[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
  AMERICAN ENERGY SECURITY AND INNOVATION: THE ROLE OF REGULATORS AND 
                                 GRID 
 OPERATORS IN MEETING NATURAL GAS AND ELECTRIC COORDINATION CHALLENGES

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



                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON ENERGY AND POWER

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 19, 2013

                               __________

                           Serial No. 113-19


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov





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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        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
TIM MURPHY, Pennsylvania             GENE GREEN, Texas
MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee          LOIS CAPPS, California
  Vice Chairman                      MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia                JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio                JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi            JOHN BARROW, Georgia
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky                  Islands
PETE OLSON, Texas                    KATHY CASTOR, Florida
DAVID B. McKINLEY, West Virginia     JOHN P. SARBANES, Maryland
CORY GARDNER, Colorado               JERRY McNERNEY, California
MIKE POMPEO, Kansas                  BRUCE L. BRALEY, Iowa
ADAM KINZINGER, Illinois             PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida            PAUL TONKO, New York
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
                    Subcommittee on Energy and Power

                         ED WHITFIELD, Kentucky
                                 Chairman
STEVE SCALISE, Louisiana             BOBBY L. RUSH, Illinois
  Vice Chairman                        Ranking Member
JOHN SHIMKUS, Illinois               JERRY McNERNEY, California
JOSEPH R. PITTS, Pennsylvania        PAUL TONKO, New York
LEE TERRY, Nebraska                  EDWARD J. MARKEY, Massachusetts
MICHAEL C. BURGESS, Texas            ELIOT L. ENGEL, New York
ROBERT E. LATTA, Ohio                GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   LOIS CAPPS, California
BILL CASSIDY, Louisiana              MICHAEL F. DOYLE, Pennsylvania
PETE OLSON, Texas                    JOHN BARROW, Georgia
DAVID B. McKINLEY, West Virginia     DORIS O. MATSUI, California
CORY GARDNER, Colorado               DONNA M. CHRISTENSEN, Virgin 
MIKE POMPEO, Kansas                      Islands
ADAM KINZINGER, Illinois             KATHY CASTOR, Florida
H. MORGAN GRIFFITH, Virginia         JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California (ex 
FRED UPTON, Michigan (ex officio)        officio)


                             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.................................     3
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     5
    Prepared statement...........................................     7
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   121

                               Witnesses

Philip D. Moeller, Commissioner, Federal Energy Regulatory 
  Commission.....................................................     8
    Prepared statement...........................................    10
    Answers to submitted questions...............................   130
Cheryl A. LaFleur, Commissioner, Federal Energy Regulatory 
  Commission.....................................................    18
    Prepared statement...........................................    20
    Answers to submitted questions...............................   140
Barry T. Smitherman, Chairman, Railroad Commission of Texas......    49
    Prepared statement...........................................    52
Joshua B. Epel, Chairman, Colorado Public Utilities Commission...    64
    Prepared statement...........................................    66
Clair J. Moeller, Executive Vice President, Transmission & 
  Technology, Midwest Independent Transmission System Operator, 
  Inc............................................................    73
    Prepared statement...........................................    75
    Answers to submitted questions...............................   154
Gordon van Welie, President and CEO, ISO New England, Inc........    85
    Prepared statement...........................................    87
Paul J. Hibbard, Vice President, Analysis Group..................    96
    Prepared statement...........................................    98

                           Submitted Material

Testimony of Todd Snitchler, Charman of Public Utilities 
  Commission of Ohio Coordination between Natural & Electricity 
  Markets........................................................   123


  AMERICAN ENERGY SECURITY AND INNOVATION: THE ROLE OF REGULATORS AND 
    GRID OPERATORS IN MEETING NATURAL GAS AND ELECTRIC COORDINATION 
                               CHALLENGES

                              ----------                              


                        TUESDAY, MARCH 19, 2013

                  House of Representatives,
                  Subcommittee on Energy and Power,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:04 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Ed 
Whitfield (chairman of the subcommittee) presiding.
    Present: Representatives Whitfield, Scalise, Shimkus, 
Pitts, Terry, Burgess, Latta, Cassidy, Olson, Gardner, Pompeo, 
Griffith, Barton, Rush, McNerney, Tonko, Green, Barrow, 
Christensen, Dingell, and Waxman (ex officio).
    Staff present: Nick Abraham, Legislative Clerk; Charlotte 
Baker, Press Secretary; Allison Busbee, Policy Coordinator, 
Energy & Power; Patrick Currier, Counsel, Energy & Power; Tom 
Hassenboehler, Chief Counsel, Energy & Power; Mary Neumayr, 
Senior Energy Counsel; Andrew Powaleny, Deputy Press Secretary; 
Chris Sarley, Policy Coordinator, Environment & Economy; Jeff 
Baran, Democratic Senior Counsel; Kristina Friedman, EPA 
Detailee; and Caitlin Haberman, Democratic Policy Analyst.

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

    Mr. Whitfield. I would like to call the hearing to order 
this morning, and we certainly appreciate our witnesses that 
will be with us today. I think we have two panels and I will 
introduce the first panel in just a minute. But the title of 
today's hearing is ``American Energy Security and Innovation: 
The Role of Regulators and Grid Operators in Meeting Natural 
Gas and Electric Coordination Challenges. And I noticed the 
clock says 20 until 10:00; it is actually 10 o'clock so that is 
why we are starting right now. But I want to welcome all of you 
here today.
    As you know, EPA recently announced that they were going to 
delay the finalizing of the rule on greenhouse gas regulations 
of the nuke power plants, and I am delighted that they made 
that decision. I know that one of the reasons they are doing it 
is that they wanted to buttress their legal case. And we have 
many witnesses that will be testifying today about the 
increased use of natural gas, which is coming about for a 
number of different reasons. One, of course, gas prices are 
very low right now, and the second reason is that the 
regulatory decisions coming out of EPA makes it extremely 
difficult to use coal. And if they do finalize that greenhouse 
gas regulation for new coal power plants, you will not be able 
to build a new coal power plant in America.
    And those kinds of decisions, whether they are price 
decisions or regulatory decisions, have tremendous impact on 
the way we produce electricity in America. And it is certainly 
true that generating power from natural gas has many benefits, 
especially given that domestic supplies are increasing and our 
current prices are relatively low. But we are learning that 
there are some very real challenges to integrating more natural 
gas into the power sector.
    We are pleased, as I said, to have an excellent slate of 
witnesses today who will discuss some of these challenges and 
describe for us how they are meeting them to ensure the 
continued supply of affordable and reliable electricity. At the 
heart of the issue is the fact that electricity is a 24-hour-a-
day, 7-day-a-week, 365-day-a-year business with daily and 
hourly changes in supply and demand. This complexity poses 
challenges to grid owners and operators incorporating more 
natural gas-fired generation into their system. Greater 
coordination among the natural gas and electric industries is 
needed to ensure that these challenges can be met.
    One challenge is there are certain physical constraints, 
such as whether current natural gas pipeline and storage 
infrastructure will be adequate to deliver increasing amounts 
of natural gas to power plants. But there also are market and 
regulatory challenges in some regions such as scheduling 
natural gas supplies to match up with electricity needs. Many 
of these challenges are state and regional issues as well as 
federal ones, which is why we will hear from those representing 
these levels of government today.
    The challenges of heavier reliance on natural gas-fired 
generation have been highlighted by recent cold spells. 
Electricity demand goes up when the temperature goes down, but 
so does demand for natural gas to meet the heating needs of 
residential customers. As a result, regions with a high 
proportion of natural gas-fired generation see a dual burden on 
supplies during periods of unusually cold weather. We need to 
take steps to ensure that the lights stay on at an affordable 
rate through cold snaps, as well as other occasional but 
inevitable events that put a strain on the system.
    America's newfound abundance of natural gas is a blessing 
and should play an important role in contributing to our energy 
needs. But we need to take steps to properly integrate, and I 
think the fact that FERC has had five technical hearings on 
these kinds of issues within the last year illustrates the 
importance of the issue, and I know they have more conferences 
scheduled on this as well.
    [The prepared statement of Mr. Whitfield follows:]

                Prepared statement of Hon. Ed Whitfield

    Two weeks ago, we held a hearing exploring the importance 
of a diverse electricity generation portfolio, one that 
includes coal, natural gas, nuclear, and renewables. One of the 
lessons from our recent fuel diversity hearing is that we need 
to avoid an overreliance on any one source of fuel for 
electricity. In my view, natural gas complements coal, but 
should not serve as a replacement for it. Today, we will focus 
on the biggest change in the generation mix in the U.S., which 
is the rapid growth in the use of natural gas to generate 
electricity.
    I might add that the flip side of our discussion about the 
challenges of ramping up natural gas-fired generation is that 
coal has a number of advantages that have not been fully 
appreciated by this Administration. To take one example, having 
an extra supply of coal on hand to deal with any contingency is 
as simple as keeping a pile of it on site, a convenience that 
often seems to be taken for granted. Coal remains one of the 
lowest cost options for electricity generation and is the 
fastest growing energy source worldwide, yet we have allowed 
EPA to engage in regulations on coal-fired power plants without 
thinking through all of the consequences.
    I do not think it's realistic to meet the electricity needs 
of America without the use of fossil fuels, nuclear power, and 
those fuels that provide our base load needs. And I hope that 
maintaining a future role for coal, including new, advanced 
coal-fired power plants, is also a part of today's discussion.
    It is certainly true that generating power from natural gas 
has many benefits as well, especially given that domestic 
supplies are increasing and current prices are relatively low. 
But, we are learning that there are some very real challenges 
to integrating more natural gas into the power sector. We are 
pleased to have an excellent slate of witnesses today who will 
discuss some of these challenges and describe for us how they 
are meeting them to ensure the continued supply of affordable 
and reliable electricity.
    At the heart of the issue is the fact that electricity is a 
24 hours-a-day, 7 days-a-week, 365 days-a-year business with 
daily--and hourly--changes in supply and demand. This 
complexity poses challenges to grid owners and operators 
incorporating more natural gas-fired generation into their 
systems. Greater coordination among the natural gas and 
electric industries is needed to ensure that these challenges 
can be met.
    One challenge is there are certain physical constraints, 
such as whether current natural gas pipeline and storage 
infrastructure will be adequate to deliver increasing amounts 
of natural gas to power plants. But there are also market and 
regulatory challenges in some regions, such as scheduling 
natural gas supplies to match up with electricity needs. Many 
of these challenges are state and regional issues as well as 
federal ones, which is why we will hear from those representing 
these levels of government.
    The challenges of heavier reliance on natural gas-fired 
generation have been highlighted by recent cold spells. 
Electricity demand goes up when the temperature goes down, but 
so does demand for natural gas to meet the heating needs of 
residential customers. As a result, regions with a high 
proportion of natural gas-fired generation see a dual burden on 
supplies during periods of unusually cold weather. We need to 
take steps to ensure that the lights stay on at an affordable 
rate through cold snaps as well as other occasional but 
inevitable events that put strain on the system.
    America's newfound abundance of natural gas is a blessing 
and should play an important role in contributing to our energy 
needs. But we need to take steps to properly integrate it into 
the electricity portfolio. I look forward to learning about the 
best ideas for doing so. Thank you.

    Mr. Whitfield. So with that, I yield back the balance of my 
time and recognize the gentleman from Illinois, Mr. Rush, for a 
5-minute 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, for holding 
today's hearing which is part two on the diversification of the 
Nation's electricity supply, and we will focus on the role of 
regulators and grid operators in meeting natural gas and 
electric coordination challenges.
    As we discussed in the first hearing on electric 
diversification, we know that in 1993 coal was responsible for 
50 percent of the electric generation in the U.S. while natural 
gas accounted for less than 15 percent. However, the Energy 
Information Administration reports that in 2012 there was a 
shift in electricity generation away from coal-fired 
generation, which declined by 12.5 percent and caused a cleaner 
source of electricity including natural gas, which increased by 
21 percent.
    In today's hearing, we will hear from federal and state 
regulators, as well as the electric grid operators about the 
challenges resulting from this shift to natural gas from coal-
fired plants in electricity generation. We will also hear from 
two of the FERC commissioners on whether grid operators are 
prepared for reliability issues stemming from the power sector 
shift from coal to natural gas. And we will discuss solutions 
to better coordinate between the two industries through 
communication and scheduling alignments to make sure the grid 
operators have enough backup generating capacity when gas 
supplies are tight. Last August, FERC held five regional 
technical conferences where natural gas and electric 
interdependence issues such as better communications, 
infrastructure concerns, rules, and reliability issues were 
discussed.
    I understand Commissioners Moeller and LaFleur also 
participated in a technical conference last month to discuss 
more regional and national issues as they relate to natural gas 
and electricity markets. While there were regional differences 
in regards to gas and electric coordination issues that was 
brought up in these conferences, work is now being done by 
regional grid operators to improve information-sharing among 
the grid operators, natural gas pipelines, and electricity 
generators.
    I understand that another technical conference is scheduled 
for next month in April, where the discussion will focus on 
whether there is going to be more coordination between the 
natural gas and electric industry market schedules in order to 
achieve greater efficiency for both industries.
    Mr. Chairman, it is important to note that this shift from 
older, dirtier, coal-fired plants to natural gas and supplying 
the Nation's electricity demand is due more to marketing 
realities than to EPA rules such as the Mercury and Air Toxics 
rules and a new source performance schedule.
    According to CRS, ``the primary impact of many of the rules 
will largely be on coal-fired plants more than 40 years old 
that have not, until now, installed state-of-the-art pollution 
control. Many of these plants are inefficient and are being 
replaced by more efficient combined-cycle natural gas plants, a 
development likely to be encouraged if the price of competing 
fuel, natural gas, continues to be low almost regardless of the 
EPA's rule.''
    So Mr. Chairman, I look forward to today's hearing. I look 
forward to today's witnesses on the challenges and 
opportunities of shifting from coal to natural gas in the 
Nation's electricity generation. I yield back.
    Mr. Whitfield. Thank you, Mr. Rush. At this time I 
recognize the gentleman from Texas, Mr. Barton, for 5 minutes.
    Mr. Barton. Thank you, Mr. Chairman. I won't use that 5 
minutes.
    I want to take a little bit of my time to welcome a witness 
from the second panel, Mr. Barry Smitherman. He is the chairman 
of the Texas Railroad Commission. That is an elected position 
in Texas, and I was proud to vote for him this past November. 
You remember that when I come to you for favor later on. But he 
is going to testify about what is happening in Texas. We are 
very proud of our home State that alternative energy, wind 
power, and nuclear power--if you want to consider nuclear as an 
alternative--is about 20 percent of our supply for electricity. 
We have about 50 percent that is generated by natural gas, 
which is the main focus of your hearing today, Mr. Chairman.
    And the rest of the country is beginning to come to where 
Texas has always been, you know, large on natural gas. But we 
also have about 30 percent of coal power, which I know you are 
very supportive of, Mr. Chairman.
    This should be a good hearing and we are glad to have our 
FERC chairman and one of the FERC commissioners, and I hope 
that we have a productive hearing. I have still got a lot of 
time I would be happy to yield if somebody else wants to use 
some my time.
    Mr. Whitfield. Does anyone want the balance of Mr. Barton's 
time?
    Mr. Barton. I believe Mr. Olson would like to say some nice 
things.
    Mr. Olson. I would really like to thank my colleagues from 
Texas. I would like to join his comments and I voted for you, 
too, Barry. Good, good vote. You are doing a great job for our 
State. Thank you very much, Joe.
    Mr. Barton. I will say that before Mr. Smitherman was 
elected chairman of the Railroad Commission, he was appointed 
chairman of the Public Utility Commission, so he has been 
double-hatted in Texas and is truly an expert. And with that, 
Mr. Chairman, I would be happy to yield back.
    Mr. Whitfield. The gentleman yields back. At this time I 
recognize the gentleman from California, Mr. Waxman, for 5 
minutes.

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

    Mr. Waxman. Thank you very much, Mr. Chairman.
    And Mr. Smitherman, I just didn't have a chance to vote for 
you.
    Today, the subcommittee hears from electricity regulators 
and grid operators about America's evolving electricity 
generation portfolio. There is no question that a significant 
transition is underway.
    Renewable energy policies are paying off. We have doubled 
our capacity to generate renewable electricity from wind and 
solar in just 4 years. This has cut pollution and invigorated 
clean energy manufacturing. Last year, for the first time, wind 
power added more electricity generation capacity than any other 
resource. Nearly half of all new generation capacity came from 
wind.
    Cheap natural gas is also helping to transform our 
electricity sector. This market reality is causing some 
utilities to retire their oldest, dirtiest, and least-efficient 
coal plants. And new coal plants are simply not cost-effective 
to build today.
    These changes are positive developments. Until carbon-
capture technologies are developed, burning coal will continue 
to emit dangerous pollution. We should avoid investments in 
infrastructure that will lock in the worst impacts of climate 
change or create stranded investments that must be shut down 
before they have served their useful life.
    But these changes also create challenges for our electric 
grid. Clean renewable energy sources like wind and solar 
provide power when the wind is blowing or the sun is shining, 
but not at other times. We need dispatchable generation that 
can be integrated into the grid with these intermittent 
supplies. That is a planning, funding, and construction 
challenge.
    We also need to be developing and deploying power storage 
systems that can accommodate increasing generation from 
renewable sources.
    EPA, the Department of Energy, and the Federal Energy 
Regulatory Commission are working to answer these challenges. 
But we in Congress could help by crafting sensible energy 
legislation. Two weeks ago, we heard from executives from some 
of the biggest utilities in the country. Entergy, AEP, and Xcel 
operate in different parts of the country with different fuel 
portfolios. But they all agreed that the best way to respond to 
climate change is through legislation from Congress.
    When utilities tell us they are looking for regulatory 
certainty, they are not talking about bills that delay action. 
They are looking for real action and thoughtful policies. They 
want Congress to establish the rules of the road so that they 
can plan and invest for the future.
    Ideally, this committee will enact a responsible energy 
policy that recognizes the reality of climate change. But as 
the President said in his State of the Union Address, he will 
act if we don't. And I think he better act, before we fail. 
Because, chances are we won't act, even though I hope we will. 
EPA's proposed carbon pollution standard for new power plants 
is a good first step. It is a standard that requires new power 
plants, whether they use coal or natural gas, to keep their 
pollution below a specified level. The proposed standard 
provides incentives for the deployment of carbon-capture and 
sequestration technologies. And it creates a level playing 
field for fossil fuel-fired generation.
    It was valuable to hear from electric utilities at the last 
hearing. And I am glad that we are hearing from grid operators 
and regulators today. They have important perspectives.
    But since policies that respond to climate change are a 
major focus of the statements and questions at these hearings, 
we also need to hear from the scientists and technical experts 
who can inform the subcommittee about the dangers of manmade 
climate change and the closing window for effective action. Two 
weeks ago, I made that request at the last hearing. Last week, 
Mr. Rush and I sent a letter reiterating that request for an 
additional hearing. Mr. Chairman, I urge you to respect this 
moral imperative and listen to all sides of the issue.
    I thank the witnesses for being here and I look forward to 
today's testimony. And I yield back the balance of my time.
    [The prepared statement of Mr. Waxman follows:]

               Prepared statement of Hon. Henry A. Waxman

    Today, the Subcommittee hears from electricity regulators 
and grid operators about America's evolving electricity 
generation portfolio. There is no question that a significant 
transition is underway.
    Renewable energy policies are paying off. We have doubled 
our capacity to generate renewable electricity from wind and 
solar in just four years. This has cut pollution and 
invigorated clean energy manufacturing. Last year, for the 
first time, wind power added more electricity generation 
capacity than any other resource. Nearly half of all new 
generation capacity came from wind.
    Cheap natural gas is also helping to transform our 
electricity sector. This market reality is causing some 
utilities to retire their oldest, dirtiest, and least efficient 
coal plants. And new coal plants are simply not cost-effective 
to build today.
    These changes are positive developments. Until carbon 
capture technologies are developed, burning coal will continue 
to emit dangerous pollution. We should not invest in 
infrastructure that will ensure we suffer the worst impacts of 
climate change or create stranded investments that must be shut 
down before they've served their useful life.
    But these changes also create challenges for our electric 
grid. Clean renewable energy sources like wind and solar 
provide power when the wind is blowing or the sun is shining 
but not at other times. We need dispatchable generation that 
can be integrated into the grid with these intermittent 
supplies. That is a planning, funding, and construction 
challenge.
    We also need to be developing and deploying power storage 
systems that can accommodate increasing generation from 
renewable sources.
    EPA, the Department of Energy, and the Federal Energy 
Regulatory Commission are working to answer these challenges. 
But we could help in Congress by crafting sensible energy 
legislation. Two weeks ago, we heard from executives from some 
of the biggest utilities in the country. Entergy, AEP, and Xcel 
operate in different parts of the country and have very 
different fuel portfolios. But they all agreed that the best 
way to respond to climate change is through legislation from 
Congress.
    When utilities tell us they are looking for regulatory 
certainty, they are not talking about bills that delay action. 
They are looking for real action and thoughtful policies. They 
want Congress to establish the rules of the road so that they 
can plan and invest for the future.
    Ideally, this Committee will enact a responsible energy 
policy that recognizes the reality of climate change. But as 
the President said in his State of the Union Address, he will 
act if we don't. EPA's proposed carbon pollution standard for 
new power plants is a good first step. It is a standard that 
requires new power plants--whether they use coal or natural 
gas--to keep their pollution below a specified level. The 
proposed standard provides incentives for the deployment of 
carbon capture and sequestration technologies. And it creates a 
level playing field for fossil fuel-fired generation.
    It was valuable to hear from electric utilities at the last 
hearing. And I am glad that we are hearing from grid operators 
and regulators today. They have important perspectives.
    But since policies that respond to climate change are a 
major focus of the statements and questions at these hearings, 
we also need to hear from the scientists and technical experts 
who can inform the Subcommittee about the dangers of man-made 
climate change and the closing window for effective action. Two 
weeks ago, I made that request at the last hearing. Last week, 
Mr. Rush and I sent a letter reiterating that request for an 
additional hearing. Mr. Chairman, I urge you to respect this 
moral imperative and listen to all sides of the issue.
    I thank the witnesses for being here and look forward to 
today's testimony.

    Mr. Whitfield. Thank you, Mr. Waxman.
    That concludes today's opening statements, and so at this 
time I will introduce our first panel of witnesses.
    We have with us this morning Mr. Philip Moeller, who is the 
Commissioner of the Federal Energy Regulatory Commission. Mr. 
Moeller, we are delighted to have you back with us again. And 
we have also Hon. Cheryl LaFleur, Commissioner, Federal Energy 
Regulatory Commission. I thank both of you for being here. We 
do look forward to your testimony and your expertise in this 
area. And I am going to call on each one of you, recognize you 
for 5 minutes. And there is a little box on the table that, if 
it works, it will turn red when your 5 minutes is up. And I am 
sure I won't cut you off, but at least you will notice that the 
red light is on.
    So at this time, Mr. Moeller, I will recognize you for 5 
minutes and we look forward to your opening statement.

 STATEMENTS OF PHILIP D. MOELLER, COMMISSIONER, FEDERAL ENERGY 
  REGULATORY COMMISSION; AND CHERYL A. LAFLEUR, COMMISSIONER, 
              FEDERAL ENERGY REGULATORY COMMISSION

                 STATEMENT OF PHILIP D. MOELLER

    Mr. Philip Moeller. Mr. Chairman, thank you very much. 
Ranking Member Rush, Chairman Emeritus Waxman, and Barton, 
thank you for the chance to testify today.
    My name is Phil Moeller. I am one of five sitting 
commissioners. And I thank you for your attention to this issue 
because I think it is one of the more pressing issues in our 
country.
    The convergence of the electric industry and the natural 
gas industry is a result of several factors. It is kind of a 
good problem to have. It just has to be managed as two very 
different industries converge in a way that we want to make 
sure that we maintain the reliability of the natural gas supply 
and production and of course the electricity supply and 
production as well.
    I always have to point out the most efficient use of 
natural gas of course is direct usage, space heat, and water 
heat. But the fact remains that we are in a major trend pattern 
right now where we are using more gas to make electricity. I 
ascribe five reasons for it.
    First, it is usually easier to site, build, and finance a 
gas plant than other alternatives. Secondly, oftentimes, 
electric transmission is a cheaper alternative for consumers 
but it is so hard to build electric transmission in this 
country that oftentimes utilities build a generating plant 
instead. The third reason alluded to earlier, we have an 
abundance of renewable power that has been entering the grid 
but it is intermittent nature. It is not always there. You need 
something to back it up, to firm it up. That is almost always a 
gas plant because of its ability to respond quickly.
    The fourth reason, of course, also alluded to earlier, is a 
suite of environmental regulations, air regulations, by the EPA 
that is resulting in the shutdown and the retrofitting of 
thousands of megawatts of coal plants in this country.
    And the fifth reason is that we appear to have a long-term 
period of moderate to low prices of natural gas. That is coming 
domestically, quite amazingly, only in the last 5 or 6 years 
because of the new technologies of horizontal drilling and 
hydrofracking that have allowed us to access these resources 
that we didn't really even know we had 5 or 6 years ago.
    I was honored and privileged to sit on the coordinating 
subcommittee of the National Petroleum Council, and they put 
out a 2-year study about a year-and-a-half ago called ``Prudent 
Development.'' I brought the summary along today. It outlines 
just the enormous resources we have in North America on oil and 
gas, again, ones that we didn't even realize we had a few years 
ago.
    Now, we as a society may decide to restrict the use of some 
of these new technologies. That won't be our decision. But if 
we don't that or even if we do to some extent, technology will 
only allow us to find more of these resources, perhaps extract 
them and, absent a big change, we appear to have a long-term 
period of stability of gas in this country. And that leads to 
the fact that we will probably have low to moderate prices for 
a relatively long time.
    Well, even despite this, we have had some challenges in our 
country where, at times, there essentially hasn't been enough 
gas to go around, usually in a cold weather event. My 
colleague, Commissioner LaFleur, experienced it firsthand in 
2004 in New England. A few other examples include some rolling 
blackouts around Denver in 2006, almost a near catastrophe in 
my home of the Pacific Northwest in December of 2009 when some 
quick action averted a lot of outages.
    But the event that really brought my attention to this 
issue was the Southwest outage of February 2011, where over 3 
million people in Texas, and over 50,000 gas consumers in 
Texas, New Mexico, and Arizona lost service. It was a cold 
weather event but it wasn't unprecedented. And we had problems 
essentially on the gas side to deliver electricity and then 
failure on the electricity side to deliver gas.
    Again, our staff at FERC and also the North American 
Electric Reliability Corporation put out a great report on that 
outage that describes the industries in quite good detail as a 
primer, what happened, recommendations for it. So there was a 
failure to communicate, really, in that event. And I was 
concerned going into the last couple of winters, that because 
of those failures to communicate, we could have a repeat 
episode if we had some really cold weather. I mean, in reality 
we have had some pretty warm winters the last couple of years, 
but I am concerned that the system hasn't been stressed under 
this new regime of moving toward more gas to make electricity 
in addition to the traditional uses of gas.
    So about a year ago, I put out a series of questions to the 
public asking where we should go on this. My colleague, 
Commissioner LaFleur added some, and our chairman gave it a 
docket number. It has been a public proceeding. Our chairman 
has dedicated enormous staff resources to try to deal with this 
issue. And as you eluded to, Mr. Chairman, we have had a series 
of five technical conferences regionally based in August, 
another one last month, another one next month, another one in 
May where we are looking at the short-term communication issues 
so that if we have another cold winter event next winter that 
people can talk to each other, medium-term issues of getting 
the markets aligned correctly and longer-term issues of making 
sure we have the right market rules, financial rules, and 
environmental rules to get more infrastructure built in this 
country to deal with the long-term issue of enough pipe and 
supply to customers.
    Again, thank you for giving this issue the attention it is 
giving. That helps us along. We are not sure where we are going 
on this, but I would be happy to answer any questions when 
appropriate.
    [The prepared statement of Mr. Moeller follows:]


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    Mr. Whitfield. Thank you, Mr. Moeller.
    And Ms. LaFleur, you are recognized for 5 minutes.

                 STATEMENT OF CHERYL A. LAFLEUR

    Ms. LaFleur. Thank you very much, Chairman Whitfield, 
Ranking Member Rush and Phil, and the members of the 
subcommittee. I appreciate your holding this hearing and the 
opportunity to testify.
    Since July 2010, I have served as a commissioner of the 
Federal Energy Regulatory Commission. Earlier in my career, I 
had the privilege of serving electric and natural gas customers 
in New England and upstate New York. That experience taught me 
firsthand how important reliability is to customers in real 
communities. Since joining the Commission, I have made 
reliability and grid security my top priorities.
    As everyone has said, our Nation is experiencing a 
substantial growth in the use of natural gas to generate 
electricity. In the past 15 years, gas used for generation has 
increased at the rate of 6 percent per year, but in the past 3 
years it has accelerated to 10 percent per year more gas being 
used for electricity. There are several reasons for this. The 
primary one is the increased availability and affordability of 
domestic natural gas, which is leading to sharply lower gas 
prices. In addition, natural gas is the cleanest-burning fossil 
fuel, making it an attractive option for new generation and for 
repowering generation that is uneconomic to retrofit for new 
environmental regulations. Finally, the flexible operating 
characteristics of natural gas work well with the Nation's 
growing fleet of renewable resources.
    This steady growth in natural gas for generation has led to 
concerns about the interdependence of the gas and electric 
markets. Because natural gas is generally delivered in a 
pipeline network rather than stored onsite like other 
generating fuels, it is important that we have both an adequate 
network of pipelines and operating practices to support 
reliability.
    At the technical conferences we held last summer in five 
regions of the country, we heard about two basic issues. The 
first is infrastructure: making sure we have enough pipelines 
in the right places to support both electric and gas 
reliability. It is not a supply issue; we have plenty of gas. 
It is a pipeline issue. In some places the pipelines are 
constrained in specific regions or localities.
    Since deregulation of the gas network by the Congress 
several decades ago, pipelines have been permitted by FERC 
based on long-term commitments for firm supply. And that system 
has worked well. We have permitted 10,000 miles of gas 
pipelines in the last decade. However, in regions with 
competitive electric markets, gas generators often don't enter 
into the long-term firm contracts but instead rely on 
interruptible contracts or buying gas that is resold by others 
with firm contracts. This can lead to shortage of gas at stress 
times, particularly in the winter heating season in certain 
regions, most notably New England.
    At the conferences we received a strong message, really 
from folks across the country, that the need for infrastructure 
is a regional issue that varies by geography, the existing 
pipelines, fuel mix, and the structure of the market. Many 
regions, particularly the mid-Atlantic, the South, and the West 
didn't identify a systemic problem with getting infrastructure 
built at this time. So the conference participants urged FERC 
to work with the regions on their issues rather than impose a 
national solution. And on the infrastructure issue, that is 
what we have been doing.
    The operators of the markets you will hear from a little 
later are working under our jurisdiction to make sure that 
their market rules and their detailed operating rules support 
reliable electricity. In particular, ISO New England is working 
on both short-term and long-term enhancements to better ensure 
that it builds fuel security into its generation markets. We 
have already approved some market rules for this winter.
    The second basic issue is operations, making sure that we 
coordinate the use of the pipelines we have to make sure that 
we get the best use of the infrastructure that is in place. As 
has already been mentioned, we had a tech conference on 
communications and we are working on next steps and have one 
coming up on scheduling to make sure the gas electric days work 
together to promote getting the most value from the pipelines 
we have in place. We are getting quarterly reports on this and 
in-person reports from all the regions at our open meeting so 
we can follow it closely.
    This issue of gas electric interdependence is not a reason 
to panic, but it is absolutely a reason to plan and do so now. 
Viewed in the larger perspective, it is a byproduct of an 
American success story, which is the growth of domestic natural 
gas resources. The Nation's generation fleet has historically 
experienced large turnovers in fuel mix and large building 
cycles, and they inevitably require adaptations of supporting 
infrastructure and operations. I believe with diligent and 
timely effort, we can make this adaptation as well, and I 
pledge to use the authority I have at FERC to be proactive in 
meeting the challenge. Thank you and I look forward to your 
questions.
    [The prepared statement of Ms. LaFleur follows:]
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    Mr. Whitfield. Well, thank you, Commissioner LaFleur, and 
we appreciate both of you for giving your statements.
    Last year, we had a hearing before this subcommittee, and 
FERC at that time talked about the importance of coordination 
between EPA and DOE and other agencies regarding reliability 
issues. And we have had EPA before us on many occasions talking 
about--because they have been very aggressive on regulations. 
And sometimes you get the impression that EPA is the arbiter 
for reliability issues. But in actuality, that is you all's 
responsibility. And I would just ask both of you, can you 
comment on the coordination between the agencies? Are we making 
progress in that regard? And what is your personal view about 
that issue? Mr. Moeller?
    Mr. Philip Moeller. Well, I remember that hearing quite 
well having testified at it. I guess we hear that there is talk 
going on between the staffs at FERC and the EPA. I will have to 
get back to you with more details as to actually the substance 
of those discussions. We have talked about the 5th year that 
plants would get--they were a year into it. It is effective 
April 16, 2015, MATS that is. Most people think that entities 
will get another year if they are going to be retrofitting. And 
then there is the question of the 5th year. The industry has 
told us that until the federal law is resolved between the 
Federal Power Act and the Clean Air Act, that they are very 
reluctant to even ask for the 5th year.
    So that plays out differently in different load pockets 
depending on how much coal is going to be retiring. We are 
practically concerned about Northern Ohio and the timeline 
there but there are other areas. So I would just hope, and I 
think I have been consistent in urging the EPA that they be 
very involved with the market operators, two of whom will be on 
your next panel, so that if--you know, the faster you rush a 
job, the more expensive it is to consumers. So as long as they 
are engaged and the have some kind of a mechanism, perhaps give 
another extension of time if they just can't get the new 
generation or the new transmission built in particular load 
pockets, that is where it gets so complicated. It is about 
physics and it is about the flow of electricity, and it is just 
not universally the same everywhere.
    Mr. Whitfield. Right. Ms. LaFleur, do you have a comment?
    Ms. LaFleur. Yes. It is my understanding that there are a 
couple of things in place. There is a regular monthly telephone 
conference between the RTOs, the DOE, FERC, and the EPA, and 
then, in-person meetings ad hoc between FERC and the EPA. In 
preparation for this hearing I got copies of a lot of the--what 
do you call them--PowerPoints at the last tech conference, 
which was really a report from the different RTOs on what they 
are seeing.
    In addition, I initiated, and Commissioner Moeller and I 
co-chaired an ongoing forum between FERC and the state 
regulators. We meet at every NARUC meeting and have EPA there 
in person to hear what is coming out, what is emerging, what do 
we think the issues are. In May of last year we put out a 
policy statement on how FERC would approach the 5th year if 
anyone came to us. We haven't heard from anyone yet because 
they are still working on their 4th year. But we wanted to be 
ready so we could hit the ground running.
    I agree with Commissioner Moeller that Northern Ohio is one 
of the places that has been identified. I was there 3 weeks 
ago. I know we are going to hear from the Ohio chairman today, 
and we have to work closely on all of those things through 
these various fora.
    Mr. Whitfield. Yes. Mr. Gordon van Welie is with us with 
the ISO up in the Northeast and, of course, you mentioned that 
there are a lot of concerns about the Northeast, and I am sure 
he will get to that. But are there any other areas that you all 
have particular concern about? You mentioned the Northeast; you 
mentioned Northern Ohio. What are some other geographical 
areas?
    Mr. Philip Moeller. Well, the Midwest. And you will hear 
from Clair Moeller from MISO later, too. But just the number of 
megawatts that are either being closed down or retrofitted is 
enormous in a relatively short amount of time.
    Mr. Whitfield. Right.
    Ms. LaFleur. New England is clearly at the cutting-edge but 
the Midwest and also New York were places that had a lot to say 
when we had our tech conferences.
    Mr. Whitfield. And we still have a lot of unknowns out 
there, too, because, as we say, EPA is looking at greenhouse 
gas regulations. Are they going be applicable to the existing 
plants? They haven't quite finalized the new construction, so 
we have a lot of question marks out there, a lot of unknowns.
    And at that this time my time is expired, so I will 
recognize the gentleman from Illinois, Mr. Rush, for 5 minutes.
    Mr. Rush. I want to thank you, Mr. Chairman. Mr. Chairman, 
I have a different line of questions. I am going to begin with 
Commissioner LaFleur.
    Commissioner LaFleur, in your testimony you cite the lack 
of pipeline infrastructure as your first area of concern in 
ensuring adequate pipeline capacity to support most gas-fired 
electric generation and other gas customers. Lack of access in 
pipeline infrastructure is also an issue that I have concerns 
about. But for me, the concerns are regarding the lack of 
access for minorities and women when it comes to jobs and 
contracts and economic opportunity available in the pipeline 
industry.
    Specifically, over the last Congress, this subcommittee 
heard from witnesses from all aspects of the pipeline industry, 
including private companies and associations, as well as from 
federal agencies. And each time, I posed a simple question. Are 
there women, are there minorities who are owners, builders, and 
operators of pipelines in this country and what are their 
levels of participation?
    Because I can never get a straight answer on this question, 
I drafted language in the Pipeline Safety Regulatory Certainty 
and Job Creation Act of 2011 which calls for a comprehensive 
GAO report examining the levels of engagement and participation 
of minority-owned, women-owned, and disadvantaged business 
enterprises and contractors involved in the construction and 
operation of pipelines in this country. So absolutely no one 
was surprised when the GAO report came back stating that the 
levels of minority participation in the pipeline industry was 
so small that it was almost negligible.
    Now, I understand this is not your area of expertise, but I 
want you to know that my office will be working with you, 
reaching out to you, and reaching out to FERC in general to 
work with us on establishing strategies for increasing access 
for minorities and women in the pipeline industry.
    As you stated in your testimony, over the next few years we 
will have to build up the Nation's pipeline infrastructure in 
order to address the shale oil and gas boom, and make sure the 
energy is getting to urban areas, rural centers, wherever it is 
needed at. As policymakers, it is our responsibility to ensure 
that all segments of the population are able to participate in 
building this critical infrastructure and that all communities 
have access to the economic opportunities that will be 
available in the pipeline industry over the next decade.
    Mainly, I look forward to working with FERC, engaging FERC 
on this issue, and I would like to ask both of you, do you have 
any responses or any comments to share with this subcommittee, 
now that I have raised this particular issue?
    Ms. LaFleur. Well, thank you, Congressman Rush, for 
bringing up an important issue and one I probably haven't 
thought enough about. I am involved in several organizations 
for women in energy. I actually was meeting with one group of 
women last night and we were talking anecdotally about how they 
were more women in electricity than in natural gas as an 
anecdotal impression. And that backs up what you are saying. 
And more of them are on the regulatory legal side than on the 
construction side. I have also met with the American 
Association of Blacks in Energy, which is headquartered here in 
the city, and that is an issue they are working on.
    We don't at FERC give out contracts or choose who would 
construct the pipelines, but there is going to be a period of 
infrastructure opportunity, so I would be willing as, you know, 
a citizen in the industry to work further with any of the 
groups to help make that happen. There certainly should be 
opportunities.
    Mr. Philip Moeller. Congressman, I think we want to get all 
kinds of new people into the energy industry. Minorities, 
women, young people--it is an aging industry. There is a great 
need for skilled labor, so to the extent that vocational 
education can be emphasized again in this country as it once 
was, that will help on the skilled labor side.
    I have tried to go out and be a force for involvement in 
what is, I think, a very exciting industry. I was the guest 
speaker at the annual meeting of the Association of American 
Blacks in Energy in Columbus, Ohio, a few years ago. So I have 
certainly tried to get a greater involvement from everyone in 
this industry because I think it is the greatest industry and 
it is a great future and great jobs.
    Mr. Whitfield. Thank you.
    At this time I recognize the gentleman from Louisiana, Dr. 
Cassidy, for 5 minutes.
    Mr. Cassidy. Yes. And Mr. Rush, I agree with you. This 
industry has tremendous opportunity for folks who are 
minorities. One of the reasons I represent firms in which there 
is female and minority participation, and one the reasons our 
side is so interested in Keystone XL is that those 20,000 
direct jobs created will be just among the working class that 
are most in need of jobs right now.
    So I agree with you, Mr. Moeller. It is a great opportunity 
for many people. I just wish that the President would sign on 
to creating those jobs.
    I got asked at a bipartisan dinner last night, actually, 
put on by one of my colleagues. The point was made that EPA is 
currently driving our energy policy. I am struck that you 
mentioned the potential for shortages in New England and the 
mothballing, I gather, of many coal-fired plants. This must be 
billions of dollars worth of investments being replaced by 
other billions of investments, all paid by families struggling 
to meet their current bills.
    So I guess my point being, is that a fair assessment that 
EPA's environmental regulations are now driving our electrical 
market?
    Mr. Philip Moeller. It certainly is a factor, yes.
    Mr. Cassidy. Now, a factor could be 1 percent or it could 
be 90 percent. But I gather that these mothballed coal plants, 
it is 90 percent EPA. Is that a fair statement?
    Mr. Philip Moeller. I do not know if I would pick a number, 
but----
    Mr. Cassidy. Give me a ballpark. I am not going to hold you 
to it. I mean, is it 1 or is it 100 or is it some--where would 
you make it closer to with 100 being the highest?
    Mr. Philip Moeller. Well, it depends on the plant but in 
some plants it is 100 percent. I mean, they are being shut down 
clearly because of air regulations. In other cases, you would 
probably say 50 percent because they are being retrofitted. 
They will still burn coal but they are of a right vintage where 
that investment makes sense. And so----
    Mr. Cassidy. Now, I am from a natural gas state. I am all 
about natural gas. On the other hand, I am all about having a 
diversified fuel source. It really does seem as if we are 
putting a heck of a lot of our eggs in the natural gas basket 
for no other reason than EPA is driving this. Is that correct?
    Mr. Philip Moeller. That is a major factor. Prices and the 
access is also part of it, but that is where we are concerned 
from a reliability perspective. If you are dependent on a 
pipeline and just-in-time fuel will supply, it is a lot 
different than a 60-day pile of coal.
    Mr. Cassidy. Yes, it seems that way. And if you are 
dependent on one plant and the other has been with--the 
diversified fuel has been mothballed, then your whole supply 
chain is, if you will, just in time. Fair statement?
    Mr. Philip Moeller. Yes. If you have more pipeline to 
access, that helps diversify your options. But that is one of 
the problems. Some plants are dependent on one pipe.
    Mr. Cassidy. Now I am struck, Ms. LaFleur--a good Louisiana 
name--I don't know if you are but could be. You speak 
specifically of New England and the problems that they have. 
Will the development of the Marcellus Shale bring some relief 
there? Obviously, the supply is closer. Will further 
development of that benefit?
    Ms. LaFleur. Well, my dad was French-Canadian but there are 
a lot of LaFleurs in Louisiana.
    The fact that gas is being extracted much closer to the 
Northeast in the Marcellus means pipelines have a shorter way 
to go, and that makes the issues we are working on somewhat 
more limited, but the challenge is trying to pipeline that last 
couple hundred miles to the plant because most of the suppliers 
bring gas to the major junction points and then you need to 
build laterals to specific plants. But definitely the supply 
from the Marcellus helps, yes.
    Mr. Cassidy. OK. And I also understand that there is a 
market issue in terms of how the New England plants buy their 
gas. You allude to that. I don't understand it well enough. 
Could you elaborate?
    Ms. LaFleur. Well, in general terms, natural gas and 
electric markets attract capital differently. Pipelines build 
based on 10- or 15-year commitments and electricity, because it 
is a real-time product, is priced in a 3-year forward market or 
in the day-ahead market. So the generators might not have 
certainty of their long-term future to make a 15-year 
commitment, which means they are going to have to get creative 
about how we structure these things and get pipelines built.
    Mr. Cassidy. So ideally, a plant in the South, for example, 
which does not have this problem, is it because we already have 
the pipeline infrastructure or because they are able to enter 
into these 15-year commitments?
    Ms. LaFleur. A little bit of both. In some of the 
vertically integrated states, the state regulators have decided 
that customers should backup the long-term gas contracts. They 
also have considerably less gas dependency in general so they 
don't have the--if you made every generator in New England buy 
a firm contract, pretty soon, you would have way too many. You 
would be having customers pay for way too many pipelines. So it 
is a combination of factors.
    Mr. Cassidy. OK. Well, I am out of time. I yield back. 
Thank you both.
    Mr. Whitfield. Thank you. At this time I recognize the 
gentleman from Michigan, Mr. Dingell, for 5 minutes.
    Mr. Dingell. Mr. Chairman, your courtesy is appreciated, 
thank you.
    These questions for Mr. Moeller are yes or no, I think. In 
your testimony you state the country is increasing natural gas 
electricity generation because EPA air regulations will force 
coal-fired plants to be retired or retrofitted. Do you believe 
that the increased availability and the lower cost of natural 
gas has played an equally important role in our transition to 
natural gas? Yes or no?
    Mr. Philip Moeller. Yes.
    Mr. Dingell. Now, it is my understanding that some coal-
fired plants undergoing retrofits have been granted revised air 
permits and extensions in order to comply with EPA regulations, 
such as Mercury and Air Toxic Standard. For older coal-fired 
plants that will not be retrofitted, do you believe will be 
necessary to allow them to continue operating past the 
compliance deadline of the Mercury Rule in order to maintain 
reliability? Please answer yes or no.
    Mr. Philip Moeller. In some cases, yes.
    Mr. Dingell. Now, do you believe that renewable electrical 
generation such as wind and solar should the factored into 
resource adequacy? Please answer yes or no.
    Mr. Philip Moeller. Yes.
    Mr. Dingell. Would you want to submit for the record an 
explanatory statement to that, if you please?
    Mr. Philip Moeller. I would be happy to.
    Mr. Dingell. Now, in FERC's response to a letter signed by 
myself and other members of the Michigan delegation, FERC 
indicated that it was in the process of preparing an 
environmental assessment on the issue of the Trunkline Mainline 
Abandonment Project. Has the EA been completed, and if not, 
when will it be?
    Mr. Philip Moeller. I don't know.
    Mr. Dingell. All right.
    Mr. Philip Moeller. I will have to check that and get back 
to you.
    Mr. Dingell. Would you submit that, please?
    Mr. Philip Moeller. Sure.
    Mr. Dingell. Now, when do you anticipate FERC making the 
final decision on the project proposal?
    Mr. Philip Moeller. I will have to get back to on that.
    Mr. Dingell. All right. Now Commissioner LaFleur, thank you 
for your presence. In your testimony, you note that more 
planning to address the issue of gas electric interdependence 
will be necessary. As you also note, there is no requirement 
that generators enter into long-term gas pipeline contracts. Do 
you believe FERC needs the authority to require longer-term 
contracts? Yes or no?
    Ms. LaFleur. I don't think we need more authority at this 
time.
    Mr. Dingell. At the end of your testimony you state that 
you will find ways to use FERC's authority to address this 
issue. Do you believe that FERC needs additional authority in 
order to ensure reliability for all of our natural gas needs? 
Would you please answer yes or no?
    Ms. LaFleur. No.
    Mr. Dingell. Mr. Chairman, I note that I have completed my 
questions with 2 minutes remaining. I return them to you with 
thanks.
    Mr. Whitfield. Very impressive. Thank you, sir.
    At this time I would like to recognize the gentleman from 
Texas, Mr. Olson, for 5 minutes.
    Mr. Olson. Thank you, Mr. Chairman. And welcome to the 
witnesses. Commissioner Moeller, Commissioner LaFleur, thank 
you so much for your time and your expertise.
    With the Administration's war on coal, service capacity is 
shrinking in many States across the country. My home State of 
Texas needs five large power plants by 2014, 2015, to keep 
growing or we risk rolling blackouts, as you alluded to in 
2011. One way we can prevent these brownouts or blackouts from 
happening is to order power plants to keep generating beyond 
the 24/7 limits that they have, keep that power up online. And 
that is for emergency conditions only, and again these may lead 
to, you know, power generation collapses.
    Unfortunately, we have got two examples recently where 
power plants have been kept up online and then third parties 
have come back in behind them and sued them for damages. And 
some of these have been seven figures in damages.
    I introduced a bill last Congress that passed unanimously 
from this committee, unanimously on the floor. Unfortunately, 
it died in the Senate, which many, many bills did last 
Congress.
    But I just want to talk to guys about that. Do you support 
that bill? Is that something viable to adjust this power 
capacity, power shortage capacity we may have in Texas?
    Mr. Philip Moeller. And last year I testified in support of 
that bill in front of this committee.
    Mr. Olson. I just wanted to make sure something didn't 
change your mind. Commissioner LaFleur?
    Ms. LaFleur. Yes. I support that targeted bill to give 
relief if you are ordered to stay on.
    Mr. Olson. Great. Commissioner Moeller, you talked about 
the 2011 power crisis we had in Texas, basically the wind power 
crisis, and 12 percent of our demand dropped offline almost 
automatically. About 50 power plants were impacted by that. 
Most importantly for Texans, the Super Bowl was in Dallas that 
weekend, almost got canceled because no power could run to 
Cowboy Stadium. Could you please elaborate on what you learned 
from that incident and what advice you can give me for my State 
to take away from this? You have got the report there.
    Mr. Philip Moeller. I will again commend the report that 
FERC and NERC did together on it. It is a great read. It is a 
good primer. It has 32 recommendations, mainly to the 
legislatures and the Public Utility Commissions of those 
States. And I think they are at various phases of implementing 
those recommendations. To me what hit home was that people felt 
like they either legally couldn't talk to each other or they 
felt there was a perception that they couldn't talk to each 
other legally, in addition to a number of problems with 
inadequate weatherization of a lot of those power plants. So I 
think they are on the weatherization.
    The communication set of issues, though, I think is an 
issue in every region of this country. And that is where, I 
think, we will really be pushing over the summer to make sure--
we don't know whether we have to take formal action at FERC or 
informal action, but to make sure that when we have another one 
of these cold weather events--it is a matter of when not if--
and the systems are stressed, and they can be stressed anywhere 
but New England and the Midwest are our top concerns--that the 
right operators of the grid, the electric system, the 
pipelines, the generators, are all in a position where they can 
share information without a fear of breaking the law so that 
people's service isn't disrupted.
    In the cases of the Northwest in 2009, there was a power 
plant they could have relieved a lot of the problems that was 
around Portland, Oregon, but the utility in Washington State 
was afraid to call that utility thinking they might be 
violating the law if they did.
    So that is what I will be pushing on and I think the rest 
of the Commission as well going into next winter since we have 
had two such warm winters in a row, it is not going to last 
very much longer.
    Mr. Olson. Commissioner LaFleur, anything to add ma'am?
    Ms. LaFleur. I agree that communication was one of the big 
lessons and that is what we need to work on and have already 
given some guidance as to what is allowed so that people don't 
think our regulations are stopping that. I think also 
situational awareness between different operators, both 
adjoining electric operators and different gas operators, was a 
big lesson of that incident.
    Mr. Olson. Another lesson learned in Texas is we got power 
from Mexico. When that crisis happened, we had to go across the 
border to get that power from another country. And that scares 
me a little bit, that we are dependent upon a foreign nation as 
opposed to taking care of our needs.
    And also, it is not just cold there, I mean cold weather. 
We had the summer of 2011, every city in Texas, every single 
one of them was over 100 degrees the whole month of August. If 
that happens again, with the war on coal, we have tried to get 
the Las Brisas power plant up online, the White Sand power 
plant, coal power plant, Pepco plant shut down. They pulled 
back because of EPA regulations and these lawsuits. We have got 
to get the legal system out of here and let the people do what 
the people need to do.
    Thank you. I yield back the balance of my time.
    Mr. Whitfield. At this time I recognize the gentleman from 
California, Mr. McNerney, for 5 minutes.
    Mr. McNerney. Well, thank you, Mr. Chairman. I thank you 
for having this hearing. I think it is an important and 
interesting issue.
    Ms. LaFleur, you mentioned that reliability and security 
were your top issues. You must be familiar with the San Bruno 
explosion a few years ago. How typical is the condition of 
those pipelines throughout the country? It seemed to me that it 
was a combination of lack of maintenance or age of the pipes, 
plus lack of inspections to make sure that they were operating. 
It also seems people didn't have access to the valves to turn 
them off, and so on. How vulnerable are we to those just due to 
natural causes?
    Ms. LaFleur. Well, I certainly hope the pipelines in San 
Bruno were not typical that, as I am sure you know, both the 
State of California and PHMSA, which is part of the Department 
of Transportation here, have put out some strong new 
regulations that require more inspection to make sure that 
particularly older pipelines in high-consequence areas are 
maintained correctly. And I think our job at FERC is to make 
sure that we have supportive regulation for those gas pipeline 
requirements.
    Mr. McNerney. So there will be a little bit higher rates 
for----
    Ms. LaFleur. It is more a matter of we have had a few 
cases--we have some pending so I have to be careful--of how 
pipelines are required to cover additional expenses that might 
be required for inspection and how that works technically 
within their tariffs.
    Mr. McNerney. So how vulnerable are our national pipeline 
networks to cyber attacks? I mean, could a cyber attack result 
in something like that or other types of disruptions, major 
disruptions?
    Ms. LaFleur. I think any major critical network that is run 
by computer systems--and that includes gas and electric--are 
vulnerable to cyber attack. And that is why both voluntary--and 
in the case of electricity--mandatory standards are very 
important.
    Mr. McNerney. Well, that is good. So part of the 
legislation that is being considered is to require sharing of 
information, but there aren't that many advocates for actually 
requiring utilities to do certain things to protect themselves. 
So where do you think we need to fall on that issue?
    Ms. LaFleur. Well, on electric side, we do have mandatory 
regulations under the Energy Policy Act of 2005. We do regulate 
that at FERC. I think the biggest thing we need in legislation 
is that information-sharing, as well as someone having 
emergency authority in the case of an emergency. And I think 
most of the proposals I have seen have both of those elements 
in them.
    Mr. McNerney. But they don't have standards then for 
equipment or software?
    Ms. LaFleur. I think if I were the queen of the world, 
mandatory standards would be good. I think getting some 
legislation passed, even the more modest legislation, would 
help a lot. I think information-sharing is the top priority.
    Mr. McNerney. Thank you. Mr. Moeller, you mentioned that we 
need increased flexibility to address the pipeline capacity 
issue. Is this a regulatory or a statutory issue in your 
opinion?
    Mr. Philip Moeller. Well, it is a regulatory issue 
primarily. If you ask me for statutory recommendations with the 
intent of getting more pipeline in, I could come up with some. 
But I think, for the most part, people have been fairly 
satisfied with the process we have at FERC for new pipelines. 
If you cross the state line, you come to FERC for a certificate 
to build it. And it is a public process. The routes always get 
changed and then there is the regulatory cost recovery that we 
handle with. I mean, it could be done quicker. Again, if you 
want recommendations, I can give you those.
    Mr. McNerney. When you say flexibility, do you mean 
increased capacity, more pipelines? Is that what you mean by 
flexibility?
    Mr. Philip Moeller. I think both operationally and 
additional infrastructure. We clearly need more pipe in New 
England. They are at the end of the pipe; they are more 
dependent. On the other hand, as you will hear from the Midwest 
later on, there is some question as to which power plants that 
the grid operates are fed by which pipes. And I am not 
suggesting this, but there is no equivalent kind of regional 
oversight of the pipeline network like there is on electricity. 
So the coordination fact, it is just different. And that is 
where we need kind of the communication flexibility. 
Particularly, we get to times when the system is very stressed 
and there is the worry of not enough gas to go around.
    Mr. McNerney. Thank you. Good timing, Mr. Chairman?
    Mr. Scalise [presiding]. You got it. You hit the number. 
Perfect. I thank the gentleman. I recognize myself for 5 
minutes to ask questions.
    Mr. Moeller, in response to the chairman, after some 
questions I think you responded specifically about some 
concerns in northern Ohio related to their coal plants. Can you 
expand on the concerns that you have there?
    Mr. Philip Moeller. Yes. And I know we have the chairman of 
the Ohio Commission coming up later so I wouldn't want to usurp 
his expertise. But we have a zone in northern Ohio where a 
number of plants are being shut down in the next 2 years. 
Perhaps there is a need for greater either generation in that 
load pocket or more transmission or both. And when the market 
did--Commissioner LaFleur alluded to the 3-year forward-
capacity market and new generation did not clear in that market 
because the prices were suppressed by a lot of demand response. 
There is some concern whether that demand response is actually 
going to be there in the summer of 2015.
    So there are a lot of issues. They come together in the 
summer of 2015 when, of course, the load is the highest and, 
you know, it is something we are watching very closely.
    Mr. Scalise. Thank you. And you were also talking about 
kind of a concern about regulation, if there is a haste to put 
regulations in place quickly that in order to add more on top 
that it can actually add to the cost of electricity for 
consumers. Can you expand on what you were referring to there?
    Mr. Philip Moeller. Yes. Well, given the number of 
megawatts in this country and they are spread out around most 
of the country. They are not a lot in the Northwest or the 
Northeast anymore or California. But the number of coal plants 
that are being retrofitted in a short amount time, there is a 
squeeze on the engineering talent, the skilled labor component. 
There is some argument they are not enough boilermakers to go 
around. Just the supplied chain gets squeezed the shorter that 
time frame is to try and get it all done to meet the 
regulations. So like any job in your house, if you want it done 
quicker, you are going to pay more. And in this case, consumers 
will bear that, and I hope that that is kept in mind.
    Mr. Scalise. Is there any one agency that you are referring 
to in terms of regulation? We see the EPA throwing a lot of 
this on top of industry. Again, you know, when industry talks 
to us, they talk about the added cost that it forces on 
consumers as they are doing this so there is definitely a cost 
associated with it. Is it EPA? Are there others as well that 
you are referring to?
    Mr. Philip Moeller. No, it is primarily EPA. I am talking 
about the air regulations, and I am not here to bash them but--
--
    Mr. Scalise. We do that, don't worry. When we hear about a 
lot of the things that they do that, you know, don't have 
anything to do with improving health or safety, it is more just 
to kind of put burdens to, it seems like, pursue an agenda. And 
you know this isn't a question to you; this is more things we 
see in the hearings when we have them before us. And, you know, 
it just seems like they keep going in their own direction to 
pursue an agenda, you know, whether it is kind of a cap-and-
trade de facto regulation when Congress is, you know, has 
expressed in a number of different ways that that is not the 
direction that we would like to go. And, you know, hopefully I 
know we have got legislation and many of us are supporting to 
say Congress shouldn't put some kind of carbon tax in place. 
You know, and maybe we will have more hearings on that. But, 
you know, to see them going off in their own direction anyway 
to try and pose regulations that just carry an agenda, there is 
a cost to that, and I think those costs need to be brought up.
    I do want a touch on something you talked about your 
opening statement where you were talking about this revolution 
in natural gas that has come about through hydraulic 
fracturing, through horizontal drilling, that technology that 
has allowed us to open up vast reserves of new energy here in 
America. And, you know, of course, we hear about EPA looking at 
trying to get into that and trying to regulate what States 
already do. States do a great job of regulating hydraulic 
fracturing. It has been very successful, created great jobs, 
but also a great potential for American energy security. And of 
course that is threatened.
    You talked about technology allowing us to find more 
natural resources. And I do have concerns, you know, that is 
these natural resources are found, that the government 
regulators themselves could impede that innovation, that 
technology if they do try to regulate it in a way that doesn't 
allow us to access those natural resources. So I don't know if 
you want to touch on that, if either of you, both Mr. Moeller 
or Ms. LaFleur.
    Mr. Philip Moeller. Well, those will not be our decisions 
because that is not in our jurisdiction, but hydrofracking and 
horizontal drilling and the shale revolution, it has been a 
revolution. A few years ago at FERC, the most controversial 
things we dealt with were LNG import facilities. Now they are 
LNG export facilities.
    Mr. Whitfield. And then, Ms. LaFleur, before the clock 
expires, any----
    Ms. LaFleur. Well, I agree that we are going to have to 
closely monitor regulations that come out that might affect gas 
extraction because they could affect gas supplies. It is not 
something we are specifically responsible for. We really just 
certificate the pipeline network.
    Mr. Scalise. All right, thank you. I think the ranking 
member, Mr. Waxman, is up next.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    The Nation's electricity generation portfolio is in the 
midst of a significant transition. We doubled our capacity to 
generate renewable electricity from wind and solar in just 4 
years. And last year, nearly half of all new generation 
capacity came from wind. There has also been a large increase 
in natural gas generation. Commissioner LaFleur, what is the 
primary reason utilities are increasing their natural gas 
generation?
    Ms. LaFleur. I would say the primary--if I had to point to 
one reason--is the reduced cost of natural gas.
    Mr. Waxman. Yes.
    Ms. LaFleur. I mean, most of the Nation's coal fleet was 
built when that was by far the cheapest fuel, and now that gas 
is the cheapest fuel, people in the market are responding.
    Mr. Waxman. In your testimony you discussed how natural gas 
generation also supports the expansion of renewable energy. 
Could you explain how wind and solar power benefit from the 
increased use of natural gas for electricity generation?
    Ms. LaFleur. Yes. Because wind and solar, they don't 
consume fuel, but they can only operate when the wind is 
blowing or the sun is shining, for the most part, you need 
quick-ramping resources that can fill in when they ramp-down, 
and because natural gas machines tend to be more flexible, they 
are well adapted to that filling in with wind and solar.
    Mr. Waxman. As utilities move from coal-fired generation to 
cheaper, cleaner, and more flexible sources of power, we hear 
complaints about the retirements of coal-fired plants. 
Commissioner LaFleur, my understanding is that most of the 
planned retirements are the oldest, least-efficient coal 
plants. These are plants that have operated for 50 or 60 years 
or even longer. Is that right?
    Ms. LaFleur. Yes, for the most part. I mean, we are 
monitoring this. We get reports from the different regions of 
the country, and most of the first coal plants to retire are 
the older, built in the '50s and '60s, most expensive to run, 
and for that reason, they were rarely operated. It is like if 
they came up with a new rule that you needed some expensive 
braking system for your car, the first thing you would do is 
put it on the car you drive to work every day. But on the car 
you only drove on vacation, you might say, gee, do I want to 
spend the money on a car I drive once a year? Some of these 
plants were kind of on the edge of the system.
    Mr. Waxman. OK. While moving away from the oldest, dirtiest 
generation is reducing our carbon pollution, many other coal-
fired power plants are going to be installing modern pollution 
controls to reduce their toxic emissions. For the first time, 
that is going to provide tremendous health benefits. This 
transition in our energy sector is important for the climate 
and for public health. It is a positive development, but like 
all major transitions, it requires planning.
    Commissioner LaFleur, in your testimony you said that this 
is the time to plan, not to panic. Do you believe the 
communications scheduling infrastructure issues we are talking 
about today are manageable?
    Ms. LaFleur. Yes, I do.
    Mr. Waxman. Is this an area where FERC should be 
promulgating national rules or is regional action more 
appropriate?
    Ms. LaFleur. Well, as I said in my testimony, right now, I 
think the infrastructure issues are better tackled regionally 
because the different markets have different rules. But if we 
do something on either the schedules or on communication, those 
might lend themselves to national action.
    Mr. Waxman. Yes. Well, it sounds like FERC and grid 
operators are doing exactly what they should be doing, 
identifying the challenges posed by this transition and 
developing solutions to address those challenges while moving 
away from a coal-heavy energy portfolio to a truly diverse 
energy portfolio. If we want to prevent the worst impacts of 
climate change, our energy infrastructure will need to continue 
changing in the years and decades to come.
    Commissioner LaFleur, as regional action is taken to 
accommodate the energy transition we are seeing, in your view, 
would it be prudent for regional planners to anticipate that 
greater carbon pollution emission reductions are likely to be 
required in the future?
    Ms. LaFleur. Most of the planners, whether they are at the 
state level or at the regional level, do scenario planning. And 
it is probably prudent to model, well, what if there is new 
carbon legislation? We don't have that legislation now, so it 
is not an immediate thing to plan for. But they probably model 
multiple futures, and I think they should.
    Mr. Waxman. Well, I would think that they would anticipate 
not having the same do-nothing Congress we have now, forever. 
And even a stopped clock is correct twice a day, so perhaps we 
will get bipartisan support and do something about climate 
change. And that would be, I think ultimately, good. Thank you 
very much for your time.
    Mr. Whitfield. At this time, I recognize the gentleman from 
Kansas, Mr. Pompeo, for 5 minutes.
    Mr. Pompeo. Thank you, Mr. Chairman. I want to talk about 
the pipeline permitting process.
    So there was a recent GAO study on this from February of 
this year, February 2013, that talked about the process. And in 
that report, it said that FERC does not track the time frames 
for these permits being granted. And in light of stakeholder 
concerns, do you think that FERC should be tracking--I will ask 
you both, yes or no--do you think FERC should be tracking the 
time that permits are being granted from application to 
completion?
    Ms. LaFleur. I think we should be aware of that. My 
understanding of the NGER report is that it said FERC did a 
pretty good job meeting deadlines----
    Mr. Pompeo. This was the GAO. I am talking about the GAO 
report that said----
    Ms. LaFleur. Oh, I am sorry.
    Mr. Pompeo [continuing]. That you all are tracking how long 
it takes. They had to go to public records to identify the 
lengths of the permit process, that you all kept no such 
records? Is that true?
    Ms. LaFleur. I don't want to say something I am not 
positive of, but I think we should know how long our process 
takes, yes.
    Mr. Pompeo. Great. That is my question. Commissioner, do 
you agree?
    Mr. Philip Moeller. Absolutely.
    Mr. Pompeo. Yes. Now, NGER did a report that said that 20 
percent of natural gas pipelines experienced delays of 6 months 
or more, largely because the delays occurred after FERC's NEPA 
analysis had been completed, which has a 90-day requirement 
under EPAct. Is that statement also correct?
    Ms. LaFleur. Yes, it is my understanding that it is. A lot 
of the delays are in the conditions that are put on in the FERC 
environmental permits that have subsequent conditions.
    Mr. Philip Moeller. As far as I know, that is correct.
    Mr. Pompeo. So a) FERC doesn't know how long it has taken; 
and, b) it is not complying with EPAct. So in my view, there is 
work that needs to be done in this permitting process. I am 
actually going to propose legislation that does that. I hope it 
to be bipartisan. I think it is a good government solution 
which puts cabined risk and allows pipelines to move forward 
where they can have a little more certainty.
    I guess I would ask each of you--I am happy to share with 
you and talk to you and get your input--but Commissioner 
Moeller, you suggested that you had some ideas on how we might 
do this permitting process more quickly. Would you be willing 
to share a couple of those thoughts with us this morning?
    Mr. Philip Moeller. Yes. I think the challenge that you 
alluded to is that the resource agencies typically don't have 
the accountability to come back with an answer. We see the same 
thing in hydropower relicensing. And it is the way the statute 
is. And if you created some timeline of accountability, I think 
they would be a lot more responsive.
    Mr. Pompeo. Do you agree with that, Commissioner LaFleur?
    Ms. LaFleur. Yes, I do. I agree both on the problem and 
that we do not control all of the other agencies who have to 
act to get a permit out, and I would be happy to look at 
legislation.
    Mr. Pompeo. Great. Great. Thank you. I would love to give 
you all more capacity to control those processes and 
legislation I am drafting, I think, will move us along that 
way.
    I wanted to just say one more thing on permitting that I 
want to talk about. I won't go through the list of permits. 
There is a very long list of folks who you have got to go 
please before you get to build some of this new capacity. But I 
want talk about a statement that the President has made about 
NEPA process. He says now NEPA process will have to include and 
analysis of climate change, at least as reported in an article 
in the Bloomberg on March 15.
    From a natural gas infrastructure perspective, it seems to 
me this could be very problematic in terms of extending the 
timelines to get pipelines built. As the lead agency for 
approving the interstate natural gas pipeline constructions, 
tell me what you think the impact would be if FERC were 
required to take into account climate change as part of each of 
its NEPA analysis.
    Mr. Philip Moeller. Well, it is not make any faster.
    Mr. Pompeo. Do have the capacity and resources to do that 
analysis? Where would you begin?
    Ms. LaFleur. I think a lot of it comes down to what is the 
scope of our review. There has been a lot of controversy about 
does FERC review the pipeline it is certificated or the entire 
lifecycle of the gas? And there have been some court cases on 
that. As long as we are working on the pipeline or the project 
we are looking at, I think if new laws are passed, we will 
incorporate them in our review.
    Mr. Philip Moeller. That is a good statement. We are 
cabined by the certificate in front of us, and that is not 
something we have done and I do not know how we develop that 
expertise. I would leave it to our Office of Energy Projects.
    Mr. Pompeo. Yes, I don't know how you do either. You don't 
have the expertise, in fact. Yes or no, do you think you have 
statutory authority to do that today, to consider climate 
change as part of a NEPA project?
    Mr. Philip Moeller. Maybe we should review the court 
decisions on that before we answer that.
    Mr. Pompeo. OK. I am happy to let you do that. But I would 
appreciate a response to whether FERC believes or you as 
commissioners believe you have the statutory authority to 
consider climate change as a part of an interstate pipeline 
approval process.
    Ms. LaFleur. I would also like to get back to you on that.
    Mr. Pompeo. Thank you. I yield back.
    Mr. Whitfield. Thank you very much.
    At this time I recognize the gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And I agree with my colleague that FERC is not prepared to 
do that but there was a bill here last session that was going 
to give FERC the authority to approve the TransCanada pipeline 
and I think your testimony was that you are not prepared to do 
that either. And so, hopefully, we have problems on both sides 
of our aisle with giving agencies responsibilities that they 
are not ready for.
    But let me get back to my line of questioning. Both 
commissioners, welcome and thank you both for being here today. 
I represent a district in Texas and so ERCOT is our RTO, and I 
have heard that there are some pretty serious concerns about 
there not being enough forecasted power generation to ensure 
reliability in the ERCOT market in the future. Could both of 
you please speak to whether you think that the market structure 
under ERCOT is enough to incentivize the creation of new 
generation? And if you don't think it is, what can we do?
    And I know our next panel, we have a former Public Utility 
Commissioner for Texas and also our Railroad Commission 
Chairman, so I will ask him the same question.
    Mr. Philip Moeller. Well, Congressman, thank you for the 
question.
    ERCOT jealously guards its own jurisdiction so that FERC 
does not tread in it, but of course we watch what is going on 
and we have a responsibility on the reliability side, not on 
the market administration side.
    Mr. Green. Yes.
    Mr. Philip Moeller. And you have two very fine public 
utility commissioners in Texas that are debating this very 
issue of do you need a capacity market? What do you do with the 
real-time energy prices because of the reserve margins 
declining for some of the reasons that have been discussed 
today?
    As I look to the summer, you know, the summer concerns are 
southern California, Texas, and Boston. They were last summer. 
They are going to be this summer again. If we have a really, 
really hot summer in Texas, you will see this debate probably 
on a daily basis.
    Ms. LaFleur. I would add that most of the U.S. markets that 
have gone to competitive electric markets do have some sort of 
a forward market as is being considered in Texas right now, and 
that is for the very purpose of attracting capital for future 
reliability. It is not within our jurisdiction. I feel Mr. 
Smitherman's eyes on my back, so I will let him take it from 
there.
    Mr. Green. Well, and I appreciate it. And being from Texas, 
we stand shoulder-to-shoulder in protecting ERCOT. I just want 
to make sure--and we did have rolling blackouts in February of 
2011. And it seemed like I heard that our wind power growth, 
which has been phenomenal in Texas, helped stabilize that 
situation. Is that the information FERC has?
    Mr. Philip Moeller. We can get back to you. But the focus 
of the report was really on the outages as opposed to the role 
that wind had, but I will get back to you on that.
    Mr. Green. OK, I appreciate it.
    In light of the increase in natural gas electricity 
generation, in February of 2012 FERC issued a request for 
comments regarding natural gas electric coordination. In August 
of 2012, over 1,200 stakeholders attended five regional 
technical conferences hosted by FERC to discuss these issues. 
What are each of your biggest takeaways from those conferences 
that FERC received?
    Ms. LaFleur. I think our takeaway was that a lot of the 
issues are regional in nature but there are some cut-across 
issues that we should work on, particularly communications and 
scheduling, the harmonization of the days. I think another 
takeaway is that the situation is evolving fast so we need to 
really stay on top of it. New England is where the issues are 
right now, but it is evolving everywhere. And we have heard 
that in the conferences.
    Mr. Philip Moeller. I would agree that this is an issue 
everywhere to varying degrees, and the gratifying thing is that 
a year ago, not everybody thought it was an issue. Now, almost 
universally, people agree that there are challenges out there, 
and we are trying to keep the momentum going at the Commission 
to keep people focused on solutions.
    Mr. Green. Commissioner Moeller, after the Southwest outage 
of February of 2011, FERC and the North American Electric 
Reliability Corporation conducted a study for the cause of the 
event, issuing a report that was issued in August of 2011 that 
had 32 recommendations for industry and the regulators in an 
attempt to avoid a similar occurrence. What are some of the 
more important recommendations, and is there a plan for 
enacting these?
    Mr. Philip Moeller. There is a plan. I haven't had an 
update for a couple of months, but the focus of most of the 
recommendations was to regulators and legislators in those 
three States. The primary recommendation on the electric side 
was winterize the system, go into the winter with the same kind 
of urgency you go into the summer in ERCOT. And I think there 
has been a lot of progress, and I think Barry Smitherman can 
answer a lot of those questions.
    Some of the others are tougher, like Arizona doesn't have 
any storage. We had a conference to try to promote storage, gas 
storage, underground, but that doesn't seem to be 
materializing.
    So I expect another report on the status of the 32 
recommendations sometime later this year, but it is something I 
am very concerned about.
    Mr. Green. Well, and I only have a couple seconds left, but 
I appreciate what FERC does and the stability that it does, and 
I am glad you came for our committee. I appreciate it.
    Mr. Whitfield. The gentleman's time has expired.
    At this time I recognize the gentleman from Virginia, Mr. 
Griffith, for 5 minutes.
    Mr. Griffith. Thank you, Mr. Chairman. I appreciate that, 
your courtesies in recognizing me.
    I would also say to the witnesses here that it was very 
refreshing to hear folks from an agency come in, and on two 
occasions said I don't believe we need more authority at this 
time. It is very unusual to hear those comments in this 
committee at least.
    Also, Ms. LaFleur, I note--and it has been mentioned 
before--but I would note again because sometimes some of the 
folks on the other side of the aisle want to think it is just 
gas prices that are causing a problem, and you did acknowledge 
in your written testimony on page 2 that it is repowering older 
fossil generation that is uneconomic to operate or to retrofit 
for new environmental regulations when talking about the 
shutdown of coal. I do appreciate you recognizing that it is 
this combination.
    And likewise, in light of the fact that experts have 
previously testified in another hearing in this committee that 
they anticipate that gas will rise back up to about $4 by the 
end of the year, and that at that point coal once again becomes 
competitive on pricing. Would you not acknowledge that at that 
point if we get to that point--and there is some speculation 
there--but once we reach that point, that then it would be 
predominantly the new environmental regulations that are 
shutting down our facilities, our coal facilities? Yes or no?
    Ms. LaFleur. I don't see it exactly that way, no.
    Mr. Griffith. All right.
    Ms. LaFleur. OK.
    Mr. Griffith. But it is still a major concern and you 
having acknowledged that and I appreciate that.
    Ms. LaFleur. Absolutely.
    Mr. Griffith. You know, I thought it was interesting 
somebody else brought up the cyber attacks, and apparently in 
2012, we had a series of cyber attacks on gas pipeline 
companies and so forth. Do recall seeing that information?
    Ms. LaFleur. Yes.
    Mr. Griffith. And the concern was, I mean, they might have 
been trying to steal some information on how to do the fracking 
because we have been so successful on it, but also there were 
concerns that there were cyber attacks on the valves and the 
on-off switches, basically. Isn't that correct?
    Ms. LaFleur. It was on the energy management system that 
regulates the pipelines and that opens valves and runs 
compressors and so forth, yes.
    Mr. Griffith. So theoretically, a successful cyber attack 
could close down or open up gas pipelines, close down ones we 
don't want closed down and open up ones we don't want opened, 
isn't that correct?
    Ms. LaFleur. Yes. Theoretically, yes.
    Mr. Griffin. Now, I am no expert on using the computer, but 
I was sitting here when that question was asked and I started 
looking for, you know, attacks and cyber attacks, et cetera, on 
coal facilities, and the only thing I could find were EPA 
attacks on coal. I didn't find anything about foreign powers. 
Have you run across any instances where it appears that foreign 
powers are attempting to figure out ways to disrupt our supply 
of coal?
    Ms. LaFleur. There have been cyber attacks on the energy 
management systems that turn plants on and off. And like FERC, 
cyber attacks are fuel-neutral. They would mess up whatever was 
being turned on and off. I am not aware that I remember of any 
specifically at a coal unit.
    Mr. Griffith. But I do think that in regard to your 
concerns about the pipelines, you previously indicated that one 
of the concerns was getting the pipelines to the facilities and 
so forth and that it was a whole lot easier to have a supply of 
coal sitting there on the ground than it was to have the 
natural gas automatically show up when it was needed at the 
power plant. Didn't you indicate that to us earlier?
    Ms. LaFleur. I think I said that was what was different 
about gas, that it came in a pipeline, yes.
    Mr. Griffith. And so if an energy production plant had a 
supply of coal and it was a coal-burning plant, it would be 
less likely that for a few hours or even for a day, that 
somebody could affect that supply of energy at that power plant 
than it would be if somebody did a successful cyber attack on 
our pipeline. Isn't that true?
    Ms. LaFleur. Certainly, the coal pile doesn't have the 
cyber risk, but I think you could still affect the energy 
management system that turns the plant on and off. I mean, we 
need to guard against these risks wherever they are.
    Mr. Griffith. All right. I do appreciate that as well.
    In regard to the natural gas supply, we are already having 
trouble getting the pipelines there. Do you think that there 
needs to be a redundancy built in on those pipelines? I know 
that you don't want to charge the customer too much and you 
don't want to have too many pipelines, but at the same time, 
don't you think we would need more than just one pipeline to 
the facilities to make sure that if something happened to one 
supply that there be another supply readily available, if we 
are going to put all of our eggs in that basket or in one of 
those baskets?
    Ms. LaFleur. Well, I am not even sure I would use the word 
redundancy. You need a robust grid, a robust network of more 
than one source of supply in different regions and localities. 
Yes.
    Mr. Griffith. And it is always a little bit dangerous to 
put a huge percentage of your energy into one fuel source. It 
is always better to have multiple sources available to supply 
the electricity for the American citizen, isn't that true?
    Ms. LaFleur. Yes, I believe that.
    Mr. Griffith. And so it would be ill-advised for our 
country to completely eliminate coal as an energy source in 
light of the fact that we have the world's greatest supply of 
coal. Wouldn't that also be true?
    Ms. LaFleur. I think we are much better off with the coal 
plants being retrofitted, as the vast majority of them are, 
than losing all of them.
    Mr. Griffith. I thank you, and yield back.
    Mr. Whitfield. At this time I recognize the gentleman from 
New York, Mr. Tonko, for 5 minutes.
    Mr. Tonko. Thank you, Mr. Chairman. Thank you for this very 
interesting topic today. And let me welcome Commissioner 
Moeller and Commissioner LaFleur, and your expertise is very 
helpful in this discussion.
    And further, Commissioner LaFleur, let me thank you, as a 
representative in upstate New York in the capital region in 
Mohawk Valley, for your prior service before your commissioner 
status. It was much appreciated then and much appreciated now.
    Commissioner LaFleur, the pipeline capacity issues in the 
Northeast region appears to be a greater constraint on natural 
gas distribution than in other areas. We have had a lot of 
focus on that today, but I am primarily concerned about the 
Northeast. And are issues related to the siting of pipelines a 
constraint or is this primarily a matter of needing to speed up 
the investments in natural gas infrastructure?
    Ms. LaFleur. I think it is more of an investment issue. I 
mean pipelines are harder to build in urban areas but we have 
had a number of them built. So I have confidence that they will 
be constructed if the investment comes forward.
    Mr. Tonko. And in terms of the investment, what, if 
anything, could be a response to that? What could enhance the 
investment opportunity?
    Ms. LaFleur. Well, ISO New England, I think they will talk 
about, is working on ways in which to structure the generation 
markets to motivate the generators to build in more fuel 
security to invest or increase their commitments to pipelines 
or other dual fuel commitments or other gas storage. We do have 
LNG storage in the Northeast, other ways of getting fuel 
security. So it is pricing the fuel security into the 
generation I think is the big response.
    Mr. Tonko. Thank you. And as utilities have reduced their 
coal-fired generation, we have seen reductions in carbon 
pollution from the energy sector, and increased natural gas 
generation is one factor in this drop of carbon pollution but 
it is obviously not the only factor. So Commissioner, would you 
agree that state-level renewable energy policies have helped to 
reduce emissions from the power sector?
    Ms. LaFleur. Yes. I think they are driving a lot of 
renewable investment including in upstate New York, as you 
know. If you drive up near Niagara Falls, you just see 
windmills as far as the eye can see.
    Mr. Tonko. Absolutely right. And as a result of their 
renewable energy policies, States like New York and Colorado 
and California are displaying a significant amount of renewable 
generation capacity. So to both commissioners, which state 
policies would you note have been the most effective in 
deploying renewable energy?
    Ms. LaFleur. I think that renewable portfolio standards are 
certainly starting to be felt. We don't regulate it, but I 
would point to Texas but also other States. You mentioned 
upstate New York has a lot of wind. Some of the States have 
very effective small solar policies. States as diverse as 
California and New Jersey, which clearly have different 
weather, have very heavy penetration of home- and business-
level solar, and the programs they have in place appear to be 
very effective at getting those done.
    Mr. Philip Moeller. Congressman, I am not really an expert 
on all 29 different renewable portfolio standards throughout 
the country, but I think the ones have been most successful are 
the ones that have adequate transmission infrastructure to make 
sure that that power can move around from, typically, where it 
is generated to where it is consumed and have the kind of 
flexibility that don't overly favor one or two sources.
    Mr. Tonko. And I would assume that the upgrades in 
interconnection are important in that regard?
    Mr. Philip Moeller. They are vital, absolutely important. 
And it is usually difficult to site this transmission so that 
is part of the challenge as well.
    Mr. Tonko. And to the policy area, which federal policies 
would you suggest have helped deploy renewable energy?
    Ms. LaFleur. Well, certainly, right now, the Production Tax 
Credits are having an impact on investment in that area. I also 
think federal R&D, as well as private R&D, has helped bring 
down the cost of some of the technologies.
    Mr. Philip Moeller. I go more toward market access in 
making sure that the transmission infrastructure is there to 
move the power around. And there are a variety of things we 
could talk to you later about that could promote that. We are 
doing an exercise at FERC, Order 1000, which is an attempt to 
make the planning better on transmission.
    Mr. Tonko. Thank you. And Mr. Chair, I note my time is 
expired so I yield back.
    Mr. Whitfield. Thank you.
    At this time I recognize the gentleman from Illinois, Mr. 
Shimkus, for 5 minutes.
    Mr. Shimkus. Thank you. And Mr. Chairman, it is great 
having you here.
    Ms. LaFleur, you mentioned many coal-fired power plants 
have been retrofitted. Can we retrofit a coal-fired power plant 
to an existing plant to address site greenhouse gas rule or 
regulation?
    Ms. LaFleur. I am not an expert on that but I think it is 
much harder than scrubbing things out of the stacks.
    Mr. Shimkus. It is impossible. There is no technology right 
now. The cost would triple the amount of infrastructure costs 
and the electricity required to run this was probably about 30 
percent of the generation capacity of a power plant at this 
time. So that just goes into the emissions, kind of the whole 
debate, what is toxic, what is not is not, just that debate. 
And it does segue into this fear on reliability because, as we 
have this debate and concern about environmental rules and 
regulations, the pulling off of generation should be of major 
concern. Is that correct?
    Ms. LaFleur. Well, in the case of other EPA regulations, 
like when we worked on Mercury and Air Toxics, as the rules 
become final, we had to work at FERC and with the EPA to make 
sure we had the coordination and flexibility that was needed to 
make sure we protected reliability. If there are other suites 
of regulations, that will be equally necessary.
    Mr. Shimkus. Well, let's talk--and Commissioner Moeller, 
you are more than welcome to chime in, too.
    We know based upon MACT that anywhere from 50 to 70 
gigawatts of coal-fired generation may be retired over the next 
decade. That is a lot, with 90 percent coming within the next 5 
years. So this next 3- to 5-year window aligns with the 
compliance deadlines for EPA's Utility MACT Rule in places like 
the Midwest. Some of this coal-fired generation will be 
replaced with natural gas-fired power plants and that is part 
of the debate of having them and also getting the natural gas 
in the pipeline siting.
    From your perspective--and this is for Commissioner 
Moeller--would you agree that the short compliance time frame 
for EPA's Utility MACT rule is compounding reliability concerns 
for regions heavily relying on coal such as the Midwest and the 
mid-Atlantic?
    Mr. Philip Moeller. Yes, I do. You bet.
    Mr. Shimkus. It is just a matter of numbers, isn't it?
    Mr. Philip Moeller. Well, the environmental benefits are 
coming. The question is, if you squeeze them on too tight a 
timeline, there can be reliability challenges that are probably 
going to land in our lap. So that is why I have urged the EPA 
to be flexible if certain areas need a little more time, to 
give it to them.
    Mr. Shimkus. It is reliability that segues into cost, too. 
And an unreliable grid is a costly grid, wouldn't you argue? So 
from the individual consumer's point of view that if the 
reliability of the grid becomes uncertain and there is a risk 
premium then paying for reliability, that will get passed onto 
the individual consumer, would it not?
    Mr. Philip Moeller. It will, depending on the market 
structure, in different ways.
    Mr. Shimkus. Given your background as a state public 
utility commissioner and now your experience at FERC, do you 
believe having a diverse range of fuel resources available to 
generate electricity is important to provide affordability and 
reliable service to customers?
    Mr. Philip Moeller. Yes. I have never been a state 
commissioner but optionality is always good.
    Mr. Shimkus. And I understand that FERC does not have 
jurisdiction over generation, but would you agree that an 
overreliance on any one particular fuel source could be 
problematic from a reliability perspective?
    Mr. Philip Moeller. Yes.
    Mr. Shimkus. Thank you, Mr. Chairman, and I yield back my 
time.
    Mr. Whitfield. The gentleman yields back his time. I would 
like to recognize the gentleman from Colorado, Mr. Gardner, for 
5 minutes.
    Mr. Gardner. Thank you, Mr. Chairman, and I welcome the 
commissioners to today's hearing. Thanks for being here to 
share your expertise.
    And Chairman Moeller, I wanted to talk to you a little bit 
about some of the comments made in your testimony. You talk a 
little bit about traditional base load generation will be 
needed to firm renewable energy resources. We hear a lot of 
talk about that, whether it is wind, solar, what backup will be 
needed. Is there a percentage that you can give me of that base 
load generation so, for instance, if you have a megawatt of 
wind production, what percent of firming base load would you 
need for that 1 megawatt of wind?
    Mr. Philip Moeller. Well, it depends on the wind because 
your home State of Colorado has some really good wind and----
    Mr. Gardner. I live on the Eastern plains so----
    Mr. Philip Moeller. Your chairman can talk about it later, 
but because of the characteristics of how it comes off from the 
Rockies, it is really good wind. So they don't have as much of 
a challenge firming it--they still have a challenge. Another 
area that, you know, might have a capacity factor of 20 
percent, you know, that means that 80 percent of the time you 
have to back it up. So wind quality differs.
    Mr. Gardner. So for every 5 megs, you need 4 megs of base 
load in that instance? Is that one way look at it?
    Mr. Philip Moeller. Yes. Right.
    Mr. Gardner. OK. And then, talking about pipeline issues, 
talking about production of natural gas, we have in Colorado 
several cities that are banning hydraulic fracturing. We also 
are hearing rumors that there may be a statewide initiative to 
ban hydraulic fracturing. If they go that direction, is there 
an interstate commerce issue that FERC would have to look at 
based on this transition to natural gas power generation?
    Mr. Philip Moeller. Congressman, I don't think it would be 
in our jurisdiction to do that, but I am sure someone would be 
thinking about it.
    Mr. Gardner. And I would love to hear your further thoughts 
on that and perhaps maybe even somebody in the Council's office 
talking a little bit about that issue specifically. When it 
comes to the EPA, we have seen a growing, sort of, decisions by 
the EPA when comes to things like LNG export facilities where 
EPA is asking targeted questions in their environmental 
assessments and analysis on pipelines and whether or not an LNG 
facility would require additional pipelines. Is the EPA 
consulting with FERC when they are requiring an analysis of 
pipeline need or capacity?
    Mr. Philip Moeller. I don't believe so. I will get back to 
you, but they certainly have submitted comments for the record 
on the environmental analysis.
    Mr. Gardner. OK. And then I think Mr. Pompeo may have 
touched a little bit on this, but do you have an average time 
that it takes to site a pipeline in the U.S. on private land?
    Mr. Philip Moeller. We might but I would have to get back 
to you on that.
    Mr. Gardner. That would be great. And if you could get back 
to me on the federal land as well, do you have that answer of 
the top your head?
    Mr. Philip Moeller. OK.
    Mr. Gardner. Perfect. And then, are you working on ways--
and you can follow up with me on this as well--working on ways 
that FERC can improve upon the time it takes to site a 
pipeline? I think that is an important conversation with those 
answers in mind.
    Mr. Philip Moeller. Well, I have a lot of confidence in our 
Office of Energy Projects. They are doing the best job they can 
under the given circumstances and statutory responsibilities, 
as I alluded to earlier. One way to speed up the process would 
be to create some timelines and the accountability that come 
with timelines on the resource agencies that a pipeline is also 
dependent on getting permits from.
    Mr. Gardner. OK. And do you believe that coal still plays a 
role in our electric generation and that it would be unwise to 
move too quickly to natural gas if there is no infrastructure 
if it is not currently supported?
    Mr. Philip Moeller. Well, coal is still an extremely 
significant part of our electricity mix and will be for the 
foreseeable future.
    Mr. Gardner. Mr. Chairman, I yield back my time.
    Mr. Whitfield. The gentleman yields back the balance of his 
time. Thank you.
    Well, I believe that is it. Commissioner Moeller and 
LaFleur, thank you all again for your testimony and we look 
forward to your providing the additional information that was 
requested. And you all are dismissed at this time. But we do 
look forward to working with you as we move forward.
    I would like to call the second panel of witnesses. On the 
second panel today, we have Hon. Barry Smitherman, who is the 
chairman of the Railway Commission of Texas. We have Hon. 
Joshua Epel, who is chairman of the Colorado Public Utilities 
Commission. We have Mr. Clair Moeller, who is executive vice 
president, Transmission and Technology for the Midwest 
Independent Transmission System Operator. We have Mr. Gordon 
van Welie, President and CEO of ISO New England. And we have 
Mr. Paul Hibbard, who is the vice president of the Analysis 
Group. Todd Snitchler, who is the chairman of the Public 
Utilities Commission of Ohio, was scheduled to be with us, but 
because of an unexpected development, he is not here today.
    So welcome all of you. Thank you for agreeing to come and 
testify. And Mr. Smitherman, we will begin with you.
    Each one of you will be given 5 minutes for your statement, 
and the little red light will come on when your time is 
expired. So we thank you for being with us, we look forward to 
your testimony, and we welcome your expertise as we try to deal 
with these significant issues.
    So Mr. Smitherman, you are recognized for 5 minutes.

     STATEMENTS OF BARRY T. SMITHERMAN, CHAIRMAN, RAILROAD 
COMMISSION OF TEXAS; JOSHUA B. EPEL, CHAIRMAN, COLORADO PUBLIC 
    UTILITIES COMMISSION; CLAIR J. MOELLER, EXECUTIVE VICE 
   PRESIDENT, TRANSMISSION & TECHNOLOGY, MIDWEST INDEPENDENT 
TRANSMISSION SYSTEM OPERATOR, INC.; GORDON VAN WELIE, PRESIDENT 
   AND CEO, ISO NEW ENGLAND, INC.; AND PAUL J. HIBBARD, VICE 
                   PRESIDENT, ANALYSIS GROUP

                STATEMENT OF BARRY T. SMITHERMAN

    Mr. Smitherman. Thank you very much, Chairman Whitfield, 
Ranking Member Rush, members of the committee, including my 
good friends from Texas.
    My name is Barry Smitherman. I am the chairman of the Texas 
Railroad Commission. I was electing statewide last November 
with 74 percent of the vote, apparently receiving at least two 
votes from this room.
    The Railroad Commission of Texas was created by an 
amendment to the Texas Constitution in 1891, and we are the 
oldest regulatory body in Texas, one of the oldest in America. 
While we no longer regulate railroads, we have for almost 100 
years regulated the oil and natural gas industries. We also 
regulate intrastate pipelines, surface mining for lignite, and 
natural gas utility rates.
    I am also the former chairman of the Public Utility 
Commission, as you heard earlier, which regulates the electric 
and telecommunications industries. In that capacity, I was a 
member of the ERCOT Board of Directors, which is the grid 
operator for most of Texas.
    I am honored to be the only person in Texas history to 
serve as commissioner on both the PUC and the Railroad 
Commission. I am also the chairman of the NARUC Gas Committee, 
although I am not appearing in that capacity today.
    Today's hearing focuses on natural gas and electric 
coordination challenges, and my focus in these comments will be 
on upstream production issues. In analyzing these two issues, 
we must keep in mind two significant developments. The first of 
which is been touched upon is that EPA, under this 
Administration, has ramroded through a suite of anti-fossil 
initiatives led by six new greenhouse gas rules, which 
effectively make it impossible to build a new coal plant in 
America.
    Texas has refused to comply with these sweeping EPA 
regulations, and therefore, EPA has rejected our permitting 
authority through the first-ever imposition of a Federal 
Implementation Plan, or FIP. The Texas Attorney General has 
assured me that he will challenge these greenhouse gas rules in 
the U.S. Supreme Court if it is granted.
    When I last appeared before this committee, I spoke of the 
Cross-State Air Pollution Rule. CSAPR is the successor to the 
Clean Air Transport Rule, and had it been implemented in early 
2012, it would have caused the premature closing of several 
coal-fired power generation plants in Texas. Such closures 
would have increased the likelihood of rolling blackouts last 
summer and this coming summer. Fortunately, Texas and the other 
litigants were successful at the Court of Appeals for the 
District of Columbia when the Court vacated CSAPR by concluding 
that the EPA had exceeded its authority.
    I could talk about the remaining rulemaking initiatives, 
but I would prefer a focus on the second development, which is 
actually very positive, timely, and quite fortuitous. We now 
have abundant supplies of natural gas in America. Through 
horizontal drilling and hydraulic fracturing techniques 
developed by the private sector, we have seen a 180 degree 
turnabout from just 5 years ago. In late 2008 it was believed 
that were running out of natural gas in America. And in fact, 
the price was very high, over $12 MMBtu, and several firms were 
considering importing LNG.
    Today, America is awash in natural gas. And whether it is a 
100-year or 200-year supply of natural gas supply of natural 
gas, we have a lot of it, and Texas is leading the way. We 
produce almost 20 Bcf of gas per day, which is about 30 percent 
of all U.S. production. The Barnett Shale, for example, has 
produced 12 trillion cubic feet of gas and we believe there are 
44 trillion cubic feet of gas remaining.
    The importance of this is that electricity prices in many 
parts of the country are driven by the price of natural gas. 
For example, in Dallas, where Chairman Emeritus Barton is from, 
you can get electricity for less than .05 a kilowatt hour, .05 
a kilowatt hour. That is 1/3 of what the price was 5 years ago, 
almost directly related to the cheap price of natural gas.
    However, I must point out that there are potential storm 
clouds on the horizon, whether it is potential endangered 
species listing, which would take prime gas-producing areas off 
the table; new source performance standards; new fugitive 
methane emissions requirements; frac-water-use studies and 
possible restrictions on supply and disposal; overly onerous 
permitting requirements to fracture oil on federal land. The 
list goes on and on and we could potentially kill the goose 
that lays the golden egg.
    In conclusion, I would say new nuclear power construction 
is prohibitively expensive, renewable power is variable and not 
yet scalable, and coal-fired power plants are under constant 
attack from the EPA. Natural gas is the only fuel source that 
makes electricity today, at scale, with reasonable prices to 
the consumer.
    However, let's be clear. Without hydraulic fracturing, this 
incredible supply of natural gas disappears, and prices for 
both gas and electricity will skyrocket and our economy will 
stop dead in its tracks again. Thank you for the opportunity.
    [The prepared statement of Mr. Smitherman follows:]
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    Mr. Whitfield. Thank you.
    And Mr. Gardner, I will call on you to make some comments 
about our next witnesses.
    Mr. Gardner. Thank you, Mr. Chairman. And I would just like 
to welcome Chairman Epel to the committee. I have worked with 
the chairman on a number of issues over the years, and as 
chairman of the Public Utilities Commission, he has 
jurisdiction over not only some of the regulations that we are 
talking about here today but also taxicabs and all kinds of 
other fun stuff in Colorado. But certainly appreciate your work 
as chairman of the Colorado Oil and Gas Conservation Commission 
as well, and welcome to the committee. Thanks for sharing your 
expertise with us.

                  STATEMENT OF JOSHUA B. EPEL

    Mr. Epel. Well, thank you Congressman. Thank you, Chairman 
Whitfield, Ranking Member Rush, and members of the subcommittee 
for the opportunity to testify at today's hearing.
    My name is Joshua Epel. As the Congressman mentioned, I am 
the chairman of the Colorado Public Utilities Commission. Prior 
to my appointment to the Commission, I was chairman of the 
Colorado Oil and Gas Commission, so I understand a little bit 
of the issues, and we are sort of the baby brother to the 
Railroad Commission.
    The State of Colorado began to diversify its source of 
electric generation in 2005 when it adopted its Renewable 
Energy Standard through a valid initiative. Subsequently, the 
Colorado legislature increased the renewable energies 
requirement twice with bipartisan support. The Colorado 
legislature also adopted minimum standards for electricity 
savings through energy efficiency resulting in a decrease in 
the amount of fossil fuel necessary to meet the electric 
demands of Colorado.
    In 2010, the Colorado General Assembly did something 
extraordinary. It passed the Colorado Clean Air-Clean Jobs Act. 
Representative Gardner was a supporter of the Act. What made 
the Act remarkable and instructive for today's hearing is the 
Act mandated that the State's largest investor-owned utility 
undertake a process of significantly reducing its coal usage in 
Colorado. And most importantly, certainly to me, is the 
legislature did not mandate the fuel mix. It left that decision 
to the Colorado Public Utilities Commission.
    The decision adopted by the Commission, and ultimately 
approved by EPA, is instructive on a way to meet the challenge 
of natural gas and electric coordination and also to meet the 
potential EPA regulations for existing generation sources.
    First, the Air Quality Control division, our regulatory 
agency in Colorado, was instructed to aid the Commission. And 
second, it was the Commission that determined the correct mix 
of fuel switching to natural gas, plant retirement, and 
retrofitting of existing coal-fired units.
    The plan adopted by the Commission will allow our largest 
utility to be in compliance with the Regional Haze Rule, the 
Mercury and Air Toxics Rule, and reduce greenhouse gases by 30 
percent by 2020 from 2005 levels. By the very nature of the 
plan, the cost will be reasonable and ensure that we have safe 
and reliable electric generation in Colorado.
    A central element of this plan is Colorado has made a 
conscious decision to switch some generation, not all, from 
coal to gas. We are assured that we will not have a conflict 
with electric and gas generation because Public Service Company 
of Colorado signed a 10-year long-term contract with the gas 
producer in Colorado.
    Now, at this point, I have got to be fair to the other 
regions. Colorado is unique. We have a surplus of gas and we 
also have an existing pipeline infrastructure that allowed that 
signing of a long-term contract. But this program does not come 
without cost to Colorado. The estimated price tag of Clean Air-
Clean Jobs is around $900 million. Colorado will also be 
required to make additional infrastructure changes, and as was 
asked in the previous questions, assured the safety of the gas 
distribution system.
    As the members of the subcommittee know, an additional 
challenge for the electric generation system are the EPA's 
rules for existing sources. I believe Colorado's approach 
provides a lesson on how to address existing and future rules. 
However, to be successful, key principles must be observed.
    The Clean Air-Clean Jobs Act enabled Colorado to meet 
numerous federal air quality requirements. And because the 
Commission selected a suite of controls, fuel switching, and 
plant retirements--and what we did was we examined the entire 
fleet of Public Service Company. If each generation plant were 
controlled individually, it would have been prohibitively 
expensive and politically impossible. By being technology 
agnostic, Colorado selected the right balance of fuel 
switching, retirements, and retrofits to provide both the 
necessary reductions and keep rates reasonable and the system 
safe and reliable.
    Finally, implementation of the Renewable Energy Standard in 
the Clean Air-Clean Jobs Act is a major investment. As EPA 
develops its new rules for existing sources, if Colorado is not 
given credit for this investment, it will be penalized unfairly 
when compared to States that have not taken early action.
    Thank you for the honor of representing Colorado before 
this subcommittee, and I will be pleased to answer any 
questions.
    [The prepared statement of Mr. Epel follows:]
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    Mr. Whitfield. Thanks very much, Mr. Epel.
    Mr. Moeller, you are recognized for 5 minutes.

                 STATEMENT OF CLAIR J. MOELLER

    Mr. Clair Moeller. Thank you, Chairman Whitfield, Ranking 
Member Rush. Thank you for the opportunity today to present 
before this committee.
    I am Clair Moeller, the Executive Vice President of 
Transmission Technology for the Midwest ISO, or MISO. We are a 
nonprofit public interest organization charged with operating a 
wholesale market in the States we serve, as well as ensuring 
reliability to the consumers. It is important that we guard 
both the reliability and consumer cost as we work our way 
through those issues.
    My task as a planner for the Midwest ISO is to be the early 
warning system to ensure that consumers have both low cost and 
high reliability at the end of the day. To protect that, we 
look towards various scenarios about how the effect of changing 
policies might reduce reliability or increase costs for our 
customers.
    Recent economic and regulatory pressure is having the 
effect of reducing excess capacities in the Midwest. 
Historically, we were blessed with an excessive capacity which 
frankly made the reliability job fairly easy. These pressures, 
we believe, by the end of the day will have reduced our coal 
fleet by approximately 18 percent. That will bring our required 
reserve margins to their minimum level.
    The low cost of gas, in addition to these regulatory 
pressures, are what are driving those retirements in the older 
coal fleet. Almost 90 percent of the resulting fleet will have 
to be retrofitted to comply with the rules. Our concern at that 
point is accommodating those outages simultaneously as we reach 
the end of the compliance period.
    It is important to note that the gas industry and the 
electric industry have grown up very differently. The 
flexibility that we require on the gas industry is simply not 
part of the design requirement of the historic gas 
infrastructure. So our best friend in the electric business is 
a simple cycle combustion turbine because it is very fast and 
very flexible. It is the hardest thing for gas pipelines to 
manage because it changes their pressure so quickly and has the 
prospect of having an unannounced start.
    So the two industries have different requirements in terms 
of flexibility, and part of the friction between the two 
industries that we are working our way through is about how to 
manage the flexibility that, for example, renewable portfolios 
have caused electricity markets to need to be more flexible. We 
are trying to reflect that need for flexibility into what we 
are asking the gas industry to do.
    The mismatch between the electric industry and the gas 
industry is both the infrastructure, its design--the gas 
infrastructure is designed around long-term firm contracts with 
fairly slow changes in terms of what the off-takes are. The 
electricity now has a 5-minute market; we re-price electricity 
every 5 minutes. Gas typically has a day that closes around 
nine o'clock and you wait other day in order to make 
significant changes. So it is both the pipeline capacity needs 
to be engineered to accommodate the flexibility, and the market 
rules need to be engineered to accommodate the flexibility.
    In that regard, the MISO is working with the FERC, our 
state commissions through an organization of MISO states, which 
is essentially a representative from each State that we serve, 
the load-serving entities, which at the end of the day have the 
interface with the customers, the gas pipelines who have been 
very accommodating in terms of beginning this conversation, as 
well as a gas suppliers. So we can look to what these issues 
are in aggregate in the hopes of achieving a single solution 
that both protects consumers from unnecessarily high costs and 
maintains the reliability of the system, which after all is a 
public safety matter that we all must guard.
    With that, I look forward to your questions.
    [The prepared statement of Mr. Moeller follows:]
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    Mr. Whitfield. Thanks very much.
    And Mr. van Welie, you are recognized for 5 minutes.

                 STATEMENT OF GORDON VAN WELIE

    Mr. van Welie. Thank you. Chairman Whitfield----
    Mr. Whitfield. Be sure and turn the----
    Mr. van Welie. Yes. Thank you. Chairman Whitfield, Ranking 
Member Rush, and members of the subcommittee, thank you very 
much for the opportunity to appear before the subcommittee this 
morning.
    My name is Gordon van Welie. I am the president and CEO of 
ISO New England. Today, I plan to highlight the serious 
operational challenges facing New England's power system. In 
the past decade, natural gas has become the predominant fuel 
used to produce electricity in New England. However, the 
limitations of the current market design and the consequent 
inadequate fuel arrangements by natural gas and oil-fired 
generation, have led to serious reliability threats to the bulk 
power system. Therefore, we are moving at an urgent pace to 
develop short- and long-term plans to address these issues, 
primarily through changes to New England's wholesale 
electricity markets.
    New England has seen a major shift in its generation suite, 
from a diverse mix of oil, coal, nuclear, and natural gas 
generators, to a system with more than half of the region's 
electricity being produced by power plants using natural gas. 
In addition, we are observing the retirement of coal and oil 
generators and the introduction of a diverse set of renewable 
and demand resources.
    Wholesale electricity prices are now primarily driven by 
natural gas-fired generation. The natural gas and electric 
industries operate under different structures but are 
increasingly interdependent. Electricity supply and demand must 
be balanced on an instantaneous basis and problems on the 
electric system require immediate action, often through the 
operation of fast-responding gas generators. However, if 
generators have not contracted for gas prior to the electric 
operating day, the gas system may not be able to respond to the 
real-time instantaneous demands of the electric system.
    For power grid reliability to be maintained, we need to 
have adequate levels of fuel inventory within the region either 
through storage, or reliable transportation arrangements so 
that the electric sector is ready to respond whenever called on 
by the ISO. Those arrangements should be incentivized through 
changes to the wholesale electricity market design so as to 
provide strong economic signals for generators to perform when 
needed. It is likely that this will result in incrementally 
higher wholesale prices in order to pay for the improved 
reliability that we seek.
    New England cannot access the full benefit of the domestic 
shale gas deposits because of pipeline constraints leading to 
New England from both the West and the South. Interstate 
national gas pipelines operate under a business and regulatory 
model that requires a long-term, firm commitment by the 
pipeline customer. Because the current wholesale electricity 
market design does not provide gas generators with the 
necessary performance incentives, we have found that generators 
often do not make arrangements to ensure that they have an 
adequate and reliable fuel supply for the output of their 
facilities.
    The region has historically relied on its oil and coal 
generation to provide fuel diversity and offset the operational 
risks associated with the constrained gas transportation 
system. However, the confluence of low wholesale market prices, 
high oil prices, and increasing environmental costs is causing 
its generators to retire and/or limit the output of fuel 
inventory that they carry. Thus, our dependence on gas 
generation is poised to increase, and our operational options 
are becoming more limited.
    The New England States are studying the ability of the 
natural gas pipeline system to set aside both heating and 
electric market demand in the region. These efforts are 
intended to provide information to policymakers and market 
participants on a range of possible solutions to deficiencies 
in natural gas infrastructure.
    This winter, New England did not experience record or 
sustained cold temperatures or unusually high demand for 
electricity. However, wholesale electricity prices rose 
significantly during this period because of physical 
constraints moving the lowest price natural gas into New 
England. During that period, as well as during a significant 
winter storm in early February, ISO operators had to cope with 
multiple instances where generators could not get fuel to run. 
Our experiences this winter lead us to conclude that the status 
quo is not sustainable.
    ISO New England is working with the New England States and 
its stakeholders to develop market changes to provide the 
economic incentives necessary to ensure that generators have 
adequate and reliable fuel supplies. Additional flexibility in 
the natural gas industry would also help address the challenges 
of increasing interdependency between the two industries. The 
gas sector could assist with reliability efforts if gas 
supplies provided generators with additional opportunities to 
obtain fuel outside of normal business hours, and if pipelines 
would offer more flexible scheduling, additional services, and 
provide real-time information on the status of the pipeline 
system.
    In the long-run, it would be helpful for the Federal Energy 
Regulatory Commission to improve the operational alignment 
between the electric and gas systems.
    In conclusion, we recognize that we have to address these 
issues with a sense of urgency. Discussions are underway with 
our stakeholders and we will be making multiple findings at the 
FERC over the next 12 months to address the many components of 
our action plan.
    Thank you and I look forward to your questions.
    [The prepared statement of Mr. van Welie follows:]
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    Mr. Whitfield. Thanks very much.
    And Mr. Hibbard, you are recognized for 5 minutes.

                  STATEMENT OF PAUL J. HIBBARD

    Mr. Hibbard. Thank you. And good morning, Chairman 
Whitfield, Ranking Member Rush, and members of the committee 
for the opportunity to testify before you today.
    The challenges associated with coordination of natural gas 
and electric markets is particularly important from both the 
perspectives of electricity and natural gas users throughout 
the U.S. and from the perspectives of reliability and cost. So 
considering these issues now is both appropriate and very well-
timed.
    So let me summarize my view on coordination issues with 
just five key points. First, we shouldn't forget the benefits 
of improved coordination and we should focus on it. As a former 
chairman of the Public Utility Commission in Massachusetts, at 
a time when natural gas prices were both very high and very 
volatile, I want to emphasize the consumer rationale for better 
coordination.
    The emergence of shale gas has dramatically lowered the 
cost of living and doing business across many States and has 
generated significant economic benefits. When considering 
coordination challenges, this should be front and center. We 
need to improve coordination because that will allow electric 
ratepayers to realize the benefits that our expanded domestic 
natural gas resource base represents.
    Adding new gas-fired generating capacity to a region can 
lower costs, expand use of a domestic fuel, provide 
environmental benefits, and facilitate the integration of 
variable, renewable resources. Improving the stability and 
efficiency of electric gas market transactions must thus be 
viewed not as a challenge but as an opportunity.
    The second point I want to make is that power grids can be 
operated reliably with a significant reliance on natural gas 
with a critical caveat that I will mention in a minute. Heavy 
reliance on natural gas-fired generation does not, by 
definition, diminish the reliability of power grid operations. 
New and efficient gas-generating technologies can provide 
numerous reliability advantages. They are relatively easy to 
develop and site, can be built in various sizes and 
configurations, and can be located close to where electrical 
load is. They offer the ability for continuous operation, 
faster startup, and faster response to grid-operated dispatch 
instructions over many competing resource types.
    Finally, as our States seek to integrate vast amounts of 
renewable resources, gas-fired power plants offer the best 
physical operating characteristics for managing the variability 
associated with these sources.
    The third point I want to make--the critical caveat--is 
that natural gas infrastructure must be sufficient to meet the 
coincident demands of heating, industrial processes, and 
electric generation at all times. In the time frame of short-
run transactions between electric and natural gas markets, the 
prevailing profit motives of market participants are extremely 
effective at overcoming short-term supply and transportation 
issues, but they simply cannot overcome physical constraints on 
the flow of gas.
    In summary, gas infrastructure is or will become 
increasingly constrained, particularly in the winter. Where 
pipeline and LNG infrastructure is sized primarily to meet 
winter heating demands, there is limited space on the region's 
pipelines to carry gas for electricity generation during cold 
winter conditions. Addressing this is the fundamental challenge 
of the coordination issues before us today.
    Forth, given these circumstances in regions with inadequate 
natural gas infrastructure, grid operators and regulators must 
focus on relieving these infrastructure constraints, and in the 
meantime, ensuring reliable operations in the face of 
constraints. Grid operators need to ensure that under adverse 
power system conditions, including constraints on the flow of 
gas for power generation, there is sufficient capacity to 
reliably operate the system.
    There are a number of tools operators can use to accomplish 
this, such as retaining non-gas units needed for reliability, 
requiring switching at units that have dual fuel capability, 
dispatching resources that otherwise might be uneconomic, 
calling on demand-response resources and activating operating 
procedures where necessary to avoid power disruptions.
    In addition, regulators and grid operators can take actions 
to relieve prevailing constraints in the longer-term through 
regulatory orders and market structures that promote 
development of dual fuel capability, enhanced demand response, 
or investment in new natural gas transportation infrastructure 
where it is economic.
    Finally, in regions that currently have adequate natural 
gas infrastructure, operators and regulators must not let down 
their guard. Their decisions and actions are key to 
appropriately planning for avoiding such infrastructure 
constraints in the future.
    In short, regulators and grid operators play vital roles 
roles in advancing the coordination of natural gas and electric 
markets, and promoting the development of needed natural gas 
system infrastructure and in managing the reliable operation of 
power systems in the face of gas supply constraints. Given the 
potential economic reliability and environmental benefits of 
expanded use of natural gas in electric sector, the efforts of 
regulators and grid operators in this area should receive 
heightened attention and effort.
    So with that, again, I want to thank you and look forward 
to your questions.
    [The prepared statement of Mr. Hibbard follows:]
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    Mr. Whitfield. Thank you, Mr. Hibbard.
    And I will recognize myself for 5 minutes of questions.
    Mr. van Welie, recently, the New York Times wrote an 
article about the power shortages in the Northeast, and I know 
Commissioner LaFleur, in her testimony, pointed out the 
Northeast as an area of concern, as did you in your testimony. 
Now, the New York Times article focused a lot on nuclear power, 
and I would ask--of course you have got the Vermont Yankee 
plant, you have got the Indian Point plant. Both of them, there 
are groups trying to shut them down. If that occurred, what 
impact would that have upon the Northeast and its ability to 
generate enough electricity?
    Mr. van Welie. So both New York and New England have got 
market mechanisms for replacing that capacity if those two 
nuclear generators were to retire. So I cannot predict with 
precision what will replace it. It does seem like the most 
economic resource to replace at capacity would be additional 
gas-fired generation, so it would create additional stress on 
the gas system.
    Mr. Whitfield. Well, do you have any concerns about 
blackouts or brownouts in the immediate future?
    Mr. van Welie. We do. We got dangerously close this winter 
and hence, we are moving with a sense of urgency. I think it is 
all about making sure that in this transition period, we will 
have to rely on oil and coal generation and LNG imports in the 
region. And so the reason I say that is it is going to take 3 
to 5 years to build new pipeline into New England. So we are 
going to be in a situation where we have to optimize the use of 
existing infrastructure within the region, and so we are 
working closely with our stakeholders to try and identify 
intra-mechanisms to bridge this transition period.
    Mr. Whitfield. Yes, and we also appreciate in your 
testimony your setting out some specific things that needed to 
be done, which we appreciate your setting that out as well.
    Mr. Epel, in your testimony--I was trying to find it real 
quick here--you made a comment--and I may be paraphrasing. 
Maybe I can find it real quick. But you made a comment that 
``Congress and EPA must acknowledge that it is the exclusive 
province of the Utility Commission to determine the mix of 
strategies to achieve standards at EPA.'' And recently, we had 
three forums on the Clean Air Act and regulators came in from 
all over the country, and many of them expressed some concerns 
about their flexibility. So would you elaborate on this just a 
little bit?
    Mr. Epel. Certainly. Thank you, Mr. Chairman.
    My concern is I believe we have to have a bifurcated system 
for EPA or the Congress to establish what are the goals, what 
are the targets. But really, when it comes down to who is going 
to have the capability of making decisions, looking at the 
entire system, for example, with Colorado, what plants should 
be retrofitted? Which ones should have fuel switching? How much 
energy efficiency can we utilize? That is really the expertise 
of the state commissions or the regional bodies. And that is a 
complex equation not only of the air quality impacts, but the 
financial impacts. How much infrastructure has to be built?
    I think really it is the state commissions or the regional 
bodies which have that intricate understanding of the system. 
And so neither Congress or EPA really can delve into that level 
of detail. They certainly can say here is the goal, here is the 
slope of how quickly it has to be achieved, but when it gets 
down to the real nitty-gritty of economically making these 
decisions so we balance both the environmental needs and the 
financial consideration of the State, I think that is really 
where our expertise lies.
    Mr. Whitfield. OK, thanks.
    Mr. Smitherman, are there any other States that EPA has 
issued a Federal Implementation Plan for other than Texas?
    Mr. Smitherman. Not that I am aware of, Mr. Chairman.
    Mr. Whitfield. OK. And of course you all won your flex 
permit case, and you also won the Cross State Air Pollution 
Control case as well. Is that correct?
    Mr. Smitherman. We did. The 5th Circuit ruled that the EPA 
had acted in an arbitrary and capricious manner with regard to 
our flex permitting program.
    Mr. Whitfield. Yes. Now, you testified regarding wind 
power, subsidizing wind power, and you talked a little bit 
about wind generators bidding negative prices into the ERCOT 
and how that distorts the system. Would you just briefly 
explain this negative pricing?
    Mr. Smitherman. I will. Just to give you a quick snapshot, 
for the first 2 months of this year we have had 39 percent 
natural gas, 38 percent coal, 11 percent nuclear, and 11 
percent wind. That has been our power mix. With the PTC in 
effect, wind basically can offer in at negative prices. And 
because we run a market-dispatch model, the cheapest 
generation, which is wind and nuclear, is dispatched first. So 
when the wind is blowing, it creates negative prices, basically 
pushing off of the dispatch curve occasionally gas and coal.
    Mr. Whitfield. OK. Thank you. My time has expired.
    I recognize the gentleman from Illinois, Mr. Rush, for 5 
minutes.
    Mr. Rush. I want to thank you, Mr. Chairman.
    I would like to go out on a line and just ask each witness 
a simple question, and maybe each of you could answer with a 
yes or no because I do have a follow-up question.
    Do you think that the transition from coal-fired power 
plants to natural gas is mostly a positive development or a 
negative development for our Nation?
    Mr. Smitherman. Well, Mr. Rush, I think we need a balance. 
We need a portfolio as we have in Texas because if gas prices 
were to rise back to their 2008 levels, then coal would provide 
a hedge against that. When gas prices are low, then gas is the 
right thing to dispatch. So if you put all your eggs in one 
basket, you run the risk of having not a portfolio but a 
situation which doesn't give you any options.
    Mr. Rush. Mr. Epel?
    Mr. Epel. Mr. Rush, I would say in the affirmative the 
transition to utilization of gas is a net positive for society 
and certainly for Colorado, but as Chairman Smitherman said, we 
do need to keep that diverse portfolio.
    Mr. Rush. Mr. Moeller?
    Mr. Clair Moeller. I apologize. I am going to have to not 
take a position. Our not-for-profit independent status 
precludes me from choosing between fuels.
    Mr. van Welie. So I think the evidence in New England has 
been that the transition to natural gas has been a beneficial 
thing for the region, both from an economic and an 
environmental point of view. I think to Mr. Hibbard's earlier 
point, it is vital that we make sure that the fuel 
infrastructure can support that gas generation.
    Mr. Hibbard. And I would agree as well, that given the 
economic, environmental, and reliability benefits, the 
transition is a good one.
    Mr. Rush. Mr. Moeller, in your testimony, you expressed 
some concerns about the impact of expected coal plant 
retirements and retrofits on the MISO reserves of electricity 
generation capacity. When MISO briefed the Committee's staff, 
they focused on the winter of 2016. By that time, most of the 
retirements would have occurred. MISO said there was a 
``potential shortfall'' of 11,700 megawatts of generation 
capacity at that time.
    And I know your job is to keep the lights on and that means 
considering the worst-case scenario. I can appreciate that, but 
I want to make sure that the Subcommittee gets a realistic 
picture of some of the resource adequacy situation in MISO. So 
I would like to ask you a couple of questions about it, about 
this potential shortfall. MISO's suggestion assumed that 3,000 
megawatts of new gas capacity would be available in the next 3 
to 4 years. That seems to be kind of low. Would you consider 
that to be a conservative assumption?
    Mr. Clair Moeller. That conservative assumption is based on 
people who have requested to interconnect new gas-fired 
generation to the MISO transmission system.
    Mr. Rush. As I understand, the MISO's calculation doesn't 
count any new wind capacity, is that right?
    Mr. Clair Moeller. Wind capacity in our market, should the 
owner of the wind choose to count it, gets a 12 percent 
capacity credit for its participation.
    Mr. Rush. Wind is an intermittent resource but it is also 
the single-largest source of new generation capacity last year, 
a calculation that doesn't account for any new wind capacity. I 
may be missing a piece of that puzzle. The MISO analysis also 
assumes that almost 19,000 megawatts of natural gas generation 
would not have the fuel to operate in the winter of 2016. That 
is significantly more than the entire ``potential shortfall.''
    We heard a lot today about the challenge of making sure 
that the natural gas infrastructure is adequate. Do you have 
any comments about the adequacy of the shortfall?
    Mr. Clair Moeller. Yes, sir. The point I was attempting to 
illustrate in that conversation was that the majority of the 
gas-fired generation in the MISO market was constructed around 
a summer utilization and it did not purchase firm 
transportation for their gas. In July and August there is 
typically sufficient gas and gas transportation to meet those 
requirements because it is not coincident with the heating 
load. Our concern is that as we move towards using that gas in 
the winter periods with the competition for heat load, it is 
unclear how much that capacity would be available.
    So our conversation was it is clear that 100 percent of 
that capacity won't be available. It is probably also true that 
zero of that capacity will be available, but at this point in 
time as we discuss with the gas pipe suppliers, it is unclear 
how much of that gas we can count on to be there for us in the 
wintertime. The New England situation is a harbinger of 
problems we seek to avoid, and so that conversation was to 
point out how large the problem might be, frankly, sir, to peak 
people's interest so that we can get the solution in time.
    Mr. Rush. Thank you, Mr. Chairman.
    Mr. Olson [presiding]. The ranking member yields back.
    The chair recognizes the gentleman from Ohio, Mr. Latta, 
for 5 minutes.
    Mr. Latta. Well, thank you very much. I appreciate it, Mr. 
Chairman. And thank you very much for our panel and I am sorry 
this is one of those days we have two hearings going on at the 
exact same time. But we appreciate you being here and joining 
us.
    If I could just go back to Mr. Smitherman. I found your 
testimony very interesting. Now, you say on page 1, ``however, 
because the Federal Government and EPA continue to set 
unreasonable roadblocks to diverse fuel production, the natural 
gas industry is challenged to boost supply enough energy for 
the Nation.'' And then you go on to state that ``the EPA has 
implemented such onerous restrictions on the ability to build 
new coal-fired coal plants that it has greatly impacted fuel 
supply in Texas and the Nation.'' When you are talking about 
these onerous restrictions, I am just curious, have you heard 
of the EPA doing any cost-basis analysis for the State of 
Texas, how it would affect you all?
    Mr. Smitherman. Congressman, I am not aware of any analysis 
that they have done with regard to the State of Texas, though 
when they put forward many of these regulations, they proffer a 
certain cost-benefit analysis, and not surprisingly, the 
benefits, in their minds, always outweigh the cost.
    What we have challenged is, what is the cost of failed 
reliability? What is the cost of not having enough electricity, 
of the lights going out? And that is a real possibility if we 
prematurely close down some of our coal-fired power generation 
plants or we limit the ability to recover natural gas. Either 
of those could lead to shortages.
    Mr. Latta. Well, and we were talking about looking at those 
issues, and especially we were here talking about coal-fired 
plants, especially where I am from, the State of Ohio, up in 
the northern part of the state, where we are well over 60 
percent coal-fired. Anyway, as Republicans have said back in 
2008, we all want to have an all-of-the-above energy policy 
that takes in clean coal, natural gas, nuclear, hydro, and all 
of the alternatives. But we want to make sure that they are out 
there for the people because in a question like what could be 
going on here, especially when the EPA is not doing any cost-
basis analysis and we're not really sure of the impacts, when 
you are starting to close down these plants, whose is going to 
pay for this in the very end?
    Mr. Smitherman. Well, in regulated markets if you are 
retrofitting these coal plants to come into compliance with 
everything except carbon capture, which is another technology 
altogether, then the ratepayers are going to pay for them. If 
you are talking about in deregulated or competitive markets, 
then you are going to see many of these plants close down, 
which is going to end up giving us a fuel mix which is heavily 
weighted toward natural gas, which is great if natural gas 
prices stay low and the supply remains high.
    Mr. Latta. Well, and again, in the State of Ohio we have 
been very fortunate with the presence of the Utica Shale--and 
actually, recent geological surveys indicate they are actually 
moving farther across the State, which is great, but you are 
right, we have to have that blend out there.
    And the thing I worry about is in my district, I have 
60,000 manufacturing jobs. We have to have base load capacity 
to make sure that when the big machines go on in the morning or 
at night, they stay on. We also want to make sure that folks 
can compete in the global market.
    Mr. Moeller, if I could just move over to ask you--you were 
talking about some things up in the Northeast, but what about 
in the Midwest? When you are looking at heating taking 
precedence over electric generation, should the two compete for 
natural resources? What do you think about the Midwest and how 
things could be impacted?
    Mr. Clair Moeller. So we have got a very complicated 
situation in the 21 different interstate pipelines that serve 
the Midwest region. Each one of those pipelines has a different 
set of facts and circumstances in terms of how constrained they 
are, but all of them were constructed on a subscription basis 
around residential heat load. So we continue to be concerned 
that as we begin to rely more on gas more in the winter months, 
we will see conflicts around competition for that gas pipeline 
capacity. We are trying to understand what that conflict might 
look like across those 21 gas pipes to see with the cost to 
consumers might be.
    Mr. Latta. Thank you very much.
    And Mr. Chairman, I yield back.
    Mr. Olson. The gentleman yields back.
    The chair now recognizes the gentleman from California, Mr. 
McNerney, for 5 minutes.
    Mr. McNerney. Thank you, Mr. Chairman.
    You know, I have heard this morning and today a lot about 
pipeline infrastructure being inadequate or needing 
flexibility. I haven't heard anything about storage. Is storage 
a viable option for local utilities? Can they build storage for 
natural gas or is there some reason why that is not on the 
table, whoever wants to answer it?
    Mr. Clair Moeller. Historically, there has been some 
natural gas storage in local distribution companies in the form 
of small liquid natural gas.
    Mr. McNerney. All right.
    Mr. Clair Moeller. There are also geologic opportunities to 
store it, but they are not universally available across the 
entire country, sir.
    Mr. McNerney. Mr. van Welie?
    Mr. van Welie. Sir, I presume your question was with regard 
to electrical storage.
    Mr. McNerney. No, no.
    Mr. van Welie. Oh, fuel storage?
    Mr. McNerney. Natural gas storage.
    Mr. van Welie. Yes. I think the most practical solution, at 
least for our region in terms of fuel storage, is LNG. And 
there are some large LNG facilities around the region, and I 
think that ultimately the solution is a combination of pipeline 
and storage because one has to think of the possibility that a 
pipeline could be compromised in some way and you need to be 
able to ride through that event. And one way of dealing with 
that is through local storage.
    Mr. McNerney. Is storage more expensive than pipelines?
    Mr. van Welie. Typically, yes. I think LNG from some of the 
numbers that I have seen--it is the energy required in order to 
compress and liquefy the gas that makes it relatively expensive 
compared to gas in the pipe.
    Mr. McNerney. OK. Thank you. So what would be the best way, 
then, Mr. van Welie, to get the flexibility you need for 
reliability from natural gas?
    Mr. van Welie. So I think it depends where you are, and if 
you are in a restructured wholesale electricity market, such as 
exists in New England, what we need to do is to make sure that 
the incentives for our generators are such that they will seek 
reliable fuel supplies. They will then have a number of options 
open to them.
    So, for example, if we have created a strong performance 
incentive for them and they are out there looking for reliable 
fuel supply, they could choose to put in dual fuel 
infrastructure, a tank of oil, and switch from gas to oil if 
their gas system becomes constrained or they can enter into a 
contract, bilateral contract, with an LNG storage provider to 
draw gas from the LNG storage facility, or contract with the 
pipelines for no-notice service or phone service from the 
pipes.
    So I think the starting point in solving this problem is to 
have the generators feel like they have to have adequate fuel 
in order to meet the call from the----
    Mr. McNerney. So in other words sort of a free-market 
approach with the right incentives?
    Mr. van Welie. That is right. We won't dictate what their 
solution is; we just want them to produce electrical energy 
when we need them to.
    Mr. McNerney. Mr. Moeller, I think it was you that 
mentioned there was a conflict between when certain natural gas 
pipelines are only approved to deliver during certain periods 
of time. Does that sound familiar?
    Mr. Clair Moeller. No. I was commenting about the fact that 
gas pipelines are constructed typically based on a subscription 
form of service where the original owners of the gas capacity 
have typically been residential heat loads. And so the pipe has 
been sized based on the original use. And typically those 
original users--it is 20 years gone by since those pipes have 
been constructed. So it is unclear in terms of how much 
capacity is available during what times of the year to supply 
this new use.
    Mr. McNerney. So that wasn't a contractual issue more as a 
physical capacity issue?
    Mr. Clair Moeller. Yes. It is two issues. One is the 
physical issue and the other is a contractual issue, and 
because they are both fairly opaque, it is a little hard to 
figure out what the actual fact circumstance is.
    Mr. McNerney. Do you have the resources to make that work 
better?
    Mr. Clair Moeller. We have engaged with the natural gas 
pipelines that serve our region, and they are working with us 
to answer those questions.
    Mr. McNerney. OK. Mr. Epel, you mentioned that you felt 
that Colorado was ahead of the curve on these issues. What has 
given Colorado that sort of wherewithal to get into that 
position?
    Mr. Epel. Congressman, this is actually driven by the 
voters of Colorado. Our renewable energy portfolio is really 
adopted by a balanced initiative, which the legislature then 
enhanced. And there has been a consistent desire for Colorado 
to have as much fuel diversification as possible. We spend 
quite a bit of time on energy efficiency also to reduce overall 
fuel usage, but it really comes from the voters of Colorado. 
They have spoken pretty clearly on this topic.
    Mr. McNerney. OK, thank you.
    And I yield back, Mr. Chairman.
    Mr. Olson. The gentleman yields back. The chair, in 
applying the gavel-in rule, recognizes himself for 5 minutes.
    And first, I would like to welcome all of you for coming 
but a very special welcome for the chairman of the Texas 
Railroad Commission, a man I voted for this past November, 
Chairman Barry Smitherman. And as they say in College Station, 
Texas, home of the fine Texas Aggies, howdy whoop.
    Commissioner Smitherman, this question is for you. As you 
discussed in your testimony, Texas very clearly has reliability 
challenges ahead of it, starting as early as next year when 
resource reserve margins could slip below the 13.75 target that 
ERCOT has. And while FERC works to address the impacts of 
increasingly depending on natural gas, would you agree that on 
the other side of Washington the EPA is working to help make it 
all but impossible to build any new coal plants that would 
diversify our power sources?
    Mr. Smitherman. Certainly, Congressman Olson. It is great 
to see you.
    You referenced earlier in your remarks a couple of projects 
which have been taken off the table in Texas because they were 
unable to meet new federal greenhouse gas regulations. So what 
that leaves us with in Texas is maintaining the current coal 
fleet and hoping that generators will add additional combined-
cycle gas. It looks like we are going to get a couple of new 
projects built that are going to be combined-cycle, but 
probably going forward, that is the only type of generation 
that we will see built in Texas. It will be combined-cycle gas. 
And with that we are trying to design a market to incent 
additional generation, but we essentially have found ourselves 
with only one tool in the toolbox.
    Mr. Olson. And what tool is that, sir?
    Mr. Smitherman. That is modifying the market designed to 
incent new natural gas-fired generation. Since we will not get 
any new coal plants built, we will struggle to maintain the 
existing coal fleet operational and I think it is almost 
impossible to build new nuclear in Texas.
    Mr. Olson. Yes, sir. I understand all of that. And you 
heard my exchange with Commissioner Moeller in the previous 
panel about the incident on February of 2011, this cold 
incident--the freezing that was across our State and also the 
extreme heat wave we had in the State as well in August of that 
year. The February 2011 event has been held up for a while now 
as a clear example of the interdependence of the electrical and 
natural gas industries and what can happen. The systems only 
run into trouble. Would you say that Texas had learned from 
that incident, and if so, are the steps you have taken 
alongside with the PUC and ERCOT so they can be shared 
nationwide?
    Mr. Smitherman. We have learned a number of things. One, 
that communication among all the agencies is incredibly 
important. So we have a task force today that meets regularly 
to investigate and communicate issues of fuel supply, of 
weatherization. In fact, one of the things we required after 
that event was additional weatherization on the bowler level, 
to make sure that these plants are prepared for extraordinarily 
cold weather, and to encourage firm gas supply contracts to our 
power generating stations. And if we know that a firm supply 
contract is not in place, that the ERCOT grid operators do not 
count on that unit to be available during those periods of 
time.
    We are also working on demand response initiatives and 
other things to give us a few additional tools. But I think it 
is important to be mindful of the fact that that was a very, 
very cold weather event. And for the most part, power 
generation plants in Texas are designed for summer heat, not 
for sub 32 degree temperatures for 3 straight days.
    Mr. Olson. And one final question, this is taking a page 
from Chairman Emeritus Dingell's playbook, but I am going to 
ask a question for all of you as an answer of yes or no. 
Starting with you, Mr. Hibbard, on the end there, yes or no. As 
things stand now, do you see the need for a full FERC 
rulemaking on the topic of gas electric coordination, or is a 
focus on regional action and clarification of the existing 
regulations enough? Yes or no please, sir.
    Mr. Hibbard. I think FERC's approach looking at the issue 
regionally is correct.
    Mr. Olson. And Mr. van Welie?
    Mr. van Welie. I think it is yes and no. So I think most of 
this can be handled regionally, but I think there are certain 
issues that Commissioner LaFleur indicated could be looked at 
nationally.
    Mr. Olson. Yes, I guess I should rephrase that. Regional or 
FERC regulation? Mr. Moeller?
    Mr. Clair Moeller. Regional.
    Mr. Olson. Regional. Mr. Epel?
    Mr. Epel. Regional.
    Mr. Olson. Mr. Smitherman?
    Mr. Smitherman. Texans can take care of Texas.
    Mr. Olson. Amen, brother. And one more, Mr. Hibbard, 
regional? It sounds like you are regional as well? OK. Well, 
there you go. So five for five. It looks like I am out of time.
    I yield back the balance of my time and recognize the 
gentleman from New York, Mr.--no. The chairman emeritus slipped 
in here behind me. Mr. Dingell, are you ready to ask questions, 
sir?
    Mr. Dingell. If you let me get my feet under me first.
    Mr. Olson. OK. Then, we will move on with my colleague from 
Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. And I know some of my 
questions of our chair of the railroad commission that his 
earlier hat was on the Public Utility Commission. I can't make 
the same statement that I voted for him last fall, but I did 
vote for his mom a few times. But, Barry, it is good to see 
you, and I know as a railroad commissioner, you have a 
different hat on in the Public Utility Commission, and I 
appreciate all your work on the PUC because at one time-- and 
you heard my questions earlier--we are proud in Texas to have 
ERCOT. And we have never had a reliability issue. And I know we 
have been rationing it on what we can do. We don't one of 
burden ratepayers too much, but you also don't want to have 
some of the incidents that we have. And believe me, in D.C., we 
protect ERCOT on a bipartisan basis.
    You talked about expansion of coal plants in Texas, and I 
know EPA, when they did the Carbon Rule, it was for future 
plants, not current plants on sequestration for coal. In all 
honesty, I can't imagine building a coal plant unless you 
actually did, like we did in Texas, with lignite right over it. 
The economics seem like with natural gas, if you have access to 
natural gas you wouldn't build a coal plant even if the EPA 
extended that rule to coal plants. Is that true?
    Mr. Smitherman. Well, first, let me say I would hope that 
you would have voted for me because I didn't have a Democrat in 
my race. So let's remember that we have a lot of Monmouth coal 
in Texas. And actually, today, Monmouth coal is economic when 
compared to gas at $3.80 gas prices. So we want to make sure 
that we keep those units running. And that was really the 
thrust of our pushback on CSAPR.
    Mr. Green. Well, and congratulations because that was a 
part of summer of our hearings over the last few years on the 
transport rule which never made sense to me, and I grew up 
there. And the wind comes from the south. At certain times of 
the year it comes from the north, but I never knew it went to 
Indiana. Be that as it may----
    Mr. Smitherman. Me neither. I think the important thing is 
to maintain the optionality. Remember in our market, not only 
did we run a competitive wholesale market, but we also have 
communities and co-ops like San Antonio and Austin, as well as 
fully regulated companies on the periphery of the ERCOT market. 
And for them, having the optionality to build new coal, even if 
it is Powder River Basin coal, could be an important 
consideration.
    So we want to make sure that we don't have such onerous 
greenhouse gas regulations that building new coal, unless it 
has CCS, is completely off the table. Gas prices are low now. 
That is great. We are long gas; it is terrific. And I would 
just remind, though, that gas prices have gone from $1.99 to 
$3.80 over the last 2 years. I think they will stabilize 
somewhere in the, you know, 4 to 5.50 range. At that point, it 
becomes probably a break even for coal. So again, having that 
balance--and we have a really nice balance right now. I think 
it is important for consumers.
    Mr. Green. OK. I know when you talked about nuclear--and we 
would have gotten our nuclear loan guarantees in South Texas--
we only have the two plants, Glen Rose and South Texas--so 
except for financial problems of one of the investors who was 
Tokyo Power--and after Fukushima, Japan, what, are you going to 
send us $125 million? But I know nuclear needs to be part of 
ours along with our success in natural gas.
    I am curious because you had both hats on, both on the 
Railroad Commission and the PUC. Is there a market structure 
that we can do under ERCOT that working both with your example 
from the Railroad Commission with regulation of oil and gas in 
PUC, to have that reliability we have become accustomed to in 
Texas?
    Mr. Smitherman. I would say several things in support of, 
one, we need an upstream supply, robust supply, of all the 
resources; two, we need to build midstream infrastructure, 
pipelines, and transmission lines. And then we need to continue 
to tinker with the market design to incent new generation.
    You know, the ERCOT market is like an airplane ride. You 
take midcourse corrections along the way until you get your 
destination. You don't put it on autopilot. And I am confident 
that the current commissioners are doing that.
    Mr. Green. Well, and I understand. I have been through 
Eagle Ford, and seeing the amount of gas we are flaring, of 
course, nothing compared to what they are doing in North 
Dakota. So that infrastructure is really important because I 
know those producers. We would rather have somebody buying that 
gas then it would be just flaring it. So the pipeline is 
important. Mr. van Welie, in New England how many LNG import 
facilities--I am well aware of the one in Boston Harbor, that 
has been a debate in our committee for many years. Are there 
other LNG facilities in New England?
    Mr. van Welie. There are two buoys in the ocean off Boston, 
which are--and I don't think they have ever been utilized, 
maybe once-- but the other one that is sort of a dominant 
resource for the region is in New Brunswick in Canada.
    Mr. Green. OK.
    Mr. van Welie. So it is owned by Repsol. And they have 10 
BC of storage just across the main border.
    Mr. Green. About a dozen years ago I kept hearing the 
Austin to Boston connection with natural gas. Is there not 
enough pipeline capacity to send some of that Eagle Ford gas, 
instead of flaring it, up to Boston?
    Mr. van Welie. That is the basic problem. So the pipelines 
from the West and the south are fully utilized.
    Mr. Green. And there is not enough new subscriptions. You 
know, people won't build a pipeline unless they have customers. 
And if you want to expand a pipeline, you need to have those 
customers committed to that because, you know, it is an 
investment. And is there not enough potential expansion for 
those to expand those pipelines where we have the natural gas?
    Mr. van Welie. Yes. So there is a regulatory, what I call a 
regulatory conundrum here. On the one hand you have the 
electric sector and the wholesale markets where generators are 
thinking short- to medium-term at best. So year-by-year, 
sometimes day-to-day, the pipelines, they will only build the 
pipe if they get somebody to commit to them for 15, 20 years. 
So how do you actually make those two business models work 
together? It is----
    Mr. Green. Mr. Chairman, one last question. How long is 
that LNG----
    Dr. Burgess [presiding]. The gentleman's time has expired. 
And the only reason I point that out is because you do have 
chairman emeritus who is waiting patiently to question.
    Mr. Green. Far be it from me to stand in the way of----
    Mr. Dingell. This member is not complaining.
    Mr. Burgess. This member is complaining.
    Mr. Green. Well, if I could just say--you don't have to 
answer just how long has that LNG import facility been in 
Boston Harbor?
    Mr. van Welie. Yes, about 20 years.
    Mr. Green. You could probably build a pipeline. Thank you.
    Mr. Burgess. I thank the gentleman for yielding back.
    The chair now recognizes himself for however much time he 
wants for questions. And I do----
    Mr. Dingell. You are a good friend and are always 
remarkably courteous. I thank you.
    Mr. Burgess. Well, I actually recognized myself, Mr. 
Chairman.
    Mr. Dingell. Oh, I thought you were----
    Mr. Burgess. I referred to myself as chairman because----
    Mr. Dingell. Well----
    Mr. Burgess. I think there is an aspirational goal involved 
here.
    I do want to thank the members on the panel who stood with 
us so long today. Mr. Smitherman, and I am going to join the 
parade, I voted for you as well. I voted for myself, 
coincidentally, on the same day. But I am going to ask you, but 
really the question may be one that could be answered or should 
be answered by everyone on the panel. National Geographic cover 
story this week or last week was ``America Strikes Oil.'' I 
realize the cover is a little incendiary, a little 
inflammatory, to coin a pun there.
    But you know, for me was phenomenal to sit in the State of 
the Union Address 3 years ago and have the President of the 
United States wax eloquently over the benefits of fracking and 
how important that was to our economy and ignore his Affordable 
Care Act which he had worked so hard to get. But I think this 
speaks how important this activity is for the future of our 
economy.
    In the budget on which will be voting in just a few hours, 
Chairman Ryan from the Budget Committee has placed a number in 
the budget for the future development of natural gas on federal 
lands--and I realize that is not really Texas but on federal 
lands--of $11 billion for the next 10 years. That strikes me as 
an awfully light figure for what really should be a real boon 
to the American economy. Mr. Smitherman?
    Mr. Smitherman. Well, Dr. Burgess, it is phenomenal what is 
happening in the oil and gas patch these days. And again, it is 
all driven by technology, horizontal drilling and hydraulic 
fracturing. We are now producing 1.5, 1.6 million barrels a day 
of crude oil in Texas. That is more than the rest of the 
country gets from Saudi Arabia. That number could double or 
triple within the next 10 years, and literally, we could be 
energy secure in America by 2020. That will quickly displace 
imported oil from Africa, from the Middle East, and ultimately 
from Russia. So America is on the cusp of having energy 
security, and with that, great paying jobs and revenue streams 
that you speak of staying here in America.
    Mr. Burgess. Now, does anyone else on the panel have a 
feeling as to whether or not that $11 billion figure from oil 
and gas produced on federal lands--does that seem high, low, or 
just about right?
    Mr. Smitherman. Let me just say that this biennium Texas, 
oil and gas severance taxes will be over $7 billion just from 
Texas private lands. So that seems to me like a low number.
    Mr. Burgess. Is that $7 billion for 1 year or for 10 years.
    Mr. Smitherman. For the biennium. For 2 years.
    Mr. Burgess. For 2 years. OK. Does anyone else have a 
sense? Is $11 billion high, low? And again, that is a 10-year 
figure that is calculated in our budget. I rather think those 
numbers will be much more robust.
    Mr. Smitherman, you are correct to point out, and I am in 
absolute agreement that Texas is unique unto itself. There are 
aspects of the Texas oil and gas production that are unique to 
Texas because of archaeology. And the efforts that the 
Environmental Protection Agency to write rules for the entire 
country recognizing that Mr. Epel's home State of Colorado is 
vastly different geologically from our home State of Texas, do 
you have a feeling as to where those regulations should be 
written and enforced? Is it at the state level or is at the 
federal level?
    Mr. Smitherman. Certainly, we believe at the state level. 
The Railroad Commission employees and TCEQ employees know the 
underground geology of Texas better than regulators either in 
Washington D.C. or with the EPA. We have been at this for over 
hundred years and I think the proof is in the pudding. The 
amount of oil and gas that we produce and our safety record and 
our environment stewardship is a real testimony to the fact 
that we are proud of what we do and we want to take every 
proactive step to maintain it. In fact, as you recall, we 
passed the first Frac Fluid Disclosure Rule in Texas 2 years 
ago. We are on the cusp, and next week we will adopt a 
recycling rule for flow back water we think will be one of the 
first, and some additional well integrity rules. So we are 
actually being proactive.
    Mr. Burgess. And you bring up an excellent point, although 
the concept of horizontal drilling and hydraulic fracturing 
was, if I recall correctly, part of that was developed in the 
Barnett Shale, my home county of Denton County, and has been 
extrapolated worldwide. But the technology changes and the 
technology that is available today is not the technology that 
was available 5, 10, 15 years ago. And I am grateful that you 
brought that point up because I think Texas and your office, in 
particular, has been a leader in addressing some of the 
environmental concerns that have occurred as a consequence of 
this very, very valuable energy source.
    And just to wrap up, all of the economists with the benefit 
of the retrospectoscope were able to tell us that a recession 
started in December 2007. The area that I represent overlying 
the Barnett Shale had to read about it in the newspaper because 
we didn't feel it for almost 14 months. Now, yes, the natural 
gas price eventually came down to under $2 as you pointed out, 
and the effect on the job market was felt. But it was 
astounding, the economic effect of the Barnett Shale in the 
area of North Texas that I represent, and my only wish is we 
could see that economic benefit be extrapolated to the rest of 
the country.
    And I am going to yield at this point to the chairman 
emeritus of the full committee such time as he may consume.
    Mr. Dingell. Chairman, I will repeat what I said. You are 
always very courteous and I thank you for your kindness.
    These questions are for Mr. Moeller. Mr. Moeller, as 
utilities build new natural gas electric generating facilities, 
they retire older coal-fired plants and retrofit other coal-
fired plants to comply with EPA regulations such as the Mercury 
Rule. Do you believe that the Midwest region will have the 
capacity necessary, in terms of electrical generation, to meet 
the demand?
    Mr. Clair Moeller. Yes, sir.
    Mr. Dingell. Now, is more time needed for compliance under 
the Mercury Rule to give time for new gas infrastructure and 
generation to be built?
    Mr. Clair Moeller. There may be a small number of projects 
that will require additional time as they work their way 
through the construction process.
    Mr. Dingell. I would appreciate if you would add some 
remarks for the record later on these two points.
    Mr. Clair Moeller. Yes, sir.
    Mr. Dingell. Now, sir, in her testimony, Commissioner 
LaFleur said that FERC has been told that the need for 
infrastructure is a regional issue that requires regional 
solutions. You also noted that to keep up with demand, the 
current system will need to be expanded. Given demands for 
natural gas, both now and projected in the future, how long do 
you anticipate it will take to build the infrastructure 
necessary to serve the Midwest region?
    Mr. Clair Moeller. Typically, construction of the natural 
gas pipeline takes between 3 and 5 years. It will take us on 
the order of 3 years to understand what pipelines we should ask 
for.
    Mr. Dingell. Now, do we add also to that some permitting 
time? Because pipelines are not always greeted with vast 
acclaim when somebody comes forward.
    Mr. Clair Moeller. Three years is the quick time and 5 
years is if there are permitting issues that need to be worked 
through, sir.
    Mr. Dingell. Now, what will the approximate cost be for 
this new infrastructure?
    Mr. Clair Moeller. Our first guess at that cost would be in 
the range of 3 to $5 billion.
    Mr. Dingell. Now, who will ultimately bear the burden of 
these costs? The ratepayers, the utilities, or the owners of 
the pipeline?
    Mr. Clair Moeller. Ratepayers, at the end the day, pay for 
the infrastructure, sir.
    Mr. Dingell. And that is a standard rule? That just always 
happens?
    Mr. Clair Moeller. Yes, sir.
    Mr. Dingell. Thank you. Now, in your testimony you note 
that given the nature of pipeline contracts with utilities, 
some natural gas-fired plants cannot run to provide additional 
generation during certain peak events. Do you believe that 
there are changes to be made to ensure utilities have the 
contracts in place that provide the supply they need to run 
longer? Please answer yes or no.
    Mr. Clair Moeller. Yes.
    Mr. Dingell. Would you like to add to that for the record 
later, if you please?
    Mr. Clair Moeller. We can do that, yes, sir.
    Mr. Dingell. Now, with improved weather forecasting and the 
increased use of wind to generate electricity, do you believe 
that this and other forms of renewable electricity should be 
included in the resource adequacy predictions? Yes or no?
    Mr. Clair Moeller. Yes.
    Mr. Dingell. And would you submit to us your comments as to 
why this would be so for the record?
    Mr. Clair Moeller. Yes, sir.
    Mr. Dingell. Mr. Chairman, you have been most gracious. 
Thank you to our panel.
    And I would just like to make one observation. I have been 
dealing with these energy questions for years and years and 
years. And the free economic system always surprises us by how 
well it works, but it has a lot of other surprises in it for 
us. And technology seems to change under our feet. We find that 
where we were anticipating shortages, we all of a sudden have 
abundance. Where we anticipated abundance, we all of a sudden 
have shortages.
    And I just worry constantly about the way things change 
under our feet and how it is that we must act to see to it that 
we are ready when the next set of difficulties comes upon us. 
Whether we get gas lines or cold winters and shutdowns and the 
gas pipelines crater and we have all kinds of troubles, and I 
am hopeful that the nice picture that I see today is one which 
is going to be as nice or nicer tomorrow.
    But having been a little like the dog that backed into the 
hot stove, I am not backing into any stoves hot or cold right 
now. So having said these things, your additional comments for 
the record would be appreciated. Mr. Chairman, I thank you.
    Mr. Whitfield. Thank you, Mr. Dingell. At this time I 
recognize the gentleman from Virginia, Mr. Griffith, for 5 
minutes.
    Mr. Griffith. Thank you, Mr. Chairman. I appreciate all of 
you all being here today and appreciate the testimony that I 
have heard.
    I think that Mr. Dingell's comments in regard to the 
circumstances are always changing is one of the reasons that I 
feel so strongly that we ought not to throw coal out, or treat 
coal as if it were a bad word, because long-term, we know we 
have got plenty of coal. It may be a little bit harder to get 
out, but if we run into circumstances that we need it, it is 
there. And we just need to make sure we have the capabilities 
when we need it to be able to use it.
    Likewise, it is great that we have natural gas at fairly 
reasonable prices and that, you know, do anticipate one of 
our--in a previous hearing some of you may have heard this 
earlier--witness indicated that they thought it was going to 
actually hit $4 by the end of the year. At that point, coal 
does become competitive again. And then the question becomes, 
you know, who wants to use it and are they going to be allowed 
to use it by regulations?
    And I would ask you all--and I don't care who wants to 
volunteer to answer this question--but we hear a lot about 
retrofitting some of the coal plants, which is a good thing and 
some coal plants are fairly new. In light, though, of some of 
the new regulations that are out there, notwithstanding some 
comments this week that the White House may back off of some of 
the greenhouse gas regulations in regard to power plants, how 
likely is it that you all would anticipate that your power 
producers are going to be anxiously looking to find ways to 
retrofit coal plants in light of the uncertainty that is out 
there with what they might have to do with CO2?
    Do you want to start, Mr. Smitherman?
    Mr. Smitherman. Yes. Congressman, you raised a great issue 
because that is the unknown. You could retrofit to capture 
SO2, mercury, particulate matter, everything else 
that goes up that flue except for CO2 and then find 
yourself 5 or 10 years from now having to make a major retrofit 
to capture carbon or it be cost-prohibitive and you just have 
to close the plant down and then you have lost all that 
capital.
    Mr. Griffith. Does anybody disagree with that?
    Mr. Moeller, did you want to make an additional comment on 
that?
    Mr. Clair Moeller. In the Midwest with traditionally 
regulated States, the generation owners in conjunction with 
their regulators have committed to retrofitting 54,000 
megawatts of the 66,000 megawatts on our system.
    Mr. Griffith. OK. Thank you.
    Mr. van Welie, let me ask you this, just because, as Mr. 
Dingell also pointed out, sometimes pipelines aren't so 
popular, that LNG storage facility just over the line in 
Canada, is there already a pipeline into the States?
    Mr. van Welie. Yes.
    Mr. Griffith. OK.
    Mr. van Welie. There is a pipeline that comes over.
    Mr. Griffith. Because we had had some difficulty getting 
the pipelines across the Canadian border of late, and I just 
wouldn't want to see us run into that problem.
    I will tell you that I suspect that some of the natural gas 
comes out of a pool of natural gas that we have been trying in 
my home State of Virginia now since 2004 to get permission to 
explore and figure out what is out there. And many geologists 
have told us that natural gas the Canadians are getting 
offshore is in a pool that stretches all the way down to 
northern North Carolina, which covers a big chunk of Virginia 
in that patch. We would love to have you have a source of 
American natural gas from just offshore. If you don't want to 
do it in Massachusetts, we are glad to do it Virginia.
    Mr. van Welie. We would be happy to have you build a pipe. 
That would be great.
    Mr. Griffith. And we would love to create jobs for all 
Americans.
    Mr. Rush asked about minorities earlier, and we just think 
there is huge potential for not only the United States but also 
for the Commonwealth of Virginia if we can get that permission.
    Mr. Chairman, that being said, you know, this has been a 
great hearing, but I believe a lot of questions that I would 
have asked have already been asked and I will yield back.
    Mr. Whitfield. Well, thank you, Mr. Griffith.
    At this time I recognize the gentleman from Colorado, Mr. 
Gardner, for 5 minutes.
    Mr. Gardner. Thank you, Mr. Chairman. And again thank you 
to the witnesses for joining us today. Chairman Epel, just a 
couple of questions from your testimony and the experiences 
that we have shared. Could you talk a little bit about the 
long-term contracts that you mentioned, natural gas, and how 
does the ability to enter into long-term contracts help with 
certainty and pricing for utilities?
    Mr. Epel. Thank you, Congressman. We could not have 
developed Clean Air-Clean Jobs without a long-term contract. We 
had to take the volatility out. And so when we developed the 
program with this long-term contract, it just gave us that 
opportunity to have the smooth glide path for the next 10 
years. And we don't anticipate any type of rate impact. In 
fact, we entered into a multiyear rate case with Pelletier's 
Company of Colorado with only 5 percent increase in rates for 
the next 3 years.
    Mr. Gardner. And, I believe it was Mr. Burgess from Texas 
who talked about just the differences between Colorado's unique 
needs and Texas' uniqueness and just the variety of States and 
the differences between the geography in the mountains versus 
the plains. And so when we came up with the solutions unique to 
Colorado, I think that is important.
    Mr. Epel. Yes.
    Mr. Gardner. And you hear people talk about the single 
stack solutions versus letting a State do a broader whole 
approach. And so I guess what I am leading into is this: when 
you have a rule that allows you to make a decision for a State, 
that is a better way than individualizing, targeting specific 
sites. Is that correct?
    Mr. Epel. I agree with you completely. It has to be a 
system benefit. If we did not look at the full suite of the 
older plants, the gas availability, including the energy 
efficiency opportunities, the program could not have gone 
forward.
    Mr. Gardner. And so Colorado is best-equipped to make 
decisions for Colorado just as Texas is best-equipped to make 
decisions for Texas?
    Mr. Epel. Well, I think the basic point is the West is the 
best and I am pleased to brag about it. But absolutely----
    Mr. Gardner. I wholeheartedly agree with you. Thank you, 
Mr. Chairman. Yes. And to the point of allowing a holistic 
solution versus stack specific. Would everybody else agree on 
the panel that that is the better way to proceed?
    Mr. Clair Moeller. Yes.
    Mr. van Welie. Yes.
    Mr. Gardner. Thank you. And you talk a little bit about 
greenhouse gas reductions. You indicate in your testimony that 
greenhouse gas reductions must establish targets that are 
achievable through this suite of strategies, tailored 
specifically to a State and the State with vertically 
integrated utility or by a region in an organized market. Do 
you think that the proposals we see from this Administration 
have done that?
    Mr. Epel. You know, we have not yet seen the existing 
source rule which to me is the critical rule that all of us are 
concerned about. I mean clearly, in Colorado, we have addressed 
Regional Haze at least for our industrial and utilities, 
Mercury Air Toxics. This is the biggest wildcard but I think if 
we have a sensible slope and length of time, it is manageable. 
But that really has to be driven by the State once EPA or the 
Congress defines that goal.
    Mr. Gardner. And you talked a little bit about, in addition 
to the cooperation that we have in Colorado, we also had a very 
cooperative process on our Regional Haze issue in the SIP that 
we developed bipartisan support, but we have seen now several 
groups in Colorado that choose not to participate in the 
process despite its wide bipartisan support. Wild Earth 
Guardians National Parks Conservation Association have sought 
to upend the process of the SIP that we got through bipartisan 
efforts. Through the PUC, do support the Colorado Regional Haze 
SIP in its entirety?
    Mr. Epel. Absolutely.
    Mr. Gardner. Yes. And then you agree that the Department of 
Justice and the EPA should defend the SIP in its entirety and 
should oppose modifications which could be entering into a 
consent decree if that is what they would end up pursuing that 
changed the balance approach agreed to by the diverse parties 
involved. You would agree that the Department of Justice ought 
to defend the whole thing?
    Mr. Epel. Well, I am reluctant to ever tell the Department 
of Justice what to do, but I think Colorado did as fine a job 
as possible on Regional Haze, and clearly, the EPA supported 
it. They have turned around the approval of our State 
Implementation Plan as quickly as possible, I mean, in record 
time.
    Mr. Gardner. And did this Administration consultant with--
Texas, Colorado, I will ask all of you--did the Administration 
consult with your State before issuing rules like Utility MACT?
    Mr. Smitherman. Not at all. Let me just add, Congressman, 
quickly, SO2, NOx, particulate matter, 
CO2 down to 1992 levels in Texas, in the face of a 
growing economy without cap-and-trade.
    Mr. Gardner. Chairman Epel?
    Mr. Epel. I am not familiar with that.
    Mr. Gardner. Yes, I understand. Anybody else care to--OK. 
Thank you very much, Mr. Chairman. I yield back my time.
    Mr. Whitfield. Well, thank you, Mr. Gardner. And thank all 
of you for your testimony.
    I think everyone agrees that the wildcard is the 
CO2 regulations. And speaking for myself, all of 
this came about as a result of the Supreme Court decision, and 
there really has not been a national legislative debate on this 
issue. And something that we are going to be focused on is 
drafting some legislation in which we can have a national 
debate on it and let the legislative body decide.
    But the ramifications are big, the uncertainties are big, 
and we are going through great changes today. And so that is 
why we feel like this hearing is so important and to hear from 
experts who are dealing with it in various ways, we appreciate 
that very much.
    And without objection, I would like to enter into the 
record this statement of our chairman, Fred Upton.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    I would like to thank Chairman Whitfield for holding this 
important and forward-looking hearing--one that seeks to 
proactively address emerging issues resulting from the 
increased use of natural gas in the nation's electric 
generation portfolio. An ounce or two of prevention now can 
avoid big problems down the road.
    This country is undergoing a shale gas revolution that is 
providing the nation with growing supplies of affordable 
domestic natural gas for use in electric generation as well as 
manufacturing and residential uses. But at the same time, we 
are facing the substantial loss of coal-fired generation 
capacity that will only accelerate over the next few years, 
especially in the Midwest. Some of these coal-fired plants are 
closing for good, while others will go offline for extensive 
retrofits to meet new EPA rules.
    The rapid replacement of coal with natural gas in the 
generation mix can be a challenge in some regions of the 
country, and I am pleased that two of our witnesses hail from 
the Midwest and will provide a unique perspective from this 
region where we need affordable and reliable power not just for 
homeowners and small business owners but also for our 
manufacturers.
    The Midwest is particularly hard hit by the rapid loss of 
coal-fired capacity--and this committee will continue to 
scrutinize the wave of EPA regulations that have targeted coal. 
And while the Midwest supply of natural gas is plentiful, there 
are issues that need to be addressed regarding its expanded use 
in the generation mix. For example, the Midwest Independent 
Transmission System Operator (MISO) estimates we will need $2-3 
billion in new natural gas pipeline infrastructure by 2015.
    Beyond the infrastructure challenges are the regulatory 
issues. The natural gas and electricity sectors have market and 
operational differences that may need to be reconciled for this 
transition to go smoothly.
    Again, I would like to thank the chairman for getting out 
in front of these emerging issues. The shale gas revolution is 
very good news for the country, but only if we are sensible in 
how we go about integrating it into the electricity mix. This 
hearing is a great start toward that end.
    Thank you and I yield back the balance of my time.

    Mr. Rush. Mr. Chairman, I just hope and sincerely wish that 
along with your plans for future hearings, I mean, you know how 
crazy I am about these hearings that we are holding. I wish you 
would also certainly consider a hearing where we will have some 
scientists come in and discuss climate change.
    Mr. Whitfield. Yes, well, we have had a lot of hearings on 
climate change. That is for sure.
    Mr. Rush. But no scientists.
    Mr. Whitfield. Well, over the last 5 years, we have had 22 
some hearings on climate change with scientists. But thank you 
for you and Mr. Waxman reminding us of that and for the letter 
that you sent.
    Mr. Rush. We certainly would like to hear from----
    Mr. Whitfield. Thank you.
    Mr. Rush [continuing]. Some scientists.
    Mr. Whitfield. Thank you.
    Thank you all once again for being with us. And the record 
will remain open for 10 days. Some of you made commitments to 
provide additional information. And we look forward to working 
with all of you as we strive to meet the energy demands of our 
country and make sure we have adequate supply as well. Thank 
you.
    And with that, the hearing is adjourned.
    [Whereupon, at 1:08 p.m., the subcommittee was adjourned.]
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