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



 
       EVALUATING THE ROLE OF FERC IN A CHANGING ENERGY LANDSCAPE

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON ENERGY AND POWER

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 5, 2013

                               __________

                           Serial No. 113-106


      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               FRANK PALLONE, Jr., New Jersey
JOHN SHIMKUS, Illinois               BOBBY L. RUSH, Illinois
JOSEPH R. PITTS, Pennsylvania        ANNA G. ESHOO, California
GREG WALDEN, Oregon                  ELIOT L. ENGEL, New York
LEE TERRY, Nebraska                  GENE GREEN, Texas
MIKE ROGERS, Michigan                DIANA DeGETTE, Colorado
TIM MURPHY, Pennsylvania             LOIS CAPPS, California
MICHAEL C. BURGESS, Texas            MICHAEL F. DOYLE, Pennsylvania
MARSHA BLACKBURN, Tennessee          JANICE D. SCHAKOWSKY, Illinois
  Vice Chairman                      JIM MATHESON, Utah
PHIL GINGREY, Georgia                G.K. BUTTERFIELD, North Carolina
STEVE SCALISE, Louisiana             JOHN BARROW, Georgia
ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington   DONNA M. CHRISTENSEN, Virgin 
GREGG HARPER, Mississippi            Islands
LEONARD LANCE, New Jersey            KATHY CASTOR, Florida
BILL CASSIDY, Louisiana              JOHN P. SARBANES, Maryland
BRETT GUTHRIE, Kentucky              JERRY McNERNEY, California
PETE OLSON, Texas                    BRUCE L. BRALEY, Iowa
DAVID B. McKINLEY, West Virginia     PETER WELCH, Vermont
CORY GARDNER, Colorado               BEN RAY LUJAN, New Mexico
MIKE POMPEO, Kansas                  PAUL TONKO, New York
ADAM KINZINGER, Illinois             JOHN A. YARMUTH, Kentucky
H. MORGAN GRIFFITH, Virginia
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Ohio
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina

                                 7_____

                    Subcommittee on Energy and Power

                         ED WHITFIELD, Kentucky
                                 Chairman
STEVE SCALISE, Louisiana             BOBBY L. RUSH, Illinois
  Vice Chairman                        Ranking Member
RALPH M. HALL, Texas                 JERRY McNERNEY, California
JOHN SHIMKUS, Illinois               PAUL TONKO, New York
JOSEPH R. PITTS, Pennsylvania        JOHN A. YARMUTH, Kentucky
LEE TERRY, Nebraska                  ELIOT L. ENGEL, New York
MICHAEL C. BURGESS, Texas            GENE GREEN, Texas
ROBERT E. LATTA, Ohio                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 (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)    HENRY A. WAXMAN, California (ex 
                                         officio)

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Ed Whitfield, a Representative in Congress from the 
  Commonwealth of Kentucky, opening statement....................     1
    Prepared statement...........................................     3
Hon. Jerry McNerney, a Representative in Congress from the State 
  of California, opening statement...............................     3
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     4
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     5
    Prepared statement...........................................     6
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     7

                               Witnesses

Cheryl A. LaFleur, Acting Chairman, Federal Energy Regulatory 
  Commission.....................................................     8
    Prepared statement...........................................    10
    Answers to submitted questions...............................    78
Philip D. Moeller, Commissioner, Federal Energy Regulatory 
  Commission.....................................................    15
    Prepared statement...........................................    17
    Answers to submitted questions...............................   114
John R. Norris, Commissioner, Federal Energy Regulatory 
  Commission.....................................................    22
    Prepared statement...........................................    24
    Answers to submitted questions...............................   125
Tony Clark, Commissioner, Federal Energy Regulatory Commission...    34
    Prepared statement...........................................    36
    Answers to submitted questions...............................   134

                           Submitted Material

Statement, dated December 4, 2013, of the American Public Power 
  Association, submitted by Mr. Whitfield........................    74


       EVALUATING THE ROLE OF FERC IN A CHANGING ENERGY LANDSCAPE

                              ----------                              


                       THURSDAY, DECEMBER 5, 2013

                  House of Representatives,
                  Subcommittee on Energy and Power,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:34 a.m., in 
room 2123, Rayburn House Office Building, Hon. Ed Whitfield 
(chairman of the subcommittee) presiding.
    Members present: Representatives Whitfield, Hall, Shimkus, 
Pitts, Terry, Burgess, Latta, Olson, McKinley, Gardner, 
Kinzinger, Griffith, Barton, Upton (ex officio), McNerney, 
Tonko, Engel, Green, Barrow, Matsui, Christensen, Castor, and 
Waxman (ex officio).
    Staff present: Nick Abraham, Legislative Clerk; Charlotte 
Baker, Press Secretary; Ray Baum, Senior Policy Advisor/
Director of Coalitions; Sean Bonyun, Communications Director; 
Allison Busbee, Policy Coordinator, Energy and Power; Patrick 
Currier, Counsel, Energy and Power; Tom Hassenboehler, Chief 
Counsel, Energy and Power; Jason Knox, Counsel, Energy and 
Power; Ben Lieberman, Counsel, Energy and Power; Brandon 
Mooney, Professional Staff Member; Chris Sarley, Policy 
Coordinator, Environment and the Economy; Tom Wilbur, Digital 
Media Advisor; Jeff Baran, Democratic Senior Counsel; Greg 
Dotson, Democratic Staff Director, Energy and the Environment; 
Caitlin Haberman, Democratic Policy Analyst; Elizabeth Letter, 
Democratic Press Secretary.

  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. We are going to be evaluating the role of FERC in 
a changing energy landscape. And I am delighted that the 
Commissioners of FERC are with us today. We appreciate very 
much your being here. I certainly initially would like to 
congratulate Cheryl LaFleur, who has been appointed the Acting 
Chair of FERC.
    And I enjoyed our meeting yesterday, Ms. LaFleur, and we 
look forward to working with you on the many issues facing our 
country as we adjust to this changing landscape that we all are 
very much involved in.
    I would say that I think the transcending issue that sort 
of encompasses everything that we are talking about today does 
relate to the changing landscape of energy in America. With 
this low-priced natural gas we see a transformation from coal 
to natural gas. Many States, and this administration 
particularly, are being very aggressive in trying to increase 
the amount of electricity produced from renewables as they try 
to address climate change.
    And I would say that as we move forward, and I think you 
all particularly have to be sensitive to this, is that 
frequently many people in the administration and other groups 
point to Europe as a model for America. And yet in Europe 22 
percent of electricity is now being produced from renewables. 
They have an overcapacity of electricity in Europe. And as a 
result they have very low wholesale prices, which is good, but 
their residential rates and their manufacturing rates are the 
highest in the world because of renewable surcharges.
    And so what is happening over there is they are trying to 
make this transition too quickly, in my view, and that is what 
people are trying to do in America as well. But what is 
happening over there is that the utilities, the baseload 
utilities have lost, like, $800 million in market valuation 
over the last 15 months or so. And so as you go to renewables 
and you have to place more emphasis on distribution at the 
local levels, there is not enough capital in the utility 
industry there to meet those needs. And so they have a real 
conflict in Europe right now.
    And interestingly enough, they have mothballed 30 gigawatts 
of plants producing electricity from natural gas in Europe 
because of the high cost of natural gas coming out of Russia, 
and we had our largest export market of coal last year in 
recent memory and the Europeans took 45 percent of that, 
because when Germany closed down their nuclear power plants, 
they realized--and other countries over there realized--they 
have to use some coal.
    And so this administration, who talks all the time about 
all-of-the-above policy, is in effect in their greenhouse gas 
rules going to prohibit even the option of building a new coal-
powered plant in the future. So if we are going to talk about 
an all-of-the-above policy and say that is our policy, then 
that should be the policy.
    And so we have introduced legislation. We don't expect 
anybody to build a new coal-powered plant right now with 
natural gas prices this low, but in the future, like in Europe 
what they are discovering, it should be an option. And so I 
look forward to the testimony of the Commissioners today to get 
some of their views on the many challenges facing us.
    And I look forward to your comments, Mr. Norris. I know you 
made a comment recently in a smart grid conference in November 
about your personal view is we don't really maybe need anymore 
infrastructure for natural gas and fossil fuels. I may be 
wrong, but I think you made that comment. And many of us would 
disagree with that, particularly with the additional fields 
that we have. And the Northeast talks to us all the time about 
not having the infrastructure to get the gas to where it needs 
to be.
    But we all recognize that we have a lot of challenges, and 
we can't meet those challenges unless we work together to meet 
them. And we are going to continue to provide an alternative 
view to this administration, particularly in the area of 
energy, where we think that there are serious disagreements and 
with dire consequences that are possible.
    [The prepared statement of Mr. Whitfield follows:]

                Prepared statement of Hon. Ed Whitfield

    Today's hearing is entitled, ``Evaluating the Role of FERC 
in a Changing Energy Landscape.'' Let me begin by first 
expressing my congratulations to the Honorable Cheryl LaFleur, 
who was recently named Acting FERC Chairman. Welcome Chairman 
LaFleur, and welcome to the other Commissioners.
    Today provides us the opportunity to consider the legal and 
regulatory authorities of the Federal Energy Regulatory 
Commission (FERC) and evaluate the manner in which FERC carries 
out its statutory duties under the Federal Power Act, the 
Natural Gas Act, and other authorities. FERC is tasked with 
regulating the interstate transmission of natural gas, oil, and 
electricity. FERC also is responsible for evaluating proposals 
to build LNG terminals and interstate natural gas pipelines, as 
well as the licensing of nonfederal hydropower projects. FERC 
also oversees the reliability of the electric grid.
    The reliability of the grid is of particular interest to me 
given the dramatic shift we are experiencing in the electric 
generation portfolio. Much of this shift has been driven by the 
vast amounts of natural gas that are being developed. But this 
shift also is being driven in large part by the EPA's new and 
proposed regulations aimed at prohibiting the use of coal to 
produce electricity. So I have serious concerns regarding how 
the president's policies directly aimed at trying to bankrupt 
the coal industry will impact grid reliability, fuel diversity, 
and electricity prices for families and businesses. Given 
FERC's role in overseeing the reliability of the grid, I am 
very interested in understanding what impacts FERC believes 
will result from the elimination of a significant portion of 
affordable and reliable baseload generation.
    I am also concerned with FERC's implementation of Order No. 
1000--FERC's rule on Federaltransmission planning and cost 
allocation. Some of FERC's initial compliance orders conflict 
with FERC's statements before this subcommittee that it would 
be flexible and respect regional differences while implementing 
Order 1000. And I continue to have concerns that Order 1000 
will, to the detriment of ratepayers, allow for the broad 
socialization of costs to pay for transmission lines that will 
carry expensive wind energy to load centers, even when the 
economic or reliability benefits will be minimal.
    Finally, with respect to organized wholesale electricity 
markets, the committee stands ready to work with FERC as it 
continues to examine ways to improve the functioning of such 
markets to ensure consumers will continue to receive reliable 
electricity at affordable rates.
    The sectors and industries regulated by FERC comprise a 
substantial portion of the U.S. economy and infrastructure, so 
it is critical that FERC carry out its statutory duties 
independently and effectively, and do so in a manner that will 
help facilitate our new era of energy abundance.

    Mr. Whitfield. So with that, at this time I would like to 
recognize the gentleman from California, Mr. McNerney, for his 
5-minute opening statement.

 OPENING STATEMENT OF HON. JERRY MCNERNEY, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. McNerney. I certainly thank the chairman for calling 
this hearing today, and it is an real opportunity for us to 
have all the Commissioners in front of us. So I want to thank 
you for coming out here today. This is an area that I have a 
lot of passion for and a good background in.
    As we know, FERC has broad jurisdiction over the 
electricity and natural gas markets, such as setting 
electricity and transmission rates, overseeing regional 
transition organizations, such as the one we have in 
California. It is now time to make some important decisions 
about our Nation's energy infrastructure and FERC will be an 
essential component of that decision-making process.
    Efforts to increase renewable energy production, growth of 
natural gas, and the need to ensure a secure grid will all be 
critical issues. In fact, there is no shortage of issues to 
discuss, including what defines the public interest with 
natural gas exports, licensing LNG export facilities, licensing 
natural gas pipelines, smart grid innovation, renewable energy, 
to name only a few.
    States such as California are implementing aggressive 
renewable portfolio standards, and there is a need to ensure 
grid stability. It is becoming increasingly important that we 
have an energy infrastructure that is capable of meeting these 
demands.
    Our energy infrastructure needs cyber and physical 
protections. Threats to our grid are real, and transitioning to 
smart grids presents both an opportunity and a threat to grid 
security. The Energy Policy Act of 2005 made significant 
progress, providing FERC with the authority to oversee power 
grid and to establish critical infrastructure protections. 
However, more needs to be done to protect the grid. The Energy 
Policy Act focused on bulk power systems, which can exclude 
some transmission local distribution and other grid facilities.
    I think it is worth exploring FERC's role in the grid, an 
area of increasing innovation and technical developments. These 
are areas which we can improve upon, such as response during 
emergency situations and addressing potential improvements to 
critical grid infrastructure protection initiatives.
    FERC's coordination with the North American Electric 
Reliability Corporation--a little bit of an mouthful there--or 
NERC, regarding standards and reliability, such as those 
related to cybersecurity, remain a high priority for me.
    Lastly, we must analyze these challenges in the context of 
climate change, a serious threat to our Nation on several 
levels that has been acknowledged by scientists as well as 
leaders at the Pentagon. Combined, these issues will dictate 
how we are able to manage and respond to rapidly changing 
energy technology, as well as managing supply and demand in the 
markets.
    At this point, I would like to yield to my colleague from 
Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you Mr. Chairman, and thank my ranking 
member for yielding to me and allowing me to speak.
    Today, our witnesses will discuss issues that face our 
country now and in the future, including grid security, gas-
electric coordination, electricity transmission and 
infrastructure permitting.
    It is important to note that Texas is the face of the 
changing energy landscape. In Texas we have demand for energy 
that is growing exponentially. We have grid issues that 
threaten our economic growth, we have infrastructure needs for 
market delivery and power generation. We must coordinate and 
balance all these challenges with the resources necessary to 
overcome them. Wind power and natural gas offer Texas a way to 
clear all these obstacles.
    Additionally, our domestic supplies allow us to meet not 
only our challenges, but those of our neighbors. But this, too, 
must be addressed correctly.
    Last month, we held a hearing on H.R. 3301, the North 
American Energy Infrastructure Act. At the hearing, FERC was 
concerned about H.R. 3301 with the effect of their ability to 
comply with section 3 and section 7 of the Natural Gas Act. I 
think after initial misreadings, we want to emphasize that 
FERC's section 3 and section 7 authority remain in place. In 
fact, H.R. 3301 provides FERC additional authority by 
eliminating the Presidential permit process, creating a 
regulatory structure within the Commission, and gives FERC the 
ability to approve the import or export of natural gas across 
national boundaries.
    I think many members of this subcommittee have confidence 
in FERC's pipeline permitting ability, and H.R. 3301 is an 
example of that. And I look forward to discussing all these 
issues today at the hearing, and thank our witnesses for being 
here, and again thank my ranking member for yielding to me. I 
yield back my time.
    Mr. Whitfield. The gentleman yields back.
    At this time I recognize the chairman of the full 
committee, Mr. Upton of Michigan, for 5 minutes.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you Mr. Chairman.
    America's energy picture is rapidly changing and America's 
energy regulators have got to keep pace. Long held beliefs in 
American energy scarcity have given way to a new era of energy 
abundance, especially in regards to oil and natural gas, but 
many policies and attitudes are still rooted in the outdated 
assumptions of shortages and rising imports, with the potential 
to obstruct the opportunities before us, and FERC is in the 
middle of many of those debates.
    For example, America's new abundance of oil and natural gas 
requires new infrastructure to meet demands and keep prices 
affordable. And we have got to build this architecture of 
abundance quickly, given that America's oil and gas output has 
been rising every year and is straining the existing 
infrastructure.
    But nearly every new project is met with stiff resistance 
at every step of the process. Opponents are enabled by an 
archaic Federal regulatory process that can be manipulated to 
cause years of delays for pipelines, power lines, LNG export 
projects, and in some cases can block them outright. And while 
the process at FERC generally works well, there is always room 
for improvement.
    Canada, Australia, and most EU nations have deadlines for 
their environmental regulatory agencies to act. Why shouldn't 
the U.S. hold our agencies to a similar standard?
    Congress has been active to keep pace with the new energy 
landscape. The House recently passed H.R. 1900, a bipartisan 
bill that creates more accountability for the natural gas 
pipeline approval process. We will soon be considering other 
infrastructure projects as well, including a bill that I have 
coauthored with my friend Gene Green to bring more certainty to 
energy projects that cross our border with Canada or Mexico to 
help create a more robust and self-sufficient North American 
energy market.
    American energy holds tremendous potential for millions of 
jobs and for affordable energy prices for everyone from 
homeowners to small businesses, certainly to manufacturers, 
too. And the U.S. is always the proud global leader in the safe 
and responsible development of our resources. The prospect of 
LNG exports not only means jobs in the U.S., but also means 
improved relations with our allies and trading partners and 
enhanced standing around the globe. But none of these benefits 
can be achieved if America's energy is choked off by red tape, 
which is precisely why we are examining the uncertain FERC 
policies today.
    I look forward to working with the Acting Chair and all of 
the Commissioners before the committee. I look forward to a 
constructive and productive dialogue and process as we move 
into next year and the years beyond.
    And I would yield time--anyone to our side needing time? If 
not, I yield back the balance of my time.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    America's energy picture is rapidly changing, and America's 
energy regulators must keep pace. Long-held beliefs in American 
energy scarcity have given way to a new era of energy 
abundance, especially in regards to oil and natural gas. But 
many policies and attitudes are still rooted in the outdated 
assumptions of shortages and rising imports, with the potential 
to obstruct the opportunities before us. And FERC is in the 
middle of many of these debates.
    For example, America's new abundance of oil and natural gas 
requires new infrastructure to meet demands and keep prices 
affordable. And we must build this architecture of abundance 
quickly, given that America's oil and gas output has been 
rising each year and is straining the existing infrastructure.
    But nearly every new project is met with stiff resistance 
at every step of the process. Opponents are enabled by an 
archaic Federal regulatory process that can be manipulated to 
cause years of delays for pipeline, power line, and LNG export 
projects, and in some cases can block them outright. While the 
process at FERC generally works well, there is room for 
improvement. Canada, Australia, and most European Union nations 
have deadlines for their environmental regulatory agencies to 
act; why shouldn't the U.S. hold our agencies to a similar 
standard?
    Congress has been active to keep pace with the new energy 
landscape. The House recently passed H.R. 1900, a bipartisan 
bill that creates more accountability for the natural gas 
pipeline approval process. We will soon be considering other 
infrastructure measures as well, including a bill I have co-
authored with Gene Green to bring more certainty to energy 
projects that cross our border with Canada or Mexico to help 
create a more robust and self-sufficient North American energy 
market.
    American energy holds tremendous potential--for millions of 
jobs and for affordable energy prices for everyone from 
homeowners to small businesses to manufacturers. The U.S. is 
also the proud global leader in the safe and responsible 
development of our resources. The prospect of LNG exports not 
only means jobs in the U.S., but it also means improved 
relations with our allies and trading partners and enhanced 
standing around the world.
    But none of these benefits can be achieved if America's 
energy is choked off by red tape, which is precisely why we are 
examining certain FERC policies today.
    I look forward to working with the commission and welcome 
Acting Chairwoman LaFleur and all of the Commissioners before 
the committee. I look forward to a constructive dialogue and 
process as we move into 2014 and the years ahead.

    Mr. Whitfield. The chairman yields back the balance of his 
time.
    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.
    I would like to thank each of the Commissioners for being 
here today, and I want to congratulate Ms. LaFleur on her new 
role as Acting Chairman.
    The Federal Energy Regulatory Commission has a broad range 
of important issues before it, from renewable energy 
integration and electric transmission modernization to 
hydropower licensing and enforcement actions to prevent energy 
market manipulation. But I want to focus on an issue that has 
not gotten enough attention during this Congress, and that is 
grid security.
    The Nation's critical infrastructure and defense 
installations simply cannot function without electricity. Yet, 
it is clear that the electric grid is not adequately protected 
from physical or cyber attacks. And these are not theoretical 
concerns. Just this April, there was an actual attack on our 
electricity infrastructure. This was an unprecedented and 
sophisticated attack on an electric grid substation using 
military-style weapons for the attack. Communications were 
disrupted. The attack inflicted substantial damage. It took 
weeks to replace damaged parts.
    Under slightly different conditions, there could have been 
a serious power outage or worse, and the FBI and others are 
investigating this attack. So as not to harm any ongoing 
investigation, I won't disclose details of the incident, but I 
have been in touch with the FBI, and they are willing to 
provide the members of this committee with a briefing on the 
very real threat that attacks like this pose to our critical 
infrastructure. And I hope the chairman will work with me to 
get that briefing scheduled quickly so that members can get the 
facts.
    The April attack is hardly the only threat facing the grid. 
A few months ago in Arkansas there were multiple attacks on 
power lines and grid infrastructure that led to millions of 
dollars in damage and brief power outages. Independent 
engineers also recently discovered a new cyber vulnerability in 
the software used by many electric grid control systems.
    We rely on an industry organization to develop reliability 
standards for the electric grid through a protracted, 
consensus-based process. FERC lacks authority to directly 
address these threats and vulnerabilities. And that is 
incredible. FERC lacks the authority to address these threats. 
Congress needs to fix this gap in regulatory authority.
    In 2010, the bipartisan GRID Act would have provided FERC 
with the necessary authority. There was a bipartisan consensus 
that national security required us to act. That bill was 
reported out of the Energy and Commerce Committee by a vote of 
47-0, and then it passed the full House by voice vote. However, 
the Senate did not act on this legislation.
    Mr. Chairman, we have worked on this issue in a bipartisan 
way in the past and we should be able to do so again. We need 
to give FERC important new authorities like the authority to 
take action to protect the grid in emergencies. This is a 
national security issue that deserves our attention. We should 
act now while there is still time to protect against successful 
attacks.
    Thank you, Mr. Chairman, for this chance to make the 
opening statement. I look forward to the testimony of the 
members of the Regulatory Commission and to an opportunity to 
engage them in questions. Yield back my time. Any other member 
on our side wishes me to yield a minute? No. Yield back.
    Mr. Whitfield. The gentleman yields back. So that concludes 
the opening statements. So at this time I would be recognizing 
each one of you for your 5-minute opening statement. And all of 
you are skilled witnesses and you know that our little lights, 
red, yellow, and green, what they mean. So the only reason I 
mention that is that we are expecting some votes on the floor 
sometime this morning, and I am hoping that we will have an 
opportunity to go way down the road before that happens.
    So, Ms. LaFleur, you are recognized for 5 minutes for an 
opening statement. Thank you.

   STATEMENTS OF CHERYL A. LAFLEUR, ACTING CHAIRMAN, FEDERAL 
ENERGY REGULATORY COMMISSION; PHILIP D. MOELLER, COMMISSIONER, 
     FEDERAL ENERGY REGULATORY COMMISSION; JOHN R. NORRIS, 
 COMMISSIONER, FEDERAL ENERGY REGULATORY COMMISSION; AND TONY 
   CLARK, COMMISSIONER, FEDERAL ENERGY REGULATORY COMMISSION

                 STATEMENT OF CHERYL A. LAFLEUR

    Ms. LaFleur. Well, thank you very much, Chairman Whitfield, 
Ranking Member McNerney, and members of the subcommittee. My 
name is Cheryl LaFleur. For 3-1/2 years I have had the 
privilege of serving as a Commissioner on the Federal Energy 
Regulatory Commission, and I have appeared before this 
subcommittee previously in that capacity.
    Today, I appear before you as the Commission's Acting 
Chairman, an appointment I received just 10 days ago. Thank you 
for your good wishes, and I look forward to working with my 
colleagues and the wonderful employees at FERC in my new role.
    Thank you for holding this hearing today. My colleagues and 
I appreciate the attention you give to your oversight duties 
and the opportunity to share our work with you. I am honored to 
lead the Commission at a time when our Nation is making 
substantial changes in its power supply and its associated 
infrastructure to meet environmental challenges and improve 
reliability and security.
    In particular, as you noted, we are seeing significant 
growth in the use of natural gas for electric generation due to 
the increased availability and affordability of domestic 
natural gas, and to the relative environmental advantages and 
flexible operating characteristics of gasgeneration. And that 
is, I think, a significant advantage we have over Europe with 
the abundance of domestic natural gas to balance our renewable 
resources.
    The second driver of change is the tremendous growth of 
renewable and demand side resources, which is being fostered by 
developments in technology and by policy initiatives in 39 
States and at the Federal level. Finally, new environmental 
regulations are also contributing to changes in power supply.
    Although the drivers of power supply changes are largely 
outside the Commission's jurisdiction, we must be aware of and 
adapt to these developments to carry out our responsibilities 
to ensure just and reasonable rates, a reliable power grid, and 
fair and efficient electric and gas markets. My colleagues will 
discuss several of the ways we are responding. We divided up 
these topics, and I want to focus the balance of my testimony 
on another critical aspect of our work, reliability and grid 
security.
    Ensuring reliability means that the Commission and NERC, 
our electric reliability organization, really take care of two 
things. One is the day-to-day, nuts-and-bolts activities, like 
trimming tress and setting relays to keep the lights on, 
emergency response. And the second is emerging issues, like 
cybersecurity. I believe we are making progress on both fronts. 
In the past 3 years, we voted out numerous orders on the day-
to-day type standards of tree trimming, frequency response, 
planning criteria, and so forth, and we hear from NERC that 
they are seeing a reduction in transmission-related outages in 
the grid as opposed to previous years. Going forward, we very 
much have to build on that progress.
    The emerging issues are somewhat different because we have 
to try to set standards in an environment of incomplete 
information. We don't have the benefit of decades of 
experience, and we know the challenges are evolving. But it is 
still incumbent on us to try to develop meaningful, cost-
effective regulation that we can enforce in an environment of 
imperfect knowledge.
    Two weeks ago, the Commission approved Version 5 of the 
Critical Infrastructure Protection Standards that cover the 
bulk electric grid against cybersecurity incidents. They are 
not perfect. We did ask some questions as we approved them, 
things that we wanted modified, but they represent a 
substantial step forward from the protections that were in 
place before.
    We have also started a rulemaking to require standards to 
protect against geomagnetic disturbances that can be caused by 
solar storms and human actions, a real example of high-impact, 
low-frequency threats to reliability that we need to get ready 
for before they happen.
    Finally, I want to touch on the subject that Congressman 
Waxman raised, the physical security of the assets that make up 
the grid, protecting them from tampering, vandalism, and 
sabotage. In general, our approach in this area has been based 
on cooperative efforts with industry and with other government 
agencies--DHS, FBI, DOE, and so forth--to try to develop best 
practices and communicate with industry to make sure they are 
implementing those best practices.
    Thank you very much for the opportunity to be here today, 
and I look forward to your questions on any aspects of the 
Commission's work. Thank you.
    [The prepared statement of Ms. LaFleur follows:]

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

                 STATEMENT OF PHILIP D. MOELLER

    Mr. Moeller. Well, thank you, Chairman Whitfield, Ranking 
Member McNerney, members of the committee. Thank you for having 
us back for this valuable oversight role that you undertake for 
the Federal Energy Regulatory Commission.
    I am Phil Moeller. I am a sitting Commissioner. And your 
staff asked us to focus on three areas in our testimony today 
and add additional items that we thought were relevant. So I 
will talk about the three items--Order 1000, pipeline siting, 
hydroelectric siting--and add a couple of more--gas-electric 
coordination and some reliability concerns on the electric 
grid.
    Related to Order 1000, I was generally supportive of Order 
1000 because I felt like it would add to the certainty to build 
needed additional electric transmission in this country. And 
for the most part, I think it has helped particularly with the 
transmission planning process. It has forced a more open and 
arguably more accountable process.
    There were a couple of areas that I disagreed with the 
majority on. The first was how we deal with the right-of-first-
refusal projects. This is specific to reliability projects, not 
those economic projects that reduce congestion costs or the 
public policy projects that try and promote generally 
renewables through transmission, but rather when a utility is 
required because of NERC standards to build a project to 
enhance reliability. I would have preferred that we give a very 
limited time of right of first refusal to the incumbent 
utilities because I didn't think the litigation risk was worth 
it. And we are seeing the litigation now on that issue. 
Hopefully that will be resolved soon.
    The second area had to do with the cost allocation methods 
in the rule and the concern that, because of the regional cost-
sharing element of it, it would force utilities or give them 
the incentive to, instead of building more regional projects, 
just go to local projects. And I think particularly in the 
Midwest we have seen that happen.
    But for the most part, we have several more years of Order 
1000 compliance ahead of us, we have further iterations of the 
intraregional filing, and we haven't even tackled the 
interregional filings yet and those are going to be very 
complex with some major policy issues. So Order 1000 will be 
with us for a while.
    Related to hydro siting and pipeline siting, we have a lot 
of similar issues, and I know members of the committee have 
been concerned about the length of time that that has taken. 
But simply put, we are dependent on State and Federal resource 
agencies in the process to deliver their part of the analysis. 
And if they delay that, it will delay our ability to act. And I 
know there has been legislation to consider moving this up. 
There are more extensive legislative concepts out there in 
terms of actually giving FERC the ability to decide whether 
some of these conditions are in the public interest. That would 
take a major legislative change. But if you are interested we 
can talk about that further.
    Related to gas-electric coordination, Acting Chair LaFleur 
referenced this, we have been working on this now for about 22 
months at the Commission. We have had a series of seven 
technical conferences. The first five were regional in nature. 
Then we dug down to a series of issues, the first set on 
communication, whether people are comfortable talking to each 
other in this, when there is typically a weather-related supply 
squeeze. Then we talked about the timing mismatch of the gas 
trading day and the electric trading day.
    I am happy to report that as a commission we issued a final 
rule on the communication protocols just last month. And I want 
to thank OMB. I don't know who it was, but they made an effort 
to make sure that we could have a 30-day turnaround on that 
rule so that it would be effective December 23rd, before we go 
into the really tight heating season this year. So they deserve 
some thanks for that.
    On electric reliability, we do have an impending issue 
related to the effectiveness of the MATS rule, and I just want 
the committee to be aware of the fact that we are looking at 
potentially some pretty tight situations in the Midwest, the 
footprint of the Mid-Continent Independent System Operator, 
perhaps as early as the summer of 2015, but certainly as soon 
as the summer of 2016. It is something that I really think 
deserves your attention. I know that the MISO is working 
heavily with the States to try and come up with a solution. We 
are happy to let them try and solve it.
    But the time is extremely tight. They can tell you more the 
numbers, but we are looking at some pretty small reserve 
margins for the footprint. And recall that under the MISO 
agreement, they all share the surplus, but they also share the 
deficits. So if there is a regional deficit, the pain will be 
shared in terms of, frankly, rolling blackouts if it comes to 
that. We can hope for a cool summer in the summer of 2016, but 
that is not necessarily a prudent approach.
    So with that, I am happy to answer any questions at the 
appropriate time.
    [The prepared statement of Mr. Moeller follows:]

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    Mr. Whitfield. Thank you Mr. Moeller.
    And our next witness is Mr. John Norris.
    And you are recognized for 5 minutes, Mr. Norris.

                  STATEMENT OF JOHN R. NORRIS

    Mr. Norris. Good morning, Chairman Whitfield, Ranking 
Member McNerney, and members of the subcommittee. Thank you for 
holding this hearing and the opportunity to testify.
    As I acknowledge in my written testimony, there is 
significant change occurring on our energy landscape. The 
operation of our energy system in America has experienced, in 
my view, only modest, incremental change over the last many 
decades. Yet in recent years, the rapid development of new 
technologies is bringing much more rapid change to the system. 
That change can be disruptive. But I think embracing these 
changes will allow for a much more efficient utilization of our 
energy resources.
    The challenge before us, I believe, is to enable our system 
to be more efficient through the utilization of new 
technologies and foster the development of a diverse set of 
competitive energy resources, while at the same time ensure we 
have a reliable supply of power at just and reasonable rates 
for consumers.
    As a result of the development of fracking technology, we 
are experiencing an abundant supply of natural gas and 
resulting gas prices at their lowest since 2002. This new 
supply of gas is changing the economics of electric generation, 
resulting in the retirement of older and less efficient coal 
units and most recently some nuclear plants.
    The new generation being built to replace these units is 
primarily combined cycle gas plants, wind, and solar 
generation. This recent trend appears likely to continue. This 
change in our generation mix has been driven by a significant 
degree by the economics around low-priced gas and the 
development of more efficient and productive wind turbines and 
solar panels. The other drivers are little to no load growth, 
public policies such as renewable portfolio standards, 
compliance with EPA rules implementing clean air standards, and 
the development of demand side management technologies, like 
energy efficiency and demand response.
    At the same time change is occurring in our electric 
generation we are also experiencing significant developments in 
technology around grid operations. A large percentage of our 
existing transmission and distribution grid is quite old and 
only modest technology enhancements have been made in nearly a 
century of operations. That system is being replaced by a grid, 
most commonly referred to as the smart grid, that is opening up 
multiple opportunities for more efficient utilization of our 
energy resources and expanding the marketplace for electricity 
to a vast new supply of diverse energy resources.
    One of FERC's recent focuses has been the adjustment of 
market rules and regulations to ensure that all resources, 
including new technologies, are able to compete in our energy 
market and our energy system. The continued investment in new 
technology and jobs in energy production and management of our 
energy consumption is critical for maintaining a competitive 
energy economy and efficient utilization of our resources. As 
our energy system changes, providing stability, market access, 
and fair regulatory treatment is critical to maintaining 
continued investment in our energy infrastructure.
    My written testimony covers several recent actions that 
FERC has taken that reflect our efforts to make adjustments 
around these new technologies and resources. I will be happy to 
answer any questions you may have about these FERC actions, 
other FERC actions, and to help you in your oversight 
responsibilities of our agency.
    Thank you very much.
    [The prepared statement of Mr. Norris follows:]

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    Mr. Whitfield. Thank you, Mr. Norris.
    And our next witness, of course, is Mr. Clark.
    And, Mr. Clark, you are now recognized for 5 minutes.

                    STATEMENT OF TONY CLARK

    Mr. Clark. Thank you, Mr. Chairman, Mr. Ranking Member, and 
members of the committee. My name is Tony Clark. I am the 
newest member of FERC. I have had the opportunity to speak 
before you in a previous job, but this is my first opportunity 
as a member of the FERC. So thank you for the invitation to be 
here with you here today.
    In my opinion, and, Mr. Chairman, this is something you 
referenced, the biggest story in energy today is the revolution 
that is taking place in shale gas and shale oil, probably the 
biggest story in decades. And this flood of domestic gas has 
really upended utility planning models and market fundamentals. 
Gas at the sustained prices that we are seeing now today is 
dramatically impacting where utilities are putting their money 
in the build-out of the grid.
    As an example, in 1990 coal was responsible for about 53 
percent of the electricity that was produced, with natural gas 
producing just 13 percent. EIA is projecting that by 2040, 35 
percent of electricity will come from coal and 30 percent from 
natural gas. But I would note, however, that predicting these 
sorts of things is highly speculative. We know that there is 
some pending rulemakings by the EPA, and depending on how those 
come out it could have a dramatic impact on how these futures 
play out.
    Such nationwide projections also tend to gloss over the 
very highly regional nature of our energy and electricity grid. 
Some regions of the country, such as the central Appalachia, 
the South, are much more heavily dependent on coal than others, 
such as New England and the Northwest, and so the implications 
of fuel switch has a much different impact depending on where 
you live.
    The Commission is heavily engaged in the work of assessing 
these fuel mix changes and responding to the regional 
implications of it. For example, FERC has undergone significant 
efforts with regard to the implications of gas-electricity 
interdependency that Commissioner Moeller mentioned as more 
electricity generators simultaneously turn towards natural gas 
as a fuel source. This effort is important nationwide, but it 
is particularly crucial for a region like New England where a 
number of factors, including geography and State-level policy 
choices, have created an electricity delivery network that is 
very dependent on a constrained supply of natural gas.
    The analysis takes on a different shade in other regions of 
the country. For example, in my home region of the Midwest coal 
has traditionally been the primary source of electricity, but 
today a combination of affordable shale gas and impending EPA 
regulations is creating a situation where there are increasing 
concerns about reserve margins and supply adequacy, as 
Commissioner Moeller noted, especially as we get into that 
2015, 2016 timeframe, and it is something we are paying close 
attention to and I know the committee is as well. Nonetheless, 
under any scenario, it is clear that gas will play a much 
bigger role in the future than it has in the past.
    As you might expect, the shale revolution, in both liquids 
and natural gas production, is having a tremendous impact on 
the work of FERC itself. As the committee is aware, the FERC 
has broad oversight of both economic and siting regulation of 
the natural gas pipeline industry. In recent years, the 
Commission has seen a shift in this type of work as industry 
responds to the burgeoning shale plays. Shale gas basins have 
seen significant pipeline investment. Shale basin pipeline 
projects that are either in service or in some part of the 
permitting process at FERC total now over 3,400 miles of pipe, 
delivering over 31,000 MMcf per day of capacity with a total 
investment of over $18 billion.
    This large amount of natural gas in the U.S. is also 
creating an impetus for something that was nearly unimaginable 
10 or 15 years ago, which is LNG export applications as opposed 
to import terminals, and this is the area of significant 
increase for the Commission's workload. Presently, the FERC has 
13 proposed LNG export terminals and 3 LNG import terminals in 
some phase of the permitting process. And as you would expect, 
these are major investments and the reviews are quite 
extensive.
    Given the influx of natural gas siting work, I believe the 
FERC must continually assess our staffing levels and priorities 
to ensure that we task enough resources to process these 
projects in a timely and thorough manner. In addition, while 
the FERC has no control over other Federal agencies that inform 
our siting process, I would encourage them to help us by also 
doing what they can to be timely in their assessment work.
    Mr. Chairman, with that, I will conclude my testimony. And 
I touched on a few things, but of course I would be happy to 
answer any questions that you or the committee members may 
have.
    [The prepared statement of Mr. Clark follows:]

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    Mr. Whitfield. Thank you Mr. Clark.
    And thank all of you for your opening statements. And at 
this time, we would like the opportunity to ask you some 
questions, and I would like to recognize myself for 5 minutes 
to get started.
    Mr. Clark, you mentioned the difficulty in trying to 
forecast the future. And I might add that last year EPA 
projected that less than 10 gigawatts of the Nation's coal-
fired generation would retire by 2015 as a result of utility 
MACT. It is not quite 2014, and already announcements have been 
made to close 50 gigawatts of coal-fired plants because of 
these EPA regulations and low natural gas prices.
    One of your missions is reliability, and there has been a 
lot of discussion about EPA, whether or not they take that into 
consideration and the communication and dialogue between FERC 
and EPA on reliability issues. Do any of you have any concerns? 
These plants have been announced they are closing, 50 
gigawatts, that is a lot, but they are not going to be closed 
for, you know, maybe another year or so. We will start with 
you, Mr. Clark, to address that issue briefly, and then I would 
like to just go down the line.
    Mr. Clark. Sure. Mr. Chairman, the greatest concern, as we 
have indicated a couple of times already this morning, is 
probably in the Midwest, the Mid-Continent ISO, MISO, where 
they are projecting that by the 2016 timeframe they are likely 
to have a shortfall of somewhere in the neighborhood of 7.5 
gigawatts of where they would like to be in terms of reserve 
capacity. That is a projected number. They are almost certain 
that there is going to be a shortage of at least a little over 
2 gigawatts. So that is the concern in that region. There are 
concerns in other regions, but probably most acute in the 
Midwest.
    From my perspective, where I would like to see the FERC go 
is to maintain its independence as an independent regulatory 
agency, provide what information that we can through the 
resources that we have through our own modeling efforts to 
provide information to all of you, as well as the rest of the 
Federal Government, so they can understand the implications of 
different policy choices that may be made.
    Mr. Whitfield. Thank you.
    Mr. Norris, do you have a comment on that.
    Mr. Norris. Certainly, yes. I think Commissioner Clark, I 
share his concerns, the concerns that Mr. Moeller shared you 
with about MISO, particularly in the Midwest region. And it 
could be up to 7 gigawatts, it could be 8.5. They could be in 
2016 looking at an 8.5 percent reserve margin. So absolutely I 
am concerned about that.
    Mr. Whitfield. Thank you.
    Mr. Moeller.
    Mr. Moeller. Well, I remain concerned. I testified before 
this committee on the same subject. Remember that MATS takes 
effect April 16, 2015. We will talk a lot about the fourth 
year, but the fourth year is only for those plants that are 
going to retrofit. So if you have got a marginal plant that 
can't afford to retrofit, it is going to be shut down in 
roughly about 15 months. And so extremely concerned, mostly the 
Midwest, but we even had some issues in September in PJM. It 
was shoulder season. We are going to have to be watching this 
very closely. And I think we are hoping that the EPA will be 
watching it with our help, as well.
    Mr. Whitfield. And Ms. LaFleur.
    Ms. LaFleur. Well, thank you. As you can tell, this is an 
issue we have been very engaged in. For the past 2 years 
Commissioner Moeller and I have cochaired a forum with the 
State regulators at NARUC on this very issue, and the EPA has 
come to every single one of our meetings and discussed some of 
the issues--how compliance is going, how supply chain issues 
are going and so forth.
    I would say over most of the country I think MATS 
compliance is well underway. A tremendous amount of 
construction work is going on right now. There is no question 
the most significant issues are in the Midwest due to a variety 
of factors. And in addition to relying on the Mid-Continent ISO 
and the States, we need to stay closely involved.
    Mr. Whitfield. Do you feel like EPA is actually listening 
to you on these reliability issues?
    Ms. LaFleur. I do because in 2011 when they put out their 
rule, they included a consultative role for FERC if somebody 
needs a fifth year. And I believe that includes not just a 
fifth year for the retrofit, and not just for retrofits, but 
also if they need a fifth year to bring transmission in before 
a plant can retire. And we voted out a policy statement of how 
we would handle those. We haven't gotten them yet because it is 
not far enough along in the process. 
    Mr. Whitfield. Well, they tell us they are listening to us 
a lot and sometimes we don't think they are. But our views may 
be different.
    Ms. LaFleur. Well, I have been very grateful that they come 
to all the NARUC meetings and I have a commitment from them 
that they will continue. But it is something that needs close 
vigilance.
    Mr. Whitfield. All right. I was going to ask you about your 
priorities. I felt like Mr. Wellinghoff's agenda at FERC was 
basically coinciding with the administration's energy policy, 
but maybe we will have an opportunity to talk later about that.
    At this time, my time has expired, I would like to 
recognize the gentleman from California for 5 minutes, Mr. 
McNerney.
    Mr. McNerney. Thank you, Mr. Chairman.
    One of the things I mentioned in my opening statement was 
cybersecurity, and I know that that is also an issue that is 
very important to Mr. Waxman. The thing is that smart grid 
gives us a tremendous opportunity to gather information so that 
we can become more reliable, so that we can predict grid 
behavior, and gives us an opportunity to deliver renewable 
energy reliably and so on. But it gives the utility companies a 
tremendous amount of information about individual users, it 
opens up grids, utility companies for cyberattacks, and so on.
    Ms. LaFleur, you said that just 2 weeks ago the Commission 
passed, I think you said cybersecurity standards?
    Ms. LaFleur. Yes.
    Mr. McNerney. Could you talk about that a little bit? Are 
those mandatory standards? Are they voluntary? Let's hear a 
little bit about that.
    Ms. LaFleur. Well, thank you very much, Mr. Congressman.
    Yes, they are mandatory standards. All of the bulk power 
system, along with the nuclear plants, are really the only part 
of our critical infrastructure right now that have mandatory 
standards. And what is new about the critical infrastructure 
standards we adopted 2 weeks ago, or we proposed to approve--
well, we did in a final rule approve 2 weeks ago, I am sorry--
is that for the first time they cover not just the super-
critical assets, but all elements of the bulk power system 
receive some level of protection because, as you indicated, 
with the increasing digitization of the grid, even smaller 
assets can potentially be a problem.
    Mr. McNerney. So when do those standards take effect?
    Ms. LaFleur. They take effect in general in 2 years, 
because of the process of getting ready, but there are 
standards in place now. The earlier generation and the new 
generation becomes mandatory on top of those standards. But 
there are mandatory standards already in effect.
    Mr. McNerney. Mr. Norris, you mentioned that the old grid 
technology was being replaced by smart grid. How do you feel 
that process is progressing of changing the old with the new, 
more secure grid technology?
    Mr. Norris. Well, I think it is progressing at the pace of 
great new technology being developed, and then the Smart Grid 
Interoperability Panel working to make sure that the platform 
is usable for all those new technologies. That is the critical 
piece right now I think, is to make sure that the investment in 
this new technology is useful, it provides great opportunity 
for efficiency, and the addition of the cybersecurity standards 
will, I think, enable that to be a secure system.
    Mr. McNerney. Mr. Moeller, you mentioned that the FERC is 
dependent upon local entities to deliver information on some of 
the pipeline siting permits. How would Federal legislation that 
establishes firm timelines, how would that affect the process? 
Would the States be more responsive or would it just handcuff 
FERC even further?
    Mr. Moeller. Well, it is largely Federal agencies as well. 
It depends on the project of course, resource agencies, whether 
it is Federal, State, sometimes even local. I think the key is 
you can put in statute perhaps timelines, you could also change 
the statute in terms of our responsibilities. A lot of the 
times it comes down to management and whether, particularly the 
local office head, makes it a priority to deal with these type 
of projects that we need the input on. And we have seen a wide 
range of responsiveness and a lack of responsiveness throughout 
at least the Federal agencies related to this.
    Mr. McNerney. So you don't think the legislation would 
change that?
    Mr. Moeller. Well, the legislation in terms of timelines I 
think has some positive accountability aspects. But you also 
have to be careful, as I testified before this committee 
earlier, that you don't force a timeline that results in a no, 
because they will say they don't have enough time to analyze. 
So the timelines and how they are administered would matter.
    Mr. McNerney. Thank you.
    You know, in the wake of the Enron's fraud and California 
energy crisis in the early 2000s, Congress passed the 
antimarket regulation authority in 2005. Recently FERC had an 
enforcement action against JPMorgan for market manipulations in 
California and the Midwest. Would you comment on how that 
turned out, Chairwoman.
    Ms. LaFleur. Well, thank you. That is a very important part 
of our work. You gave us additional authority in 2005, and FERC 
has geared up a very, I think, capable enforcement unit headed 
by a former U.S. Attorney.
    Recently, we have voted out a number of cases either 
ordering somebody to show cause why they didn't manipulate the 
market or actually a settlement with them in which they 
acknowledged a manipulation, and JPMorgan is the most 
prominent. Most of them relate to people taking positions in 
the energy market to benefit something in the financial market 
that can cause harm to other people in the energy market. And I 
think we have to continue to make sure that we are very 
vigilant that the markets are fair.
    Mr. McNerney. Thank you.
    My time has expired.
    Mr. Whitfield. The gentleman's time has expired.
    At this time I recognize the gentleman from Texas, Mr. 
Barton, for 5 minutes.
    Mr. Barton. Thank you, Mr. Chairman.
    And welcome to our newest FERC Chairman. It is good to have 
you here, ma'am, and the other three Commissioners.
    I listened with interest to all four of the opening 
statements, and I was struck at the breadth of regulatory 
authority that the FERC has. It is an agency that almost no one 
hears about, yet its impact on the U.S. economy, and to some 
extent the world economy, is extraordinary. So it is a very 
important position that you four people hold.
    I am going to focus my questions on LNG siting. Of all the 
stuff that you folks have responsibility over, there is 
probably no more important mission that you hold today in terms 
of the strategic interests of the United States than siting 
these LNG facilities. The Congress gave you the authority to 
make the final decision, or at least on the permits, back in 
the Energy Policy Act of 2005. At the time we did it, we felt 
you were going to be using that for LNG imports more than LNG 
exports. But the fact is that between you and the Department of 
Energy, you have the ability to affect strategic interests all 
over the world.
    I met last evening with some officials from the Russian 
energy sector, and they are very, very aware of the impact LNG 
exports from the United States will have in markets that right 
now the Russians dominate, just as an example. I have also met 
recently with Turkey, you know, Kazakhstan, some of these 
countries, Qatar. It is just stunning how our ability to 
produce natural gas with hydraulic fracturing and horizontal 
drilling at the prices we can do it that are competitive 
impacts our ability to affect strategic interests.
    So my first question is, under law FERC and DOE have joint 
authority. It is not real clear how that authority, if at all, 
is coordinated. Madam Chairwoman, is there any ad hoc protocol 
with the Department of Energy on how you review the permit 
process and how DOE interviews the--just the fact that it is in 
the national interest to do the exports?
    Ms. LaFleur. Well, thank you for the question. It is a very 
important part of our work. And as Commissioner Clark said, we 
have 13 substantial applications pending.
    We primarily work in our own lane, which is to review the 
environment and safety issues of the facilities, and DOE 
reviews the actual national interests, national security issues 
with the export of the commodity. And so I think our staffs 
communicate so we understand what our mutual statuses are, but 
we don't actually, to my knowledge, actually collaborate on the 
cases. We do our work and they do their work, to my knowledge.
    Mr. Barton. Is there any interest at the Commission's level 
with some congressional legislative guidance on how that 
process should be coordinated, if at all?
    Ms. LaFleur. Well, I guess at this moment I am not aware of 
any undue delays in our process, although we would always 
welcome Congressional guidance if we can do it better. I know 
that there is Representative Upton's bill that would change 
the--I guess that is really for other natural gas--that would 
change some of the import/export, and I guess I hesitate to 
comment on anything that is directed at the DOE process because 
I really feel the DOE folks----
    Mr. Barton. My time is about to expire. I am not trying to 
be rude at all, I promise you that. But there is a recent 
decision that the Department of Energy rejected, at least 
partially, an application by Freeport on exporting from their 
terminal, and it was a partial acceptance, partial denial. But 
they stated that since the permit request at FERC was for one 
amount of volume of natural gas per day that was less than what 
they were asking at DOE, that they only approved the volume 
that was in the application pending for the permit at your 
agency. And since these volumes, depending on the level of the 
volume, impacts the ability to finance the project, it seemed 
pretty troubling. And according to at least my staff's reading, 
the Department of Energy doesn't have any statutory authority 
to even consider a FERC proceeding under the Natural Gas Act.
    Can you comment on that? That is why I am asking about what 
the coordination protocol, if any, is, because it is obvious 
that DOE based their decision in terms of volume approval, 
partially on what your agency was doing.
    Ms. LaFleur. I think we dealt with or are dealing with the 
application that is before us in the dimensions of what we were 
asked to approve, and without reference to the fact that the 
DOE application was apparently for a different amount. I would 
be happy to take it back and dig into it more. I guess the 
question is why the company put in two different amounts in the 
two different applications.
    Mr. Barton. My time has expired. I am not casting 
aspersions. Strategically this permitting process is something 
that we need to get right.
    Mr. Whitfield. The gentleman's time has expired.
    At this time I recognize the gentleman from California, Mr. 
Waxman, for 5 minutes.
    Mr. Waxman. Thank you, Mr. Chairman.
    Chairman LaFleur, I know you have focused on electric 
reliability and grid security during your tenure on the 
Commission and I think you are right to make that a priority. 
In my opening statement I talked about an April attack on an 
electric grid substation in California, and my understanding is 
that this was a sophisticated attack using military-style 
weapons. And real damage was done, and the consequences could 
have been far worse. You and I discussed this incident when we 
met yesterday.
    Chairman LaFleur, do you agree this was a serious, 
sophisticated attack on the electric grid?
    Ms. LaFleur. Absolutely.
    Mr. Waxman. Do you share FBI's concern about publicly 
discussing details of the attack?
    Ms. LaFleur. Yes, because of the potential for copycat 
attacks if too much is disclosed.
    Mr. Waxman. Well, without getting into details, has 
anything like this physical attack on the electric grid ever 
happened in the United States before?
    Ms. LaFleur. I am not aware of an incident with the same 
sophistication in all of the elements. There have certainly 
been sabotage-type incidents. You referred to the Arkansas one 
and people cutting down towers and things. I have heard of 
that. But this one seemed a little unique to me.
    Mr. Waxman. Before he stepped down as Chairman, Mr. 
Wellinghoff was personally briefing officials about this 
attack. The FBI has agreed to brief members of the committee. 
Would you be willing to have FERC staff brief committee members 
as well?
    Ms. LaFleur. Yes.
    Mr. Waxman. Chairman LaFleur, does FERC have authority to 
directly issue standards to protect the grid from physical and 
cyber attacks?
    Ms. LaFleur. I believe to an extent under the 215 because 
there are physical standards for data centers and some that are 
part of the cyber standards. So we have some authority.
    Mr. Waxman. Do you have authority to directly issue 
standards?
    Ms. LaFleur. Well, it would have to go through the same 
process you referred to. We can direct the development of a 
standard, then industry develops it and files it.
    Mr. Waxman. Well, does FERC even have the authority to 
issue orders to a utility in a grid security emergency?
    Ms. LaFleur. No. That is one of the things that I think a 
lot of the legislation that has been pending has given either 
FERC or DOE: emergency authority. It is lacking now in the 
legislation.
    Mr. Waxman. So you would think that it would be appropriate 
for Congress to address this gap in authority?
    Ms. LaFleur. Yes.
    Mr. Waxman. Let me ask the other Commissioners as well. Do 
each of you agree that Congress needs to address this gap in 
authority? Mr. Moeller?
    Mr. Moeller. Yes, my thinking has evolved. I think because 
of the emergent nature of some of these threats it is worth a 
good discussion in Congress.
    Mr. Waxman. Thank you.
    Mr. Norris.
    Mr. Norris. Yes, I agree. Someone has got to be in charge 
of making a decision if we are under threat.
    Mr. Waxman. Mr. Clark.
    Mr. Clark. I concur.
    Mr. Waxman. I thank you. This committee should be working 
in a bipartisan basis to ensure that FERC has the authority it 
needs to protect the grid from physical and cyber attacks. And 
I hope, Mr. Chairman, we can rebuild the bipartisan consensus 
we had in 2010 on the need for legislative action.
    And I yield back the balance of my time.
    Mr. Whitfield. The gentleman from California yields back.
    At this time I recognize the gentleman from Illinois, Mr. 
Shimkus, for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Thank you all for coming. A lot of issues. I am going to 
make a couple of statements, then I have got a line of 
questioning that is parochial to southern Illinois.
    But, you know, the first one is, and this is based upon 
your testimony and some of my colleagues, shame on us if we 
have rolling blackouts in the Midwest in 2016. I mean shame on 
us, because it turns us back to a Third World country based 
upon not balancing our portfolio properly.
    And the point being is, we are always going to need big 
baseload generation. And I deal in the nuclear side. I think 
there is attack on nuclear power. We know there is attack on 
coal. We have got renewables coming in, but they are not at the 
levels we need to maintain adequate supply. And that is why the 
discussions that the chairman did on the EPA and this 
discussion about reliability, we really need your help on this 
because we cannot go down that route.
    In fact, I think there has got to be a way, we have to 
start talking about incentivizing major baseload, 800-megawatt 
to 1,600-megawatt facilities to make sure that they are still 
here because of the pressure that is being placed on them 
because of natural gas and EPA rules and regs. I mean, it is 
just a reality and we all know that. That is my little 
statement.
    Also I am chair of the Board of Visitors at West Point and 
I want to follow up with MISO on a transmission grid issue. And 
I was trying to get some information, didn't get that done in 
time.
    But for the sake of clarity of my constituents in southern 
Illinois, and I am just going to make this a general question 
and whoever is most apt to be able to answer that, that would 
be fine. There is a huge transmission line project that goes 
from the Missouri border to the Indiana border, it comes right 
across the State of Illinois. It is called the Illinois Rivers 
project.
    One of the major fights has been on the route, as you can 
imagine. And just for the record, it is my understanding that 
route approval is something done with the State, specifically 
the Illinois Commerce Committee, and not a FERC matter. Is that 
correct? Everyone is shaking their head saying correct. Thank 
you.
    It is going to get a lot of my constituents off my back. 
That is why I am asking these questions.
    A second major concern has been over the return on equity 
provisions, rate and Amron will receive for the project. Some 
are questioning the 12.38 percent and want to know why they 
receive that percentage regardless of how the project is 
conducted. Am I correct that the return on equity is from the 
MISO transmission owners agreement that was approved by FERC in 
2003? And I am seeing the----
    Ms. LaFleur. Yes. We have jurisdiction over the return on 
equity.
    Mr. Shimkus. Thank you. And that the return of equity would 
be applicable to all transmission owners in the region and 
their projects, not unique to Illinois Rivers Project. Is that 
correct?
    Ms. LaFleur. Yes. MISO has a region-wide return on equity.
    Mr. Shimkus. Great. Thank you. Lastly, there was a 
proceeding pending before FERC to re-evaluate the return on 
equity where interested parties were able to submit comments on 
the 12.38 percent return on equity rate at FERC. Can you tell 
me where that stands and what the process is at FERC for 
reviewing and making a determination on that complaint?
    Ms. LaFleur. I am hesitant to comment on pending open 
dockets before us, but I think you have my commitment and I 
suspect those of my colleagues to give the ROE cases that are 
pending before us a very high priority, because we know they 
are important and in--there are several ROE transmission cases 
pending before us that, as you have referenced, are very 
important to the companies and the transmission grid.
    Mr. Shimkus. And the interesting thing about this 
transmission grid, it really--the citizens of southern Illinois 
are getting no benefit from this line. It is just a pass-
through. So the personal disruption--and it is a pass-through 
because of renewable portfolio standards and States is trying 
to wield in green power. So that really needs to be part of the 
consideration to understand that as these fights go on in 
siting, there is no benefit to the folks in southern Illinois.
    Let me end on the--I wanted to also end on this issue of 
LNG exports, because I deal also--an additional duty I do is 
democracy in eastern Europe, and these LNG exports are critical 
to our NATO allies, Poland, Lithuania, who want to stop the 
extortion by Russia and using energy as leverage and power. So 
I agree with Chairman Emeritus Barton. This is not just a 
critical issue for us; this is a critical issue for peace, 
democracy, freedom, rule of all, and our allies in NATO, and I 
hope you can keep that in consideration.
    Yield back my time.
    Mr. Whitfield. The gentleman's time has expired. At this 
time I recognize the gentleman from Texas, Mr. Green, for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And first of all, if you don't tell by my accent, I am from 
Texas and I have a district in Houston, so--and I tell people I 
was born there, but I have never not lived near a pipeline 
easement in the Houston area, so, you know, crude oil, natural 
gas, liquids, you name it. So I don't have the big concern 
about it, because it is just part of the way of our life. And 
our committee has jurisdiction every few years to do pipeline 
safety. And we passed a good pipeline safety bill last 
Congress, and I can tell you in a few years we are going to 
find technology's improved and how we can deal with it, and 
hopefully we will pass another reauthorization with additional 
standards that will make them even safer.
    Commissioner Clark, in your testimony, you state that 
approximately 75 percent of our daily consumption's covered by 
North American resources. You also state that we are more 
secure than we have been in decades. Would a viable North 
America energy market further our security interests in?
    Mr. Clark. Congressman, infrastructure generally helps 
forward our energy security future. With regard to the 75 
percent figure, that was in reference to liquid products, crude 
oil. We have about 75 percent covered from North American 
resources. On the natural gas side, it is off the charts. It is 
way over 90 percent.
    Mr. Green. Yes. OK. In a recent cross-border decision, FERC 
stated that an export of natural gas would promote national 
economic policy and stimulate the flow of goods and services. 
What experience or authority would allow FERC to make such a 
declaration?
    Mr. Clark. Again, the bill you are referencing, is it the 
3300?
    Mr. Green. No. This is just--FERC stated the export of 
natural gas would promote national economic policy and 
stimulate the flow of goods and services. I was just asking you 
what authority or experience does FERC have to show that----
    Mr. Clark. Sure. Yes. Absolutely.
    Mr. Green [continuing]. To make that statement?
    Mr. Clark. I mean, FERC's ability to----
    Mr. Green. I will get to 3301 in a minute.
    Mr. Clark. Yes. FERC's ability to cite infrastructure is 
clearly critical to the Nation's energy security future and to 
our national interests.
    Mr. Green. Would you agree that the statement that the 
promotion of strong national economic policy is within FERC's 
decision-making purview?
    Mr. Clark. To the degree it is authorized by statute, yes.
    Mr. Green. OK. To provide additional authority, do you 
believe that FERC has the necessary expertise to coordinate and 
make sound and reliable decisions relating to U.S. interests?
    Mr. Clark. Generally speaking, I believe, yes.
    Mr. Green. Thank you. Well, in a side note, a number of us 
went to Mexico for an inter-parliamentary the Friday before 
Thanksgiving, and one of the things that was the highlight of 
our discussion with the Members of Congreso was the recent 
decision on the pipeline from Texas, natural gas pipeline to 
northern Mexico, because they don't--obviously have a lot of 
resources but not enough production. And my concern is that--
and that was no problem at all. We may be selling or providing 
natural gas to Mexico, but 20 or 30 years from now we may need 
to be importing it from Mexico just because of our 
infrastructure that we are building up because our reasonable 
priced natural gas downstream, chemical, you name it, 
manufacturing. But that was a big win when we were--you know, 
with our neighbors in Mexico. So I appreciate that on those 
cross-border pipelines, which brings me up to the H.R. 3301.
    The North American Energy Infrastructure Act, FERC staff 
raised concerns regarding confusion over whether the 
legislation would prohibit FERC from fully complying with 
Section 3 and Section 7 of the Natural Gas Act. If we were to 
amend the legislation to specifically state that nothing in 
H.R. 3301 would affect the need to fully comply with the 
Natural Gas Act, do you believe FERC would no longer have 
concerns with the legislation? And I guess I will ask Dr. 
LaFleur.
    Ms. LaFleur. I think you have identified the important 
concern with the legislation. I think with an amendment, which 
I have seen in the discussion draft, I think we would be 
comfortable, I would be comfortable operating under the new law 
with respect to natural gas imports and exports.
    The other parts of the Act, electricity and oil, are beyond 
us.
    Mr. Green. And other agencies are in that Act will be able 
to deal with those.
    Ms. LaFleur. Yes.
    Mr. Green. So I appreciate it.
    Commissioner Moeller, in your testimony, you state that 
FERC efficiency would be improved and that many delays are 
caused by a lack of timeliness from other State or Federal 
agencies. Could you provide a little more explanation on that? 
Obviously State agencies, we don't have a whole lot of 
oversight on, but other Federal agencies, is that delaying FERC 
providing the typically 12 months turnaround time?
    Mr. Moeller. Yes. We can give you specific examples later 
if you want them----
    Mr. Green. OK.
    Mr. Moeller [continuing]. But it kind of depends. It goes 
back to the point I made earlier. There is a lot of regional 
differences. If the management regionally makes it a priority, 
it happens; if they don't, they can drag their feet.
    Mr. Green. OK. Before I lose all the time, Chairwoman 
LaFleur, there is some concern in Texas about our reliability 
issues, and a number of us on this subcommittee have made 
attempts to resolve an issue, because Department of Energy says 
you can do something with a power plant, but EPA says no, and 
we are trying to correct that. I know our committee's passed 
that H.R. 271, Revolving Environmental and Grid Reliability 
Conflicts Act. I would hope we would deal with that, because 
that would help us, at least in Texas, with some of our 
liability issues and I think it would help nationally. So thank 
you for your courtesy.
    Mr. Whitfield. The gentleman's time has expired. The 
gentlemen from Pennsylvania, Mr. Pitts, is recognized for 5 
minutes.
    Mr. Pitts. Thank you, Mr. Chairman.
    The concept of beneficiary pace is at the heart of the way 
our transmission system operates and assigns costs, and I am 
concerned that under Order 1000, FERC is defining benefits so 
broadly and spreading costs so widely that this simple axiom 
has no meaning anymore.
    Chairwoman LaFleur, please explain your idea of beneficiary 
pace, what that should mean. And keep in mind, I don't want my 
constituents paying for subsidized midwest wind into my market 
with no voice in the process. And I know you can't address the 
merits of individual compliance filings under FERC's Order 
1000, but there is a legal point I would like to raise with 
you, I think stands on its own, to which I hope you will be 
able to respond.
    Ms. LaFleur. Well, thank you very much, Congressman Pitts. 
The Order 1000 required regions to plan cooperatively across 
the region, as the region encompassing Pennsylvania already 
does, and take into account three kinds of benefits: 
reliability benefits, which can be very hard to quantify but 
are very real; the meeting public policy requirements to 
connect resources that States require them to connect, which 
are normally identified by the States, such as Pennsylvania, 
which has a renewable portfolio standard; and thirdly, 
congestion benefits to reduce the cost of power by building 
more transmission.
    And the order required the regions to take those benefits 
into account in assigning the costs, and I think the region 
that Pennsylvania is a part of is a good example of coming up 
with a hybrid proposal that used different types of cost 
allocation together for different types of benefits that I 
think is a--that we have approved preliminarily in the first 
case.
    Mr. Pitts. Do you think FERC has authority under the 
Federal Power Act to allocate costs for new transmission to 
entities that don't have a customer or contractual relationship 
to the builder of the line and don't need the capacity provided 
by the line?
    Ms. LaFleur. I think that under the court decisions and our 
orders, there has to be a proportionality between benefits and 
costs, but not necessarily line-by-line. There can be a 
portfolio of projects that a region agrees to that some benefit 
one area, some benefit another. And if a region agrees to it, 
we assume they have negotiated, that they all get something.
    Mr. Pitts. Can you show me what section of the Federal 
Power Act gives FERC this authority to allocate costs in the 
absence of a contractual relationship?
    Ms. LaFleur. Yes. We are relying on the sections of the Act 
that require just and reasonable and non-discriminatory rates, 
thinking that a process where the States involved and the 
companies involved negotiate the costs will help ensure just 
and reasonable transition rates.
    Mr. Pitts. Commissioner Clark, in specific, FERC Order 1000 
compliance filing orders, you have raised some serious concerns 
about potential downsides of the Commission's implementation of 
Order 1000. Can you elaborate on these concerns and 
particularly the implications for consumers?
    Mr. Clark. Sure. To the degree that Order 1000, 
Congressman, deals with the need for perhaps greater regional 
planning, I am on board with that. I think it is just prudent 
for utilities to do so. To the degree that it is about trying 
to come to more accommodation with regard to cause or cost, 
payer cost payer allocation issues, I think that is helpful.
    Where I have disagreed with the majority of the Commission 
from time to time is with regard to how FERC has been 
understanding and allowing the ISO's and RTO's and utilities to 
take into consideration those State and local laws that they 
still have to comply with because we have this Federal system 
where they still have substantial State and local compliance 
laws. And I have tended to argue that we need to give more 
latitude for those utilities that we regulate to continue to 
understand, to comply with and give them the flexibility to 
take into consideration those existing State and local laws, 
and not use Order 1000 as an attempt to sort of shake up the 
jurisdictional box, which I think just leads to greater 
litigation.
    Mr. Pitts. Under Order 1000, it is predicated on the--it is 
predicated on the idea, not the evidentiary record, that 
insufficient transmission is being built. How does the order 
solve this problem and how will we know when the proper amount 
of transmission is being built? Will the marketplace tell us? 
Will local utilities tell us? Will FERC tell us? What? Mr. 
Clark.
    Mr. Clark. Mr. Chairman and Congressman, the way I 
understand it, it'll be an iterative process, so it will take a 
little bit different shape in different regions. As I 
indicated, the grid is highly regional by nature. In some 
regions, like the midwest, you have renewables in parts of the 
region, you have renewal portfolio standards in other parts of 
the region, you have regional utilities and States coming 
together and talking about some of those issues.
    In other regions of the country, like the southeast, you 
have a much, much different situation. You have don't have 
access to renewables, and you have a different regulatory 
structure in those States.
    I just believe that FERC has to be open to understanding 
each of those regional differences and accommodating those.
    Mr. Pitts. OK.
    Mr. Whitfield. The gentleman's time has expired. At this 
time I recognize the gentleman from New York, Mr. Tonko, for 5 
minutes.
    Mr. Tonko. Thank you, Mr. Chair.
    Commissioner LaFleur, in your testimony, you noted 
improvement between the years 2011 and 2012 in the number of 
nonweather-related bulk power system transmission related 
outages. As you know, we have several other related issues that 
can contribute to reliability problems, older transmission 
lines and grid equipment that needs to be upgraded or replaced 
and an increase in severe weather events that I have seen in my 
district and throughout New York that can cause outages.
    In addition, we have much more reliance on IT in general 
for everything from financial transactions, to research and 
manufacturing, things that require exceptionally reliable power 
delivery.
    How are these changes in the nature of the demand for 
power, the aging parts of the grid and the increased frequency 
and intensity of storm-related disruptions being considered in 
FERC's reliability efforts?
    Ms. LaFleur. Well, thank you. That is a big question. I 
guess there are at least two different parts of it: one is the 
actual reliability standards to make sure that the transmission 
asset owners have the accountability for the refurbishment of 
their lines so that the lines operate properly in order to meet 
the standards, but secondly, is in--we were talking about Order 
1000 transmission planning, a reference was made to 
transmission rates, that is all a part of making sure that the 
structures are in place so that the companies can invest the 
money they need to replace aging infrastructure. And as you 
know, I am familiar with some of the aged resources in your 
region. They were--it was an early part of the country to 
electrify.
    Mr. Tonko. Thank you. Thank you very much. And FERC's 
changes to the capacity market rules in both the PJM area and 
ISO New England threaten to continue the ability of load-
serving entities to self-supply their own capacity resources to 
serve their own loads. This problem is particularly acute for 
publicly-owned and cooperatively-owned electric utilities, 
because it endangers their ability to finance new generation 
units needed to serve their customer base using their 
traditional business model, which relies on long-term contracts 
and lower cost debt.
    Do you anticipate that public power or cooperatively-owned 
utilities in these RTO's would be able to successfully exercise 
buyer side market power and RTO capacity markets?
    Ms. LaFleur. Well, this is a question that is directly 
being looked at in our ongoing capacity marketing inquiry that 
is open right now with a very heavy participation of public 
power, but basically the capacity markets that are forward 
price of what reliability is worth that is used to assign what 
the generators, the existing fossil generators as well as new 
generators, will get paid for being there. And if people are 
allowed to bid in with a subsidized rate that doesn't refer to 
the market, it can pull down the market rate and it could 
affect everyone's reliability, but munis always have the right 
to prove that their costs are lower and show the ISO that they 
can self-supply because they can do it more cheaply.
    Mr. Tonko. Thank you. Thank you. Mr. Norris, your testimony 
describes the many changes that are simultaneously occurring 
throughout the country in the power production use and delivery 
landscape. I am particularly interested in the challenge that 
our successes with energy efficiency, demand management and 
renewables are presenting to the traditional economic models 
for utilities. The success of energy efficiency and demand 
management is a good story, but companies do not increase 
profits by figuring out how to sell less of their major 
product.
    So how are we going to provide continued incentives to seek 
more efficiencies and better management of demand if these 
goals further erode utilities' ability to earn profits?
    Mr. Norris. Well, Congressman, a lot of those 
determinations are made at the State level, at the retail rate 
regulation. What we have been doing at FERC is trying to make 
sure that there is access to the markets for different new 
technologies that enable demand response in energy efficiency. 
Certainly you see it in the PJM market and the huge increase in 
demand response capability and that ability for that to bid 
into the marketplace, and PJM has fostered development of 
demand response in that region.
    Different regions of the country are also looking at ways 
to develop better demand response resources or more demand 
response resources. I presume it will be part of the package of 
solutions in MISO as they look at meeting their potential 
capacity shortfall in 2016 and beyond.
    So what we are doing is to make sure that there is--that 
demand response gets treated fairly in the marketplace, so as a 
reward for investors in that technology.
    Mr. Tonko. Do you see, like, a major restructuring of the 
power sector over time?
    Mr. Norris. Major restructuring of the?
    Mr. Tonko. Of the power sector over time.
    Mr. Norris. Yes. I think it is happening right now. I mean, 
I think you have got a lot more people engaged. Historically it 
has been central station power owned by the utility and 
delivered to the homes and businesses. Now you have got--
consumers want to be involved and engaged in their own energy 
production and more engaged in their energy usage. The 
development of the technologies on the smart grid are enabling 
those consumers to do that. The traditional utility and power 
sectors having to respond to that change in customer demand, 
much like what happened in the telecom sector, but it is 
bringing great efficiencies to our utilization of energy.
    Mr. Tonko. Mr. Chair, I yield back.
    Mr. Whitfield. The gentleman's time has expired. At this 
time I recognize the gentleman from Ohio, Mr. Latta, for 5 
minutes.
    Mr. Latta. Thank you, Mr. Chair.
    And I thank the Commissioners for being with us today. I 
appreciate your testimony. If I could start with Chairman 
LaFleur, just a series of questions, if I could. Under Former 
Chairman Wellinghoff, FERC's top initiatives included the smart 
grid, demand response, integration of renewables, and Order 
1000 transmission planning cost allocation. Do you see that you 
would be continuing on with the former chairman's goals, or do 
you have other goals? Do you agree with those, disagree, or 
where do you see you directing the Commission?
    Ms. LaFleur. Well, it is a timely question, because I am 
just in the process of talking to each of my colleagues, since 
it has been about a week that I have been in the job, to really 
set consensus objectives going forward, but I see that 
reliability and security will continue to be a top priority, 
and that includes resource adequacy, because you need the 
resources to be reliable, which we have talked about a lot this 
morning. We have a lot more work to do on transmission, so 
Order 1000, as I believe Commissioner Moeller said, is going to 
be a big part of our work for a while, as well as transmission 
rates that was brought up. And I think making sure the markets 
are fair and that they work to attract the investment the 
country needs, and that the infrastructure is there, are 
clearly four priorities, but I think to be refined as we 
continue forward, but those are things that are ongoing.
    Mr. Latta. Well, if I could, just a couple of areas, then. 
Where would you see that--like, natural gas pipeline 
permitting, where would that be on your priority list?
    Ms. LaFleur. Well, I think I referred to that in general in 
the term ``infrastructure,'' but I think that in general, I 
think our projects group does a good job handling the pipeline 
applications in a timely fashion. We are seeing a lot of them, 
especially spurs and compressor stations in the Marcellas, and 
we have to continue to handle them. We do about 92 percent in a 
year, and I think that we should continue to do so.
    Mr. Latta. Well, you know, especially on the pipeline 
permitting is very important across the midwest, especially, as 
you just said, on the Marcellas and Ohio, we have the Utica. 
And, you know, one of the great things we have is we have all 
the natural gas, but one of the problems we are having is we 
don't have the ability to get that natural gas where it needs 
to be. The potential in Ohio where the chemical industry at the 
same time being able to have that gas cracked and then to be 
able to utilize it, again, all depends on that pipeline 
permitting, so that is very, very important.
    Also, what about on organized wholesale electricity 
markets? Where do you see you on that?
    Ms. LaFleur. I see that as the--all the things we have been 
talking about today, the power supply changing, we have seen a 
lot of changes in the markets to adapt to new resources and 
make sure the resources are there when the customers need them. 
Right now we are focusing in on the capacity markets, and I 
don't think that that is going to change in terms of the level 
of cases or the amount of things we need to look at.
    Mr. Latta. OK. Just one last question, if I could, with 
you, Madam Chair. What are the best measures to determine 
whether the restructured wholesale electricity markets operated 
by regional transmission organizations are benefiting 
consumers?
    Ms. LaFleur. Well, that is a big question. I think 
certainly reliability is a key one, but also looking at the 
costs over time. It is very difficult to compare the costs of 
the restructured markets with the places that didn't 
restructure, because the places that restructured were the high 
cost places to begin with. That is why they restructured. But I 
think looking at the costs and reliability are two big ones.
    Mr. Latta. OK. And Commissioner Moeller, does FERC plan to 
exert jurisdiction over the generation or transmission 
activities of the non-jurisdictional entities?
    Mr. Moeller. Not that I am aware of.
    Mr. Latta. OK. I want to make sure about that.
    And also, if I--my remaining 40 seconds, Commissioner 
Clark, in Title 7 of Dodd-Frank, Congress required the FERC and 
the CFTC to enter into a memorandum of understanding to 
establish procedures for resolving your jurisdictional 
conflicts over energy derivatives.
    What needs to be done in order to resolve the 
jurisdictional conflict between the agencies and provide 
industry the certainty it needs?
    Mr. Clark. FERC's position, Congressman, is that both 
agencies should be able to fully share in the information that 
we each have so that we can do what we believe Congress has 
intended us to do. For whatever reason, for reasons that 
predate my term on the Commission, that hasn't happened. We 
have had now leadership changes in both commissions, and I am 
hopeful that there can be a way that FERC and CFTC can have a 
meeting of the minds and strike that MOU.
    Mr. Latta. Thank you.
    Mr. Chair, my time's expired and I yield back.
    Mr. Whitfield. The gentleman's time has expired. At this 
time, I recognize the gentlelady from Florida, Ms. Castor, for 
5 minutes.
    Ms. Castor. Thank you, Mr. Chairman.
    And good morning. I think you all are serving on the 
Federal Energy Regulatory Commission at a very exciting time. I 
mean, this has been a remarkable time with the natural gas 
revolution that comes at an important time when we have got 
to--when we are seeing natural gas supplant coal at a--when we 
know that it is vital to reduce carbon pollution, and then add 
on top of that all of the innovation in the smart grid, demand 
management and renewables. So while all that change is 
occurring, your responsibilities remain very important to 
ensure that consumers are protected, that you are charged with 
enforcing laws that protect consumers and ensure fair 
competition in the electric and natural gas markets, you have 
got to maintain your important relationships with State and 
regional partners to ensure that necessary energy 
infrastructure gets constructed, but what Mr. Tonko was--
Representative Tonko was talking about, it is almost outdated 
now, the old utility model of selling as many kilowatt hours as 
possible.
    Instead, with what we know about smart grids and energy 
efficiency, we have got to be able to do some things, and some 
States are doing it, to incentivize greater conservation while 
at the same time keeping an eye on our infrastructure and 
reliability. So I think what you all have been doing to ensure 
that renewables compete on a level playing field is very 
important, also that energy efficiency and demand side 
management are also treated fairly as they compete with 
traditional power generation.
    Now, FERC itself has said that they recognize demand 
response can help reduce electric price volatility, mitigate 
generation, market power and enhance reliability. You have 
issued a recent staff report, I know Mr. Norris was able to 
comment on it. Madam Chair, could you comment on that recent 
staff report, the findings, and what else FERC is going to be 
doing to channel this great innovation across the country?
    Ms. LaFleur. Well, thank you. Yes. The staff report is 
something that we do under the Energy Policy Act, and it looked 
at the level of demand response around the country. Our primary 
focus is on the wholesale markets. I think we have--under--2 
years ago did a--had a significant case on how you compensate 
demand response in the energy markets. Right now there are a 
lot of issues pending with respect to how you compensate demand 
response in the capacity markets, and I think we will continue 
to confront those as a part of our capacity market inquiry.
    I do think, though, that a lot of the effort to unbundle 
rates and incentivize efficiency is at the State level. And I 
know your Commissioner is going to be the president of NARUC 
soon, and I think that is where a lot of the innovation is 
still coming in the retail markets.
    Ms. Castor. It just seems like some States are so far 
behind. I would say my State, we can do a much better job, and 
people are really waking up to the fact. Young people now, they 
expect to be able to use their smartphone to turn down their 
thermostat.
    And while, Commissioner Norris, you mentioned in your 
testimony that you have had conversations with a number of 
utility CEO's about their electricity generation plans for the 
future, you said virtually all CEO's you talked to said they 
were focused on increasing natural gas and renewable energy 
generation. Is that right?
    Mr. Norris. [No verbal response.]
    Ms. Castor. And what do you--why do you think they are 
recognizing, waking up to the fact that it is natural gas and 
renewables that are their future?
    Mr. Norris. A combination of low-priced natural gas and 
apparent abundant supply, incentives for renewables and meeting 
State renewable portfolio standards. But one of the biggest 
factors we haven't talked about today is just the uncertainty, 
the uncertainty of an investment in coal-fired generation, 
because as I said in my written testimony, those CEO's and 
people I have talked to in this industry, it is not just 
whether--it is not just when--it is either when legislation 
will occur or the likelihood it will occur at some point is 
really precluding financing of new coal generation in this 
country.
    Ms. Castor. And it is the science and the economics as 
well, the science that tells us we have got to reduce carbon 
pollution and the economics are telling us the exact same 
thing. Think about the State of Florida where now taxpayers are 
going to have to invest and they are already investing huge 
sums of money to begin to adapt to a changing climate. Think 
about the huge bills, the bills that come due every time we 
have an extreme weather event, whether it is drought or super 
storms. And I would think that the utility industry also sees 
the writing on the wall. They are looking for that certainty. 
And the more aggressive we are on moving away from carbon 
intensive energy generation, the better. Thank you very much.
    Mr. Whitfield. The gentlelady's time has expired. At this 
time, I recognize the gentleman from West Virginia, Mr. 
McKinley, for 5 minutes.
    Mr. McKinley. Thank you, Mr. Chairman.
    Chairman LaFleur, perhaps you can give me some direction 
here a little bit on this. We have a growing problem in West 
Virginia with stranded gas and the production of the various 
constituents with NGO that we can't use necessarily in the 
local market, it has to be shipped. Currently a lot of it is 
being flared or just wasted, which is a shame, and it doesn't 
benefit the consumer and doesn't help the environment any.
    So my question is, what I am hearing or sensing is there 
is--and I think it is not unique just to West Virginia with 
this exploration of the Utica and the Marcellas in a number of 
States, there seems to be a potential jurisdictional problem 
starting to flare up a little bit, and one of them is--so my 
question to you is should we be treating NGO's as natural gas 
and thereby allowing the Federal Government, your group, to 
take care of that, or should we continue having the NGO's 
handled at the State level and manage it that way? Do you have 
a position on that?
    Ms. LaFleur. I hadn't thought of the jurisdictional 
question. It is a good thing for the committee to be looking 
at. There is a lot of stranded gas capacity as well as gas that 
is being flared because there is not sufficient take-away 
capacity for the liquids. We only do the pricing for the 
liquids pipelines under Interstate Commerce Act, but we don't 
do the siting. I suspect some of the States that think they do 
the siting very well would not welcome Federal siting. I think 
we could do it well, because we do it well with gas pipelines, 
but it might not be as popular with some of the States 
involved, but I think----
    Mr. McKinley. I think that is a fair statement.
    Ms. LaFleur [continuing]. We've done a good job with that.
    Mr. McKinley. I'm just trying--whether or not you want--are 
you going to take a more passive and let the States continue to 
do--or are you going to try to assert a role that otherwise is 
not expected?
    Ms. LaFleur. I didn't have a plan to redefine natural gas 
under the Natural Gas Act, but I think it is something to think 
about.
    Mr. McKinley. OK. Could you provide us in writing, because 
with the time frame, we don't--and especially since you said 
you weren't prepared to discuss that necessarily, can you 
provide us some rationale for the Federal Government to be 
involved in this as compared to the States?
    Ms. LaFleur. Yes. We will certainly take that and think 
about it. Thanks for the opportunity to think more.
    Mr. McKinley. OK. Thank you. Now, and the last is maybe 
more generic, but probably for over 10 years as an engineer in 
private practice prior, we were concerned about electromagnetic 
pulse, and it has been mentioned here again. I have been 
hearing about it for well over a decade, but certainly in the 
last 5 or 6 years. People have been talking even more here the 
last 3 years that I have been in Congress. Where are we with 
this? Or are we just waiting for some catastrophic event to 
happen, because there is just an awful lot of talk, but no 
action?
    Ms. LaFleur. Well, I think I mentioned in my written 
testimony and briefly in my verbal testimony that last year, 
the Commission voted out a rule requiring utilities to have 
operational plans and response plans for----
    Mr. McKinley. I guess more what I am saying, what is your 
expectation, not just your plan?
    Ms. LaFleur. I think that the geomagnetic disturbance 
standards that we will get, and we have one pending, will help 
somewhat with the electromagnetic pulse. Although there--I 
think there's also voluntary efforts going on in the North 
American Transmission Forum to talk about other aspects of the 
EMP, but I think the GMD standards are probably the most 
tangible action that has going on in this area for a long time.
    Mr. McKinley. Is there progress being made in Europe or 
elsewhere with EMP's, but it is not unique to western--to the 
United States?
    Ms. LaFleur. I am sorry. I didn't----
    Mr. McKinley. Is there progress being made with other 
countries in dealing with EMP's?
    Ms. LaFleur. It is variable. A lot of progress is being 
made in Scandinavia, South Africa and the United Kingdom. A lot 
of other countries are taking a wait-and-see approach and 
looking--Israel. Israel is also doing a lot. Other countries 
are taking more of a wait-and-see approach.
    Mr. McKinley. Thank you. We will have further conversation, 
but thank very much.
    Ms. LaFleur. Thank you.
    Mr. Whitfield. The gentleman yields back the balance of his 
time. At this time, I recognize the gentleman from Colorado, 
Mr. Gardner, for 5 minutes.
    Mr. Gardner. Thank you, Mr. Chairman.
    And thank you to the members of the Commission for being 
here today, and congratulations to the acting chairman. I just 
wanted to follow up on a question, a brief conversation to Mr. 
Moeller that we touched on earlier, and it was an intriguing, I 
think, question raised. In Colorado, I think in--just a couple 
years ago, we had the Hyde Park fire, which became the State's 
most devastating forest fire, followed a week later by the 
Waldo Canyon fire, which became the State's most devastating 
natural disaster. This past year we have experienced the Black 
Forest fire.
    Do you believe that forest health threatens grid 
reliability?
    Mr. Moeller. Well, I recall being involved in that issue, 
because I think we wrote the Forest Service--or I wrote the 
Forest Service after talking to Colorado officials, including, 
I think, a Democratic State senator who works for the Keystone 
Foundation, just very concerned about the amount of dead forest 
and its threat from a fire perspective on transmission lines. 
That was the Nexus defer. So, yes, forest health--I come from 
the State of Washington. Forest health is a big issue up there, 
and particularly with the pine beetle issue. Should we hope for 
2 more weeks of really cold weather to kill those beetles? I 
guess that is a mixed question, but it would be nice--it would 
be nice if that threat to reliability can be removed.
    Mr. Gardner. We would love to follow up with you a little 
bit more on that.
    And to Acting Chairman LaFleur or Commissioner Moeller, 
earlier this year we unanimously passed the Hydropower 
Regulatory Efficiency Act. This Act revised how FERC regulates 
small conduit hydro projects, required the Commission to 
investigate a 2-year licensing process for non powered dams, 
and closed-loop pump storage projects, and also conduct pilot 
projects.
    Could you give us an update on the Commission's activities 
to date to implement these and what provisions of the law 
outline--you know, the other provisions of the law, and outline 
what steps the Commission will take in 2014 to implement the 
law?
    Ms. LaFleur. Yes, certainly. We have already received a 
large number of exemption applications for conduits, I believe 
18, and they are all in some stage of the process. A couple of 
them have already been approved and others are close to 
approval. So that took effect immediately, and----
    Mr. Gardner. Would you mind giving us maybe an idea of 
those 18 and which ones have been approved and where they are 
at?
    Ms. LaFleur. Certainly. We will take that as a written 
question and where they are in the process.
    Also, on, I believe it was October 22nd, we held a tech 
conference, a technical conference on what we can do to help 
speed up the process in the 2-year licensing requirement. I 
believe comments are outstanding right now, and the folks in 
the hydro section are working on that; they had a lot of the 
other agencies involved that contribute to the timing as well.
    We have received fewer applications for some of the other 
parts of the law as of yet, you know, the 40-megawatt exemption 
and so forth.
    Mr. Gardner. Do you believe that FERC will be able to 
implement the pilot projects in 2014?
    Ms. LaFleur. Yes.
    Mr. Gardner. OK. You talked a little about the workshops, 
you talked about what you learned. Do you believe that we will 
be able to get through the intent of the legislation in the 
next 2 years, implement the intent of the legislation?
    Ms. LaFleur. You mean satisfy the intent of the 
legislation?
    Mr. Gardner. Yes. Correct.
    Ms. LaFleur. I certainly think that is our job.
    Mr. Gardner. OK. And the process for excluding small 
conduit hydro projects from FERC licensing, how is that 
working?
    Ms. LaFleur. I--we--it is working actually very well with 
your State, because of our Memorandum of Understanding, and we 
recently entered into one with California, I believe, just a 
couple weeks ago. It is variable in different regions, because 
some of the States don't have the resources on hydro to have 
the same level of cooperation, but it is something we have put 
a lot of effort into. The hydro team has simplified the Web 
site, simplified the processes to try to process them as 
quickly as we can.
    Mr. Gardner. And do you have a number on the determinations 
that have been sought?
    Ms. LaFleur. No, but I can get that and take it as a 
question for the record.
    Mr. Gardner. That would be fantastic. If we could find out 
those granted and those denied, that would be great. And if you 
could provide some statistics on the length of time these 
proceedings have taken as well, that would be great.
    Ms. LaFleur. Yes.
    Mr. Gardner. To Mr. Moeller, Commissioner Moeller, 
Commissioner Clark, a question for you, and I am running out of 
time here, should behind-the-meter generation be treated as a 
demand response resource or generation resource?
    Mr. Moeller. Very timely. I have issues with behind-the-
meter generation, because it is not dispatchable like other 
forms, and I will point you to a dissent that I wrote earlier 
this week on a particular order.
    Mr. Gardner. And Commissioner Clark, quickly, then I am 
going to have to follow up on the record with some of these 
other questions and some FERC 1000 Order questions.
    Mr. Clark. Sure. Congressman, to a great degree, I think it 
depends on the record in each of those individual cases. I 
would have a concern in some areas, and others, if measurement 
and verification can be proven, I believe they may be able to 
participate. There is a separate question with regard to 
compensation that should be given to those resources, and from 
time to time, I have disagreed with parts of the Commission's 
orders on that issue.
    Mr. Gardner. Thank you. Mr. Chairman, I will follow up with 
additional questions.
    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. Appreciate that.
    Mr. Norris, earlier you were speaking with Ms. Castor, and 
you started talking about that people were worried about 
building coal-fired power plants because of legislation. Could 
you expand on that for me?
    Mr. Norris. I think there is a general concern that there 
will be at some point in time, a cost put on carbon. Because of 
the uncertainty of when that will happen and what that will be, 
combined with the other factors in place right now that I have 
talked about in my testimony, natural gas prices, EPA rules, 
State requirements, that it is just too risky for investment 
into coal-fired generation. And, frankly, nuclear is suffering 
some of the same problems strictly on the cost aspect.
    Mr. Griffith. So while natural gas is a concern because the 
prices are lower right now, looking forward, natural gas and 
coal have competed over the decades and that would probably 
continue, but with already existing newly proposed EPA 
regulations and the fear that either legislation or additional 
EPA regulations are major causes as to why no one's really 
looking at building a new coal-fired power plant. Is that 
correct? Is that a fair statement of generally what you said?
    Mr. Norris. Yes. I think some of the existing facilities 
are being retired because new--massive----
    Mr. Griffith. The new--right.
    Mr. Norris. But the primary concern that was expressed to 
me is that--the anticipation at some point, there will be a 
cost on carbon, and that makes the economics difficult to 
finance coal plants.
    Mr. Griffith. All right. And then let me ask about, to 
anyone who wishes to answer, all of you, PJM and the other 
markets, have you all done any studies to determine whether or 
not those markets have actually lowered the costs of 
electricity coming to the consumer?
    Ms. LaFleur. Yes. We get regular reports from the markets 
and their market monitors and a--the years are running 
together, but within the recent past, we compiled a major set 
of metrics from the different RTO's that included cost metrics 
over time, and there were, I know, within PJM and the other 
eastern markets cost reductions. Now, they are, in part, driven 
by the cost reductions in gas being used to generate the 
electricity, but we also looked at the transmission congestion 
and how that was coming down. So we could provide an update on 
that in written form as well.
    Mr. Griffith. All right. That would be great, and I 
appreciate that.
    Have any of you had contact with the White House regarding 
the President's climate action plan?
    Ms. LaFleur. Not me.
    Mr. Moeller. No.
    Mr. Norris. I don't believe so.
    Mr. Clark. No.
    Mr. Griffith. Well, isn't that interesting. So they didn't 
talk to you all about that? I guess, if they didn't talk to you 
about it, they just--nothing else you can say about it, I 
suppose.
    Ms. LaFleur. I mean, in my view, we function as an 
independent agency. They don't give us policy guidance, at 
least never in my experience. They did call to make me acting 
chairman, which I very much appreciate, but didn't say anything 
about how to vote on anything.
    Mr. Griffith. Well, and I wasn't really asking, you know, 
whether or not they had called you about how to vote on things, 
but I am just curious that they came out with this major plan 
and didn't discuss with you, and what I am talking about, get 
advice or seek input or anything like that. So you didn't have 
those conversations either? So maybe I wasn't clear when I 
asked it the first time around.
    Ms. LaFleur. I do coordinate with the Department of Energy 
on the electricity advisory committee, but their efforts are 
more around transmission, storage, some other areas. I think 
the climate plan came from other parts of the administration.
    Mr. Griffith. OK. So then I guess it would be fair to say 
that they didn't seek any information from you-all on how this 
might affect electric prices for the average American family?
    Ms. LaFleur. The White House didn't seek any information 
from me.
    Mr. Moeller. Nor I.
    Mr. Norris. I am going to assume they didn't contact me 
because we are an independent agency, not because they didn't 
know we existed.
    Mr. Clark. No, I wasn't contacted.
    Mr. Griffith. All right. Well, I don't have any additional 
questions. Thank you very much for being here today. And, Mr. 
Chairman, with that, I yield back.
    Mr. Whitfield. The gentleman yields back. At this time I 
recognize the gentleman from Illinois, Mr. Kinzinger, for 5 
minutes.
    Mr. Kinzinger. Thank you, Mr. Chairman.
    And thank you all for being here. Competitive markets tend 
to be the most efficient when a light regulatory approach 
towards rules and regulations are in place. Given that the 
process as put in place by FERC impacts tens of millions of 
consumers, it is my hope that your Commission will work with 
all parties to ensure that all aspects of industry are taken 
into account in order to ensure that current and future energy 
demands are able to be met.
    It is my understanding that FERC is in the process of 
evaluating market mechanisms in a holistic fashion in a subset 
of the capacity markets in which it regulates. I appreciate the 
Commission taking on this effort, but I have a few concerns 
that I would like to discuss in order to determine where this 
effort may lead and whether or not it may be unnecessarily 
limited.
    Chairman LaFleur, what does the Commission intend to do 
with the information it is currently gathering in this 
proceeding?
    Ms. LaFleur. I think on the capacity markets, that is very 
much a work in progress that is going on right now, but I think 
potentially, an illustrative example is what we have done on 
gas electric where we have looked at a large number of comments 
from around the country and said, here is a large set of them 
that have to be handled regionally, and we will continue to 
deal with it with each region of the country, but here are a 
couple of cut-across issues we may look at across more than one 
region, and that may well be the future capacity markets, but I 
think I want to read the comments and talk to my colleagues.
    Mr. Kinzinger. Have you discussed the possibility of 
expanding this effort to include other wholesale capacity 
markets that the Commission regulates, and is there a specific 
reason for limiting the inquiry if, in fact, you have the 
capacity markets alone?
    Ms. LaFleur. There was a reason to limit the technical 
conference to the three markets: because they operate in 
largely parallel fashion, they are more mature. The Midwest ISO 
voluntary capacity market is considerably newer, and we thought 
it might be difficult to do them all in one day, but there is 
certainly no reason we won't in the future be looking at other 
places as well if the need arises.
    Mr. Kinzinger. OK. Baseload electric generating assets have 
a life span of 40 to 60 years. The forward capacity markets and 
organized electricity markets typically operate 3 years ahead. 
Ms. LaFleur and Mr. Norris, let me ask you these questions. Do 
you agree that there is a fundamental mismatch between the 
investment recovery profile of electric generating assets and 
the way merchant markets are structured, and do you believe 
FERC has a role to play in addressing this problem? Mr. Norris 
first.
    Mr. Norris. By markets, you mean capacity markets?
    Mr. Kinzinger. Yes.
    Mr. Norris. Yes. There is a disconnect. The capacity 
markets are really designed to make sure there are adequate 
resources and the reserve margin will be met for the long-term 
future. I think some of our current capacity constructs were 
largely put in place to provide a revenue stream for generators 
that were spun off in a lot of the restructuring areas, and 
there has been a cushion of time there for that to play out. We 
are reaching into that cushion now. We have got to look at 
these capacity markets and play a role in structuring them so 
long-term supply is available for adequacy.
    Mr. Kinzinger. And, Chairman LaFleur, do you have any 
anything to add on that?
    Ms. LaFleur. Well, I think the reason we are looking at 
capacity markets is largely to see if they attract the 
investment we need, and that includes, you know, baseload, 
peaking, intermediate, demand response, all the things you need 
to run a grid, and that is what we will be looking at.
    Mr. Kinzinger. Does your Commission have plans to review 
and improve market rules so that wholesale markets are given 
the proper signals to allow for investment decisions to be made 
in the power sector?
    Ms. LaFleur. Well, that is the purpose of the wholesale 
market rules in part--to attract the investment for 
reliability--so I think that is very much within our 
responsibility.
    Mr. Kinzinger. And then finally, Mr. Clark, do you think 
the Federal Power Act authorizes FERC to subsidize long-
distance transmission of remote wind power over potentially 
cheaper local renewables?
    Mr. Clark. I don't think it authorizes, Congressman, the 
Commission to subsidize such lines. I think it charges the 
Commission with trying to make a reasonable attempt at 
allocating costs on a commensurate basis on a cost-causation 
beneficiary principle. I think the Seventh Circuit through the 
course of a couple of major cases has basically given us the 
goalposts in terms of what our responsibilities are in terms of 
assigning those costs.
    Mr. Kinzinger. OK. Thank you all for your time.
    Mr. Chairman, I will yield back 36 seconds.
    Mr. Whitfield. Thank you very much. At this time I will 
recognize the gentleman from Texas, Mr. Hall, for 5 minutes.
    Mr. Hall. Mr. Chairman, thank you.
    And Commissioners, I thank you for appearing here today. If 
I ask questions that have been touched on earlier, I have been 
another committee. We are all trying to pass everything we can 
before getting to go home for Christmas.
    I have been hearing about a new technology that is coming 
onto the market, and I am from Texas and, of course, have great 
interest in energy. Probably other than ``prayer,'' it is the 
most important word in the dictionary for young people. And 
they have no jobs today, and if we go on the way we are going 
now, there will be no employers in about a year, so you have a 
very important job.
    That new one, manufacture the solution out of gas liquids 
to make it easy to transport to a customer, who then treats it 
and then uses it as a fuel or feed stock or electric 
generation, whatever they want, and I am told that it is a new 
technology that can be used relatively small, simple equipment 
that is often modular and can be moved from site to site in an 
oil field, which is important to them, to capture stranded gas 
that Mr. McKinley had an interest in, or they can be installed 
within existing port facilities.
    I hope FERC can ensure new beneficial technologies like 
this are not subjected to the same time-consuming and expensive 
review process as the major projects, say, such as LNG. Some of 
these new technologies don't always fit the rules that you 
have, they are all forced to fit into a category, but just 
because you are supposed to regulate and you feel that you have 
to regulate them, the new businesses are going to be stifled or 
it will never get off the ground. I hope you won't feel that 
you have that conjure up ways to regulate something if you 
haven't been told to regulate it by an act of Congress. And 
that is kind of a question that is not meant to be insulting in 
any way, because I admire you.
    And do you have any short statement you want to make to 
what I have said so far?
    Ms. LaFleur. Well, I believe we have to stay in our 
jurisdiction. As has been observed several times today, we have 
been given quite a lot of it. We are not short of things to do. 
And that is what we try to do, is follow the law.
    Mr. Hall. And I expect you to do that.
    Mr. Clark. Yes. Congressman, I would just add, I agree with 
Chairman LaFleur. Coming from North Dakota as I do, where we 
have a significant concern with flared gas, and I understand--
--
    Mr. Hall. You have a role to play there.
    Mr. Clark. Yes. I understand the technology that you are 
talking about, and I am intrigued by it, but I would share your 
concern that anything that we can do to advance technologies 
that allow us to capture and utilize valuable resources is 
something we should do.
    Mr. Hall. Well, we go back some 20, 25 years that some of 
us have been up here. And if you remember, we passed Clean Air 
Acts and Clean Water Acts, and took several sessions to do 
them. And we breathed life into the EPA in those. I remember 
that. Even though I was a Texan and believed in energy, and 
energy paid 55 or 60 percent of the taxes that were paid in 
Texas, we felt that it was very important. And we breathed life 
into the EPA by giving them a role in that act.
    I am kind of sorry now that we did, because they acted well 
then and we were pleased with what they did, and we thought, 
even though we were energy oriented, that the energy people 
needed some supervision, but they also needed some help that 
the Federal Government can give. So they now hurt us by 
overregulation, and that is what I was asking you about, I 
guess.
    And, Acting Chairwoman, a key goal in FERC's strategic plan 
2009 to 2014 calls for safe, reliable and efficient 
infrastructure development to integrate these resources. Are 
you supportive of FERC's--have you been there 3 weeks, you say?
    Ms. LaFleur. No. I----
    Mr. Hall. Golly, you----
    Ms. LaFleur. I have been 3-1/2 years, so I----
    Mr. Hall. I would hate to cross-examine you----
    Ms. LaFleur. I have only been in this job 2 weeks.
    Mr. Hall. All right. Well, you are doing very well, and I 
thank you for that, because you have given--are you supportive 
of FERC's goal for infrastructure development included in this 
plan?
    Ms. LaFleur. Yes, I am. I think it is an important part of 
what we do.
    Mr. Hall. And what kind of enhancements or changes would 
you consider on this goal?
    Ms. LaFleur. Excuse me?
    Mr. Hall. Do you have any changes you'd make? Maybe you 
haven't had time. Maybe the other gentlemen might.
    Ms. LaFleur. When I looked most recently at the strategic 
plan, it is written at a very high level, and I think most of 
it is things like just and reasonable rates and a robust 
infrastructure, which I do not think there would be any need to 
change.
    I think, as I said, as we look at the current situation of 
where the country is, I want to meet with my colleagues and 
figure out are there things that we need to give more priority 
to. And I think I will be very accountable for that, but I want 
to do a little bit of work before I answer, if possible.
    Mr. Hall. Commissioner Moeller, Mr. Clark, if the 
administration continues down this part of taking fuel-of-
choice decisions away from the electric industry, as I am told 
that they do, and reducing fuel diversity, what negative 
consequences would you expect?
    Mr. Moeller. Well, we just have to watch reliability very, 
very closely. A number of us have made references to the 
midwest, but it is just not the midwest. In the next few years 
and the next few summers, very concerned about making sure that 
we have resource adequacy.
    Mr. Hall. And to the acting--my time up?
    Mr. Whitfield. I am sorry, Mr. Hall.
    Mr. Hall. Well, I guess I will yield back, then.
    Mr. Whitfield. We were all so mesmerized by your comments 
that I forgot the time, too.
    But at this time I would like to recognize the gentleman 
from Nebraska, Mr. Terry, for 5 minutes
    Mr. Terry. Thank you, Mr. Chairman. And I am your favorite 
witness, the last.
    So, Mr. Norris, I want to follow up with you because part 
of the discussion today has been about a carbon price being 
built in that the carbon price is based on the uncertainty of 
what is going to happen regarding carbon. That intrigues me, 
what you were talking about, because yesterday I was hit up by 
a reporter that asked me a similar question about energy 
companies already starting to build in a carbon price. And of 
course the question then from the reporter is, what are you 
guys doing in Congress about a carbon price? And I said, 
nothing, we aren't trying to artificially inflate, at least 
legislatively, energy prices, nor overtly through a tax.
    So it begs the question, since there is a lot of discussion 
about now building in a carbon price, is there discussions in 
FERC that you have been involved with or know about as an overt 
attempt to either raise prices based on carbon or any other 
thing that would, in essence, increase cost based on carbon?
    Mr. Norris. In short, no. The reason for my comments in my 
testimony here today is to make you aware I think that is a 
major factor in some of the change happening in our energy 
landscape right now, is the uncertainty about when or if there 
will be a price on carbon.
    Mr. Terry. Well, and I think there is some merit to the 
``if,'' because there are a lot of people that are pushing 
that. There is no legislative attempt. But it also begs the 
next level of question, with natural gas in particular, and you 
just had some discussions about flaring in North Dakota. I have 
pictures on my iPhone of that when our subcommittee took a 
little trip up there.
    So we are burning it off, we have got an ample supply. But 
I think there is some uncertainty in that area as well based on 
some environmental groups and even some people on this 
committee that would like us to stop using the technology of 
hydrofracturing.
    Have any of you had discussions in there about any policy 
impacts on hydrofracturing, how that could impact the 
reliability and affordability of electrical generation in the 
United States? And let's start with the Acting Chairwoman.
    And congratulations. That is a good call from the White 
House. I am just looking for any call from the White House on 
any of the issues I have asked them to talk to me about. But 
that is a issue for a different day.
    Ms. LaFleur. We don't regulate hydraulic fracturing. We 
have been asked in some of our gas pipeline cases to evaluate 
the environmental impacts upstream and downstream, and we have 
taken a pretty strong line under the National Environmental 
Policy Act to just look at the impact of the project we are 
certificating.
    I think as part of the discussion of fuel diversity and 
gas-electric there has been general discussion of should the 
rules change at any time on natural gas, you know, we have to 
be alert to that because that could affect reliability, but no 
direct impact on it.
    Mr. Terry. Well, let's take that, because one of the 
discussions we have had with FERC in the past has been the 
coordination with FERC, particularly on natural gas with the 
other entities, EPA for example, reliability. How is that work 
going of everyone trying to get on the same page in regard to 
natural gas?
    Chairwoman.
    Ms. LaFleur. Most of the discussions I have been present 
with on the EPA have been about specific suites of regulations 
that we have discussed, MATS and so forth. I stay alert to 
discussion of regulation of natural gas, but I have not been 
part of the discussion of fracking.
    Mr. Terry. Well, no, this is just on natural gas in 
general, and reliability, because there is going to be an 
issue, as some of these plants are unable to use coal because 
of the new standards that are being produced, and there will be 
a time when they either shut down or move to natural gas. That 
is going to affect reliability. And I assume those discussions 
are occurring with the EPA and other agencies so that you that 
you know that this is going to happen and how you are going to 
deal with it.
    Ms. LaFleur. Well, should there be a time when I have any 
reason to believe the natural gas supply is going to be 
interrupted, I would certainly take part in those discussions. 
Everything we are seeing----
    Mr. Terry. Well, this will be more about the down time of 
plants, to either shut down or the shutdown to retrofit. 
Because you can't gut a coal-fired plant and have it still 
running while you are putting in a whole new system.
    Ms. LaFleur. Well, on that we have had discussions, and I 
think that is one of the reasons that the EPA gave us, among 
others, a consultative role if a plant needs more time to 
retrofit under the MATS standard.
    Mr. Terry. Well, even if you give them more time to 
retrofit it is going to be down time during the retrofit. So we 
are going to have issues of electrical generation not existing 
in certain areas.
    Mr. Whitfield. The gentleman's time has expired. I am very 
sorry to say you are not going to be the last person to ask 
questions, Lee.
    Mr. Hall. Mr. Chairman, can I make an inquiry of you? I 
didn't get to ask everything I wanted to, but I didn't know 
what had already been asked. Would you ask to leave the record 
open for a couple of weeks if we mail a direct question to 
them----
    Mr. Whitfield. Absolutely.
    Mr. Hall. We have had problems about the natural gas sector 
and the electricity sector. Thank you, Mr. Chairman.
    Mr. Whitfield. Yes. We will have it open for 10 days and 
work with you to get the questions to the Commissioners.
    So at this time I recognize the gentleman from New York, 
Mr. Engel, for 5 minutes.
    Mr. Engel. Thank you, Mr. Chairman. And I won't take 5 
minutes. I was here before and I had to run out.
    I just really have one question. I would like to focus on 
the Champlain Hudson Power Express. I am sure you are aware 
that I and others have spent many years speaking out in favor 
of closing the Indian Point nuclear power plant in New York. I 
am not opposed to nuclear power, and I never spoke a word about 
closing the plant until after September 11th, when I learned 
that one of the planes that hit the towers flew right over this 
power plant, which is probably about 10 miles out of my 
district.
    I believe, and so does our governor and all the elected 
officials in the surrounding area, Members of Congress who 
represent the area in Westchester County, we think it presents 
one of the most serious safety and environmental threats facing 
the New York metropolitan region.
    But New Yorkers no longer really need to face this threat 
because the Champlain Hudson Power Express would deliver 1,000 
megawatts of power to the New York metropolitan region. And 
with the implementation of the Champlain Hudson Power Express, 
security of New York's electric grid would be increased and New 
Yorkers would no longer have to live with the dangers of Indian 
Point in their own backyard.
    It is obviously a benefit to New York, and the safety of 
New Yorkers is obviously all of our concerns. And given the 
great benefits of the project, I really believe that it is 
important that it is implemented in a timely manner.
    So my only question is really in our effort to plan for a 
post-Indian Point New York, I am sure that we have to make sure 
that we have sufficiently reliable, safe energy to replace the 
nuclear facility because when some of us said that it should be 
closed, people came back with, well, what are you going to do 
to replace it? So I believe the Champlain Hudson line provides 
a portion of that energy. And I would like to hear from any of 
you regarding the status of the project.
    Madam Chair.
    Ms. LaFleur. Thank you, Mr. Congressman. I believe about a 
year ago, within the past year, FERC issued an order approving 
market-based rates for the Champlain Hudson line. No one sought 
rehearing of that order, so it is final, so we did the rate 
making. I believe the siting of the line is being done in New 
York State, and so I don't think we have any anything open on 
the line right now. But we got out the order that they needed 
for their rates.
    Mr. Engel. Thank you.
    Anybody else have anything to add.
    Mr. Moeller. Congressman, I think it points to the fact 
that transmission is such a good technology because it can 
solve a multitude of challenges going forward. And so I again 
want to stay positive on the need for more transmission 
investment. This is a local example that has regional benefits. 
We can duplicate that in many areas of the country.
    Mr. Norris. Thank for the question. Yes, I echo my 
colleagues' comments, we have dealt with that line, given it 
negotiated rate authority as a merchant transmission line. I 
think it is a great example of the wealth or abundance of 
hydroelectric facilities, of possibilities coming down from 
Canada that could meet a lot of our long-term needs with low 
emissions, or no emissions, but also transmission will be key 
to making it happen.
    The second point would be, as you talk about your nuclear 
facility, I am very sensitive to the decisions of New Yorkers 
about that plant. We are also facing a close down of the San 
Onofre plant in California. Just a heads-up: Replacing those 
large facilities in huge urban centers is going to require some 
other infrastructure to replace it. So we are going to need 
support, and developers are going to need support for building 
that infrastructure to replace those generation facilities. 
That is not easy to do in today's environment.
    Mr. Clark. I would concur with my colleagues and don't have 
anything to add.
    Mr. Engel. OK. Thank you all very much. I appreciate the 
answers.
    Thank you, Mr. Chairman.
    Mr. Whitfield. I will make one just comment on this. You 
referred to the closing of the nuclear plant down in southern 
California, and California has the 33 percent renewable 
mandate. And I was talking to one of the CEOs of one of the 
majority utilities out there. And as they build new 
transmission lines to bring in renewable power to where they 
need it, they are getting in some instances specific 
instructions relating to going underground on the transmission 
lines, which raises a lot of technical issues. And this CEO 
informed me that the mileage that they are going underground is 
costing his utility $100 million a mile. So we are talking 
about some costly situations in some cases.
    At this time, I recognize the gentleman from Texas, Mr. 
Olson, for 5 minutes.
    Mr. Olson. I thank the chair. And I thank you, sir, for 
your patience. I can assure you that I will take only a maximum 
of 4 minutes and 59 seconds of my time.
    Welcome to the witnesses. Chairwoman LaFleur, Commissioner 
Moeller, Commissioner Norris, Commissioner Clark, welcome. 
Happy holidays.
    I have one question, and it is about the production tax 
credit. I will start with you, Commissioner Moeller.
    As you know, for the next 10 years some wind turbine owners 
will get tax credits for every hour they run. This tax credit 
was designed to kick start renewables. And yet it lives on 
despite wind being a major part of the grid, at least 12 
percent in my home State of Texas capacity coming from wind. 
But some markets have seen, quote/unquote, prices as low as 
negative $41 per megawatt hour as operators get the credit and 
run whether the power is needed or not.
    Now granted, that is an extreme example, but they can 
suffer a loss and taxpayers make them whole. That moves 
markets. Back home, our lack of new power construction in 
Texas, our public utility commissioner Chairwoman Nelson has 
said, and this is a quote, the market distortions caused by 
renewable energy incentives are one of the primary causes. This 
distortion makes it difficult for other generation types to 
recovery their costs and discourages investment in new 
generation. And while the PTC isn't the only driver of market 
distortions, it is a significant force.
    So starting with you, Commissioner Moeller, do you agree 
that incentives for renewables distort energy markets?
    Mr. Moeller. Congressman, I think all subsidies distort 
markets.
    Mr. Olson. Chairwoman LaFleur, any comment, ma'am?
    Ms. LaFleur. In a pure market there would be no tax 
subsidies, but many of the resources that fit into the market 
have tax subsidies of one sort or another that are not taken 
into account in the market price.
    Mr. Olson. Commissioner Norris, you are up, sir.
    Mr. Norris. I echo my colleagues' comments. I agree any tax 
implication is going to affect an open marketplace. Having said 
that, I am concerned that some of the nuclear facilities that 
have been closing or looking at retiring because of negative 
nighttime pricing is a concern for me because I think of the 
long-term stability of those as baseload fuel, and baseload 
plants in our system is important.
    Mr. Olson. Yes, we need those. Yes, sir.
    And, Commissioner Clark, you are our last hitter, sir. 
Clark.
    Mr. Clark. I would agree and for the reasons that you have 
identified. Obviously it is a decision for Congress to make 
whether there will be a PTC or not, it is not FERC's, but 
clearly it does has a market-distorting impact, especially in 
very wind-rich parts of the country and at certain times of day 
and at certain times of the year.
    Mr. Olson. And one final question, it is a yes-or-no 
answer, and following up on my colleague Mr. Green's questions 
about our grid liability bill we passed here in Congress. Yes 
or no, does everyone out there still agree that it is bad 
policy to trap companies between two different regulators with 
different goals during power crisis?
    Chairwoman LaFleur.
    Ms. LaFleur. Yes. I think it is bad policy and I 
supported--you are talking the Hobson's choice bill?
    Mr. Olson. Yes, ma'am, our grid bill.
    Ms. LaFleur. I supported the basic principle that if the 
DOE orders you to run, you should not face sanctions for that 
in that limited instance.
    Mr. Moeller. I strongly, strongly support the concept, 
especially with what we are hearing about in the Midwest and to 
some extent Texas.
    Mr. Olson. Yes, sir.
    Commissioner Norris.
    Mr. Norris. I think it puts people in an unfair position.
    Mr. Clark. I would concur, and I have been supportive in 
the past of the bill that you and Congressman Doyle have 
sponsored.
    Mr. Olson. Thank you. I yield back the balance of my time. 
I am 41 seconds early, sir.
    Mr. Whitfield. Yes. Thank you very much. We appreciate 
that.
    Well, that concludes today's hearing. I would like to ask 
Ms. LaFleur one additional question.
    Recently it was brought to my attention that FERC has 
jurisdiction over a number of lakes around the country in which 
hydropower is being produced, and a decision affecting the Lake 
of Ozarks and about tearing down some houses and whatever and 
then went out at the Grand Lake in Oklahoma. Would you be able 
to identify for the committee the name of an individual at FERC 
that would have up-to-date information on the authority and 
jurisdiction that you all have over these lakes in which 
hydropower is being produced? Not right now, but later.
    Ms. LaFleur. Yes. Absolutely.
    Mr. Whitfield. OK. Thank you.
    And without objection, and hopefully you all have seen 
this, we have a letter from the American Public Power 
Association, a statement that they would like to insert into 
the record. Without objection. So that is entered.
    [The information follows:]

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    Mr. Whitfield. And we will keep the record open for 10 days 
because, as Mr. Hall and others said, there are a few 
additional questions we would like to submit to you all.
    But I want to thank you for coming up today and visiting 
with us and for the exchange that we had. And thank all of you 
for what you are doing and continue to do in addressing these 
important issues.
    And with that, that will conclude today's hearing. Thank 
you.
    [Whereupon, at 11:48 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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