion and reliability issues. These lines are in the 
process of being approved and built. This is all being done 
without an RTO. Will the commission be flexible under its order 
and allow the existing regional planning processes in the West 
to address the transmission needs of all their utilities and 
customers?
    Mr. Wellinghoff. Those regional entities that are 
conducting that planning are certainly open to do that, yes.
    Mr. Walden. So your order will allow that to continue?
    Mr. Wellinghoff. I believe so.
    Mr. Walden. As a westerner, you know that 50 percent of the 
West is owned by the Federal Government--well, controlled by 
the Federal Government--and the single greatest obstacle to 
building transmission in the West is the difficulty of doing so 
on Federal lands. What can FERC do to overcome this obstacle? 
Because a lot of these lines these companies are looking at 
putting in, they are just saying I am not even going to waste 
my time going over here on the Federal ground. It is just too 
difficult, cumbersome to litigate it. So then they try and take 
it on the private ground, which of course causes a few issues 
with farmers who are having to give up a couple hundred feet on 
each side of this big lines of prime farm ground or they try 
and run it right in front of the Oregon Trail Interpretative 
Center windows. Can you give us some help here? Is the 
Administration open to doing anything to help on the Federal 
land to expedite the issues we face there on siting?
    By the way, I am hearing the same thing on the fiber side 
with the BTOP grants. I met with a recipient of one of the 
grants to build out fiber, and it is the Forest Service and the 
permitting process and it is this and it is that. It seems like 
every intersection of the Federal Government becomes more 
dangerous and slow and congested.
    Ms. Azar. Congressman, can I answer that?
    Mr. Walden. You may.
    Ms. Azar. Wonderful. And thank you for the question because 
we have set up a rapid response team for transmission which is 
precisely addressing that issue, which is to make the Federal 
permitting process for transmission lines much more expedited, 
and the application of the statutes are still going to happen 
but we can do it better, we can do it faster, and we are going 
to.
    Mr. Walden. All right. So if we have specific instances, we 
could contact you and----
    Ms. Azar. Absolutely. I can give you my cell phone.
    Mr. Walden. Excellent. Thank you.
    As a practical matter, utilities in the Pacific Northwest 
need to coordinate interregional transmission planning with the 
Bonneville Power Administration, a non-jurisdictional Federal 
entity. Does FERC anticipate that BPA will fully participate in 
the interregional planning process under Order 1000?
    Mr. Wellinghoff. Certainly, they are encouraged to do so. I 
can't speak for Steve Wright or what BPA will actually do but 
they are certainly encouraged to do so, and we would hope they 
would.
    Mr. Walden. And will transmission projects that are taken 
through a regional or interregional cost allocation process be 
given special consideration by FERC for incentive rates?
    Mr. Wellinghoff. We have a pending incentive rate docket 
open right now. I can't say one way or the other.
    Mr. Walden. OK. I have no bonus question for this round. 
Thank you, Mr. Chairman. I yield back the balance of my time.
    Mr. Whitfield. Thank you. Mr. Rush, I understand you have 
one additional question for Ms. Azar.
    Mr. Rush. Yes, and I want to thank you, Mr. Chairman, for 
your consideration.
    Ms. Azar, are you familiar with the two plants in Illinois 
that will be shutting down? I have been told that the two 
plants are 70 years old, have run sporadically over the last 
few years because they are the least efficient in Ameren's 
fleet and do not produce electricity cheap enough to sell in a 
weak power market. So do you agree that that is the real reason 
that they are shutting down?
    Ms. Azar. Ranking Member Rush, plants shut down all of the 
time, and a number of plants right now are being mothballed or 
there are folks waiting for the phone to ring and the phone 
doesn't ring because they are not economic. Ironically, it is 
oftentimes the owners of those very uneconomic plants that 
don't want transmission to be built, and the reason for that 
is, they can't compete in a competitive market. So as a 
consequence, you may hear it in terms of oh, the cost-benefit 
analysis can't be done appropriately or, you know, they are 
going to be socializing the costs. The bottom line is, if you 
really want real competition, some of these guys don't want it 
because they are going to lose, and, you know, I can't speak to 
the two plants in Illinois. I don't know them. You know, my 
home State is Wisconsin. I can tell you when I was a 
commissioner, we took a very hard look at some of the plants 
that needed to be shut down because they were uneconomic.
    Mr. Rush. Thank you, Mr. Chairman.
    Mr. Whitfield. OK. That concludes the first panel. We thank 
you all again for being with us, and at this time I would like 
to call up the witnesses on the second panel. We have with us 
the Honorable Greg White, who is the Commissioner with the 
Michigan Public Service Commission. We have the Honorable 
Philip Jones, who is a Commissioner with the Washington 
Utilities and Transportation Commission. We have Mr. John 
DiStasio, General Manager and CEO of Sacramento Municipal 
Utility District, who is here on behalf of the Large Public 
Power Council. We have Mr. Steven Transeth, who is the 
Principal with Transeth and Associates, who is testifying on 
behalf of the Coalition for Fair Transmission Policy. We have 
Mr. Nicholas Brown, who is President and CEO of Southwest Power 
Pool, and we have Mr. Joseph Welch, who is Chairman, President 
and CEO of ITC Holdings Corporation.
    So I want to welcome all of you. We appreciate your joining 
us this morning and we look forward to your testimony and the 
information that you will provide.
    Each one of you will be given 5 minutes to make an opening 
statement, and so Mr. White, we will call upon you to begin. 
You are recognized for 5 minutes.

STATEMENTS OF GREG WHITE, COMMISSIONER, MICHIGAN PUBLIC SERVICE 
COMMISSION; PHILIP B. JONES, COMMISSIONER, WASHINGTON UTILITIES 
 AND TRANSPORTATION COMMISSION; JOHN DISTASIO, GENERAL MANAGER 
   AND CHIEF EXECUTIVE OFFICER, SACRAMENTO MUNICIPAL UTILITY 
 DISTRICT, ON BEHALF OF LARGE PUBLIC POWER COUNCIL; STEVEN A. 
 TRANSETH, PRINCIPAL, TRANSETH AND ASSOCIATES, PLLC, ON BEHALF 
 OF COALITION FOR FAIR TRANSMISSION POLICY; NICHOLAS A. BROWN, 
 PRESIDENT AND CHIEF EXECUTIVE OFFICER, SOUTHWEST POWER POOL, 
    INC.; AND JOSEPH WELCH, CHAIRMAN, PRESIDENT, AND CHIEF 
          EXECUTIVE OFFICER, ITC HOLDINGS CORPORATION

                    STATEMENT OF GREG WHITE

    Mr. White. Thank you very much. Chairman Whitfield, Ranking 
Member Rush and members of the subcommittee, thank you for 
inviting me to testify regarding issues of critical importance 
to the citizens of Michigan. I am grateful to have this 
opportunity to present the views that the Michigan Public 
Service Commission has expressed concerning the issues 
surrounding cost allocation proposals for transmission projects 
and the Federal Energy Regulatory Commission, FERC Order No. 
1000 and the impacts to State planning processes.
    Let me begin by emphasizing our recognition of the 
importance of the development of strategic transmission 
resources as critical to the further development of markets and 
the reliable operations of the Nation's transmission system. My 
State has committed thousands of hours in staff time and in 
commissioner time working in various regional planning 
processes. We are in the MISO, Midwest Independent System 
Operator, RTO. We are also in the PJM RTO, Pennsylvania, 
Jersey, Maryland, and we have committed again thousands of 
hours of staff and commission time.
    My testimony today can really be boiled down simply to the 
concern that the allocation of costs to utility customers 
properly reflects the benefits the customers may receive. In 
other words, the costs allocated must be aligned with the 
benefits. Under Sections 205 and 206 of the Federal Power Act, 
the FERC is charged with ensuring that the rates, terms and 
conditions for transmission of electricity and interstate 
commerce are just, reasonable and not unduly discriminatory or 
preferential. This has been interpreted by the FERC and the 
courts to mean that the costs of transmission facilities must 
be allocated in a manner that satisfies the cost causation 
principle that all approved rates reflect to some degree the 
costs actually caused by the customer who must pay them. The 
U.S. Court of Appeals for the 2nd Circuit explained that 
compliance with this principle is evaluated by comparing the 
costs assessed against a party to the burdens imposed or 
benefits drawn by that party. The Michigan Commission does not 
believe that the cost allocation proposals considered in our 
region satisfy the cost causation principle and we are very 
concerned that the allocation of costs to Michigan could far 
exceed any benefits that the State would receive from most of 
these projects.
    In particular, it is important to recognize Michigan's 
unique peninsular geography and therefore its limited 
electrical interconnection to the rest of the MISO and PJM 
transmission system. As a result of geography and limited 
interconnections, it is likely that Michigan will realize 
minimal benefits from distant transmission expansion projects 
constructed in other States. However, on the basis of electric 
load, Michigan will be exposed to a disproportionate share of 
approximately 20 percent or more of all of these costs. It is 
clear that my State will not benefit from the construction of 
all transmission lines in the Midwest or that Michigan receives 
benefits that are commensurate with such allocation of costs.
    The Michigan Commission's concern with FERC Order 1000 is 
again that the method used for determining the allocation of 
costs for these transmission projects selected to fulfill 
interregional planning is just and reasonable and reflective of 
the benefits that would be ascribed to Michigan's unique 
circumstances. In addition, the Michigan Commission believes 
individual transmission projects should be periodically 
reviewed in order to enable the FERC to strike an appropriate 
balance between consumer and investor interests.
    The final item I would like to bring up, my testimony was 
filed at 10 a.m. on Tuesday morning. At about 1 p.m. on Tuesday 
afternoon, the announcement came out that the DOE had elected 
not to designate the FERC with the responsibilities for the 
national corridor designation, and so I would just like to 
point out that the announcement in that joint statement between 
the DOE and the FERC, we view that as a positive development. 
While the details of this proposal will be critical, we 
appreciate that Energy Secretary Chu has given strong weight to 
the concerns raised by the States and numerous other parties. 
State public service commissioners understand as much, if not 
more, than anyone else about the importance of modernizing our 
Nation's electrical system. We are working across State 
boundaries to ensure that needed transmission is built in a 
timely manner to benefit all customers and consumers and that 
everybody has a voice.
    So this is a welcome development and we look forward to 
working with the Department of the Energy and the FERC.
    [The prepared statement of Mr. White follows:]
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    Mr. Whitfield. Thank you.
    Mr. Rush. Mr. Chairman?
    Mr. Whitfield. Yes.
    Mr. Rush. Mr. Chairman, before we go to the next witnesses, 
I have a UC request. Mr. Chairman, Ms. Matsui is not on the 
subcommittee but she is interested in asking questions of this 
second panel, and one of her constituents will be testifying, 
so my unanimous consent request is that Representative Matsui 
be allowed to participate in the questioning of witnesses.
    Mr. Whitfield. Well, without objection, and of course, we 
have the rule of the committee that she will have to wait until 
all the members of subcommittee ask their questions, and we 
would be happy to do that.
    Mr. Rush. She will comply with that.
    Mr. Whitfield. Thank you, sir.
    Mr. Jones, you are recognized for 5 minutes.

                  STATEMENT OF PHILIP B. JONES

    Mr. Jones. Thank you. Chairman Whitfield, Ranking Member 
Rush. Former Ranking Emeritus Chairman Dingell, good to see you 
again. Members of the subcommittee, I appreciate the 
opportunity to testify today on Federal transmission issues and 
transmission issues affecting the Western Interconnection in 
general which have been mentioned in the previous panel and the 
Pacific Northwest region and my State in particular.
    During my 6 years as a commissioner, I have been active in 
energy issues in the Western Interconnection and as a member of 
the Committee on Regional Electric Power Cooperation in the 
West, an entity which I describe in my testimony which has a 
long history of 3 decades of voluntarily cooperating to enhance 
electric power cooperation in the West.
    In my testimony, I include a map of the NERC 
interconnections. You may want to look at that. Representative 
Gardner, there have been some questions about regions and NERC 
and electric reliability regions, planning regions and other 
regions. It is a complicated area and each kind of reliability 
and economic and this new Order 890 have created new planning 
entities and they are all a little bit different. But I think 
the bedrock of the planning is the reliability organizations 
that are governed by NERC.
    As I said, this CREPC, this Committee on Regional Electric 
Power Cooperation, has been active in the West for years. It is 
voluntary. We think we are doing a good job in the West because 
outside of California and the Cal ISO we are generally what we 
call a vertically integrated market where the generation and 
transmission is owned by the same utility. The western region 
has been planning for renewable energy generation and 
integrating that into the grid. The WREZ, the Western Renewable 
Energy Zones, which I describe in my testimony, have been 
active for years. We have been working on integrating that 
renewable energy into the grid, and we commend the DOE and the 
FERC, both commissioners and staff, attend our meetings. And 
now of course, we have the interconnection-wide-funded effort 
by DOE to look at the interconnection-wide efforts, so there is 
a maze of acronyms, there is a maze of planning entities, and I 
would be happy to clarify on questions what they all do.
    The role of Bonneville as was described earlier, and maybe 
if Congressman Walden comes back we can get into that more, 
that is critical in our region. Bonneville owns 75 percent of 
the high-voltage system in our region but under Bonneville we 
have two what we call sub-regional groups, ColumbiaGrid and the 
Northern Tier Transmission Group, what we call NTTG, and these 
have been engaged in planning for the region since actually 
Order 890, so again, this is not new. Order 890 required even 
Colorado and all the regions of the country to start planning.
    The other development is WECC. This is what I showed you on 
reliability. Our reliability organization came out with a 10-
year plan just 2 weeks ago for transmission. The bottom-line 
summary conclusion of that was no new transmission in the WECC 
region is needed by 2020 either to meet demand or to meet RPS 
needs. So again, transmission, as you know, can be driven by 
reliability issues, RPS needs or load. The WECC study indicated 
that no new transmission is needed. However, they are now 
conducting a 20-year plan to look at the needs way into the 
2030 time frame and that investigation is underway now.
    A couple more points on Order 1000 and siting. Order 1000, 
I think, has struck a good balance, as Chairman Wellinghoff 
said, between regional deference and the Federal needs. He 
listened to us. We all submitted a lot of comments, and I think 
the FERC listened. Yes, on some issues like cost allocation, I 
would argue that FERC punted. FERC punted some of the issues 
down the road. There is nothing wrong with that. We live in a 
federalist system. So these cost allocation systems are going 
to be critical. One is in our region. Our region is participant 
funding, bilateral deals. We are not in an RTO region so 
participant funding is mentioned in Order 1000 as a possible 
way of funding transmission but you cannot use it for regional 
cost allocation mechanism. It has to be different than 
participant funding. But in my view, the order is a little bit 
fuzzy on the difference between participant funding by the 
transmission provider and whatever the new interregional cost 
allocation system is going to be, let us say between PJM and 
MISO. This is all to be worked out.
    The siting issues, just let me say a word on that. The 
States obviously felt very strongly about that. As many of you 
know, we weighed in quite strongly in--how should I put this--
in opposition to the chairman's proposal on delegation of 
authority under Section 216. We think there are a number of 
reasons for doing that. I think it is kind of in the past now. 
But we are grateful for that decision but I can assure you on 
behalf of NARUC and member States in the West that we look 
forward to working with both the chairman and Lauren Azar on 
trying to get some of this stuff sited. The big issue in the 
West is Federal agencies. As Congressman Walden said, whether 
it is BLM or the Forest Service, transmission projects in the 
West are being held up by Federal siting delays.
    So Mr. Chairman, with those remarks, thank you.
    [The prepared statement of Mr. Jones follows:]
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    Mr. Whitfield. Thank you very much.
    Mr. DiStasio, you are recognized for 5 minutes.

                   STATEMENT OF JOHN DISTASIO

    Mr. DiStasio. Thank you, Mr. Chairman, Ranking Member Rush 
and members of the subcommittee. Thank you for inviting me to 
address you today.
    My name is John DiStasio. I am the General Manager and 
Chief Executive Officer of the Sacramento Municipal Utility 
District, or SMUD, as we are called. SMUD has been powering 
California's capital region for 65 years. We have a population 
of 1.4 million customers, and I am testifying on behalf of also 
the Large Public Power Council. The Large Public Power Council 
is an association of the Nation's 25 largest municipal and 
State-owned utilities. LPPC members own approximately 35,000 
miles of transmission lines in the United States. We are not-
for-profit systems and we are directly accountable to 
consumers. We are pleased to serve consumers in seven States 
represented on this subcommittee.
    I speak from the perspective of a utility that is among the 
most aggressive in the Nation in integrating renewable 
resources into its portfolio and an implementing demand-side 
management programs. Currently, 24 percent of SMUD's electric 
supply portfolio is renewable, and we plan for that figure to 
increase to 37 percent by 2020 and exceeding State mandates.
    FERC Order 1000 was designed to encourage greater regional 
transmission planning and the more efficient construction of 
new transmission facilities. The planning features of the order 
and the funding mechanism for the development of new 
transmission facilities that FERC directs utilities to develop 
in the planning process have been championed by developers of 
renewable resources that are located far from customers and 
require the development of long-line transmission facilities in 
order to be commercially viable. I am concerned that burdening 
ongoing planning discussion with debates over allocation of 
costs will undermine existing planning processes that are 
actually working fairly well. I am also concerned that the cost 
allocation mechanism that Order 1000 contemplates will provide 
a subsidy for remotely located renewable generation.
    Speaking for a utility that has invested heavily in local 
renewable and demand management resources, this subsidy calls 
for a form of double payment for renewable resources that my 
customers have already funded. Looking ahead, I am concerned 
that this subsidy will severely curtail the development of 
local renewable resources.
    I want to note that SMUD and other LPPC members have been 
active participants in existing regional planning processes. 
The requirement in Order 1000 that system planners now develop 
transmission cost allocation mechanisms based on a 
determination of so-called benefits calls for system planners 
to make highly subjective judgments. The commission fails to 
articulate a definition of such benefits, and I am concerned 
that controversy over the identification and associated 
allocation of costs will throw a wrench into planning processes 
that are now functioning effectively.
    As to cost allocation, Order 1000 requires that each region 
of the Nation develop a transmission plan that includes a cost 
allocation methodology meeting the commission's specified 
criteria. Although the order provides the planning region some 
flexibility in deciding how to allocate costs of new 
facilities, it clearly prevents planning regions from relying 
on participant funding. This term describes current practice, 
which calls for entities that take service over new 
transmission lines to pay for them.
    We are further troubled by language in Order 1000 
suggesting that costs may be allocated to entities even where 
no service relationship exists. This is a significant departure 
from historical FERC practice, which has always required an 
entity to agree to take service under a contract or a tariff 
before charges could be assessed. FERC's proposal seems to me a 
little bit like a restaurant which charges its customers for a 
list of items on its menus whether the customers choose to 
order them or not. In filed comments, we have expressed our 
belief that the commission lacks legal authority to allow 
developers to recover costs in this manner. We believe that 
allocating transmission costs broadly based on claimed benefits 
will subsidize transmission used to access remote resources. 
This may result in long, expensive transmission facilities 
being constructed to access remote resources even where there 
are no customers with a need to take service over them. We are 
concerned that this will result in the construction of 
unnecessary or underutilized facilities, the cost of which 
would be borne by consumers.
    SMUD owns and operates 102 megawatts of wind facilities 
with plans to more than double that capacity next year. We also 
operate one of the Nation's largest utility-sponsored solar 
programs that is going to be approaching megawatts in the next 
couple of years. These local generation investments have 
required only interconnection to local transmission. No new 
transmission lines have been needed to date. We believe that 
relying on these resources is a more efficient and least 
expensive way to meet the renewable policy established by our 
board and our State. These efficiencies will be lost if we are 
required under Order 1000 to pay for transmission we do not 
use.
    Thank you again for the opportunity to speak with the 
committee, and I look forward to your questions.
    [The prepared statement of Mr. DiStasio follows:]
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    Mr. Whitfield. Thank you very much.
    Mr. Transeth, you are recognized for 5 minutes.

                STATEMENT OF STEVEN A. TRANSETH

    Mr. Transeth. Good morning, Mr. Chairman, Ranking Member 
Rush and fellow committee members. It is an honor to appear 
before you today to talk about this very important issue that 
faces our country today. My name is Steven Transeth. I am a 
Principal Partner of the law firm of Transeth and Associates, 
which provides legal services and consulting services on energy 
issues. I am a former member of the Michigan Public Service 
Commission, and I have had over 25 years dealing with energy 
issues.
    I am here today to testify on behalf of the Coalition of 
Fair Transmission Policy, which is a group of geographically 
and structurally diverse investor-owned utilities that have 
joined together for the purpose of promoting legislative and 
regulatory policies that will lead to a customer-focused 
development of the Nation's electric transmission system in 
support of the growing demand for clean generation resources. I 
would like to also stress the coalition is supportive, as has 
been stated many times today, in upgrading the grid and 
improving the grid to make sure that it meets our growing needs 
as we go forward. However, the coalition does have certain 
concerns on some of the progress that has been made, especially 
what has been done under Order 1000.
    The coalition believes that the costs of transmission must 
be allocated proportional to the measurable benefits the 
customer receives and an accurate cost allocation process is 
critical to ensure that the right price signals are sent and 
that the consumers are receiving clean energy at the lowest 
possible rates.
    The coalition believes that there are many deficiencies 
within the order but today I just want to talk really about 
three. The first is, we believe that too much delegation has 
been made to non-governmental regional entities to determine 
transmission planning and cost allocation. We must understand 
that these regional entities aren't necessarily continuous 
groups of entities that have a commonality of interest but many 
times have diverse types of interests and needs, and 
consequently you have regions such as RTOs, which was mentioned 
earlier, which may or may not necessarily be meeting the needs 
of each of its individual members vis-a-vis what we are talking 
about in terms of transmission today, and in fact, many of 
these regions, such as RTOs, have a contractual duty to the 
transmission operators and generators and do not have the legal 
responsibility or accountability to the customers to make sure 
that the rates imposed upon them are just and reasonable.
    Two: FERC has failed to provide limitations and parameters 
on what is going to be defined as a benefit and who are the 
beneficiaries. By allowing benefits to be defined very broadly 
and costs to be spread very widely, it is going to be possible 
to ensure that those two are commensurate, and consequently, 
you are going to have incidences--and I will speak to 
Michigan's situation in a minute--where customers are going to 
be forced to pay for benefits they do not receive.
    Finally, we believe that the Order 1000 does not go far 
enough in ensuring that States and localities do have a say in 
how these decisions are made. Michigan is another example where 
we are put into a situation where the RTO has made certain 
policy decisions in terms of how they are going to progress in 
terms of their transmission planning that we believe is 
detrimental to our State. By failing to require this bottom-up 
planning process, FERC has effectively eliminated consumers 
from the decision-making process. These concerns are not 
speculative but are currently being played out in the 13 States 
that make up the Midwest RTO. FERC last December approved a 
cost allocation system method that provides for new 
transmission called multi-value projects, or MVPS, and then 
allow for the socialization of those costs across all members 
of the RTO. The multi-value within these programs is the 
additional benefit factor of meeting public policy requirements 
but whose public policies are going to be advocated?
    Michigan recently, in fact 4 years ago, passed legislation 
to embark on a very aggressive program to make renewable energy 
as a driving mechanism of revitalizing our economy. Mr. Welch 
in the near future is going to be breaking ground on 5,000 
megawatts coming out of our thumb to bring wind onto the 
market. Consumers Energy has built new wind farms in the 
Ludington area, and we are looking at putting offshore wind in 
our Great Lakes.
    You contrast that to what is occurring in some of the 
plains States of Minnesota, Iowa and South Dakota where they 
have adopted what seems to be the public policy that is going 
to be pursued by the RTO called MISO. That is building large 
wind farms and exporting that wind across long-distance 
transmission to the East. Those are both valuable and have 
merit in their own pursuit, but when you have a policy in place 
that promotes one to the expense of the other, you are going to 
have trouble. If the MISO tariff is allowed to stand as it is, 
it will eliminate Michigan's ability to pursue public policy as 
it has determined is best for its customers, and most 
importantly, we will end up paying for the cost of the 
transmission and receive little or no benefits in return. 
Michigan is not alone in this. We just happen to be first out 
of the barrel on this. This is something that could happen 
across the board as these RTOs develop their policy.
    We are not alone in our concerns, and the evidence is more 
than evident by the fact that over 60 petitions have been filed 
requesting a rehearing on Order 1000. We believe it is entirely 
appropriate and timely for Congress to conduct this hearing and 
consider the broad implications of Order 1000.
    Once again, I thank you very much for allowing me this 
opportunity to testify, and I look forward to your questions.
    [The prepared statement of Mr. Transeth follows:]
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    Mr. Whitfield. Thank you.
    Mr. Brown, you are recognized for 5 minutes.

                 STATEMENT OF NICHOLAS A. BROWN

    Mr. Brown. Thank you, Chairman Whitfield, Ranking Member 
Rush and members of the committee. My name is Nick Brown. I am 
President and Chief Executive Officer of Southwest Power Pool, 
whose mission is helping our members work together to keep the 
lights on today and in the future. I want to emphasize helping 
our members work together. We don't do it for them, we don't do 
it to them; we help them work together to resolve these issues.
    We are a FERC-recognized regional transmission organization 
and in fulfilling our mission we administer an open-access 
transmission service tariff and we do serve as the planning 
entity for our members who serve customers in all or parts of 
the States of New Mexico, Texas, Oklahoma, Kansas, Nebraska, 
Missouri, Arkansas and Louisiana, 370,000 square miles service 
territory, over 57,000 miles of high-voltage transmission lines 
interconnecting over 850 generating units.
    We appreciate the opportunity to visit with you today about 
Order 1000. It has been our experience in fulfilling our 
strategic plan over the last several years of building a more 
robust transmission network that the single largest impediment 
to building a robust transmission network is how to allocate 
costs for needed transmission expansion in a fair and equitable 
way, and we have met that challenge in multiple ways. Last 
year, we received approval from the Federal Energy Regulatory 
Commission on a completely new integrated transmission planning 
process that looks at our needs on an iterative basis focused 
on a 20-year period, then a 10-year period, then a near-term 
period, and we have coupled that transmission planning process 
with cost allocation methodologies that do in fact pair the 
costs with the beneficiaries through a new highway-byway cost 
allocation methodology where the extra high-voltage facilities, 
the costs for which are shared very broadly across the entire 
footprint because our studies have shown and our States have 
agreed that everyone benefits from that extra high-voltage 
transmission. The lower-voltage facilities are paid for more on 
a local basis.
    It is important to note when we were approved as a regional 
transmission organization in 2004 that SPP delegated to our 
regional State committee the responsibility for determining the 
methodology to allocate costs for new transmission. The 
regional State committee consists of a commissioner from each 
of the States in which our members service. We brought them 
together. We determined how to calculate benefits for new 
transmission. Once that methodology for calculating benefit was 
determined, we ran studies, and the cost allocation methodology 
that we have in place that was approved by the FERC last year 
is a result of all of that very collaborative approach.
    Our experience again is that the single toughest issue is 
dealing with cost allocation, and our view of Order 1000 is 
that the commission got it right with the requirement for 
regional planning. It is just not sufficient to build the type 
of transmission infrastructure that our country needs on 
looking at an individual company basis. So the requirement for 
regional planning was right on the mark.
    We also strongly support Order 1000's requirement that 
links cost allocation with transmission planning. It is a 
necessary step to move forward.
    We also strongly support Order 1000's requirement to 
construct transmission considering Federal and State public 
policy needs, and we appreciate the flexibility that Order 1000 
gave regional planning authorities to consider the diverse 
needs of those public policy requirements within each region. 
We also strongly support Order 1000's requirement for 
interregional coordination and cost allocation, and while many 
believe the commission went too far, our region believes the 
commission could have gone further. To allow little guidance on 
how to allocate costs for transmission facilities that have 
interregional impacts will just cause more delay and more 
confusion. We had to tackle that within our own region, and to 
expect that it can be voluntarily tackled on an interregional 
basis I believe will take a much more significant time than the 
18 months in which we were given. The stakeholders within each 
region are diverse and the regions are diverse. It will simply 
take longer than 18 months to work through a collaborative 
process to reach consensus on those issues.
    And I look forward to your questions.
    [The prepared statement of Mr. Brown follows:]
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    Mr. Whitfield. Thank you very much.
    Mr. Welch, you are recognized for 5 minutes.

                   STATEMENT OF JOSEPH WELCH

    Mr. Welch. Mr. Chairman, Ranking Member Rush and members of 
the subcommittee, thank you very much for the opportunity to 
appear here today. My name is Joseph Welch and I am the CEO and 
President of ITC Holdings Inc.
    Mr. Whitfield. Do you have your microphone on?
    Mr. Welch. I do.
    Mr. Whitfield. OK.
    Mr. Welch. Do I need to get it closer here?
    Mr. Whitfield. There were people in the audience quite 
upset that they didn't hear what you were saying.
    Mr. Welch. Well, I am glad to hear that.
    ITC, which is headquartered in Novi, Michigan, is the 
largest independent transmission company in the United States. 
ITC owns, operates and maintains transmission assets in 
Michigan, portions of Iowa, Minnesota, Illinois, Missouri, 
Oklahoma and Kansas, spanning both the MISO and SPP RTOs. 
Unlike most utilities, ITC is independent, meaning we are not a 
market participant. We do not generate, buy or sell power. We 
move electricity across our wires under a Federal tariff at a 
regulated rate.
    It is no secret that our transmission grid is outdated and 
never has been designed to be a regional-serving grid. Today, 
70 percent of the transmission lines are 25 years old or older, 
70 percent of our large power transformers are 25 years or 
older, and 60 percent of our circuit breakers are more than 30 
years old and the interconnection between utilities are 
generally week. Per capita consumption of energy has doubled in 
the same time period, and our population has grown by 50 
percent. To add to the stress, the aging infrastructure energy 
demand is expected to increase by 25 percent by the year 2030.
    A quick history of the ramifications of underinvestment in 
transmission. In 2003, at a cost of nearly $10 billion, the 
power went out for nearly 50 million people in the Midwest, the 
East Coast and Canada and highlighted the frailty of the 
interconnected grid. More recently, we have seen the effects of 
an outdated and stressed transmission system where southern 
California, Arizona and Texas have experienced blackouts. Not 
one of these instances was caused by lack of generation. The 
Department of Energy estimates that the major power outages and 
power quality disturbance costs the economy between $25 billion 
and $150 billion annually. In addition to blackouts, lack of 
investment leads to inefficient markets, energy curtailments, 
higher congestion and pockets of generation market power, all 
of which lead to higher energy prices. In response to the 2003 
blackout, this committee worked to pass the Energy Policy Act 
of 2005 and included provisions to help facilitate the 
investment in new transmission.
    FERC has been working with the regions to address the 
challenges that planning and cost allocation present to 
transmission expansion. Order 1000 is not perfect but it is an 
important incremental step forward. Regional planning has been 
going on for decades to some degree. It is not a new concept. 
The problem with regional planning is that the participation of 
regional transmission organizations is voluntary. Not 
surprisingly, that leaves these organizations hostage to 
competitive interests of market participants. If an RTO is 
considering a decision that will impact a market participant 
above market generation, they threaten to leave that RTO. The 
RTO then developed a suboptimal regional plan to retain the 
members.
    Order 1000 incrementally improves the regional planning 
process by requiring stakeholders to determine in advance what 
criteria the RTO will be using in the planning and requires 
RTOs to establish a process for interregional projects which do 
not exist today. Order 1000 also addressed the issue of paying 
for transmission projects that provide for regional benefits. 
The commission allows the regions to make proposals following 
six governing principles designed to protect consumers.
    FERC has an obligation to ensure that rates are just and 
reasonable, that they do not have anti-competitive effects. 
Rhetoric that FERC is mandating certain methodologies or 
forcing customers who do not benefit to bear costs is blatantly 
inaccurate and clearly intended to mislead this committee. In 
fact, Order 1000 specifically states, and I quote, ``Costs may 
not be involuntarily allocated to entities that do not receive 
benefits'' and must be roughly commensurate with the estimated 
benefits received from the project. More plainly put, if you do 
not benefit, you do not pay.
    I understand that those who are opposed to the regional 
transmission are seeking legislative ratemaking through S. 400 
or other legislation but I encourage that this committee 
consider their motives. They want Congress to undermine the 
agreements the regions, which are comprised of voluntary 
members, have spent years developing and Federal Government to 
impose transmission costs on small groups of users to make 
transmission costs prohibitive, retain captive markets and 
eliminate competitors. These results do not benefit customers.
    I would note that a number of utilities who comprise the 
Transeth coalition have some of the highest average retail 
rates in the region and they are here today opposing FERC's 
efforts to encourage transmission development and more robust 
competitive wholesale markets. I would suggest to this 
committee that this is more than a coincidence.
    Let me also make note to dismiss the notion that 
transmission drives up electric bills. According to the U.S. 
Energy Information Administration, transmission costs account 
for only 7 percent of an average residential customer's bill 
while generation accounts for nearly 68 percent in Michigan, 
and in Michigan, the transmission portion of the bill is lower 
than the national average. It is only between 4 and 5 percent. 
Let me say again, in Michigan, where over 8 years ITC has 
invested $1.2 billion in the transmission system, we remain 
below the national average in terms of percentage of delivered 
energy cost to retail customers. Basically, this is because 
Michigan is one of the highest electric rates in the region.
    This may lead you to ask, if ITC has made such a 
significant investment in transmission in Michigan, how can we 
have the highest wholesale rates in MISO if in fact 
transmission lowers the cost of energy to customers. I want to 
close with this because the answer highlights the value of 
independence and explains why rational, independent, regional 
transmission planning and cost allocation mechanisms that allow 
these projects to be identified to be built are so vital.
    First, the $1.2 billion was needed to just bring the system 
to reasonable standards. Next, the State sits on a seam between 
PJM and MISO, and there is no cross-border planning to identify 
the projects that would provide for the access of the most 
competitive generation in either RTO. And finally, the actual 
transmission projects that would be built to bring more 
competitive generation into the State lie outside the State of 
Michigan. The utility that we need to build the transmission to 
benefit Michigan will not if they do not see value for their 
customers that they have to charge. This is the perfect example 
of the problem that FERC Order 1000 addresses.
    My time is expired and I look forward to questions. Thank 
you.
    [The prepared statement of Mr. Welch follows:]
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    Mr. Whitfield. Thank you very much.
    I am going to follow Mr. Dingell's admonition of trying to 
answer yes or no for the first question. How many of you 
believe that the cost allocation policy in Order No. 1000 is 
necessary to build new transmission lines in the United States? 
Mr. White?
    Mr. Welch. I do.
    Mr. White. I am going to say no.
    Mr. Whitfield. No?
    Mr. Jones. No.
    Mr. DiStasio. No.
    Mr. Transeth. No.
    Mr. Brown. Absolutely yes.
    Mr. Whitfield. So we have four nos and two yeses. OK. Now, 
one of you, it may have been you, Mr. Transeth, or maybe it was 
Mr. DiStasio, stated that you do not believe that the 
commission has the legal authority to permit transmission 
developers to recover costs from entities with which they do 
not have a contract or a service relationship. Was that you, 
Mr. DiStasio?
    Mr. DiStasio. It was me, and while I am not an attorney, 
our attorneys have advised in looking at this that it is a 
pretty big departure from past precedent of how FERC has looked 
at this as well as the aforementioned case around cost 
causation. This really does create at least the opportunity for 
costs to be allocated to people that don't have a service need 
or relationship or a contract or a tariff.
    Mr. Whitfield. So you are obviously concerned about that?
    Mr. DiStasio. Yes.
    Mr. Whitfield. OK. Now, Mr. Welch, you are a transmission 
developer. Do you think that they do not have the legal 
authority to permit that? I am assuming you do.
    Mr. Welch. They do have the legal authority to permit that.
    Mr. Whitfield. And your two lawyers have talked to each 
other about it, I guess, right?
    Mr. Welch. I try not to talk to lawyers.
    Mr. Whitfield. Now, I guess it was Mr. Transeth, you said 
that the commission's failure to limit--I asked the question to 
Mr. Wellinghoff about the lack of clarity on determining what 
is the benefit, in calculating benefits, and developing these 
cost allocations, and you say in your testimony that the 
commission's failure to limit in any way what individual 
regions may consider as benefits is a fatal flaw of the rule, 
and also that regions under the rule would presumably be 
allowed to assert that certain types or classes of projects 
have certain environmental or social benefits and that that 
might be used and therefore really socializing the cost. Do any 
of the other members have the same concerns that Mr. Transeth 
has on that issue?
    Mr. Brown. I do not, and primarily because of the 
governance structure within our organization. We are driven by 
our members. The members and the regional State committee are 
the stakeholders who are making the decisions on how to 
calculate the benefits. Some benefits are extremely easy to 
quantify. Other benefits are much more soft but either way, the 
stakeholders are working together to identify those benefits 
and that can occur in every region in the country.
    Mr. Whitfield. Mr. DiStasio?
    Mr. DiStasio. I agree with Mr. Transeth on that issue from 
the standpoint that once we commit to a regional planning 
process, we may not know what the calculation of benefits will 
be until we are already committed to cost allocation that could 
come out from the stakeholders that we would be on the losing 
end of that argument and ultimately get imposed costs that we 
otherwise would not have signed up for. So because we don't 
know the benefits up front, they may be very difficult to 
calculate, and if they get to FERC with all good intentions, it 
could end up being for benefits that we wouldn't agree exist.
    Mr. Whitfield. Well, it seems to me that this Order 1000 
certainly lends itself to considering so-called benefits that 
have never been considered before in order to pursue a social 
objective or environmental objective or whatever. Mr. Welch?
    Mr. Welch. Let me state too that I agree with Mr. Brown 
that Order 1000 really gave the flexibility to the regions, and 
I want to emphasize this one more time, which are voluntary 
organizations where people have got to come together and they 
sit at a table and the process in MISO I will talk about which 
Michigan is a member of, the process took in excess of 2 years 
for them to come to an agreement of any sort of how to allocate 
costs. Once you start talking about allocating costs, no one 
ever wants to pay the bill, but when you can get general 
agreement, that is as good as it is going to get, and I believe 
that Order 1000 absolutely sends the message to the regions to 
come together and do this on your own and gave them the 
flexibility of what to consider or what not to consider.
    Mr. Whitfield. Well, yes. It just seems to me that this 
certainly expands the Federal Power Act of just and reasonable 
and can go much further than was anticipated at one time, so 
that is one of the issues we are trying to deal with here.
    Mr. Welch. Can I just add to this? But the fact still 
remains, whether they consider that or not, there still has to 
be a benefit-to-cost ratio that exists before you can charge 
for it. So the fact that you consider the renewable resource or 
you can further expand that to think about integrating it into 
the grid. That is one issue. But the second issue is how the 
cost allocation is allocated, and that cost allocation cannot 
be allocated unless there are benefits commensurate with the 
cost. We can sit here and argue about that, but the fact is, it 
has got to be clear that the benefits line up with the costs.
    Mr. Whitfield. Well, you know, that is what the hearing is 
all about because FERC has issued this order, and maybe 
Congress may decide that it needs to do some legislation 
because maybe we don't view it the same way that FERC does. But 
that is why we have the hearings.
    Mr. Rush, you are recognized for 5 minutes.
    Mr. Rush. Thank you, Mr. Chairman.
    My question is directed to both Mr. White and Mr. Jones. In 
the comments made to my office by the Illinois Commerce 
Commission, the commission noted that FERC did not define the 
role of State regulators and did not provide a means for States 
to fully participate in transmission planning as stipulated in 
Order 890. The question to both of you is, are you satisfied 
that State regulators will be able to participate in a 
meaningful way in the planning process as outlined in Order 
1000 or do you share the belief that FERC made a mistake in not 
prescribing a more substantive role for the States?
    Mr. White. Thank you, Mr. Rush. I do believe that the 
States and State commissions will have a substantive role in 
the planning process. However, in my view, more of the 
decision-making authority has been given to the RTOs to the 
regional process that, you know, should have been better 
defined, should have more clearly deferred to the States' 
authority. At the end of the day, we are the ones who have to 
ensure that the bills that our customers receive are just and 
reasonable and demonstrate the benefits, and I think that 
without that better clarification in the order, that is not 
evident, but I do believe that we will be actively and 
substantially involved in the planning process.
    Mr. Jones. Mr. Rush, I think the tension here is a delicate 
balance between being very prescriptive and giving flexibility. 
I think Chairman Wellinghoff really struck it right. I think 
there is a lot of flexibility to regional organizations in the 
Midwest, the West and elsewhere, and it is not that 
prescriptive. As I described in my testimony, I can just speak 
for the West, we have been doing this, as I said, for 3 decades 
voluntarily, and so we are used to it. The transmission 
providers do consult with us. We have these sub-regional groups 
that have filed open-access transmission tariffs with FERC. 
FERC has approved them. State commissions are involved in the 
planning processes for NTTG and ColumbiaGrid, the sub-regional 
groups.
    The only area where I would ask the subcommittee to be 
mindful of is DOE through taxpayer dollars has funded this very 
ambitious interconnection-wide planning effort, and the 
schedules are set to be done by the end of 2013. Taxpayer 
dollars are being spent. We commissioners are flying all over 
the country, I can tell you, the Western Interconnect, Texas in 
ERCOT, we are spending a lot of time in planning processes to 
take into account renewables, energy efficiency, nuclear, coal, 
you know, the whole gamut of possible generation technologies, 
and then integrating those into the modern grid. So the 
question I would urge the subcommittee to be mindful of is, how 
do those processes fit into Order 1000 and the compliance 
filings. Right now, the timelines are 12 months and 18 months, 
as you know, so 12 months, the transmission providers have to 
file with FERC on the regional plans, 18 months, they have to 
file on the interregional cost allocation schemes. That is 
before they finish all these--before all these plans are rolled 
up, interconnection-wide and ISPC and in the West in ERCOT. So 
I would just hope that we are being consistent here. We State 
commissioners are spending a lot of time, effort and resources 
going to all these meetings and I just hope the Federal 
Government agencies, DOE and FERC, as you saw on the first 
panel really coordinate on this.
    Mr. Rush. In my discussions with Chairman Wellinghoff, he 
indicated that he wants to stress competition in the market in 
order to ultimately help reduce costs to customers, and this is 
a question for the panel. Does anyone want to comment on this 
and either agree or dispute the idea that the approach outlined 
by FERC will indeed increase competition and keep down consumer 
costs?
    Mr. Welch. I truly believe that it is going to spur 
competition, as I said in my prepared remarks. Number one, we 
don't have a grid that was designed to be truly interregional. 
Number two, we can't get the low-cost power, especially from 
Michigan into Michigan because the transmission developments 
lie outside the State, the things that we need to do to get 
that import capability. You know, there has been a lot of 
discussions here about, you know, whether we are going to 
integrate renewables and how that all figures out, but just 
imagine that--and we will change the discussion now to a 
different market. Let us talk about something like grain, and 
you read in the paper that there is this bumper crop in 
Argentina of wheat and all of a sudden you look at the 
commodities future in the United States and the price of wheat 
drops, and why is that? Because there is a low-cost supply 
coming into the marketplace and it is displacing other 
entities. And so when these other States start to develop these 
renewables, they are mandated in those States to come in, but 
it has the effect of displacing their low-cost generation that 
was otherwise used to serve their customers and makes it 
available to the marketplace to be bought. Michigan being a 
high-cost producer is the first State to benefit from such a 
marketplace if we can get the transmission built.
    Mr. Rush. Thank you, Mr. Chairman. I yield back.
    Mr. Whitfield. Thank you.
    Mr. Shimkus, you are recognized for 5 minutes.
    Mr. Shimkus. Thank you, and I really appreciate the panel. 
For electricity geeks like you all are and some of us have 
become, this is something we have talked about for a long time 
going back to the bills and, you know, electricity generation 
and the public utility commissions were in essence controlled 
within State lines and we did intend in the 2005 energy bill to 
expedite siting and transmission, to start having a more 
vibrant market. Now we have evolved, and this green movement, 
which I would argue would bring high-cost electricity in, and 
now we have the debate on how are we going to pay for that and 
who is going to bear the cost when we as a public policy-wise 
push green and solar, which is high-cost electricity, and I 
have said this numerous times. It is credible. I am not making 
this stuff up. It just costs more.
    So now, who is going to pay for that? And then how do we 
define benefits and who is going to define the benefits? I 
would--if you stayed with the simplistic financial decision, 
low-cost power without government bureaucrats and politicians 
intervening and deciding what is good for the world, then you 
could do a basic market analysis and price calculation and 
drive for lower cost. But when we get involved and say we have 
got to go solar, we have got to go wind, we start taking some 
cheap coal power offline, we are intervening.
    So I think--so the point is, if the definition of benefits 
is vague, how do we really move forward? Does anyone want to 
take a shot at that?
    Mr. Welch. Well, I would go first, but I see Nick wanted to 
grab the microphone, and since he is on the side that has to--I 
don't think that the benefits are vague. They are cost 
benefits, plain, pure and simple in the end. You can't do a 
cost-benefit analysis with everything being quantified as a 
dollar bill, and in the end, it is simply money. The question 
becomes----
    Mr. Shimkus. But the policy at the State level intervenes 
with renewable power, that is more expensive, I mean, a mandate 
of a 10, 15 or 20 percent renewable power position.
    Mr. Welch. Who am I, and candidly, who are you, to tell 
each State what they want to have for their own----
    Mr. Shimkus. Who am I to determine on the transmission grid 
if we have to intervene, you can't define benefits and then you 
pass it on to States who don't want that.
    Mr. Welch. No, but at the State level, these people are 
passing laws in their State that they are going to have 
renewable portfolio standards. My job isn't to dictate whether 
that is a rational law or an irrational law. My job is to 
facilitate the marketplace in a way that makes it cost-
effective, and when they put those facilities online, those 
people in that State have made the decision they want that.
    Mr. Shimkus. And those people in those States should be 
able to bear the higher utility costs and understand from 
whence it comes.
    Mr. Welch. And they are paying for that renewable energy. 
They are paying for that renewable energy. That is not being 
passed on to some amorphous people.
    Mr. Shimkus. But if you are in a regional transmission 
organization and you are expanding the transmission grid, and I 
think part of this debate is, I mean, really, this is about 
cost allocation or participant funding.
    Mr. Welch. No, it is about the cost allocation of the 
transmission----
    Mr. Shimkus. All right. You disagree. I have some nods that 
might agree with my position. Mr. Jones, I need some help here.
    Mr. Jones. Mr. Shimkus, I will----
    Mr. Shimkus. Bring in the cavalry.
    Mr. Jones. I am a State regulator and I am here to help 
you.
    Mr. Shimkus. Just like the government.
    Mr. Jones. Let the transmission--just let me make three 
points. Let the transmission planners do their work. These guys 
are good, the engineers. We have all these sub-regional plans. 
SPP is doing work, we are doing work in the West. These are 
good guys. They know how to quantify the cost-benefit analysis, 
what we call CBA, but incorporate all these new things that are 
a little more difficult to quantify but they can do it. So that 
is number one.
    Number two, a State like mine is an--we do 20-year plans 
called integrated resource plans, and those require least 
costs, so I am here to make sure that both transmission and 
generation is provided to my ratepayers at least cost. We 
update those plans every 2 years. I can tell that for my 
utility, Puget Sound Energy, the first 300-megawatt wind plant 
that they put in our State was least cost.
    Mr. Shimkus. And also have huge hydroelectric, which is 
very helpful.
    Let me go to Mr. White real quick, I mean, just making sure 
that for full disclosure, Mr. White.
    Mr. White. Yes, Mr. Shimkus. Thank you very much. I think 
you hit the nail right on the head. I think the definition of 
benefits is critical here. The devil is in the details. There 
are assumptions used by certain parties as to what constitutes 
a benefit, and that may not be shared or may not be accurate 
across the system.
    To Mr. Rush's question, there is no question in my mind 
that strategically developing transmission will facilitate 
markets and can deliver tremendous benefits to customers at the 
State, local, regional level. At the same time, if we are 
simply focusing on transmission as the answer to all, we are 
precluding a lot of other more strategic local options that 
could in fact be significantly less costly because they can 
connect directly to the distribution system, thereby bypassing 
the need for very, very expensive long-haul transmission 
systems, and so my point is, the devil is in the details and I 
think you are exactly right. The benefits is critical here.
    Mr. Shimkus. I want to thank the chairman.
    Mr. Whitfield. His time is expired, but I am going to let 
you two respond.
    Mr. DiStasio. I just wanted to respond with an example. 
First of all, if you look at my State and the States of many of 
the LPPC members, California has a renewable energy standard 
that envisions it will be developed in State, and our Governor 
just added another 12,000-megawatt requirement for distributed 
generation. So when we look at our resource planning, which we 
do bottom up, by the way, to get to least cost, we don't see a 
need to have long line transmissions paid for by our consumers 
because it really is in conflict with State policy. That said, 
we have certain occasions right now. We are connected to the 
Pacific Northwest and northern California, more so than 
southern California, and so we have a line that was built to 
access hydro from the Northwest and for us to transmit power 
when it is cold in the winter there and they transmit down to 
us when it is hot in the summer in California, but we did it on 
participant funding and we actually have people that operate on 
that line with different market models. So there are examples 
of this occurring, especially in the West, where we effectively 
don't need additional cost allocation mechanisms to make these 
kind of investments work.
    Mr. Jones. Mr. Shimkus, we do share that low-cost cheap 
hydro with our friends in California.
    Mr. Transeth. Just to answer the question about this whole 
concept of benefits and the lack of definition, I think it goes 
even further than that. It is not just the benefits, it is who 
the beneficiaries are that need to be also included in this 
process. A good example, like I said in my testimony, this is a 
lot of speculative. We have a case study going on right now 
with the MISO--that is the Midwest RTO--and what is going on in 
our--how does Indiana, who does not have an RPS, it doesn't 
need the value of renewables that are going to come out of 
these MVP projects yet they are going to be forced because they 
are part of the region to pay for the cost commensurate to 
whatever it is that their load is for that new energy. If you 
don't connect those two, benefits and beneficiaries, you can 
never have a commensurate measure. You have to decide is this a 
defined benefit that we can measure, and plus, are those who 
are going to actually see the benefits receiving it 
commensurate to what costs you are imposing upon them.
    Mr. Shimkus. Great panel, Mr. Chairman. Thank you.
    Mr. Whitfield. Thank you.
    Mr. Engel, you are recognized for 5 minutes.
    Mr. Engel. Thank you very much, Mr. Chairman.
    I want to direct a few questions to Mr. Transeth because I 
understand you are testifying on behalf of the Coalition for 
Fair Transmission Policy.
    Mr. Transeth. Yes.
    Mr. Engel. And includes Con Edison of New York----
    Mr. Transeth. Yes.
    Mr. Engel (continuing). As a member. I represent a lot of 
New York City and Westchester County, and I want to make sure 
that we understand your concerns. Firstly, do you agree with 
Chairman Wellinghoff and NERC that we will need significant 
expansion of our power lines by 2019?
    Mr. Transeth. I am going to go back to one of the comments 
I made during my original testimony, and that is, this it not 
about an obvious need, as Mr. Welch talked about, in terms of 
improving and upgrading the system and making sure that we are 
going to be able to meet our energy needs as we are going 
forward. The question involved in this whole debate is, you 
know, where are we going to build this transmission, how much 
are we going to build and who is going to pay for it, and that 
last one is really the key that we are going to keep stumbling 
upon as we have got to make decisions, and that is going to my 
comments just a few minutes ago is deciding what are the 
benefits, who are the beneficiaries, and somehow or another 
coming up with some meaningful and supportable proposition of 
how those are roughly commensurate, as the 7th Circuit put 
forth in their case.
    Mr. Engel. Let me give you a chance to expand and talk 
about cost allocation, because that is what everyone is 
concerned about here. I understand the current law, once a 
transmission is approved, I understand the grid operators have 
fairly broad discretion in determining who ought to pay for the 
line. It could be all regional customers. Am I correct? Or it 
could be a subset of consumers directly benefiting from the 
line? Am I correct about that?
    Mr. Transeth. Maybe one of the----
    Mr. Brown. It depends on the region and the provisions in 
each regional tariff.
    Mr. Engel. OK.
    Mr. Transeth. I guess I assume that if MISO, which is what 
we are asking, we would like them to designate Michigan as a 
separate sub-region. I see no reason why they couldn't amend 
their tariff and do that, and that is what we are seeking and 
looking for. So yes, I guess the answer to that is, if they 
determine that in fact Michigan is not receiving sufficient 
benefits to warrant 20 percent of the cost of these MVP 
projects, that they could designate us as a separate sub-
region.
    Mr. Engel. Let me give you a chance to add on to some of 
what you said.
    Mr. Transeth. That is always dangerous.
    Mr. Engel. Only on our side it is.
    In your opinion, does Order 1000's cost allocation make 
transmission cost determinations more or less fair than the 
current system?
    Mr. Transeth. The potential is--as I said many times about 
Order 1000, it is not so much what it says, it is what it 
doesn't say. I think that the basis is there. It is all going 
to kind of come out in how this is finally determined. At some 
point or another, some decisions are going to have to be made, 
at rehearing or as they go through the compliance filings. That 
is going to somehow or another wash out and we are going to 
know more about where they are coming, and I guess it is coming 
from the chairman's question that I disagree with Chairman 
Wellinghoff's statement. I think that there is a problem with 
clarity with this order, and that is what we have to get to. We 
need to start inserting some clarity into Order 1000 if we are 
going to get to the point that you are asking.
    Mr. Engel. Am I right in saying that Order 1000, according 
to my interpretation of it, the costs need to be allocated at 
least roughly commensurate with the estimated benefits and 
those who don't receive benefits should not be allocated costs 
and no costs should be allocated to another region unless that 
other region agrees to it?
    Mr. Transeth. That is the principles in which they 
establish in Order 1000. I don't know if as you read the 620 
pages that that necessarily comes out in the wash in the 
process, but that is a principle that they stated, and by the 
way, much of that language comes directly out of the 7th 
Circuit case, so I assume that that was one of the factors in 
which why they issued some of the language they did in Order 
1000.
    Mr. Engel. In your testimony, you testified that Order 1000 
does not define the term ``benefits.'' Mr. White recently 
mentioned the benefits. What definition of benefits do you 
think is appropriate?
    Mr. Transeth. Well, a $64,000 question I guess. Well, that 
is going to be--I suppose if I knew the exact answer to that, I 
should be sitting on FERC, but I think at the very minimum, we 
have to make sure that whatever benefits that we are looking 
at, that they are going to be somewhat measurable. We have got 
to be able to say this is a benefit and somehow or another this 
is going to have some measurable impact on certain parties, and 
that gets to the second part that I talked about where you need 
also to be able to find who the beneficiaries are.
    Mr. Engel. Let me ask you a final question under the wire 
with the chairman's benevolence. Will Order 1000 in your 
opinion result in New York City residents have to pay more for 
their electricity, and if so, why?
    Mr. Transeth. I wouldn't want to speculate on that.
    Mr. Engel. No hunch?
    Mr. Transeth. In and of itself, Order 1000 would not do 
that. It is how that gets implemented is whether that happens 
or not. If it goes the way that we are afraid, it is probably 
going to raise your cost. If on the other hand some of our 
concerns are addressed and there is some clarity brought into 
the process, no, then I think we get into some of the 
situations that Mr. Welch was talking about in terms of 
actually making some kind of meaningful impact with 
transmission and competitive markets.
    Mr. Engel. Thank you, Mr. Chairman.
    Mr. Whitfield. Mr. Pompeo, you are recognized for 5 
minutes.
    Mr. Pompeo. Thank you, Mr. Chairman.
    Anybody on the panel--by way, Mr. Shimkus said he is an 
electricity geek. That must make me an electricity geek in 
training.
    Does anybody on the panel think that Order 1000 favors or 
disfavors any type of power generation either intentionally or 
in its effect?
    Mr. Jones. I would say no with the exception that it has a 
heavy emphasis on public policy requirements State by State, 
and you know what has been going on in the States. It is no 
secret. Thirty States have RPSs.
    Mr. Pompeo. Including Kansas.
    Mr. Jones. Pardon?
    Mr. Pompeo. Including Kansas.
    Mr. Jones. Including your State.
    Mr. Pompeo. And so you are saying then that it benefits or 
it is designed to try and take account for and acknowledge 
those public policies that those States have created?
    Mr. Jones. Correct.
    Mr. Transeth. Representative?
    Mr. Pompeo. Yes.
    Mr. Transeth. I guess I would word it as Order 1000 allows 
for the opportunity which it did not before to States to 
establish a public policy that says we want renewables and so 
it will be developed that way.
    Mr. Pompeo. Thank you.
    You know, I think things work pretty well in the Southwest 
Power Pool. I think we have actually done a pretty good job, as 
I have now had a chance to learn more about it. How many of 
these--we talked about these interregional planning. How many 
interregional lines would have been built in 2010? Do these 
happen once a decade? Do we have one every couple hours? How 
many of these are we really talking about?
    Mr. Brown. Well, without knowing how to allocate the costs 
for those lines, I would agree with Mr. Welch, none. In our 
region, since the Energy Policy Act of 1992, very, very little 
transmission has been built because no one really knew how to 
allocate the costs and who was benefiting from the expansion of 
the transmission network, and so when we tackled the issue of 
cost allocation and our footprint, now all of a sudden we have 
notices to construct to our members that exceed $5 billion 
worth of transmission over the next 10 years. It clearly was an 
impediment in our region. I can't speak for the West, because I 
seem to think they are building all the transmission they need. 
We were not. We are now. And in terms of understanding the 
benefit from an engineer's perspective, it is a very simple 
calculation of adjusted production cost savings, and all of our 
States are used to dealing with that particular type of 
calculation. Everyone has used it in regulatory proceedings for 
decades and it is a very simple calculation. It has worked in 
our region.
    Mr. Transeth. Representative, I think that the answer to 
that is, we have long neglected our transmission system for too 
long and we are now on the verge of I think seeing a new, I 
don't know what you want to call it, a renaissance, but we are 
going to see a lot of transmission built in the coming years. I 
think that the way we generate, transmit and use energy is 
going to look completely different 10, 20 years from now, and 
all of that is going to come into play with some of the 
decisions like we are making today.
    Mr. Pompeo. Great. I have heard some concerns, Mr. Welch, I 
will direct this to you, that Order 1000 creates the risk over 
the overbuild of transmission lines and it will create excess 
capacity either as a national matter or in particular 
localities or regions. Do you have any thoughts on that?
    Mr. Welch. I do, and as a matter of fact, in my pre-filed 
testimony, I give to the committee members a couple of maps. 
One map shows the high-voltage grid in the United States and 
the other map shows the interstate highway system in the United 
States and another map shows the interstate gas pipelines in 
the United States and look at them and ask yourself, especially 
in States like Kansas, if you think that you are going to have 
a levelized electric access to competitive markets with totally 
the absence of a high-voltage electric grid, the map is stark 
by its own realities that there is none there, so much so that 
in Kansas when we first came there to do business, we were 
asked by the State legislature to come and help them out 
because they were frustrated because in Nick's area, they were 
still wrestling to the ground this issue of cost allocation, 
and there were lines there that had such huge benefits to 
Kansas, they said well, hell, we will just pay for them 
ourselves, we have to get somebody to build them. Huge price 
disparities across the State of Kansas. In fact, if memory 
serves me right, 6 cents a kilowatt-hour difference between the 
east side of the State and the west side of the State, so if 
you are on the west side of the State, you are not too happy.
    Mr. Pompeo. Yes, I am familiar with that.
    Mr. Welch. And as a result of that, we need to get that 
regional transmission built, and you have people there that 
aren't large enough to enjoy the benefits of large power 
plants. As you know, they are trying to build a large power 
plant there. Without that transmission system that lets it get 
to other small regional users in Oklahoma and other States, it 
won't exist and again you will be captive to that.
    So look at the map and ask yourself if this is--if those 
maps that you see there is the road, the map gives us the 
future of what is going to be a competitive energy market. It 
is stark. I don't think in my lifetime based on everything I 
have seen today, I don't think in my lifetime we can overbuild 
a transmission grid. It is just virtually impossible by all the 
things--just to get to the cost allocation, we have been at 
this about 10 years. Now we are going to address siting. We are 
worried about giving FERC--first we don't want FERC to say 
anything or we want them to say everything about the benefits 
so we can pinpoint that but we don't want them involved in 
siting, and so this is a system that just isn't set up for us 
to get where we need to be.
    Mr. Pompeo. Great. Thank you. We would love to build that 
power plant in western Kansas. My time is expired.
    Mr. Transeth. Mr. Chair, could I just give a counter answer 
to that, I guess to a certain extent, if I could have just a 
few minutes?
    Mr. Whitfield. Then Mr. DiStasio will want to make a 
comment.
    Mr. Transeth. I just want to say, I guess I think that 
there is the potential of overbuild with this because you are 
removing a lot of the traditional economic factors that would 
go into decision-making. You don't have a best practice 
sometimes in play if you are socializing cost over a broad 
system so I think that there is the potential. We would have to 
be very careful to make sure that that doesn't happen, but that 
would be one of the fears I would have that you have gold-
plated transmission systems as opposed to what might be that 
which is adequate.
    Mr. DiStasio. And I would just echo that in that if the 
need is not clearly identified and the benefits test isn't 
clearly articulated, you could end up with a circumstance where 
there is really not a need for transmission if you go through a 
typical resource planning process. Clearly, transmission is 
part of that but some of the cities we represent--Sacramento, 
Orlando, Phoenix--we don't need additional resources nor do we 
need additional transmission. The Western Energy Coordinating 
Council study that was talked about says there is no new 
transmission needed in the West until at least 2020, and then 
frankly, they are doing a 20-year study that will look out 
beyond that, but we have no load growth in our system. We still 
are struggling with a difficult economy so if some of these 
lines were to get built under other public purposes, we could 
end up with stranded investment that would actually compound 
the issues that are happening in our communities right now by 
adding cost to consumers for facilities they don't need.
    Mr. Whitfield. Thank you very much.
    Mr. Bilbray, you are recognized for 5 minutes.
    Mr. Bilbray. Thank you very much, Mr. Chairman.
    It is interesting to hear some of the discussions from the 
different parts of the world, and clarification, Mr. Jones, we 
do not in San Diego, southern California may get the hydro but 
San Diego doesn't, and I just want to make sure that Mr. Welch 
understands that southern California and San Diego were blacked 
out. We never want to be mixed up with Los Angeles, oK? In 
fact, our slogan is ``Better north TJ than south L.A.''
    But seriously, Mr. Jones, I am going to get down into the 
grass here if not right into the dirt on some of this stuff 
because I think it is important. I think we all--and this is 
one thing Democrats and Republicans should be able to agree on. 
Conservation avoidance of cost is the most efficient way of 
providing services as a base, and one of the things that Mr. 
Jones brought up that I think we need to talk about now while 
we are talking about who is going to pay what and where is 
this, you know, immense cost caused by obstruction of the 
Federal Government in siting alignments.
    Now, the Sacramento area may be able to go to renewables, 
because let us face it, you go out in your suburbs, you have 
got old farmland, you have got areas to convert. You are not 
surrounded by gnatcatcher habitat. You do not have to go over 
mountains to be able to get out of the area so you can legally 
site some of these facilities. What about the fact that we 
don't seem to see real general planning or intricate planning 
on the siting of these alignments to start with?
    I will give you an example. You can't go through a national 
forest. You can't go through an Indian reservation. To get out 
to our solar farms in the Imperial Valley, our lines have to be 
three times longer than the freeway that drives out there. Now, 
we are a country that says it is fine to run a freeway through 
an Indian reservation and a national forest but not a power 
line going out to a clean energy source. Now, Mr. Jones, 
wouldn't you agree that maybe Democrats and Republicans ought 
to be talking frankly and openly about what we need to do to 
change the system to make it easier and most cost-effective to 
start siting those lines before we even start talk about 
building them?
    Mr. Jones. Yes, absolutely, and I think you need to direct 
these questions to Lauren Azar. I think she is a troubleshooter 
and she is supposed to be heading up these rapid response teams 
dealing with these Federal agency issues that really impede the 
development of transmission in the West.
    But your other point on energy efficiency and demand-side 
management is well taken too, and I can assure you that the 
commissioners and the governor representatives were all looking 
at different scenarios in the West so that we may not have to 
build that $5 billion transmission line that connects San Diego 
with the Columbia River or with wind in Wyoming or wind in 
Alberta.
    Mr. Bilbray. We would just like to get out to our desert.
    Mr. Jones. So my point----
    Mr. Bilbray. By the way, let me point out that we have been 
trying for 25 years with about eight different alignments to 
run the gauntlet through the Federal Government to get to be 
able to make that connection, but go ahead, Mr. Jones.
    Mr. Jones. My only point is that we do have NGOs and 
stakeholders that participate in our processes who feel very 
strongly about these public values in our national lands, so if 
we are going to build those transmission lines through these 
public sensitive areas, as a State regulator, my biggest 
concern is that they are least cost.
    Mr. Bilbray. OK. Let me stop it right now and just say 
this. If you run a city and a county, a city basically has a 
fiduciary responsibility to site easements for water, gas and 
electric, but when you get outside of the unincorporated areas, 
we have not required under the Johnson Act for local council of 
governments, counties, the regional governments to do the same 
type of siting for transmission lines that every city does, 
every municipality does in this country, and we have approached 
it that well, that is the private sector or somebody else's 
problem. Is there any reasonable argument against the Federal 
Government finally saying under the Johnson Act we require you 
to do this, this, this but we are also now going to require 
that you sit down and figure out where the appropriate 
easements are and start pre-siting these and be a participant 
in it preplanning like we do with zoning right away for these 
alignments like we do other things. Go ahead, jump in.
    Mr. DiStasio. Can I answer that? First of all, I want to 
comment because we have been somewhat critical of Order 1000 
but specific to siting, we have been very supportive of the 
efforts. In fact, several lines have been identified just under 
the same types of conditions that you are suggesting where 
corridors have been identified. We supported FERC getting 
backstop authority if the States couldn't act within a year for 
FERC to go ahead and assist with siting those lines.
    Mr. Bilbray. Stop, stop. FERC doesn't know the land use, 
doesn't know the easement, doesn't know endangered species, 
doesn't know the terrain, and the trouble is, FERC comes in an 
outsider when you already have local governments, cities and 
counties serving as a body that could be making a decision on 
this, they make it on everything else. They make it on military 
bases, they make it on all kind of easements. Why is this 
different than what we would do with our roads? We do it with 
freeways. Why don't we do it with our power lines?
    Mr. DiStasio. Understood. I was just commenting on the fact 
that we are very supportive if something does need to get done 
about siting. Our issues have been relatively narrow to cost 
allocation when it comes to Order 1000, and I would also like 
to say, your comments about energy efficiency are very well 
taken. We have 15 percent energy efficiency we are doing over 
10 years, and we are doing that before we look at any other 
investments.
    Mr. Bilbray. Mr. Chairman, I appreciate that, and I just 
wanted to point out that if we built our freeway system the way 
we are trying to put our interlinks not just electricity but 
also gas and water and a lot of other things, we would still be 
driving on two-lane roads around this country. We don't ask the 
private sector or the locals to decide and lay all these out. 
These are all preplanned and done comprehensively regionally 
and State-wide, and we need to be aggressive about that, and 
that is something Democrats and Republicans should be able to 
work on because it is our fault we have taken leadership there, 
it is not theirs. I yield back.
    Mr. Whitfield. Well, you know, transmission cost allocation 
brings out the passion in all of us.
    Ms. Matsui, you are recognized for 5 minutes.
    Ms. Matsui. Thank you, Mr. Chairman, and thank you for 
allowing me to ask questions on this panel.
    I am fast becoming a geek too. This has really been very, 
very interesting, and I had a bunch of questions I want to ask 
you but most of them have been talked about. I really want to 
get to the nub of what we are talking about here. I am from 
California. SMUD is my local utility and has been having great 
customer satisfaction, according to J.D. Powers, for at least 9 
years. So we understand in a sense SMUD and what SMUD has been 
trying to do with energy efficiency and renewables and so 
forth, and sitting here today listening to what you have gone 
through the Northwest in sharing and helping each other, that 
to me is a solution to many of the situations that we encounter 
in the western part of the United States. I guess what I saying 
is that when we have local solutions and we have policy that 
actually advocates for energy efficiencies and investments in 
them and you have cooperation, it is working, and I think what 
I am looking at from that side is the sense that you still need 
this national type of outlook on transmission, which I think is 
important also. But some of it I am looking at is also that it 
might be something that we generally look upon as something we 
do historically in the past as we laid out the freeways and the 
railroads and things of that nature, which may not work out 
today.
    So I guess what I am going to ask you is that I guess the 
four of you or so on this side who have a wish list about what 
you would like to see as far as some flexibility moving forward 
from FERC and from the other side what you can accept from this 
side because I think there is a solution here, and I think it 
is how you go about is what we are talking about today. So kind 
of quickly, what would you like to see as far as FERC and this 
order we are talking about moving forward and implementing it?
    Mr. White. Thank you very much. I do believe, and we are 
supporter of FERC Order 1000 in the sense that it does move the 
ball forward. It helps better focus the planning objectives and 
the construct for decision-making. What we would like to see is 
that greater flexibility be given so that we can be part of 
that decision-making process in terms of how these projects 
will be paid for and so that there is clearly measurable 
benefits. We have no problem paying for projects for which we 
benefit, even if they are located outside of the State that I 
work in. But the way some of this construct has been developed, 
it perhaps overgeneralizes or assumes level of socialization of 
the costs and benefits in a way that creates almost a one-size-
fits-all mentality, therefore precluding the ability of local 
solutions including efficiency, including more strategically 
placed generation.
    Ms. Matsui. Do you agree also, Mr. Jones and Mr. DiStasio?
    Mr. Jones. Yes, I agree with that. I think the Order 1000 
struck the balance properly in the execution of it. It is 
important to continue these regional planning processes that we 
have in the West between California, the desert Southwest and 
the Northwest. I think those will continue. The proof in the 
pudding, though, is going to be in the regional planning, 
compliance filings in 12 months and then as all of us has 
mentioned, cost allocation is a key issue, interregional cost 
allocations. Between California and the Northwest, we have 
traditionally funded those on participant funding where the 
benefits are clearly identified and the beneficiaries pay 
through a long-term contract.
    Mr. DiStasio. And I agree with that. I think to put a finer 
point on it, I think Order 1000 was a well-intentioned order 
but we do need to have beneficiary pays as one of the 
permissible options for people to share the costs, a willing 
seller and a willing buyer determining that there is a need for 
that line.
    Mr. Transeth. There is not really much I could add other 
than to once again say this is not really a question. I think 
we all can agree that we need to be looking at a robust 
transmission system that is going to meet our future needs but 
this is really coming down to once again, you know, where are 
we going to build this, how much and who is going to pay for 
it, and that is where the difficulty is occurring between----
    Ms. Matsui. Can you help us out there?
    Mr. Brown. The process that Southwest Power Pool has in 
place takes all of those things into account. The beneficiaries 
do pay. They are involved in the planning process to ensure 
that we don't overbuild or underbuild, and the States have 
total control of the cost allocation methodology.
    Ms. Matsui. So you think that is a model? Do you agree?
    Mr. Jones. Yes. That works well for SPP, and actually SPP 
has been up in the Northwest talking about an energy and 
balance market for integrating wind, so we like what they are 
doing.
    Ms. Matsui. All right. I am over, but am I allowed one more 
comment here? Thank you.
    Mr. Welch. Well, I will just go back to what I said in my 
prepared comments, and I am going to quote one more time from 
FERC's order: ``Costs may not be involuntarily allocated to 
entities that do not receive benefits.'' End of statement. I 
mean, that is pretty direct. And I said that I supported this, 
and at the end of the day, I would be remiss to say that, you 
know, I would never support something to be allocated to the 
customers that I am entrusted to serve that they didn't get 
benefits from.
    Ms. Matsui. Thank you very much, and I find this very 
interesting, Mr. Chairman, because in California we do have 
these huge water fights too where we talk about the beneficiary 
and who pays. Thank you very much. I appreciate it.
    Thank you, Mr. Chairman.
    Mr. Whitfield. And thank you all very much. We appreciate 
your time and your expertise, and I would like to say that Mr. 
Dingell had to leave but that he did want me to let all of you 
know that he intends to submit some additional questions to you 
to answer and get back with us, so we would appreciate that.
    Mr. Rush. Mr. Chairman, I just would like to ask that you 
keep the record open for the requisite amount of time.
    Mr. Whitfield. You may keep it open for 10 days. We will 
keep it open for 10 days.
    And we look forward to working with all of you as we move 
forward, so thank you very much, and that concludes today's 
hearing.
    [Whereupon, at 12:27 p.m., the subcommittee was adjourned.]
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