    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

    	             DISCUSSION DRAFT ADDRESSING ENERGY
                            RELIABILITY AND SECURITY

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

                                     HEARING

                                   BEFORE THE

                        SUBCOMMITTEE ON ENERGY AND POWER

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 19, 2015

                                   __________

                               Serial No. 114-44

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

                                    _____________

                            U.S. GOVERNMENT PUBLISHING OFFICE
    97-199 PDF                    WASHINGTON : 2015

    ______________________________________________________________________________________
    For sale by the Superintendent of Documents, U.S. Government Publishing Office,
    http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
    U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
    E-mail, gpo@custhelp.com.

                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman

    JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
      Chairman Emeritus                    Ranking Member
    ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
    JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
    JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
    GREG WALDEN, Oregon                  GENE GREEN, Texas
    TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
    MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
    MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
      Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
    STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
    ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
    CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
    GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
    LEONARD LANCE, New Jersey            JERRY McNERNEY, California
    BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
    PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
    DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
    MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
    ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
    H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
    GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
    BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III,
    BILLY LONG, Missouri                 Massachusetts
    RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California7
    LARRY BUCSHON, Indiana
    BILL FLORES, Texas
    SUSAN W. BROOKS, Indiana
    MARKWAYNE MULLIN, Oklahoma
    RICHARD HUDSON, North Carolina
    CHRIS COLLINS, New York
    KEVIN CRAMER, North Dakota

                        Subcommittee on Energy and Power

                             ED WHITFIELD, Kentucky
                                     Chairman
    PETE OLSON, Texas                    BOBBY L. RUSH, Illinois
      Vice Chairman                        Ranking Member
    JOHN SHIMKUS, Illinois               JERRY McNERNEY, California
    JOSEPH R. PITTS, Pennsylvania        PAUL TONKO, New York
    ROBERT E. LATTA, Ohio                ELIOT L. ENGEL, New York
    GREGG HARPER, Vice Chairman          GENE GREEN, Texas
    DAVID B. McKINLEY, West Virginia     LOIS CAPPS, California
    MIKE POMPEO, Kansas                  MICHAEL F. DOYLE, Pennsylvania
    ADAM KINZINGER, Illinois             KATHY CASTOR, Florida
    H. MORGAN GRIFFITH, Virginia         JOHN P. SARBANES, Maryland
    BILL JOHNSON, Ohio                   PETER WELCH, Vermont
    BILLY LONG, Missouri                 JOHN A. YARMUTH, Kentucky
    RENEE L. ELLMERS, North Carolina     DAVID LOEBSACK, Iowa
    BILL FLORES, Texas                   FRANK PALLONE, Jr., New Jersey (ex
    MARKWAYNE MULLIN, Oklahoma               officio)
    RICHARD HUDSON, North Carolina
    JOE BARTON, Texas
    FRED UPTON, Michigan (ex officio)

                                      (ii)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Ed Whitfield, a Representative in Congress from the
      Commonwealth of Kentucky, opening statement....................     1
        Prepared statement...........................................     3
    Hon. Jerry McNerney, a Representative in Congress from the State
      of California, prepared statement..............................     3
    Hon. Bobby L. Rush, a Representative in Congress from the State
      of Illinois, opening statement.................................    37
    Hon. Fred Upton, a Representative in Congress from the State of
      Michigan, prepared statement...................................   173
    Hon. Frank Pallone, Jr., a Representative in Congress from the
      State of New Jersey, prepared statement........................   174

                                   Witnesses

    Michael Bardee, Director, Office of Electric Reliability, Federal
      Energy Regulatory Commission...................................     5
        Prepared statement...........................................     7
    Gerry W. Cauley, President and Chief Executive Officer, North
      American Electric Reliability Corporation......................    18
        Prepared statement...........................................    20
        Answers to submitted questions...............................   193
    Thomas A. Fanning, Chairman, President, and Chief Executive
      Officer, Southern Company......................................    57
        Prepared statement...........................................    60
    Elinor Haider, Vice President, Market Development, Veolia Energy
      North America, on behalf of the Alliance for Industrial
      Efficiency.....................................................    78
        Prepared statement...........................................    80
    Joseph Dominguez, Executive Vice President, Governmental and
      Regulatory Affairs and Public Policy, Exelon Corporation.......    90
        Prepared statement...........................................    92
    Michael Bergey, President and Chief Executive Officer, Bergey
      Windpower Company, on behalf of the Distributed Wind Energy
      Association....................................................   103
        Prepared statement...........................................   105
    John N. Moore, Senior Attorney, Natural Resources Defense Council   111
        Prepared statement...........................................   113
    John Di Stasio, President, Large Public Power Council............   129
        Prepared statement...........................................   131
    Emily Heitman, Vice President and General Manager, Commercial
      Operations for Medium and Large Power Transformers in North
      America, ABB, Inc., on behalf of the National Electrical
      Manufacturers Association......................................   137
        Prepared statement...........................................   139
    Elgie Holstein, Senior Director for Strategic Planning,
      Environmental Defense Fund.....................................   151
        Prepared statement...........................................   153

                               Submitted Material

    Discussion draft, Title I: Modernizing and Protecting
      Infrastructure--Energy Reliability and Security, \1\ submitted
      by Mr. Whitfield
    Letter of May 18, 2015, from Susan N. Kelly, President and Chief
      Executive Officer, American Public Powers Association, et al.,
      to Mr. Whitfield, submitted by Mr. Whitfield...................   176
    Letter of May 18, 2015, from Phyllis Cuttino, Director, Clean
      Energy Initiative, The Pew Charitable Trusts, to Mr. Whitfield
      and Mr. Rush, submitted by Mr. Whitfield.......................   178
    Statement of May 19, 2015, American Public Power Association,
      submitted by Mr. Whitfield.....................................   180

    ----------
    \1\ The information has been retained in committee files and also is
    available at  http://docs.house.gov/meetings/IF/IF03/20150519/103477/
    BILLS-114pih-DiscussionDraftonTitleI-EnergyReliabilityandSecurity.pdf.

          DISCUSSION DRAFT ADDRESSING ENERGY RELIABILITY AND SECURITY

                                  ----------

                             TUESDAY, MAY 19, 2015

                      House of Representatives,
                      Subcommittee on Energy and Power,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:00 a.m., in
    room 2123 of the Rayburn House Office Building, Hon. Ed
    Whitfield (chairman of the subcommittee) presiding.
        Members present: Representatives Whitfield, Olson, Barton,
    Shimkus, Pitts, Latta, Harper, McKinley, Kinzinger, Griffith,
    Johnson, Long, Ellmers, Flores, Mullin, Hudson, Upton (ex
    officio), Rush, McNerney, Tonko, Engel, Green, Doyle, Sarbanes,
    and Loebsack.
        Staff present: Nick Abraham, Legislative Associate, Energy
    and Power; Gary Andres, Staff Director; Charlotte Baker, Deputy
    Communications Director; Will Batson, Legislative Clerk;
    Allison Busbee, Policy Coordinator, Energy and Power; Patrick
    Currier, Senior Counsel, Energy and Power; A.T. Johnson, Senior
    Policy Advisor, Energy and Power; Tom Hassenboehler, Chief
    Counsel, Energy and Power; Michael Goo, Democratic Chief
    Counsel, Energy and Environment; Caitlin Haberman, Democratic
    Professional Staff Member; and Rick Kessler, Democratic Senior
    Advisor and Staff Director, Energy and Environment.
        Mr. Whitfield. It is 10 o'clock, and so I would like to
    call this hearing to order.
        Today, we are going to continue our discussion on our
    discussion draft, and the subject matter today is energy
    reliability and security. And we are going to have 2 panels of
    witnesses, and I will get to the specific introduction of the
    panels in just a moment, but at this time, I would like to
    recognize myself for a 5-minute opening statement.

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

        The American people, throughout its history, have had a
    goal of having affordable, abundant, and reliable electricity,
    and we have been pretty successful at that. And today, we have
    an abundance of fuel. Unfortunately, electricity rates are
    continuing to go up, and electric reliability faces a number of
    challenges, both new and old. The rapid retirement of coal-
    fired generation, due in part to aggressive EPA regulations,
    means that this reliable source of base load generation is
    being lost at a rate that is faster than it can be replaced. At
    the same time, mandates and incentives for renewable power have
    led to growth in sources like wind, but these energy sources
    pose great intermittency issues. And, as we learned at last
    week's hearing, hydropower and natural gas face significant
    permitting hurdles. Altogether, the Nation's electric grid,
    though still the best in the world, is aging and in need of
    extensive modernization.
        The security of our electricity supply is also at risk. No
    one seriously doubts that there are those who wish to do
    America harm, and that includes the threat of physical or
    cyberattacks on our electricity system.
        At our March hearing on 21st century electricity, we
    learned that as the grid becomes more reliant on information
    technology and digital communications devices, thousands of new
    grid access points are created, potentially increasing the
    avenues for outside attacks. And while these new threats need
    to be addressed, we can't forget about the old ones such as
    damage from severe weather, especially now that the ability of
    utilities to respond to emergencies is complicated by the
    growing list of environmental regulations. But where there is a
    challenge, there is also opportunity. Over the next decade
    alone, utilities plan to invest more than $60 billion in
    transmission infrastructure through 2024 to modernize the grid.
    That is a lot of private sector jobs. And the application of
    the information revolution to the electric grid holds the
    potential for more efficient and cost-effective delivery and
    use of power, which will help homeowners as well as businesses.
    And we must not forget that we are in a global marketplace, and
    we are competing with nations around the world to produce jobs.
        This discussion draft contains a number of measures to
    strengthen reliability and security and prepare the grid for
    the future. This includes provisions to resolve potential
    conflicts between grid reliability and environmental
    regulations, and to improve emergency preparedness and
    response. It requires a Department of Energy plan regarding the
    creation of a Strategic Transformer Reserve, and also
    establishes a volunteer program to harden the grid against
    cybersecurity threats. Other measures encourage State public
    utility commission and utilities to improve grid resilience and
    promote investments in energy analytics technology to increase
    efficiencies and lower the cost for ratepayers, while
    strengthening reliability and security. The discussion draft
    also requires FERC to work with each RTO to encourage a diverse
    generation portfolio, long-term reliability and price certainty
    for customers, and enhanced performance assurance during peak
    periods.
        So we are really excited about this discussion draft, and
    our opportunity to pass this legislation to improve the
    conditions of our electricity in America.\1\
    ---------------------------------------------------------------------------
        \1\ The discussion draft has been retained in committee files and
    also is available at  http://docs.house.gov/meetings/IF/IF03/20150519/
    103477/BILLS-114pih-DiscussionDraftonTitleI-
    EnergyReliabilityandSecurity.pdf.
    ---------------------------------------------------------------------------
        [The prepared statement of Mr. Whitfield follows:]

                    Prepared statement of Hon. Ed Whitfield

        This subcommittee has devoted considerable attention to the
    issue of electricity affordability, and for good reason given
    that electric bills are on the rise and that new regulations
    threaten continued increases in the years ahead. Today, we will
    focus on something equally important to electricity costs, and
    that's electricity reliability and security. We have introduced
    a discussion draft on the subject that we plan to include in
    our bipartisan energy bill. The draft contains ideas designed
    to ensure that the lights stay on in the decades to come. I
    thank our witnesses and in particular the Federal Energy
    Regulatory Commission and the North American Electric
    Reliability Corporation for their expertise and their vigilance
    on reliability and security concerns.
        Electricity reliability faces a number of challenges, both
    new and old. The rapid retirement of coal-fired generation due
    in part to aggressive EPA regulations means that this reliable
    source of base load generation is being lost at a rate that is
    faster than it can be replaced. At the same time, mandates and
    incentives for renewable power have led to growth in sources
    like wind, but these energy sources pose great intermittency
    issues. And, as we learned at last week's hearing, hydropower
    and natural gas face significant permitting hurdles.
    Altogether, the Nation's electric grid, though still the best
    in the world, is aging and in need of extensive modernization.
        The security of our electricity supply is also at risk. No
    one seriously doubts that there are those who wish to do
    America harm, and that includes the threat of physical or
    cyberattacks on our electricity system. At our March hearing on
    21st century electricity, we learned that as the grid becomes
    more reliant on information technology and digital
    communications devices, thousands of new grid access points are
    created, potentially increasing the avenues for outside
    attacks.
        And while these new threats need to be addressed, we can't
    forget about the old ones such as damage from severe weather,
    especially now that the ability of utilities to respond to
    emergencies is complicated by the growing list of environmental
    regulations.
        But where there is challenge there is also opportunity.
    Over the next decade alone, utilities plan to invest more than
    $60 billion in transmission infrastructure through 2024 to
    modernize the grid. That's a lot of private sector jobs. And
    the application of the information revolution to the electric
    grid holds the potential for more efficient and cost-effective
    delivery and use of power, which will help homeowners as well
    as businesses.
        The discussion draft contains a number of measures to
    strengthen reliability and security and prepare the grid for
    the future. This includes provisions to resolve potential
    conflicts between grid reliability and environmental
    regulations, and to improve emergency preparedness and
    response. It requires a Department of Energy plan regarding the
    creation of a Strategic Transformer Reserve, and also
    establishes a voluntary program to harden the grid against
    cybersecurity threats.
        Other measures encourage State public utility commissions
    and utilities to improve grid resilience and promote
    investments in energy analytics technology to increase
    efficiencies and lower costs for ratepayers while strengthening
    reliability and security. The discussion draft also requires
    FERC to work with each regional transmission organization to
    encourage a diverse generation portfolio, long-term reliability
    and price certainty for customers, and enhanced performance
    assurance during peak periods.
        America was the first nation to electrify, and overall our
    system of generating and delivering power remains the best in
    the world. But to stay that way in the years ahead we need to
    better address existing and emerging threats, and I believe the
    ideas in this discussion draft are a good start.

        Mr. Whitfield. And I will yield back the balance of my
    time, and I recognize the gentleman from California, Mr.
    McNerney, for a 5-minute opening statement.

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

        Mr. McNerney. Thank you, Mr. Chairman. I just wanted to let
    the subcommittee know that the ranking member's plane has been
    delayed, so he will be here later this morning.
        I had a chance to review the discussion draft. I think
    there are some very good provisions in it. We clearly need to
    look at our electrical infrastructure, our security, the
    reliability of it, can we meet the demands of the 21st century.
    And there is a lot of good opportunity and technology out there
    to help us get there, and we want to make sure that we put the
    right incentives in place, and that we give a roadmap that
    makes sense.
        One or two of the provisions in--one or two of the sections
    I think are problematic; we need to discuss those in some
    detail, but by and large, the proposed bill looks favorable.
    And I am going to work with the ranking member to make sure
    that we have something that we can all agree on.
        So with that, I am going to yield back. Anyone else on our
    side needs to--would like to--I would like to recognize the
    gentleman from Texas.
        Mr. Green. Thank you, Mr. Chairman, and I will use all my 5
    minutes for questions.
        But Section 1201 resolves an issue in the Federal law
    between reliability and environmental protection, and that is
    one of the issues that we have worked on on a bipartisan basis.
    I am pleased that it includes issues that both my good friends,
    Congressman Pete Olson and Mike Doyle, and I have worked on,
    and the legislation resolves conflicts in Federal law that puts
    reliability and environmental protections at odds with each
    other. And I have said many times, the choice doesn't have to
    be either/or; it can be both, and we demonstrate it in this
    language.
        And with that, I appreciate the Chair including that, and I
    will have some questions when I get my 5 minutes.
        Thank you, and I will yield back.
        Mr. McNerney. Mr. Chairman, I yield back the remainder of
    my time.
        Mr. Whitfield. Thank you very much.
        Is there anyone else on our side that would like to make a
    statement? OK.
        When Mr. Rush comes in we will give him an opportunity to
    make a statement at that time, if he has one.
        So now we can proceed to our first panel. We are delighted
    to have on our first panel Mr. Michael Bardee, who is the
    Director of the Office of Electric Reliability over at FERC.
    And, Mr. Bardee, thanks very much for being with us today. We
    also have Mr. Gerry Cauley, who is the president and CEO of the
    North American Electric Reliability Corporation. Thank both of
    you gentlemen for being with us. We appreciate your expertise,
    and we look forward to your comments on this discussion draft,
    and look forward to working with you as we move forward.
        So, Mr. Bardee, I will recognize you for a 5-minute opening
    statement.

      STATEMENTS OF MICHAEL BARDEE, DIRECTOR, OFFICE OF ELECTRIC
    RELIABILITY, FEDERAL ENERGY REGULATORY COMMISSION; AND GERRY W.
     CAULEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NORTH AMERICAN
                    ELECTRIC RELIABILITY CORPORATION

                      STATEMENT OF MICHAEL BARDEE

        Mr. Bardee. Thank you, Chairman Whitfield, and members of
    the subcommittee. Thank you for inviting me to appear before
    you today. I am here today as a commission staff witness, and
    my remarks do not necessarily represent the views of the
    commission or any individual commissioner.
        Section 1201 of the discussion draft seeks to resolve
    conflicts between the requirements of Federal Power Act Section
    202(c) and environmental laws. I support the concept in Section
    1201. Operating a power plant in compliance with Section 202(c)
    should not cause a violation of environmental laws.
        Section 1202 of the discussion draft would require the
    commission, in coordination with NERC, to perform reliability
    analyses of major rules proposed or issued by other Federal
    agencies if they may impact an electric generating unit, and
    have an annual effect on the economy of $1 billion or more. The
    number and type of rules that might be subject to this section
    is unclear; thus, it is difficult for me to foresee the
    ramifications of this section. Also, the commission has the
    expertise to evaluate these type of analyses, but generally has
    not maintained the tools and data to perform such analyses
    itself on the proposed timelines. If Congress gives the
    commission this responsibility, Section 1202 should be
    clarified so that planning authorities must timely conduct and
    provide the analyses and information requested by the
    commission. In this way, Section 1202 would rely primarily on
    their existing processes for identifying and addressing
    reliability issues, while allowing the commission to ensure
    consistent, objective analyses of these rules.
        Section 1204 of the discussion draft would allow the
    Department of Energy, in certain circumstances, to require
    actions to address grid security emergencies. The commission
    has approved standards for cybersecurity, physical security,
    and geomagnetic disturbances. Last week, the commission
    proposed to approve, but required changes to, an additional
    standard for GMD events. Section 1204 would address concerns
    that the current processes for developing standards are too
    slow, too open, and too unpredictable for emergencies. But
    while Section 1204 authorizes requirements to protect against
    imminent danger, it should be clarified to also address
    restoration of grid reliability after an unforeseen attack or
    event.
        Section 1208 would require the commission to direct each
    RTO and ISO with a capacity market or comparable market to
    demonstrate how it meets certain requirements. The requirements
    include integrated system planning practices, such as having a
    diverse generation portfolio and stable pricing for customers.
    In general, the commission prefers to rely on competitive
    forces when reasonable, but recognizes that traditional
    regulatory approaches are sometimes needed in wholesale
    electricity markets. Section 1208 takes a different approach
    and would impose on RTO and ISO capacity markets a broad
    overlay of traditional regulatory requirements. This approach
    may reduce the potential for these markets to provide consumers
    with the benefits achievable through competitive forces, and
    may cause unnecessary conflicts between Federal and State
    regulatory efforts. It would be preferable to not codify such
    an approach, and instead, allow the commission to adapt market
    rules over time with the goal of maximizing competitive forces.
        In conclusion, thank you again for inviting me to testify
    today. I would be happy to answer any questions you may have.
        [The prepared statement of Mr. Bardee follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you very much.
        Mr. Cauley, you are recognized for 5 minutes.

                      STATEMENT OF GERRY W. CAULEY

        Mr. Cauley. Thank you, Chairman Whitfield, and good morning
    to the members of the committee.
        I am very pleased to be here today to testify concerning
    the energy reliability and security discussion draft. My name
    is Gerry Cauley, and I am the president and CEO of the North
    American Electric Reliability Corporation. I have dedicated the
    last 35 years of my career to the reliability and security of
    the power grid, and at this point, I can say there has never
    been a time where I have been more concerned about reliability
    and security than today.
        The threat of cyber and physical attacks on the grid by
    nation-state terrorist groups and criminal actors is at an all-
    time high. I believe the first line of defense in securing the
    grid is robust information-sharing regarding threats and
    vulnerabilities. Any one entity, public or private, cannot see
    a complete picture of all security threats and activities.
    Unfettered sharing of information among entities responsible
    for protecting the grid, both industry and Government, helps us
    better understand how to protect the grid. However, sensitive
    grid security information must be effectively safeguarded from
    public disclosure that could allow information to fall into our
    adversaries' hands.
        I am also concerned about potential future risk to
    reliability and adequacy of power supplies that might be
    introduced by Government regulations and rules that cause a
    dramatic transformation in how we produce electricity for our
    customers. As suggested in the draft, such rules should be
    subject to rigorous electrical and market analysis to avoid
    unnecessary risks to future reliability and adequacy of
    electricity supply. As noted in a recent NERC report, it can
    take many years to build transmission lines and gas
    infrastructure to safely accommodate a large transformation of
    our power generation supply.
        I also appreciate the recognition in the draft language
    regarding the role of the Nation's Electric Reliability
    Organization. As the ERO, NERC assures the reliability of power
    system through mandatory standards, rigorous compliance
    monitoring and enforcement, and reliability assessments. We
    also operate the Electricity Sector Information Sharing and
    Analysis Center, and conduct continent-wide security exercises.
    NERC appreciates the recognition in the draft language of the
    ERO's important role in security and reliability assessments.
        In the remainder of my time, I would like to touch on a few
    specific points within the draft language with regard to
    Section 1202 on reliability analysis of major rules. NERC has
    been conducting grid reliability assessments for 45 years, and
    we are expert at it. We perform annual long-term assessments,
    as well as assessments of emerging issues, such as impacts of
    environmental regulations, integration of renewable resources,
    interdependencies with natural gas, and geomagnetic
    disturbances. The bill's reliability analysis section
    identifies a role for FERC in coordination with the ERO to
    conduct an independent reliability analysis and propose new
    rules. And we have three comments on this section. Essentially,
    we support the proposal. NERC would be pleased to work with
    FERC on reliability analysis of proposed new rules that propose
    potential challenges to resource adequacy or reliability.
        And agreeing with my colleague's comments, second point,
    the language triggering a reliability review for any major rule
    that may impact even a single electric generating unit could
    sweep in a larger than necessary number of reviews. And we
    would suggest broader criteria focusing only on the most
    important significant proposed rules would be more practical.
        And finally, we would be more--we think it would be helpful
    to have a bit more time than the 90-day and 120-day proposals
    for the analysis.
        Referring to Section 1204 on grid security, with regard to
    emergency authority language, NERC is supportive of legislation
    clarifying Federal Government authority during grid
    emergencies. Specifically, we appreciate being part of the DOE
    consultation process when considering emergency orders that is
    contemplated in the draft. With regard to information-sharing,
    NERC supports the intent of the draft language to promote
    robust sharing of security information, and the safeguarding of
    sensitive information. However, a significant amount of
    information-sharing already exists, and should be allowed to
    continue. Our cybersecurity standards require reporting of
    certain cyberthreats and incidents. Our ES-ISAC provides a
    venue for sharing a voluntary cyber and physical security
    information across the entire electricity sector. It is
    important to provide key protection sought by the draft for
    critical electric infrastructure information, including Federal
    and State FOIA exemptions, the language proposing FERC
    regulations governing and handling nondisclosure of CEII could
    be helpful.
        Finally, the draft does not address incentives and
    protections for sharing of critical cyber and physical security
    threats and vulnerabilities that are outside the bounds of
    CEII.
        I look forward to your questions. Thank you.
        [The prepared statement of Mr. Cauley follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

          Mr. Whitfield. Thanks, Mr. Cauley. We appreciate the
    testimony of both of you.
        And at this time, I recognize myself for 5 minutes of
    questions.
        I think all of us acknowledge that the electricity industry
    today faces a great deal of uncertainty, and the decisions that
    this Congress makes with bills like what we are trying to put
    together at this time are going to have a great impact going
    forward in the future. And I hope that we can make the right
    decision because the American people deserve it, and we want to
    be competitive in the global marketplace. And one of the real
    frustrating things for me personally has been how aggressive
    EPA has been, and they are focused on a clean environment,
    which is vitally important, but one of the areas that has
    bothered me and many others is that EPA seems to have been
    trying to take a lead in making a decision that reliability is
    not going to be affected in a meaningful way by any of these
    regulations. And we know that EPA has been more prolific in
    this administration than any time in recent memory, and those
    regulations are going to have a dramatic impact. And that is
    why we see so many lawsuits being filed, we are not sure what
    final rules are going to be coming out, so we have a lot of
    uncertainty.
        But Section 1202 is designed to help address this
    reliability issue. And I was reading a statement just this
    morning from one of our witnesses, and he said that 1202, that
    this provision is unnecessary because FERC jurisdictional grid
    regions already are required to assess the impacts of
    environmental standards on grid operations.
        So I would ask you two gentlemen if you would respond to
    that. I mean do you see some real advantage in having our
    Section 1202, or do you believe that maybe this witness is
    correct?
        Mr. Bardee. Chairman Whitfield, I would say that there is a
    fair amount of work done by the industry on these types of
    issues now through entities like NERC, through its regional
    entities, through the utilities. Whether Section 1202 is
    necessary or not I would leave to Congress, but if Congress
    feels like the commission should have the responsibility in
    that section, I would just want to make sure that we could do
    it in a reasonable time frame, and do it well. And I think it
    is important that those perspectives of what will be the
    impacts on reliability should be fully considered, and the
    ramifications explored before any final rule is issued.
        Mr. Whitfield. And, Mr. Cauley, of course, you all have the
    responsibility on reliability, and we all appreciate everything
    that you are doing, but would you comment on my question?
        Mr. Cauley. Sure, Mr. Chairman. I would support the
    inclusion of that section in the final legislation. We do
    assessments all the time, and we have done them on
    environmental issues, we have done them on solar magnetic
    disturbances, essential reliability services, introduction of
    renewables, and most of the time these early warnings and
    assessments of issues coming up can be addressed. The industry
    is flexible, they can adapt, they can make investments and
    change. But I think we have seen sometimes the proposed change
    is too dramatic, and I think that is what I see in limited use,
    in limited cases, that that section would provide a backstop in
    the event that the proposed nonelectric rules were going to
    drive us into an untenable spot in terms of reliability risk,
    whether it is resource availability or it is electric and gas
    infrastructure to support keeping the grid reliable several
    years down the road.
        So I think as a backstop on extreme cases, it is necessary.
        Mr. Whitfield. OK. And would you just briefly summarize the
    conclusion of NERC's recent Phase I report?
        Mr. Cauley. We published a report just in April, the second
    report on the 111(d) proposed rule, and we concluded that there
    would be a continued acceleration of retirement of coal units,
    and a dramatic shift of coal units from being base-loaded to
    being essentially peaking rarely used units. It is questionable
    about whether the economics would support them staying around
    under that little bit of use, and it--we think there might be
    incentives to retire them even further.
        The shift to 70 percent or more of dependence on gas, we
    will--what we need to ensure is that there is adequate gas
    supply. Gas is a just-in-time fuel, and we need to make sure
    there is sufficient pipeline capacity and storage capacity to
    meet the coldest days and the peak load systems, that the
    energy is going to be there for electricity.
        We also are concerned about maintaining a base of electric
    services, essential reliability services. Large rotating
    machines provide these electrical characteristics, inherently
    stability, inertia, voltage and frequency control. So we need
    to make sure that the policies are in place to make sure that
    they are still there.
        So a number of other recommendations and suggestions, but
    we are concerned about the timing of the early portions of the
    targets that were proposed by EPA.
        Mr. Whitfield. Thank you very much. My time has expired.
        At this time, I recognize the gentleman from California,
    Mr. McNerney.
        Mr. McNerney. Thank you, Mr. Chair.
        First, Mr. Cauley, on the Section 1206, which is--I am one
    of the coauthors on ``Cyber Sense''--do you have other
    recommendations how to improve cybersecurity of our electric
    network?
        Mr. Cauley. Well, I think the proposal in 1206 is--can be
    helpful. One of the challenges we have is we have a global
    supply chain in our grid. So to have a process where vendors
    are vetted and equipment is vetted, and we can share that
    information, I think is very helpful. So I support that
    proposal.
        I think the biggest issue for me is ensuring that the asset
    owners in the grid feel that they can share threat and
    vulnerability information; stuff that they are seeing on their
    systems, share it without threat of liability and without
    threat of compliance sanctions, when really, they are just
    trying to help us put together a bigger piece of the puzzle
    about what is happening. I think that is really essential.
        Mr. McNerney. So that might be a way to strengthen that
    section, then?
        Mr. Cauley. Yes.
        Mr. McNerney. Thank you.
        Mr. Chairman, the section I think that is going to give us
    the most controversy is Section 1202.
        And I have a couple of questions, Mr. Bardee, about that.
    Do you feel that Section 1202 will require FERC to interfere
    with State jurisdictions?
        Mr. Bardee. You know, I don't know that Section 1202 would
    cause us to interfere with State authorities and
    responsibility, and certainly, it would be our goal not to do
    so. If we were given that responsibility, I would see it as
    more trying to objectively assess the possible future impacts
    of a proposed rule, and then it would be a matter for the
    initiating agency to consider that input from us and others in
    deciding on a final rule, hopefully in a way that would not
    overstep interstate rules.
        Mr. McNerney. Well, do you feel that FERC and the DOE are
    already coordinating adequately with rule-generating
    organizations?
        Mr. Bardee. Excuse me, with who?
        Mr. McNerney. With rule--with agencies that generate the
    rules.
        Mr. Bardee. We certainly have been engaging with EPA, DOE,
    and the commission. Our staff have been meeting with EPA
    periodically as the Clean Power Plan has been developed, even
    before it was formally proposed. And my expectation is that
    that will continue so that EPA understands the perspectives
    that commission staff and DOE staff can offer to assist them in
    their decision-making.
        Mr. McNerney. Do you think that if Section 1202 is enacted,
    that it would enhance that cooperation, or would it change it,
    or would it make it worse?
        Mr. Bardee. I certainly don't think it would make it worse.
    I think it is hard to say whether it would make a significant
    difference in the amount of engagement between the agencies. I
    think the most important matter is that entities with that kind
    of a planning role continue to perform the work they have
    already, such as NERC, such as PJM, such as WECC, because they
    have the best tools and information to provide that input.
        Mr. McNerney. One of the other issues is the 90 days and
    120 days. The 90 days for a proposal, and 120 from the actual
    rule. Do you think FERC has the resources to be able to
    respond, say, to the Clean Power Plan or the Mercury Air Toxic
    Standards, within that time frame--within those time frames?
        Mr. Bardee. I think it would be very difficult to meet a
    90-day deadline on a proposed rule. Just to give a couple of
    examples, when EPA issued its proposed Clean Power Plan, PJM
    and MISO and ERCOT did not issue their analyses until November,
    which was about 5 months after the proposal came out. I don't
    know how long NERC's work took, Mr. Cauley could address it,
    but I think it was in the range of about 5 to 6 months. And
    whether that can be squeezed into a tighter time, maybe that is
    possible, but 3 months would be very challenging.
        Mr. McNerney. Mr. Cauley, do you want to follow up with
    that?
        Mr. Cauley. Well, we did publish our initial report in
    October. So from June to October. It does take--4 to 5 months
    is an extreme case. We have to collect a lot of data on
    individual generators and load forecasts across all regions
    that we look at, so it is a very data-intensive, very detailed
    analytic process. So 90 days or 120 days both are very short
    for that kind of analysis.
        Mr. McNerney. OK, so an improvement in the bill might be to
    give, say, 6 months or something of that order then?
        Mr. Cauley. That is correct.
        Mr. McNerney. All right, thank you.
        I yield back.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentleman from Texas for 5
    minutes, Mr. Barton.
        Mr. Barton. Thank you, Mr. Chairman.
        I want to ask Mr. Bardee, is it a true statement that
    electricity markets are regional rather than national?
        Mr. Bardee. I think it would be fair to say that the
    electricity markets are regional. There is some trading across
    regional boundaries, but primarily the markets are regional, in
    my view.
        Mr. Barton. OK. I would--Mr. Cauley, do you agree with
    that?
        Mr. Cauley. Yes, sir.
        Mr. Barton. OK. If that is the case, as we are coming up
    with this national bill, do we have the responsibility to allow
    for regional differences in these standards and requirements?
        Mr. Bardee. I think the way I would describe the Clean
    Power Plan is it is a state-centric proposal. There certainly
    have been a number of studies that have indicated significant
    benefits achievable from regional compliance efforts, economic
    benefits and reliability benefits, and I would hope that there
    is a way for the States to achieve some of those benefits, but
    right now, the proposal is State-based.
        Mr. Barton. OK. Well, here is my point I am trying to get
    at. Texas is an anomaly because of ERCOT. Two-thirds of our
    power generation and our consumption is intrastate, within the
    State, and is controlled by the State. It has to comply with
    FERC regulations, but it is independent. About \1/3\, we have
    transmission lines that cross State boundaries in the west and
    in the east, but for all intents and purposes, the bulk of the
    electricity market in Texas is an intrastate market. That is
    not the case in other States. They are almost, I think, all
    interstate markets, but in the Midwest and the Northeast, I
    believe I am correct that their demand curve is flat or
    declining. Is that correct?
        Mr. Bardee. I am not sure, sir, but I certainly am aware
    that load growth has not been as significant as it had been in
    the past. The----
        Mr. Barton. Well----
        Mr. Bardee [continuing]. Rate of increase has declined,
    certainly.
        Mr. Barton. You know, if you have to maintain a reliability
    criteria and protect against cyberthreats in a market that is
    stable, and the demand is either stable or declining, that is
    one thing, if you are in a market, I would say Florida, Texas,
    maybe California, I am not sure, Arizona, where there still is
    robust demand increase, that is an entirely different thing.
    Much different. And, in my opinion, we need to allow for those
    differences at the legislative level, but also at the
    regulatory level at FERC, and it is something that I haven't
    seen a lot of commentary on. We just assume that the
    electricity market in the United States is one big market and
    it is all the same. That is not true. That is not true. It is
    totally different, and as we move forward with this legislative
    proposal, we need to allow for that. If we get it right at the
    legislative level, then there is at least some chance that we
    can get it right at the regulatory level too. And that is the
    main point that I wanted to make, Mr. Chairman, that this is--
    this--we need to look at it from a regional basis, and make
    some allowances to give the State regulatory agencies and the
    FERC with their partners at the North American Electric
    Reliability Corporation the ability to show some flexibility.
        And I am going to yield back the balance of my time.
        Mr. Whitfield. Yes. Well, thank you. I mean you make a--
    definitely a good point because we don't have a national
    market, we do have a very balkanized system, appreciate your
    comments.
        At this time I recognize the gentleman from New York, Mr.
    Tonko, for 5 minutes.
        Mr. Tonko. Thank you, Mr. Chair.
        You state in your testimony, Mr. Bardee, that the Federal
    Power Act, Section 215, is inadequate for emergency action, and
    that the procedures outlined in this section, and I quote, ``do
    not provide an effective and timely means of addressing urgent
    cyber or other national security risks to the bulk power
    system.'' Is this primarily related to the issue of
    deliberative open processes for reliability standards
    development, or are you thinking of other barriers to effect
    and timely action as well?
        Mr. Bardee. What I was trying to describe was the current
    process which is open and very deliberative, and that can be a
    strength in the normal context of developing standards for
    traditional engineering concerns in the electric field. But in
    the context of cyberthreats or physical threats that we may
    face, it is difficult to envision that process working that
    quickly. Now, this past year, we directed NERC to provide a
    standard on physical security within 90 days, to send us a
    proposal within 90 days, and they well met that deadline, but
    even so, it is not clear that you could have that process work
    as quickly as you might need it in an emergency.
        Mr. Tonko. Thank you for the clarification.
        And, Mr. Bardee, again, I am concerned that the language in
    Section 1208 of the discussion draft places too many
    constraints on RTOs and ISOs and their choice of resources they
    might use to ensure grid reliability. Now, this section is not
    very forward-looking. It appears to equate base load power
    capability with reliability. We in New York and in the
    Northeast learned through the experience with Hurricane Sandy
    that systems like combined local or heat and power and micro
    grids provided power for some customers even when the grid went
    down. So as you know, new technologies are being added to the
    grid in greater efficiency, demand response programs, and
    renewable generation are all transforming the grid in very
    rapid fashion.
        Now, it appears that this section would constrain the
    development of these new grid resources, and FERC's ability to
    integrate them into competitive markets. Might that be a
    concern?
        Mr. Bardee. Our concern with Section 1208 is that it could
    be construed as requiring us to set rules and impose standards
    that could chill market participants from the choices they
    might otherwise make of their own free will.
        Now, we understand that sometimes in capacity markets you
    do have to have certain boundaries to elicit a reasonable
    supply at adequate prices, but we think Section 1208 raises an
    undue risk of constraining the choices of market participants.
        Mr. Tonko. So would it have impacted perhaps the outcome
    that was evident in greater New York with the impact of
    Hurricane Sandy?
        Mr. Bardee. I couldn't say for sure. I would say that
    depending on how something like a diverse generation portfolio
    is defined, what are the components of it and what are the
    percentages of it, it could be applied in a manner that would
    limit perhaps the development of distributed generation
    resources.
        Mr. Tonko. And I would ask either of you, if the Strategic
    Transformer Reserve Plan had been in place, how many times
    might it have supplied equipment and response to an emergency
    over the past 5 to 10 years?
        Mr. Cauley. My belief is it would not have been instituted.
    There was a significant amount of transformer capability at
    individual companies. We also have a database for sharing
    transformers that can be swapped in emergencies. So at this
    point, with the number of transformer events, typically in the
    one or two levels, would never have kicked into the strategic
    level.
        Mr. Tonko. Um-hum. And would it have helped in the cases of
    Hurricanes Katrina or Sandy, for example?
        Mr. Cauley. The large equipment, transformers in
    particular, were really not affected by the storms. The storm
    outages were predominantly trees and distribution, and local
    poles and lines, and not the heavy equipment inside of a
    substation.
        Mr. Tonko. And I assume there would be costs associated
    with setting up and operating this transformer reserve program?
        Mr. Cauley. There would be costs, and I don't want to--just
    because it hasn't happened, we have large-scale cyberattacks,
    physical attacks, GMD. I understand the risk that it is trying
    to address, I just think it needs to be very carefully managed,
    what we are trying to achieve. It is a last resort backstop and
    cost needs to be a consideration.
        Mr. Tonko. And, Mr. Barbee, any--Bardee, anything?
        Mr. Bardee. I think it is important to ensure that we have
    an adequate supply of spare transformers and other equipment.
    This could be a useful tool for achieving that goal. It depends
    on the extent of efforts industry is making and will make in
    the future, but I think it could be a good tool for ensuring we
    get there.
        Mr. Tonko. I see my time has expired, so I will yield back,
    Mr. Chair.
        Mr. Whitfield. At this time, I recognize the gentleman from
    Texas, Mr. Olson, for 5 minutes.
        Mr. Olson. I thank the Chair. And welcome, Mr. Bardee and
    Mr. Cauley.
        Our country is vast. Its size means a power crisis could
    happen anytime, anywhere. Hurricanes, tornadoes, earthquakes,
    floods, extreme heat, extreme cold. When that happens, DOE
    might order a coal or gas plant to stay online for a long time.
    We are talking about a short-term order; a matter of days,
    where the plant needs to run full throttle. That is the last
    line of defense to a power crisis. But by following that order,
    the plant might slip past the clean air permits. That isn't a
    loophole; that is DOE working to keep the lights on, and yet
    the plant can be penalized by another agency for extending
    those limits. This has happened before. Right across the
    Potomac on short--it is runway 1 at DCA, a Virginia plant was
    ordered to run beyond its permits. They were fined.
        The first section of this bill deals with this problem. I
    wrote this language with my friends, Mr. Doyle from
    Pennsylvania and my Texan, Mr. Green, to protect our grid and
    our environment. It has passed this committee twice without
    opposition. It has also passed the House twice without a no-
    vote. I am going to push that boulder up the hill one more
    time.
        My question is, is this conflict still a threat, and could
    you discuss whether it is reasonable to trap a company between
    two regulators? You first, Mr. Bardee.
        Mr. Bardee. We never know when that circumstance might
    develop again, but it is possible that it occurs again, and for
    that reason I think it would be helpful to have legislation
    that prevents utilities from having to choose between violating
    their obligations under the Federal Power Act and under an
    environmental law. They shouldn't have to make that choice.
    When they are told to run for reliability purposes under the
    Federal Power Act, they should just do that.
        Mr. Olson. Mr. Cauley, your comments, sir?
        Mr. Cauley. I agree. I support that. I think FERC has been
    effective up to this point in the isolated cases where this
    issue has come up where they have granted must-run status. If
    the 111(d) rule as proposed last year were to go into effect,
    which I hope--hopefully that it is not, that there will be some
    changes, I think the frequency and breadth of those cases would
    be more frequent going forward.
        Mr. Olson. Yes. Back home, we had 2 power plants go out in
    Dallas, Fort Worth just because of ice. Put us into rolling
    blackouts/brownouts for about a 1-day period, so this is very
    important we get this right.
        I want to follow, Mr. Bardee, dig deeper on a line of
    questioning from my colleague from New York about the physical
    and cybersecurity. In your testimony, the--you mentioned the
    process for setting standards is inclusive--now, I want to
    quote, ``but slow, open, and unpredictable.'' And you also said
    that there is ``inadequate''--it is ``inadequate for emergency
    action.'' My question is this. Without this bill, does DOE and
    FERC, or anyone else, have reasonable emergency authority for
    the grid? Do you have it right now? What has changed--what
    needs to change?
        Mr. Bardee. I think this provision would be important for
    ensuring that the Federal Government could require the actions
    necessary in an emergency, whether that is cyber, physical, or
    other type of emergency. There are some authorities that could
    be used. Federal Power Act Section 202(c) that we just talked
    about has some value in certain emergencies. NERC has the
    authority to issue things like alerts and advisories, but they
    do not reach as comprehensively as the proposed legislation in
    the discussion draft, which I think would be important.
        Mr. Olson. Thank you. Mr. Cauley, your comments, sir?
        Mr. Cauley. The words around standards being comprehensive
    and slow and deliberate and inclusive should not be an
    indictment of standards. Standards were not meant to deal with
    emergencies, and they don't. We did a physical security
    standard in 78 days. FERC approved it in 150 days. Standards
    were meant to be more enduring. Emergency powers do not exist,
    they are needed. We support legislation that addresses that.
    Emergency powers, in my view, are meant to deal with crisis
    issues. If--should one military facility have a priority over
    electricity customers in restoring power? Should one city be
    more strategic than another? The industry does not have the
    capability to make those decisions in insolation in a time of
    crisis.
        Mr. Olson. My time has expired. Yield back. Thank you.
        Mr. Whitfield. At this time, I recognize the gentleman from
    Illinois for an opening statement. He was delayed because of a
    plane problem. So, Mr. Rush, you are recognized 5 minutes for
    an opening statement.

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

        Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, I look
    forward to the days that we can have a hearing on airplane
    reliability.
        I want to thank you, Mr. Chairman, for holding this
    important hearing on grid reliability and security.
        Mr. Chairman, with recent high-profile cyberattacks on both
    private and public domestic targets, including entertainment
    companies, financial firms, and even the White House earlier
    this year, it is high time that this subcommittee revisit this
    extremely important issue of grid security and resiliency.
        Mr. Chairman, if recent history is any indication, then it
    is not a matter of if but when some threat, whether it be a
    national disturbance, an individual hacker, a rogue State, or
    even a well-known foreign power, challenges the resiliency of
    our Nation's energy infrastructure.
        Mr. Chairman, this issue of grid reliability and security
    must be addressed in a bipartisan manner. As was done in the
    past with the Grid Act that was originally introduced by then-
    Congressman Markey and the Full Committee Chairman Upton, which
    passed the House in June of 2010.
        Mr. Chairman, while there are some worthy provisions in the
    draft that helps move the ball forward, there is still some
    work to do on some sections of this bill. Specifically, I have
    concerns with Section 1202 which requires FERC to conduct an
    ``independent reliability analysis'' of any proposed or any
    major rule that may have ``an impact on electric utility
    generating unit or units with a major rule defined as any rule
    estimated to cost more than $1 million.'' It is important that
    this section is not used, Mr. Chairman, as a backdoor attempt
    to block critical elements of 2 EPA rules that were promulgated
    recently. The final Mercury Air Toxic Standards, MATS, or the
    proposed Clean Power Plan, CPP.
        Mr. Chairman, FERC or DOE already routinely coordinate with
    other Federal agencies for proposed or final rules affecting
    the electric power sector, and it is not entirely clear if this
    provision could be used to prevent an agency from issuing a
    statutory mandated final rule. In a section that will require
    more than--more work as 2004, and it is--as it is unclear if
    DOE or FERC would have the authority to address vulnerabilities
    or threats to the grid before they happen and take preventive
    measures. It is also not clear if this language authorizes
    requirements for restoration of grid reliability after an
    unforeseen act or event or attack.
        Under the previously mentioned Grid Act, a ``grid security
    threat'' was defined as a substantial likelihood of a malicious
    act or natural occurrence, while in the discussion draft, acts
    or events must pose an imminent danger to the grid in order to
    be considered; setting a much higher bar for regulatory action.
    In addition to these concerns, Mr. Chairman, we want to
    continue to work with the majority to ensure that the final
    draft, specifically Sections 1203, 1207, and 1208, does not
    rely so heavily solely on traditional sources of energy, but
    also promotes the deployment and use of renewable energy
    sources. As the EIA reports, Mr. Chairman, there has been a
    shift in electricity generation toward cleaner sources of
    electricity, with 13 percent of electric generations coming
    from renewable sources, including hydropower, in 2014.
        Mr. Chairman, as renewable energy capacity continues to
    develop in the U.S. due to a range of emerging technologies and
    best practices, it is important that we integrate these
    renewable energy sources into the grid in order to boost fuel
    diversity, while also maintaining reliability.
        So I look forward, Mr. Chairman, to today's witnesses. And
    with that I yield back.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentleman from Illinois, Mr.
    Shimkus, for 5 minutes.
        Mr. Shimkus. Thank you, Mr. Chairman.
        This is a great hearing. Appreciate you all being here. We
    have great concerns about the change in base load generation
    based upon the focus of this administration on continuing to
    ratchet-down emission standards to a point where base load goes
    off-line, and that is kind of the basic premise of a lot of our
    concern about reliability.
        So under the--I was going on the Web site--FERC's
    responsibility is numerous things, independent agency, but
    obviously, on an independent agency that regulates the
    interstate transmission of blank, blank, blank, and
    electricity, which is a responsibility which you all have. So I
    think part of the testimony, Mr. Bardee, kind of surprises us
    when, in your opening statement, you say that FERC lacks the
    tools and data to complete the reliability analysis. It is my
    understanding, based upon your mission statement, that is what
    you are supposed to do. So why do you make that statement?
    Isn't that part of the mission statement of FERC, to regulate
    the interstate transmission of electricity? And why do you say
    that, right now, you don't have the tools and data to be able
    to complete the reliability analysis that is, I think,
    mentioned in 1202?
        Mr. Bardee. What I meant by that, sir, is we do have the
    staff with the expertise to be able to perform that kind of
    analysis, but we do not maintain fully current models, fully
    current data that will allow us to do that without requesting
    assistance from others to update us and provide us with the
    current models that they use--the planning authorities use--and
    the most up-to-date data.
        Mr. Shimkus. And who are you referring to by the planning--
    --
        Mr. Bardee. Planning authorities generally would be
    entities such as PJM; in the west, WECC, the Western
    Electricity Coordinating Council; in the Southeast, Southern is
    the planning authority. In a similar way, NERC functions as
    capable of performing the same types of analyses.
        Mr. Shimkus. But EPA completes a resource adequacy and
    reliability analysis for its regulations, but you all say that
    you lack the tools and the data. So----
        Mr. Bardee. Well----
        Mr. Shimkus. Let me just--I will just finish. Is EPA better
    positioned to complete the reliability analysis than you all
    are?
        Mr. Bardee. No, we--sir, we are fully capable of doing that
    work, but if we were tasked to perform that kind of analysis,
    we would certainly prefer to turn first to the planning
    authorities and say please assist us, and then we will review
    your work, we may ask you to perform additional analyses, we
    may perform supplemental work of our own. We can do that work,
    but they do that work day in and day out and we do not. We just
    have that capability to perform it as-needed. And at times, we
    need to reach out and get information to assist us in
    performing that.
        Mr. Shimkus. And can you help provide for the committee
    the--what the FERC proposed in its 2016 budget for that--for
    the Office of Reliability, and also the number of employees
    that are currently in that Office of Reliability?
        Mr. Bardee. Yes, sir.
        Mr. Shimkus. Thank you very much.
        Mr. Cauley, you mentioned the involvement in the ESI-ISAC,
    so I want to make sure I got that right. Can you explain your
    role in that, and which other agencies and stakeholders NERC
    collaborates with?
        Mr. Cauley. I am the corporate CEO and heavily involved
    directly. I have two officers of the company who manage that
    for us. We coordinate with the entire industry. We have about
    1,500 organizations that are registered users with the ISAC. We
    interface on a daily basis with DHS, the NCCIC, DOE, NSA, FBI,
    and others, to share information.
        Mr. Shimkus. And so you are testifying that it is a good
    model for voluntary information-sharing. This discussion draft,
    does this compliment the work at ES-ISAC?
        Mr. Cauley. My sense is it doesn't really address it. The
    focus on information-sharing in the draft is focused on CEII
    information, which is system planning and study information
    that is filed with FERC or comes available to FERC, but there
    is a wealth, many more times more information that is shared
    unilaterally among the industry that never goes to FERC----
        Mr. Shimkus. Thank you very much. That----
        Mr. Cauley [continuing]. That is not really addressed in
    the draft.
        Mr. Shimkus. Yes, that testimony is very helpful and we
    appreciate that.
        And I yield back.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentleman from Texas, Mr.
    Green, for 5 minutes.
        Mr. Green. Thank you, Mr. Chairman.
        Director Bardee, as I stated a few minutes ago, Section
    1201 resolves an issue in Federal law between reliability and
    environmental protection. Director Bardee, does FERC have any
    concerns that additional conflicts may arise as more
    environmental rules are promulgated?
        Mr. Bardee. It is certainly possible that future conflicts
    will arise, as they have in the past, and for that reason I
    think the goal, the intent of Section 1201 is an appropriate
    one to find a way to resolve those conflicts so the utilities
    aren't stuck with an unenviable choice.
        Mr. Green. OK. Should Congress be on the lookout for
    conflicts? Section 1207 amends the Section 111(d) of the Public
    Utility Regulatory Policies Act, or PURPA, and includes States
    shall consider language. What role should PURPA play in
    markets?
        Mr. Bardee. I think PURPA has served a role in the past,
    but the appropriate role going forward is not something I would
    be prepared to offer an opinion on at this point in time, sir.
        Mr. Green. OK. My understanding, within the last decade,
    the only real change in PURPA has been the ``States shall
    consider'' language. Are you of--either--are either of you
    aware of any broad changes in PURPA since the EPAC '05?
        Mr. Bardee. I am not aware of any, sir. Not significant
    changes.
        Mr. Green. Is PURPA still effective legislation, or should
    there be an effort to readdress PURPA in our committee?
        Mr. Bardee. I could not say at this time, sir. I have not
    focused on that in my recent career.
        Mr. Green. OK. Section 1208 of the discussion draft amends
    the Federal Power Act by adding a new section. Have Regional
    Transmission Organizations, RTOs, or Independent System
    Operators, ISOs, already performed the action under Section
    1208?
        Mr. Bardee. The RTOs and ISOs have certain market rules to
    ensure that they achieve their functions reliably, and those
    goals, in the capacity markets, for example, include ensuring
    that they have a reasonable set of resources to meet those
    needs. They have each taken different ways to do that, and the
    commission has allowed that flexibility for each to approach
    their task as they and their market participants thought
    appropriate. And I think having that flexibility has been
    beneficial.
        Mr. Green. Would FERC requirements bring any additional
    benefits to the market?
        Mr. Bardee. Our goal has been, for many years now, to allow
    competitive forces to produce those benefits wherever possible,
    and to use more traditional tools only when those competitive
    forces were not sufficient.
        Mr. Green. OK. Mr. Chairman, I don't have any more
    questions. Thank you, and I yield back.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentleman from Ohio, Mr.
    Latta, for 5 minutes.
        Mr. Latta. Thank you, Mr. Chairman. And thanks for our
    panel for being with us this morning. It is a very important
    issue.
        I know many in this committee have heard me talk about what
    my district looks like in northwest and west central Ohio with
    just about 60,000 manufacturing jobs, and how important it is
    to have that base load capacity every day to turn those
    machines on to put so many tens of thousands of people to work.
        And, Mr. Bardee, if I could ask this question to you
    regarding Section 1208, and I understand your concern about
    having Congress legislate instead of having FERC use the
    current regulatory structure to operate within the markets, but
    I also have heard again about the concerns surrounding the
    reliability and base load generation going forward, as well as
    the inability of some market structures to function properly.
    These concerns of many in the community believe that some
    legislation may be needed. Could you discuss some ways that we
    could work together to address these concerns in the
    legislation?
        Mr. Bardee. Certainly, I and others at the commission could
    work with the committee staff to see if there were appropriate
    legislative changes. My main concern would be to avoid
    codifying things that might have unforeseen harmful effects on
    those markets and restraining competition.
        Mr. Latta. Could you maybe just enumerate what that might
    be?
        Mr. Bardee. Excuse----
        Mr. Latta. Could you enumerate what that might be? You say
    you would be concerned on some of the codifications.
        Mr. Bardee. I don't have any specific suggestions right now
    on what would be appropriate to codify, but I would certainly
    be willing to discuss that with the committee staff.
        Mr. Latta. OK. Mr. Cauley, if I could ask you. Again, it is
    very important because, regarding the discussion draft that is
    before us today, why is it important that the definition of the
    grid emergency be limited in scope and duration?
        Mr. Cauley. Pardon me? Could you repeat the question?
        Mr. Latta. Yes. Why would--why is it important that the
    definition of the grid emergency be limited in scope and in
    duration?
        Mr. Cauley. Well, I think first, the industry is very adept
    at recovering the system in an emergency situation, and
    deploying resources and equipment to get the system back. And I
    think there are rare occasions and hopefully short duration
    occasions where we are facing a true national crisis, whether
    it is a large-scale cyber or physical attack or coordinated
    terrorist event, which could exceed on an interim basis the
    capability and the coordination of resources of the industry
    leadership. So I think those kinds of things are needed in a
    short period of time, but we should resist thinking that the
    Government or Department of Energy would run the grid for
    months or, you know, operationally take over the grid. I think
    the leadership of the industry is very capable of taking--doing
    the operational aspects.
        Mr. Latta. Let me just follow up. You know, when we are
    talking about these grid emergencies, and I have had some
    discussions in regards to the electromagnetic pulse and
    geomagnetic storms and other, you know, terrorist-type actions
    or malicious acts that could happen, do we--you know, are we
    prepared right now do you think, Mr. Cauley, to meet those
    situations?
        Mr. Cauley. We continue to get more prepared all the time.
    We have a very robust set of cybersecurity standards going into
    their fifth generation, very adaptive to the evolving threats
    situation. We have a new physical security standard that will
    safeguard the highest priority critical stations, that will--
    the first enforcement date for that is October. We have a new
    standard on GMD, withstand capability, so solar storms. We
    have--we are setting up that all equipment has to withstand a
    100-year storm. So we are making progress in those areas. We do
    not have specific rules at this point regarding EMP, but we are
    making progress on what we perceive as the three active threat
    areas that we are focused on at this point.
        Mr. Latta. Let me ask on the EMP, how concerned are you on
    those and that occurring?
        Mr. Cauley. Well, I am concerned. There are different forms
    of EMP. The nuclear blast form seems to be a very catastrophic
    national defense issue. It is very difficult for the power
    industry to defend against that as a civilian industry. In
    terms of a threat to substations, the handheld, vehicle-mounted
    EMP devices appear at this point to be a less imminent threat
    than physical attacks like shootings and bombs and
    cyberattacks, and those kinds of things, that we are working
    hard to protect against at this point.
        Mr. Latta. Well, thank you very much.
        And, Mr. Chairman, I see my time has expired, and I yield
    back.
        Mr. Whitfield. At this time, I recognize the gentleman from
    Pennsylvania, Mr. Doyle, for 5 minutes.
        Mr. Doyle. Thank you, Mr. Chairman. And I want to thank you
    and the ranking member for holding this hearing on grid
    reliability. And I want to thank both you gentlemen for
    testifying today.
        Mr. Bardee, I was glad to see your support for, as you say,
    the concept behind Section 1201 of this discussion draft. It is
    something that I strongly support too; that we need to make
    sure that we keep the lights on for our constituents. It seems
    to be the main goal of the energy industry; providing power to
    people when they need it.
        As many of the members of the committee know, we have been
    working with Congressman Olson and Green on this legislation
    for 3 years now to reach a compromise that eventually passed
    this committee last session by voice vote, and later passed the
    House by a voice vote.
        Many of the questions that I have have already been asked,
    I just want to go over a couple of things. So you gentlemen
    both agree that it is important that we give the industry some
    clarity regarding what they are supposed to do in an emergency
    situation, is that correct?
        Mr. Bardee. Yes, sir.
        Mr. Doyle. And do you think Section 1202 accomplishes that
    goal, or is there something more that--you know, as you read
    the section, do you think it gets us where we need to be when
    we have those emergency situations?
        Mr. Bardee. Sir, I don't have an opinion on the exact
    wording of this section. It certainly is aimed at addressing
    the concern that you have identified, and I support, of
    providing clarity. Whether others think there might be, you
    know, slightly different wording that would be appropriate, I
    would defer to them.
        Mr. Doyle. Um-hum. Mr. Cauley?
        Mr. Cauley. And we would agree exactly. The purpose and
    intent is right, the general direction is right, but specific
    language we don't have an opinion on.
        Mr. Doyle. Great. No, I understand. I heard both of you
    gentlemen express concern over a 90-day period that can conduct
    the reliability assessment. I just wanted to be clear what are
    you recommending? Obviously, you think 90 days is much too
    short of a time. Were you advocating--did I hear you say 120
    days, or longer than that?
        Mr. Cauley. I think one thing in that section of the draft,
    hopefully when it is concluded, will be more flexible in terms
    of understanding that not every conflict between reliability
    and other rules is going to be equal. Sometimes it might be
    regional, sometimes it might be a national issue, sometimes it
    might be very complex. A very short assessment period is 4
    months. Extremely short with a limited scope. More complex
    ones, 6 months would be a minimum time to do a competent job.
        Mr. Doyle. Do you agree with that?
        Mr. Bardee. I would agree, sir.
        Mr. Doyle. So a 4-to-6-month time frame, you are saying,
    makes a lot more sense than--and 90 days is just not practical.
    And let me just finally ask because, as I said, many of these
    questions have been asked already, but I want you both to just
    answer, you know, what really concerns you in terms of the
    greatest challenges that we are facing on grid reliability and
    security? What scares you that we either aren't paying
    attention to or aren't resourcing properly or, you know, what
    should we be focused on in terms of that? What do you see as
    those--the greatest challenges that we face on reliability and
    security?
        Mr. Cauley. I will suggest two areas. One is a dramatic
    reform and transformation of the grid under the current
    environmental rules. There is a lot of change anticipated, a
    lot of shifting to new resources, new kinds of controls and
    dispatch, underlying infrastructure and transmission and gas
    pipelines to support that. So the concern is making sure that
    we have done the analysis, that we know where we are going is
    safe, that we have the right resources, that we can withstand
    extreme droughts and heatwaves and cold weather, and not
    disappoint electricity customers. The second area that I worry
    about most is in the cyber and physical security area, and just
    making sure that our mounting defenses are good enough and we
    are staying ahead of the game with our adversaries.
        Mr. Bardee. I would just add two more sort of subcomponents
    of what Mr. Cauley has just emphasized. As the grid continues
    to transform, I think we need to focus on 2 issues
    significantly. One is, the growing dependence on natural gas
    means that we need to look and ensure that we have an adequate
    infrastructure, whether it be pipelines or dual fuel facilities
    or onsite storage, those kinds of techniques for ensuring that
    we can use the gas when we need to. And the other component
    that I would add is what has been called essential reliability
    services; things like voltage support and frequency support. As
    we change the resources that we rely on, we need to make sure
    we have the right tools in place, the right metrics, and the
    right standards.
        Mr. Doyle. Thank you. Mr. Chairman, I see my time is
    expiring, but I would say that I think it would be shortsighted
    for us to put all our eggs in any one fuel basket, and we have
    a lot of work to do on energy infrastructure.
        Thank you for the time.
        Mr. Whitfield. Thank you very much.
        And at this time, I recognize the gentleman from Virginia,
    Mr. Griffith, for 5 minutes.
        Mr. Griffith. Thank you very much. And appreciate you all
    being here for the hearing.
        You just had a discussion in regard to the timelines that
    are built into the bill, and indicated that you all would need
    more time to do your analyses, isn't that correct?
        Mr. Cauley. Yes. Yes, sir.
        Mr. Griffith. And, Mr. Bardee?
        Mr. Bardee. Yes, sir.
        Mr. Griffith. And I certainly appreciate that and hope that
    we will incorporate that into the final draft. That being said,
    the Clean Power Plan requires the States to come up with I
    think it is 13 months, but less than a year and a half. After
    the plan is a final rule, the Clean Power Plan requires the
    States to come up with their plan, which then must be--begin
    implementation by 2020. Doesn't that seem to be rather short?
    If it is going to take you all, the experts in this, more than
    90 or 120 days to come up with an analysis of the plan, doesn't
    it just scream out that reason would call that the States need
    more time to come up with their plan as well?
        Mr. Bardee. Certainly, I have heard representatives for
    States express their need for more time, and as you have heard
    here today, we have expressed a need for more time if we are
    given the responsibilities described in the legislation.
        Mr. Griffith. And I certain appreciate that and understand
    that you do need more time. I also note that--Mr. Cauley, that
    NERC's recommendations in the 2 reports that have come out have
    both addressed that concern, not just on your behalf, but on
    concern of the industry and grid reliability, that there is
    more time needed to address the reliability concerns and
    infrastructure deployment, more time to accommodate reliability
    enhancement, more time to develop coordinated plans to address
    shifts in generation. Is that a fair statement of your
    position?
        Mr. Cauley. That is true, and I think you have touched on
    the planning and preparation is difficult. Some States might
    require legislation. It is broader, it includes energy
    efficiency and renewables. So we have--actually have the easy
    job of just doing the reliability analysis. I think it is very
    complex at each individual State, and it is going to be a
    challenge under those time constraints.
        Mr. Griffith. And I do appreciate that. It is one of the
    reasons why I think your report highlights another important
    reason why we need to pass the Ratepayer Protection Act, which
    would require that the challenges--the legal challenges, I
    don't think they pass the muster. I think they fail in the
    courts on the Clean Power Plan. I don't think they have the
    authority under 111(d). But it requires that the issue be
    resolved before they can move forward, and that also would buy
    everybody a little bit more time to prepare if that is the
    direction we are going in.
        Now, that being said as well, one of the things that your
    report showed, Mr. Cauley, your November report, in there you
    said, potential issues are most acute in areas where power
    generators rely on interruptible natural gas pipeline
    transportation. Could you elaborate on that for just a minute
    for me?
        Mr. Cauley. Well, my concern is that the business model for
    gas is different than the business model for electricity. In
    the gas industry, if you pay for a pipeline and you pay for
    capacity in a pipeline, you can have it and use it on a firm
    basis. The difficulty is you don't want to pay for the entire
    year for those 3 days when you have the extreme cold in the
    middle of winter. So in the electricity side we have an
    obligation to serve and we must provide electricity. The
    disconnect is we don't see that same business model on the
    delivery of gas. So somehow those two disconnects have got to
    be dealt with.
        Mr. Griffith. And you really don't have that problem if you
    are dealing with coal because they can just load some ore on a
    train or a truck, isn't that correct?
        Mr. Cauley. Well, that is why fuel diversity is a benefit
    because some resources will have fuel onsite, and gives us some
    security, you know, even if the rivers are frozen or something
    like that. If there is a pile there, we can get to it.
        Mr. Griffith. Right. And your reports also indicate that,
    again, remember, we are talking about a plan coming out
    sometime this summer, States have to have their plan done in
    2016, and then compliance beginning in 2020, and yet in many
    areas of the Nation there aren't sufficient gas pipelines. As a
    result of that, in my region we have controversy over 2
    pipelines that are now getting started, and they are laying out
    the plans and so forth. But I think your report indicated
    sometimes it takes 5 to 6 years just to get that up and
    running. And--am I not correct--is that correct?
        Mr. Cauley. That is correct. In most cases, it does.
        Mr. Griffith. And then that puts us beyond the 2020 start
    date to comply for the States, so it makes it very difficult
    for the States then to be able to use or to count on the
    natural gas that is not yet there, if it is just in the
    planning stages. And I would also note, because my time is
    running out, it also means that we don't have time for the
    clean coal technologies which the Department of Energy indicate
    are probably going to be viable, at least 1 or more, by 2025 to
    incorporate those into the State plans that have to be done
    under the Clean Power Plan by next year, isn't that correct?
        Mr. Cauley. That was the intent of our report, to highlight
    the physical constraints of getting there to the early years of
    the targets.
        Mr. Griffith. I thank you very much, and yield back.
        Mr. Whitfield. At this time, I recognize the gentleman from
    New York, Mr. Engel, for 5 minutes.
        Mr. Engel. Thank you. Thank you very much, Mr. Chairman.
        Let me first say it is vital that we work together in a
    bipartisan way, so I thank you for this, to improve the
    reliability, resilience, and security of our electric grid.
        Today, the U.S. electric power system consists of
    approximately 390,000 miles of transmission lines, including
    more than 200,000 miles of high-voltage lines, connecting to
    more than 6,000 power stations and 45,000 substations. Now, a
    report last year by the National Governors Association found
    that 70 percent of the Nation's transmission lines and
    transformers are at least 25 years old, and 60 percent of
    circuit breakers are at least 30 years old. And it is noted
    that much of the infrastructure was designed in the 1950s,
    making this system, and I quote, ``vulnerable to disruption.''
        Mr. Tonko asked a question about Hurricane Sandy. I want to
    go back to Superstorm Sandy, because that is a powerful example
    of one of those disruptions. Sandy swept through my district
    and the surrounding region in October 2012, knocking out power
    to over 8 million people. Some New Yorkers, including my
    district, waited more than 2 weeks for their lights to turn
    back on, struggling the whole time to keep their families safe
    and warm and fed. To protect against this type of outage in the
    future, New York is working to design and implement an
    initiative called Reforming the Energy Vision, or REV, and
    among other things, REV is designed to take pressure off the
    grid by promoting the generation of distributed power, such as
    solar, wind, combined heat and power, energy storage, and other
    systems, at customer locations. This would essentially turn
    electric utilities into a new kind of entity which, instead of
    distributing electricity themselves, would effectively direct
    traffic by coordinating distribution of electricity produced by
    a multitude of smaller entities.
        So let me ask you gentlemen, are you familiar with the REV
    initiative in New York, do you think its distributed generation
    model should be replicated in other regions, would the draft
    legislation we are discussing today encourage or discourage the
    use of this model?
        Mr. Bardee. Sir, I am somewhat familiar with the
    initiative, and I think from my perspective, working at the
    commission, our goal would be to not impede New York's ability
    to do that and let them make those choices, as other States can
    choose for themselves what types of resources they think
    appropriate.
        Mr. Cauley. I also am familiar a bit from afar. During
    Superstorm Sandy, the bulk power grid actually performed very
    well and remained intact during the storm. The vast majority of
    the impacts were at the distribution level, as I said, power
    lines down the streets and so on. I think anything that can be
    done to build resilience through the grid at both the
    distribution and the bulk power side is helpful. I just do
    believe that it needs to be balanced in terms of reliance on a
    strong interconnected grid is helpful, but also having
    resources and backup capability at individual customers'
    critical loads is very important as well.
        Mr. Tonko. Thank you very much. I think it is a good
    initiative, and we will--time will, of course, tell, but I
    think it is innovative and something that we should move
    towards.
        In addition to managing demand and strengthening our grid
    to protect against power outages, I believe we must also look
    at ways to restore power if and when a disruption does occur.
    What do you believe are the most important things we can do to
    enable a rapid restoration of power?
        Mr. Cauley. I think we look at Sandy as probably the most
    recent learning experience, and in many respects, the
    restoration was executed superbly in terms of moving of trucks
    and equipment and resources across long distances, and getting
    equipment back together. I think what I took away in a number
    of reports is sometimes we have to make sure that we are
    focused on the human toll during an event. People can't charge
    their devices, they can't find gas, in some cases food may be
    hard to acquire, so I think that was a great learning from
    Sandy that it is not just getting the lights back on and the
    poles back up as quickly as possible, but how do you help the
    public cope during that event, and how do you make sure gas
    stations and other key resources have power that they need to
    supply citizens.
        Mr. Bardee. I think the only thing I would add is in terms
    of design resiliency, there are things you can do in terms of
    the hardening of existing facilities. There are also
    techniques, and these were brought out to light by Hurricane
    Sandy. So I think those are also important aspects of how to
    address these going forward.
        Mr. Tonko. You know the slogan, the perfect storm, this
    actually was the perfect storm, or most imperfect storm, but it
    was just something that, unfortunately, we can learn from it
    because a lot of people obviously suffered from it.
        Thank you, gentlemen. Thank you, Mr. Chairman.
        Mr. Whitfield. At this time, I recognize the gentleman from
    Missouri, Mr. Long, for 5 minutes.
        Mr. Long. Thank you, Mr. Chairman.
        Mr. Cauley, during your question-and-answer session here
    today, you said that hopefully there will be some changes to
    111(d) before implementation. What type of changes would you
    like to see in 111(d)?
        Mr. Cauley. I am hopeful, only because I have listened in
    public to statements by senior officials at EPA, so I have no
    particular information, but I think in terms of timing of the
    targets to make a more progressive transition. Ideally----
        Mr. Long. More progressive?
        Mr. Cauley. More--not in a political sense, but in a----
        Mr. Long. Well, I know not the political sense, but I am
    talking about more rapidly, progressive?
        Mr. Cauley. But to slow them down and phase them in more
    gently so that--essentially, the way the original proposal was
    is targets were, on average, you had to be 80 percent of the
    way there in the first year. That was too steep of a hill to
    climb, I think, physically in terms of reliability. So our
    suggestion in terms of timing would be to make the compliance
    targets more gradual, more phased-in over a period of time to
    allow us to make sure that the infrastructure is there, gas and
    transmission and the dispatch capability is there to meet those
    targets.
        Mr. Long. OK. Yes, I--on progressive, I didn't mean to
    imply politically, but I thought you were wanting to speed up
    the process----
        Mr. Cauley. No, slow it down----
        Mr. Long [continuing]. But the opposite is true?
        Mr. Cauley [continuing]. On the front end.
        Mr. Long. Yes, OK. Also for you, Mr. Cauley, the EPA's
    proposed rule includes interim targets beginning in 2020. Based
    on this rule, 11 States have achieved--11 States must achieve
    75 percent of the total goal for the first interim date of
    2020. And my State of Missouri has to achieve over 60 percent
    total goal by then. What impact do you think the sudden change
    by States to meet the 2020 interim targets will have on
    reliability issues?
        Mr. Cauley. Well, it creates challenges in terms of--if
    some units may be forced to retire, they are no longer
    economic, and particularly coal and base load units----
        Mr. Long. And I might add we get 85 percent of our
    electricity from coal in Missouri.
        Mr. Cauley. Some of those units might not retire, but might
    not be available to operate but at very limited times. In
    regions where gas--natural gas supply is an issue, going from
    less than 30 percent dependence on gas to 70 percent dependence
    creates a huge new demand on gas utilization, and whether the
    gas is going to be there every day in the cold days in the
    winter is going to be a challenge.
        Mr. Long. OK. Also for you, Mr. Cauley, the--when NERC puts
    out an alert, what is the general response time of the utility
    sector?
        Mr. Cauley. The alerts vary. There is a level 1, 2, and 3,
    and we can set whatever response time is appropriate for the
    situation. A level 3 is the most urgent, and it requires a
    mandated response from the entities. Level 1 is an advisory
    heads-up, and level 2 is a recommended set of actions, but does
    not require a response back that it was completed.
        Mr. Long. OK, thank you.
        And for you, Mr. Bardee, I understand you have concerns
    regarding the timing for FERC to complete its required analysis
    within the 90 days of being proposed. Wouldn't you agree that
    having such a report would be beneficial to those members of
    the public submitting comments on the proposed rule?
        Mr. Bardee. I think the analyses that we have seen, for
    example, in the context of the Clean Power Plan are certainly
    informative and useful, and I am sure the public has benefitted
    from seeing that information.
        Mr. Long. OK. What role should FERC have in the review of
    State implementation plans, and what about in review of Federal
    plans?
        Mr. Bardee. You know, the commissioners wrote a letter to
    EPA just this past week addressing that point, and what they
    indicated was that they felt they needed to be careful not to
    overstep their role and intrude on the authority and
    responsibility of States. But having said that, they indicated
    that the existing processes would be the starting point for how
    to address the reliability implications of those plans. And
    that could be supplemented with any additional guidance or work
    that the commissioners felt appropriate.
        Mr. Long. To save me trying to run that down, could you
    provide my staff with a copy of that letter?
        Mr. Bardee. Yes, sir.
        Mr. Long. OK, thank you all.
        And, Mr. Chairman, I yield back.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentleman from Illinois, Mr.
    Rush, for 5 minutes.
        Mr. Rush. I want to thank you, Mr. Chairman.
        Director Bardee, on the previous version of the Grid Act
    grid security threat was defined as a substantial likelihood of
    a malicious act or natural occurrence, while in the discussion
    draft, acts or events must pose an imminent danger to the grid
    in order to be considered for action, setting a much higher bar
    for regulatory action. In your opinion, does Section 1204 make
    it clear that DOE or FERC have the authority to address
    vulnerabilities or threats to the grids--grid before they
    happen, and can take preventive measures? Also, you had
    recommendations for clarifying that this language authorizes
    requirements for restoration of grid reliability after an
    unforeseen act or event. Can you also talk about these
    recommendations that you have?
        Mr. Bardee. The section would authorize the Department of
    Energy to take these actions, not the commission, and it would
    address grid security emergencies, as you have indicated,
    defined as an imminent danger. Whether that gets to
    vulnerabilities is not clear to me. I don't think it would
    include a vulnerability unless it also posed an imminent
    danger. But I think, nonetheless, the authority in that
    provision would be a beneficial one and would allow the
    Department, the Secretary of Energy, to take action in an
    emergency, or after an emergency--well, let me put it this way.
    I would hope that the provision would be clarified to allow the
    Secretary to take action after an unforeseen attack or event. I
    think that is as important as being able to take action to
    protect against an--a foreseen imminent danger.
        Mr. Rush. Mr. Cauley, do you have any remarks?
        Mr. Cauley. Yes, I support the direction of that section in
    the draft, and I agree with your point that the emergency may
    become apparent beforehand, and maybe we can prevent it. It may
    be how do you respond during an attack, and then how do you
    recover after the fact. And I think we should be clear in the
    language that it would potentially have that authority during
    that entire span before, during, and after, as needed. So thank
    you.
        Mr. Rush. In your testimony, Mr. Bardee, you note that for
    years FERC has sought to foster the development of competitive
    markets for wholesale electricity that benefit energy consumers
    by encourage the diverse resources, spurring innovation and
    deployment of new technologies. How does Section 1208 differ in
    its approach?
        Mr. Bardee. Section 1208 would have the RTOs, the ISOs, and
    the commission address whether those markets met certain
    parameters such as a diverse generation portfolio, stable
    pricing for customers, pricing adequacy for resources. And
    those are all considerations typically considered by States
    when they do integrated resource planning. But in the context
    of the wholesale markets, the commission has tried to rely more
    on competitive forces when those forces were sufficient, and
    the kinds of techniques I have just mentioned and that are
    included in Section 1208 could be applied--could construed in
    ways that would constrain those forces--those competitive
    forces unnecessarily, and that would concern us.
        Mr. Rush. Does the legislative mandate drafted in Section
    1208 maximize competition in order to best benefit consumers?
        Mr. Bardee. Well, certainly, our goal under the Federal
    Power Act, as we administer it now, would be to do so; to
    maximize competitive forces within those markets for the
    benefit of consumers. And I would hope that our authority to do
    that is not constrained in ways that reduce those benefits.
        Mr. Rush. I want to thank you, Mr. Chairman. I yield back.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentlelady from North
    Carolina, Mrs. Ellmers, for 5 minutes.
        Mrs. Ellmers. Thank you, Mr. Chairman. And I would like to
    thank you also for this subcommittee hearing, and your staff
    for the hard work that they have done on this discussion draft.
    It is--as we all know, it is no secret that our grid
    infrastructure is aging and needs modernization. A more secure,
    reliable, and resilient grid is a matter of national security,
    and I am pleased to see the leadership of this committee on
    this matter.
        Mr. Bardee, I would like to ask you a question first. In
    November of last year, FERC issued Order number 802 approving
    the reliability standard which relates to physical security.
    Can you briefly explain on this new--what this new physical
    security standard is?
        Mr. Bardee. Sure. The proposal sent to us by NERC and that
    we approved basically had 3 steps in it. The first was for the
    affected utilities to identify their critical facilities. The
    second was to then assess the threats and vulnerabilities that
    those facilities may face. And the third step was to develop a
    plan to mitigate those threats and vulnerabilities. Right now,
    the industry is working very hard to meet the first task;
    identifying their critical facilities. That is due to be
    completed in October, and then the other steps follow in
    sequence over time.
        Mrs. Ellmers. Um-hum. And when we are talking about
    industry, are we also talking about the electricity sector?
        Mr. Bardee. Yes.
        Mrs. Ellmers. Yes, OK. Just to be clear. And is compliance
    mandatory?
        Mr. Bardee. Compliance is mandatory.
        Mrs. Ellmers. It is mandatory. Thank you.
        Mr. Cauley, thank you for being here as well. And since
    becoming officially designated Electric Reliability
    Organization, established by Congress in 2005, what would you
    say has been ERC's most significant contribution to ensuring
    reliability?
        Mr. Cauley. Well, I think there are many, but I think the
    mandatory standards and enforcement capability, we have a very
    comprehensive regime of compliance audits and reviews, has had
    a very significant improvement on the bulk power performance.
        Mrs. Ellmers. Um-hum.
        Mr. Cauley. We have seen things like vegetation management
    issues that cause--were the triggering events for the 2003
    blackout, have essentially gone to zero----
        Mrs. Ellmers. Um-hum.
        Mr. Cauley [continuing]. And so there are a number of areas
    where we have seen significant improvement and performance
    across-
        Mrs. Ellmers. Um-hum.
        Mr. Cauley [continuing]. Electric industry.
        Mrs. Ellmers. What do you feel--what else can be done in
    order to improve upon this?
        Mr. Cauley. Well, we do a lot of other things. We are
    moving into an area of technical analytics where we can get a
    lot of detailed----
        Mrs. Ellmers. Um-hum.
        Mr. Cauley [continuing]. Performance information. I think
    we are getting much smarter in the last few years about what
    causes equipment to fail and why do events happen. So we are
    getting that information out----
        Mrs. Ellmers. Um-hum.
        Mr. Cauley [continuing]. In terms of lessons learned and
    recommendations to industry.
        Mrs. Ellmers. And there again, when we consider industry,
    what more can industry do to improve upon this as well, and
    what part do they play?
        Mr. Cauley. Well, industry has been working very closely
    with us. We have a number of technical----
        Mrs. Ellmers. Um-hum.
        Mr. Cauley [continuing]. Committees. We--another example is
    the polar vortex and the cold weather, there was a lot more----
        Mrs. Ellmers. Um-hum.
        Mr. Cauley [continuing]. There in a couple of events and we
    survived the most recent version of that with a lot of the
    information we were able to get out; why does instrumentation
    freeze up, what kind of exposure problems were we seeing. So we
    have been working with industry to turn that information----
        Mrs. Ellmers. Um-hum.
        Mr. Cauley [continuing]. Back around. What I find is that
    most of the time in most issues, industry will do the right
    thing because they are interested in serving their customers as
    much as anybody else, if they know what it is that they have to
    do.
        Mrs. Ellmers. Great, thank you so much.
        Mr. Chairman, I yield back the remainder of my time.
        Mr. Whitfield. Gentlelady yields back the balance of her
    time.
        At this time, I will recognize the gentleman from Texas,
    Mr. Flores, for 5 minutes.
        Mr. Flores. Thank you, Mr. Chairman, and I appreciate the
    opportunity to be part of this hearing.
        Mr. Bardee, in your testimony you discuss the concern that
    the overlay of regulatory requirements in competitive markets
    may reduce the potential for these markets to provide consumers
    with the benefits achievable through competitive forces.
    Basically, I think what that report says is that we should let
    the electricity markets work in a free fashion and not distort
    them, in other words, not picking winners and losers. And my
    question is this. Can we infer based on the testimony that FERC
    does not approve of the wind production tax credit or State
    renewable requirements, or other similar actions that impair
    the ability of a competitive market to behave like a truly
    competitive market?
        Mr. Bardee. I actually don't have an opinion on those
    particular issues, but certainly, the goal of the commission is
    to rely on competitive forces and prevent undue discrimination.
    That is our--one of our core responsibilities under the Federal
    Power Act, and we seek to do that so that all resources are
    able to compete in the wholesale markets.
        Mr. Flores. OK. Thank you. And, Mr. Bardee--or, excuse me,
    Mr. Cauley, you noted that FERC has recently approved the NREC
    [sic] Critical Infrastructure Protection Version 5 standards
    which become enforceable on April 1 of next year, related to
    cybersecurity. First question is, can you briefly expand on the
    new Version 5 cybersecurity standards?
        Mr. Cauley. Well, these are dramatically different. First
    off, they cover the entirety of the bulk power system, not just
    the high priority, highest voltage equipment. They require a
    risk-based controls approach, which means set up the systems to
    monitor, patch, keep up your defenses, as opposed to a sort of
    checklist-type approach. And those are the predominant changes,
    and it is prioritized, so we will have the most extensive
    controls on the highest voltage, highest critical equipment,
    and because of cost considerations and balancing risk, the
    lowest priority parts of the system will receive some amount of
    controls and assurance but not as extensive.
        Mr. Flores. OK. So the electricity sector is certainly
    subject to the standards. Is compliance mandatory?
        Mr. Cauley. Yes, it is with everyone.
        Mr. Flores. OK. Mr. Chairman, that is all my questions.
    Thank you, and I yield back the balance of my time.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentleman from West Virginia,
    Mr. McKinley, for 5 minutes.
        Mr. McKinley. Thank you, Mr. Chairman.
        Couple of questions back on the--Section 1202 dealt with
    the major rule in the billion-dollar threshold. In the last two
    Congresses, we have been dealing with the threshold level of
    $100 million, and we have lowered that to $50 million for the
    reason that at $100 million, 98.5 percent of all rules fall
    under the $100 million classification. So I am curious, how
    many will fall above $1 billion annually?
        Mr. Bardee. I don't have a sense of that, sir. It is just
    hard for me to know. I will tell you that from my experience at
    the commission, I can't think of a rule that would cross that
    threshold. Perhaps going back years ago to when we required
    open access, but I would have to go back and look at that.
        Mr. McKinley. OK. Just curious because I don't think this
    is even going to apply at a billion dollars on that, so thank
    you, based on what we know from the Rain Act.
        Secondly, Moeller from FERC was here several times, and
    made comments in 13 and 14. Both times he was saying from FERC
    that if we don't do something drastic here in Washington, we
    are going to see rolling brownouts in the Midwest by the year
    2017. I--we asked that question of Ms. Miles that was here last
    week and she refused to comment. Do you have a comment about
    that? Is that an accurate statement, if we don't do something,
    we are going to see some brownouts? I heard you talk a little
    bit about gas pipeline networking and like--but given that the
    long length of time it takes to get that permitting and--are we
    facing that in the Midwest? Do you agree or disagree with
    Moeller's comments?
        Mr. Bardee. Certainly, there will be work to do if EPA
    adopts a final rule for the Clean Power Plan, along the lines
    of developing infrastructure like I mentioned earlier, the gas
    infrastructure and also the electric infrastructure. Looking at
    the information that is available on the plan as it has been
    analyzed over recent months, I think some States will have
    little difficulty complying with the plan. States like
    California or some of the States in the RGGI Program. On the
    other end of the spectrum, a State like Arizona would have
    significant challenge in doing that.
        Mr. McKinley. Well, so does this mean--do you agree with
    Moeller's statement that we could have problems by--in 2017 if
    we don't do something?
        Mr. Bardee. I think looking at the body----
        Mr. McKinley. It is a yes or no----
        Mr. Bardee [continuing]. Of analysis----
        Mr. McKinley. Should be a yes or no. I am sorry--we only
    have 5 minutes, we have to keep our responses as short as
    possible. So do you agree or disagree with Moeller?
        Mr. Bardee. I would say, sir, that the industry has a
    history of meeting the challenges presented to it, whether you
    look back at something like the acid rain issue or
    transitioning to open access, like we----
        Mr. McKinley. Well, this--thank you. This is Washington, I
    guess, we are not going to get that answer that I was looking
    for one way or the other.
        Earlier this year, we had a panel up here that were talking
    about cybersecurity, and finally when I asked the question of
    all the issues that had been raised, where should we be
    prioritizing, and he sat--remember he sat at the very end seat,
    he said, on cybersecurity, he said, a high school kid could
    hack into our grid system in America within 4 days and shut our
    grid down. That ought to concern a lot of us about the
    capabilities or the vulnerabilities we have. Do you agree, both
    of you, that--how vulnerable we are with a high school kid
    being able to hack in and shut down our grid?
        Mr. Cauley. I am not sure I agree with that specific
    example, but I do have cybersecurity as our number 1 priority
    on protecting the grid.
        Mr. McKinley. OK. Let's--in the time frame that I have,
    just--if you were starting together--Mr. Bardee, if you started
    from scratch with this legislation, because there has been some
    criticism and there has been some positives said about this, if
    you had to start from scratch, what would be the number one
    thing that you think we should do on grid reliability? First
    thing that--if you had to write a whole new bill, what would it
    be? What would be the first thing you would include in it?
        Mr. Bardee. I think I would start with Section 1204 on
    dealing with grid security emergencies. Of the issues in here,
    that would be my foremost----
        Mr. McKinley. OK, 1204.
        Mr. Bardee [continuing]. Recommendation.
        Mr. McKinley. OK, thank you.
        And I am running out of time, so I yield back the balance
    of my time. Thank you very much.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentleman from Ohio, Mr.
    Johnson, for 5 minutes.
        Mr. Johnson. Thank you, Mr. Chairman.
        Mr. Bardee, I represent an area of our Nation, a swath of
    our State, Appalachia, where energy and electric reliability is
    of critical importance. Many seniors live out in rural areas.
    When the power goes out, cell phone towers are gone, telephones
    don't work, these--many of these seniors have health issues, no
    way to get in contact with them. I have had manufacturers
    coming to me saying that they have been approached by the
    energy companies asking them to idol their plants for a period
    of time because there is not enough energy on the grid to meet
    peak demands. So electric reliability is a big issue. And when
    you look at power plants, they take a long time to build, so if
    we lose one to retirement, it can take perhaps bumping up on to
    a decade to get those power plants replaced.
        Can you give me assurance today that we will have
    sufficient base load capacity available 10 years from now to
    assure electric reliability?
        Mr. Bardee. What I would say, sir, is, as I mentioned
    earlier, the industry has a demonstrated history of meeting the
    challenges given to it.
        Mr. Johnson. No, I don't want a political correct answer.
    That is a very simple question. In your position, can you
    assure me that we are going to have enough base load capacity
    to ensure electric reliability 10 years from now?
        Mr. Bardee. I think the industry will do what it needs to
    do, sir.
        Mr. Johnson. No, I am asking you your opinion.
        Mr. Bardee. We will do what we need to do to fulfill our--
    --
        Mr. Johnson. Is that a yes----
        Mr. Bardee [continuing]. Responsibilities.
        Mr. Johnson [continuing]. Or--is that a yes?
        Mr. Bardee. I think all of us are committed to maintaining
    reliability, sir.
        Mr. Johnson. OK. All right. Well, let me ask you another
    question then. Would you explain--because what I have heard you
    say is that you won't say yes, so I see that as a big maybe. So
    if we can't assure reliability, why would FERC have a problem
    asking RTOs that operate in capacity markets to bring in
    filings that give markets and consumers a longer term assurance
    of reliability?
        Mr. Bardee. Do you mean how long of a contractual
    commitment----
        Mr. Johnson. Yes.
        Mr. Bardee [continuing]. Suppliers get in a capacity
    market?
        Mr. Johnson. Yes.
        Mr. Bardee. We have allowed the individual markets to
    develop those rules. Some of them have a 3-year requirement,
    and some of them treat it as an annual requirement. And----
        Mr. Johnson. But our legislation asked the RTOs to bring in
    filings that give markets and consumers a longer term
    assurance. Am I correct that FERC opposes that language in the
    legislation?
        Mr. Bardee. We do not think it would be helpful to codify
    requirements that----
        Mr. Johnson. Why not?
        Mr. Bardee. Because they would potentially restrict
    competition from providing----
        Mr. Johnson. But isn't your job to ensure electric
    reliability?
        Mr. Bardee. That is one of our responsibilities is to
    help----
        Mr. Johnson. One of your responsibilities? You are the
    director of the Office of Electric Reliability.
        Mr. Bardee. I meant the commission, sir.
        Mr. Johnson. That should be your primary job, right?
        Mr. Bardee. Me personally, my role is as the director of
    the Office of Electric Reliability, yes.
        Mr. Johnson. All right. I am not sure why the FERC would
    have an issue with that.
        Mr. Cauley, as envisioned by our discussion draft, you
    stated that NERC would be pleased to coordinate with FERC on
    reliability assessments of rules that pose real or potential
    challenges to resource adequacy or the reliability of the bulk
    power system. Do you feel NERC is well suited for this
    additional responsibility, and if so, why?
        Mr. Cauley. I think we are equipped today to do that, and
    we do those kinds of assessments on a regular basis. The only
    challenge might be resourcing based on volume and the timing.
        One suggestion I had to help with the language is, it seems
    to specifically require those assessments for all rules. It
    seems there should be on a need basis, you know, the magnitude
    of the impacts and potential risks. So I think it is an
    authorization and a capability that should be there, but I
    don't know that it should be independent separate review for
    every single rule that might come out.
        Mr. Johnson. OK. All right.
        Mr. Bardee, back to you. Would you agree that all
    generation does not possess equal reliability attributes?
        Mr. Bardee. I think different resources have different
    capabilities.
        Mr. Johnson. OK, that is good. Would you also agree that
    the current capacity market, let's use PJM as an example, only
    sets a capacity target, in other words, the capacity market
    secures only a specific number of megawatts regardless of the
    reliability attributes, including location of those megawatts?
    Is that an accurate statement?
        Mr. Bardee. My recollection is they do have some limits on
    demand resources, and obviously, there is litigation pending
    about that now. Looking ahead, there is a pending proposal by
    them to put in place capacity performance requirements which
    would differentiate between certain resources.
        Mr. Johnson. Well, do you agree then that capacity doesn't
    necessarily equal reliability, does it? Those are 2 different
    things.
        Mr. Bardee. You need to look at whether the resources you
    have will meet your needs in all appropriate circumstances.
        Mr. Johnson. That doesn't answer the question. Does
    capacity equal reliability, in your mind?
        Mr. Bardee. It depends on the kind of capacity you have in
    mind, sir.
        Mr. Johnson. I think that answer is no, Mr. Chairman, if I
    understood it. But I will yield back.
        Mr. Whitfield. Gentleman yields back.
        Now, I believe everyone has had the opportunity to ask
    questions, so that will conclude the--no, we would take a
    second round but we have another wonderful panel coming up.
    Thanks for that suggestion, John.
        Listen, I want to thank you all very much for joining us,
    and we really appreciate your responding to our questions. And
    we look forward to working with both of you as we move forward,
    trying to address some of these issues. So you all are
    dismissed.
        And at this time, I would like to call up the second panel
    of witnesses. And we have 8 witnesses on the second panel, and
    I am just going to wait until it comes time to each one of you
    to give your opening statements and I will introduce you at
    that time.
        But our first witness this morning, I am going to call on
    the gentleman from Mississippi, Mr. Harper, to introduce our
    first witness. If you would do that, Mr. Harper.
        Mr. Harper. Thank you, Mr. Chairman. And I thank you for
    the recognition and for the opportunity to introduce our first
    witness on this panel. Tom Fanning is chairman, president, and
    CEO of Southern Company, one of America's largest producers of
    electricity. He has worked for Southern Company for more than
    30 years, and was elected president by the Board of Directors
    in July 2010. Mr. Fanning became president in August 2010, and
    CEO and chairman in December of 2010. Mississippi Power, a
    wholly owned subsidiary of Southern Company, provides
    electricity in my home State of Mississippi, and I am glad Tom
    could be with us today to share on this important topic. His
    knowledge will benefit us as we move forward, and I appreciate
    his willingness to be here. Welcome.
        Thank you, Mr. Chairman.
        Mr. Whitfield. And, Mr. Fanning, we appreciate your being
    with us, and you are recognized for 5 minutes for an opening
    statement.

    STATEMENTS OF THOMAS A. FANNING, CHAIRMAN, PRESIDENT, AND CHIEF
       EXECUTIVE OFFICER, SOUTHERN COMPANY; ELINOR HAIDER, VICE
    PRESIDENT, MARKET DEVELOPMENT, VEOLIA ENERGY NORTH AMERICA, ON
       BEHALF OF THE ALLIANCE FOR INDUSTRIAL EFFICIENCY; JOSEPH
         DOMINGUEZ, EXECUTIVE VICE PRESIDENT, GOVERNMENTAL AND
       REGULATORY AFFAIRS AND PUBLIC POLICY, EXELON CORPORATION;
     MICHAEL BERGEY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BERGEY
      WINDPOWER COMPANY, ON BEHALF OF THE DISTRIBUTED WIND ENERGY
    ASSOCIATION; JOHN N. MOORE, SENIOR ATTORNEY, NATURAL RESOURCES
    DEFENSE COUNCIL; JOHN DI STASIO, PRESIDENT, LARGE PUBLIC POWER
      COUNCIL; EMILY HEITMAN, VICE PRESIDENT AND GENERAL MANAGER,
     COMMERCIAL OPERATIONS FOR MEDIUM AND LARGE POWER TRANSFORMERS
        IN NORTH AMERICA, ABB, INC., ON BEHALF OF THE NATIONAL
       ELECTRICAL MANUFACTURERS ASSOCIATION; AND ELGIE HOLSTEIN,
     SENIOR DIRECTOR FOR STRATEGIC PLANNING, ENVIRONMENTAL DEFENSE
                                  FUND

                     STATEMENT OF THOMAS A. FANNING

        Mr. Fanning. Thank you, sir, and thank you for that
    introduction. Chairman Whitfield, Ranking Member Rush, and
    members of the subcommittee, thank you for inviting me to
    testify today.
        My name is Tom Fanning and I am the chairman, president,
    and chief executive officer of Southern Company. With 4.5
    million customers and approximately 46,000 megawatts of
    generating capacity, Southern Company is a leading U.S.
    producer of clean, safe, reliable, and affordable electricity.
    Providing reliable electric service is Southern Company's core
    business, and mitigating risks to reliability is vital to
    keeping the lights on for the customer and for a privilege to
    serve. I am also a chair of the Electricity Subsector
    Coordinating Council, or ESCC. The ESCC is the principle
    liaison between the electric sector and Federal Government for
    coordinating efforts to prepare for and respond to
    cyberthreats, physical terrorism, and natural disasters that
    imperil critical infrastructure.
        The ESCC is where the most senior leadership in the
    industry and Government come together to improve the security,
    resiliency, and responsiveness of the industry, and by
    extension, the Nation. In that regard, I would like to thank
    the American Public Power Association and the NRECA for their
    collaboration in the ESCC.
        While the chair of the ESCC, I am speaking in my capacity
    as CEO of Southern Company. I am here today to talk primarily
    about the security, base load protection, and reliability
    analysis provisions found respectively in Sections 1204, 1207,
    and 1202 in the committee's recently released discussion draft
    on the energy reliability and security, part of the committee's
    architecture of abundance legislation. The committee is
    demonstrating leadership by proposing the discussion draft
    language to enhance system security and resiliency, retain the
    reliability and economic benefits provided by base load
    generation, and protect electric reliability.
        I would like to respectfully offer a few items for the
    committee's consideration to further secure the effectiveness
    of this legislation. First, Southern Company supports Section
    1204, provisions that would further facilitate industry-
    Government coordination and information-sharing as the Nation
    addresses the emerging and constantly evolving electronic and
    physical threats to the availability of reliable electricity.
    Because electricity is critical to the Nation's economy and to
    the lives of Americans, protecting the grid is a shared
    responsibility between the industry and Government. Regarding
    language in the discussion draft providing the Secretary of
    Energy emergency authority to address grid security
    emergencies, the electricity sector widely recognizes the risk
    of imminent threats to the grid and the importance of rapid
    response. Should Congress feel that granting emergency
    authority is warranted, we agree that DOE is the appropriate
    agency to execute that authority. We believe that such
    emergency authority can most effectively be utilized if, as
    recognized by Section 1204, the industry is consulted to the
    extent possible prior to a directive's issuance. Such
    communication ensures that industry expertise is harnessed and
    incorporated into the emergency directives to more effectively
    assess the underlying threat, and develop modes of response.
    The ESCC is well-positioned to provide a ready conduit to allow
    for such Government-industry consultations on emergency energy
    authority, and the ESCC should be added to any legislative list
    of entities to be consulted with prior to the issuance of
    emergency orders.
        Provisions in the draft language exempting critical
    electric infrastructure security information from the Freedom
    of Information Act, and providing--and protecting such
    information from disclosure will boost the confidence of those
    like members of the ESCC who participate and collaborate in the
    sharing of information. Provisions in the draft increasing
    critical infrastructure sector access to classified information
    will further increase the operational awareness of those on the
    front lines of defending the electric grid. These provisions
    align with the ESCC priorities, and we also encourage ongoing
    efforts with Congress to pass broad information-sharing
    legislation that would apply to all critical infrastructure
    sectors, given their mutual interdependence.
        Second, we support Section 1207 as a reasonable first step
    to promote efforts to ensure that base load generation
    continues to serve the energy needs of customers for many
    decades to come. Base load generation is vital to ensuring the
    continued supply of clean, safe, reliable, and affordable
    electricity to families and businesses because it provides 24
    hours a day, 7 days a week capability to support reliability,
    and it also helps ensure the affordability and stability of
    electricity prices.
        Third, Section 1202's proposed reliability analysis
    requirement for new major Federal agency rulemakings will fill
    a significant regulatory gap. In recent years, the Nation's
    fleet of electric generation facilities has been affected by
    the new regulations promulgated by the United States
    Environmental Protection Agencies that could have the potential
    to jeopardize the reliability of the bulk electric system. The
    proposed Section 1202 would ensure that the reliability effects
    of proposed or new final rule are assessed in a timely manner
    by the Federal Energy Regulatory Commission in coordination
    with the Electric Reliability Organization.
        I thank the committee for holding this important hearing
    today, and giving me this opportunity to testify. And,
    Chairman, and all members, let me say I so applaud the notion
    of the architecture of abundance. You know, I speak nationally
    in many different forums about the notion of policy for the
    United States. It has been set for decades in the past on the
    notion of scarcity. We have a singular opportunity today to set
    policy based on abundance, and that really does change our
    thinking. When I think about the obligation as CEO of one of
    the most important energy companies in America, and the
    obligation that you all have to face a broad constituency and
    the broad entrance of your constituency, then I think that what
    we must do is understand this notion that we have the
    opportunity to restore manufacturing in America, grow jobs,
    grow personal incomes, and make American lives better. And so
    this opportunity of clean, safe, reliable, affordable energy
    provided by nuclear, clean coal, natural gas, renewables, and
    energy efficiency, is something we can all stand behind. But it
    goes beyond the blessings of this Nation's resources. It really
    goes to issues that you all have already talked about. Chairman
    Whitfield, you referred to it, Congressman Barton referred to
    it, and it is the notion of market design, because when I think
    about the excellent design, where I come from, the Southeast,
    an integrated regulated market design, we are incented to
    provide the best reliability and the lowest prices, with the
    best customer service possible. Different deregulated markets
    are incented actually the opposite way; acting completely
    rationally in an economic manner, they benefit from a lack of
    reliability and higher prices and more volatility. We think the
    work you are doing is really important to the success of the
    American economy.
        Thank you very much.
        [The prepared statement of Mr. Fanning follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you very much. Appreciate that.
        And our second witness today is Ms. Elinor Haider, who is
    vice president, Market Development, at Veolia North America.
    And she is testifying on behalf of the Alliance for Industrial
    Efficiency.
        Welcome, and you are recognized for 5 minutes.

                       STATEMENT OF ELINOR HAIDER

        Ms. Haider. Thank you. Chairman Whitfield, Ranking Member
    Rush, and of--other members of the subcommittee, thank you for
    the opportunity to testify.
        My testimony will address the role of combined heat and
    power in enhancing resiliency and reliability. With 180,000
    employees worldwide, Veolia has been creating integrated energy
    infrastructure and environmental solutions for over 160 years.
    Last year, Veolia supplied 150 million with drinking and
    wastewater services, produced 52 million megawatt hours of
    energy, and converted 31 million metric tons of waste into new
    materials and energy.
        In the U.S., our 8,000 employees ensure the reliable,
    efficient supply of energy with over 500 megawatts of owned or
    operated combined heat and power, and the largest portfolio of
    district energy systems. Veolia is a member of the Alliance for
    Industrial Efficiency, a diverse coalition that includes
    representatives from the business, environmental, labor, and
    contractor communities. The alliance is committed to enhancing
    manufacturing competitiveness, and creating job through
    industrial energy efficiency, particularly through the use of
    combined heat and power and waste heat to power. Both Veolia
    and the alliance are pleased to see the recognition of CHP's
    grid resiliency benefits in Section 1207 of the committee's
    discussion draft.
        Conventional power generation is inefficient. More than \2/
    3\ of the fuel inputs are lost from our smokestacks as wasted
    heat, and never converted to useful energy. Another 7 percent
    is lost in the transmission and distribution of electric energy
    over long distances and multiple voltage changes. The energy
    lost in the U.S. from wasted heat in power generation is
    greater than the total energy use in all of Japan. This
    inefficiency costs consumers and businesses, and harms
    America's competitiveness. By making use of both heat and
    electricity from a single fuel source located closer to the
    user, CHP dramatically increases fuel efficiency and eliminates
    much of this waste. CHP typically uses more than 70 percent of
    fuel inputs. By producing both heat and electricity on-site and
    independent of the grid, CHP can run without interruption
    during an extreme weather event.
        As one of the U.S.'s leading owners and operators of CHP
    systems, Veolia's customers benefit from the energy efficiency
    and resiliency provided by CHP at universities, hospitals,
    biotech, R&D, and other critical facilities.
        The benefits of this expertise were on stark display during
    the $70 billion Superstorm Sandy. While nearly 8 million
    residents across the Mid-Atlantic lost power, those with
    resilient CHP systems kept the lights on. There is no more
    illustrative case than New York University, where Veolia has
    played a critical role in implementing CHP. NYU has 2 campuses
    in Manhattan. Ten years ago NYU selected Veolia to serve as
    owner's representative, to design and manage expansion of its
    Washington Square Campus energy plant. The expanded CHP system
    generates up to 90,000 pounds of steam per hour, and 13
    megawatts of electricity, serving 37 buildings. While the
    majority of Manhattan was without power during Sandy, that
    campus had electricity, heat, and hot water. It became a place
    of refuge during the height of the storm. That NYU campus kept
    the lights on. On the other hand, NYU Langone Medical Center
    did not have CHP. It lost all power, knocking out its
    communication systems, and leading to the dangerous forced
    evacuation of critical care patients on gurneys and in dozens
    of ambulances.
        In response to its experience at the 2 campuses, NYU
    selected Veolia to support development and operations of a new
    CHP energy plant for the NYU Langone Medical Center campus. The
    new plant has 13 megawatts of electric generating capacity, and
    165,000 pounds per hour of steam. It will be completely self-
    sufficient in the event of a utility power interruption. NYU
    Langone will also keep the lights on. When we consider energy
    resiliency, the price of inaction, such as the $540 million in
    FEMA-funded repair work at Langone, needs to be considered in
    our cost benefits analysis.
        In the aftermath of Superstorm Sandy, New York, New Jersey,
    Massachusetts, and Connecticut have each adopted policies to
    support greater use of CHP. Other regions have also long
    recognized that CHP can help keep critical infrastructure
    online during extreme weather events. Following Hurricanes
    Katrina, Rita, and Ike, Texas and Louisiana adopted legislation
    to encourage CHP deployment in critical facilities. Texas has
    model legislation that requires critical public facilities to
    obtain a CHP feasibility study during any renovation or new
    construction, and has laws that set minimum efficiency and
    resiliency requirements for CHP systems. By encouraging
    electric utilities to develop a plan to increase the
    utilization of resiliency-related technologies, and supporting
    cost recovery for such systems, the committee's discussion
    draft takes an important step to help keep the lights on during
    extreme weather events.
        Both Veolia and the Alliance for Industrial Efficiency look
    forward to working with the committee as it continues to make
    these recommendations a reality through the architecture of
    abundance.
        Thank you for the opportunity to testify.
        [The prepared statement of Ms. Haider follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you.
        And our next witness is Mr. Joseph Dominguez, who is the
    Executive Vice President for Government and Regulatory Affairs
    and Public Policy with Exelon Corporation.
        So welcome, and you are recognized for 5 minutes.

                     STATEMENT OF JOSEPH DOMINGUEZ

        Mr. Dominguez. Thank you, Mr. Chairman, members of the
    subcommittee, thank you for the opportunity to be here today.
        I work for Exelon. I head public policy for Exelon. We have
    three major utilities serving about 8 million customers. We are
    probably well--most well known as being the Nation's largest
    owner and operator of nuclear facilities. We have about a \1/4\
    of the Nation's fleet. We also buy and sell electricity and gas
    in about 48 different States.
        I am going to focus my comments today on Section 1208 of
    the discussion draft, and I am going to try to reflect some of
    the questions and answers that have already been rendered here
    today.
        It is universally recognized and very often stated that we
    are in the midst of this major transformation in the electric
    sector. In fact, it is so often stated that it is almost a
    waste of your time to hear it again, except to put it in
    context. No one believes this transformation is going to occur
    immediately. It is going to unfold over many decades. The cost
    of the transformation is yet unknown. It will have reliability
    impacts. And so we need to focus, while we focus on new
    technologies, also on the existing steel in the ground. I
    believe that Section 1208 begins an important discussion of the
    value of base load assets, but more importantly, of the value
    of all central assets to maintaining reliability for consumers.
        Today's hearing is appropriately timed. Chairman Whitfield
    talked about the stresses on coal plants across the country.
    Those stresses are being equally felt on nuclear facilities
    across the country. About 5 percent of the nuclear assets in
    the country have announced retirement. Additional units are
    slated for retirement by 2019. Wall Street analysts and some
    academics talk frequently about the potential for up to 25
    percent of the Nation's fleet to retire.
        Ironically, nuclear faces this crisis at a time where its
    zero carbon attributes and its inherent reliability should be
    most valued from a policy perspective. Nuclear power offers a
    host of benefits. It provides over 60 percent of the Nation's
    zero emission electricity. The units operate at over 90 percent
    reliability across the country. And the polar vortex and PJM
    was a good illustration of how valuable these units are for
    supporting reliability for the 61 million customers in that
    RTO. And on January 7 of last year, we often talk about almost
    losing the system across this 13-State region. In point of
    fact, we did lose the system from the perspective of not having
    enough contracted resources, contracted capacity to keep the
    lights on across the region. But for voluntary participation
    from some demand response Providers, but for the fact that we
    have some emergency imports from other regions of the country,
    we would have had to go into load shedding in the teeth of the
    worst winter. The performance of the units on that particular
    day was extraordinarily poor. We lost about 47 percent of the
    natural gas units across PJM, accounting for something like
    20,000 megawatts of electricity. We lost 34 percent of the coal
    that day. We lost 26 percent of the oil-fired generation. And
    because the wind wasn't blowing, we didn't get a particularly
    good performance from renewables. The fact of the matter is
    that nuclear fleet across PJM was the reason we didn't have an
    outage. Over 97 percent of the fleet continued to participate,
    and that, along with hydro, carried the system on its
    shoulders.
        There have been a number of findings as a result of the
    polar vortex experience. One of those findings is that the
    capacity products we have in this RTO aren't sufficiently,
    aren't proportionately, well designed to meet the load
    requirements in the RTO. This is not a new problem. It was a
    problem that was understood and addressed by the New England
    ISO a couple of years in advance of PJM, but it took a crisis
    in PJM, or a near crisis, to bring it to the attention.
        Section 1208 properly drafted could codify some of the
    lessons learned, and require that other RTOs embrace those
    lessons learned as we move forward. And I am talking about New
    York, I am talking about MISO, I am talking about California
    RTOs. Additional work needs to be done, and it can't be done
    after a crisis or a near crisis.
        So we support the concepts in 1208. It has been talked
    about today as being anti-distributed generation or anti-
    renewable. I think the appropriate focus here shouldn't be on
    the type of technology, but what we want out of that
    technology. The discussion draft indicates that we want
    something like 30 days of available fuel on-site, or available
    to--through contract to support the Nation's needs in the time
    of an emergency. No one is planning for that. At best, what we
    are planning for is avoiding a 1-in-10-year crisis, but no one
    is planning for having a system that would be available, for
    example, if a terrorist attack or a cyberattack undermined the
    gas infrastructure in the country, taking out natural gas
    availability. We don't have a long-term plan for that. I think
    1208 begins that discussion, and I think it is a necessary
    discussion and one that will be helpful to all the RTOs, and
    properly fashioned, will not exclude any technologies from
    participation.
        [The prepared statement of Mr. Dominguez follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you very much.
        Our next witness is Mr. Mike Bergey, who is the president
    and CEO of Bergey Windpower. He is also board president of the
    Distributed Wind Energy Association, and is testifying on
    behalf of the Distributed Wind Energy Association.
        So welcome, Mr. Bergey, and you are recognized for 5
    minutes.

                      STATEMENT OF MICHAEL BERGEY

        Mr. Bergey. Thank you, Mr. Chairman. Thank you, Ranking
    Member Rush, and the subcommittee members for giving me the
    opportunity to appear before you today.
        My name is Mike Bergey. I am president and CEO of Bergey
    Windpower Company, a 38-year-old Oklahoma family-owned business
    that manufactures wind turbines. We are currently the world's
    leading supplier of small wind turbines, and we have supplied
    turbines in all 50 U.S. States, and over 100 countries around
    the world.
        As you mentioned, I am also president of the Distributed
    Wind Energy Association, which represents the behind-the-meter
    distributed generation segment of the wind industry. Not the
    wind farms. That is the American Wind Energy Association. We
    have a little over 100 members. They are mostly small
    businesses.
        Last year, 94 percent of the small wind turbines that were
    installed in America were built here. So we are also part of
    the renaissance of American manufacturing.
        I have commented in my written testimony on all 8 proposed
    sections, but I would like to confine my comments today to
    Section 1207, because I believe that it has the largest
    potential from my perspective of increasing the resiliency of
    the Nation's electric power grid. It proposes to do so by
    modifying PURPA. And I have some experience with PURPA because
    I was involved with the first--when it was passed, and the
    first implementations at the very State level. I think it is a
    very powerful tool. I do like 1207's prescription that
    regulatory agencies and utilities will have to look at various
    ways to enhance resiliency. I will point out that PURPA, back
    in 1978, under Section 210, was a critical element in the rise
    of distributed generation in America, and it sparked the
    creation of thousands of companies, millions of jobs, and
    hundreds of billions of dollars in new investments in energy
    generation technologies. I do see merit, as I said, in
    requiring the States to take a look at the opportunities. Some
    States, that will be duplicative; California, New York come to
    mind, but it will also serve to get other States, like
    Oklahoma, off the dime on that. So that would be welcome.
        That said, I would like to point out some issues that I see
    in the current draft of 1207 as being somewhat problematic.
    First, it would seem to cover only regulated utilities, so
    unregulated utilities, which include many rural co-ops, would
    seem to get a pass under this. I may not--I may have missed
    something, but that is my reading.
        Secondly, it does not specifically mention renewable
    distributed generation. It does mention distributed generation,
    but not renewable. But renewable distributed generation is a
    fast and growing segment of the distributed generation market,
    and one with the greatest application to grid resiliency.
        And finally, it provides a counterintuitive emphasis on
    base load generation. On this last point, I say
    counterintuitive because, as an engineer, it is my
    understanding that a fewer number of larger assets is more
    vulnerable and less resilient than a system with a higher
    number of smaller assets, particularly if they have greater
    special and fuel diversity. After you factor-in dependency on
    functional--on the T&D network for base load plants to serve
    critical loads, I see the proposed Section 22 as undermining
    the intent of Section 1207, and potentially nullifying the
    gains to be made in Section 20(b). It is now well-established
    that an intermittency is manageable through combinations of
    complimentary technologies, such as wind power and natural gas-
    fired combustion turbines. So I see no compelling technical
    reason to elevate base load plants to a protected status.
    Reliability is the issue, not the way in which we get there.
        The potential for distributed generation to contribute to
    the modern grid should not be underestimated. We have just done
    a white paper that shows tremendous potential for distributed
    wind. The same could be said for distributed solar. And I think
    emerging storage, there are lots of exciting new additions out
    on the distribution network that can give us additional grid
    resiliency.
        My primary request of this committee is to bolster Section
    1207 to take advantage of the opportunities in emerging
    distributed renewable energy, storage controls, and other grid-
    enhancing technologies offered today and tomorrow. If there are
    legislative opportunities to promote distributed generation
    beyond the discussion draft, I would encourage the committee to
    seize those opportunities. Doing so will help build the
    American economy, while delivering the improvements in energy
    reliability and security that we all would like to see.
        In summary, I believe the discussion draft contains many
    worthwhile aspects, but I think it can be improved upon. I
    appreciate that it is a draft, and I look forward to working
    with the committee and the staff on further improvements.
        Thank you for the opportunity.
        [The prepared statement of Mr. Bergey follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you, Mr. Bergey.
        And our next witness is Mr. John Moore, who has been here a
    few times before, and he is Senior Attorney for--and also
    involved in the Sustainable FERC Project--from the Natural
    Resources Defense Council.
        Mr. Moore, welcome, and you are recognized for 5 minutes.

                       STATEMENT OF JOHN N. MOORE

        Mr. Moore. Thank you, Mr. Chairman Whitfield, Ranking
    Member Rush, and members of the subcommittee.
        My name is John Moore, and I am delighted to be here to
    participate in this hearing today.
        I am a senior attorney at the Natural Resources Defense
    Council. Most of my work at NRDC is for something called the
    Sustainable FERC Project, which, as the name suggests, is a
    coalition of environmental and clean energy groups that support
    cleaner, more reliable, and affordable energy future primarily
    through reforms to FERC and FERC jurisdictional markets.
        Now, I want to make three points today, primarily. One, the
    grid is a dynamic and always-evolving entity. But that is OK.
    We have kept calm, we have planned ahead. The grid operators
    and States are doing their jobs. Second, environmental
    standards are compatible with reliability. And third, Congress
    should take care not to do anything that would impede
    innovation, hamstring grid planners, and prevent economic
    progress.
        So since 2005, our Nation has retired over 90,000 megawatts
    of older and dirtier power plants, while adding over 200,000
    megawatts of newer and cleaner utility-scaled generation, along
    with many thousands of megawatts of energy efficiency, rooftop
    solar, small wind, intelligent energy management systems.
    Already, we are halfway to that 30 percent goal of cutting
    carbon pollution by 2030. We are already making progress.
        Now, speaking of dates, did you know what happened on 20--
    on April 16 to the grid? I will tell you. Nothing happened,
    which is a good thing for the grid. That was the initial
    compliance deadline for the Mercury and Air Toxics Rule, which
    EPA issued in 2012. Now, remember, many opponents of the MATS
    worried that when we reached this deadline there would be
    blackouts and other reliability problems. That did not come to
    pass. Power companies planned ahead to upgrade or retire power
    plants and build new resources. The grid adapted and it will
    continue to adapt thanks to the hard work and ingenuity of our
    grid planners; 2 of whom we have already heard from.
        The same will be true with the Clean Power Plan. This
    standard offers unparalleled flexibility, more so than any
    other previous Clean Air Act standard, for States to choose
    among different compliance solutions, while preserving and even
    strengthening reliability.
        So as you work through this legislation, we encourage you
    to preserve the flexibility of electricity markets, States, and
    grid planners to adapt and innovate to always-changing
    circumstances.
        To that point, we are concerned with several provisions in
    the discussion draft that could conflict with these goals.
    First, Section 1201. It provides broad amnesty for power plant
    owners from liability under environmental laws. It fails to
    acknowledge carefully designed environmental standards that
    were intended to prevent reliability conflicts from arising.
    The Clean Power Plan is one example of that. It could increase
    conflicts between reliability and compliance, and threaten
    human health and the environment.
        Second, Section 1202 requires FERC to assess the grid
    impacts of Federal rules that could affect power plants. This
    provision is unnecessary because, as FERC points out in its
    recent letter to EPA, we have already heard about that letter
    today, FERC jurisdictional grid regions already are required to
    assess the impacts of the environmental standards on grid
    operations. So existing processes are the foundation for
    compliance moving forward.
        Finally, we have concerns about the base load elements of
    Section 1207 and 1208, which we believe unfairly preference
    expensive base load generation over other resources,
    specifically, by freezing the grid's evolution in a moment in
    time now, and creating a one-sized rigid system. At a time when
    many regions are working to develop the nimble, flexible, and
    reliable systems that we need to cope with increasingly extreme
    weather events, these provisions would move us backwards.
        So in closing, let's focus on policies that protect
    reliability while cutting pollution, expanding our economy and
    saving consumers money.
        Thank you.
        [The prepared statement of Mr. Moore follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you, Mr. Moore.
        And our next witness is Mr. John Di Stasio, who is the
    president of the Large Public Power Council.
        Welcome, and you are recognized for 5 minutes, Mr. Di
    Stasio.

                      STATEMENT OF JOHN DI STASIO

        Mr. Di Stasio. Thank you, Chairman Whitfield, Ranking
    Member Rush, members of the subcommittee, and fellow panelists.
    Thank you for inviting me to testify today. I am honored to
    appear on this panel of distinguished witnesses, and appreciate
    the opportunity to address the important issues facing the
    electric sector as the country pursues key national priorities.
        As was mentioned, my name is John Di Stasio. I am the
    president of the Large Public Power Council, also known as
    LPPC. Before I assumed this role earlier this year, I was the
    CEO of the Sacramento Municipal Utility District, a public
    power system located in northern California.
        So LPPC is an organization of the 25 largest public power
    utilities, providing electricity to 30 million consumers across
    13 States, many that are represented by members on this
    subcommittee, including Texas, North Carolina, Oklahoma,
    California, New York, and Florida. LPPC members are also
    dedicated to protecting the environment and the health and
    welfare of the communities we serve. About 36 percent of LPPC
    member-owned supply is carbon-free, including wind, solar,
    nuclear, and hydro, and this number is expected to grow by 10
    percentage points in the next 10 years. Over the same period of
    time, LPPC members are also projected to purchase an additional
    5,000 megawatts of carbon-free power, which will comprise 90
    percent of the member supply purchases.
        We are clearly in the midst of a transition to a cleaner
    supply mix and a more dynamic electric system. As members of
    the subcommittee are vitally aware, a significant aspect of
    this transition is the need to anticipate a myriad of changes
    required to meet grid modernization, environmental goals,
    reliability, resiliency, and physical and cybersecurity goals.
    The move to different base load generation, resiliency--excuse
    me, integration of growing intermittent resources and new
    technologies is technically achievable, but it does require
    thoughtful planning, implementation, and coordination across
    systems and regions. Current reliability provisions in the
    Federal Power Act clearly did not envision a transformation of
    the U.S. electric power sector, and the--while the current
    system is robust, it is not infinitely flexible. This
    transformation will not end in the next 15 years, given the
    need to deal with other important priorities in the future. So
    an appropriate, up-front reliability assurance mechanism, right
    sized to the risk, will serve us well in that long transition.
        I have the following points in this regard. LPPC's systems
    are consumer-owned, so we are directly accountable to the
    consumers and the communities we serve. They are affected by
    our actions, so we seek to balance reliability, affordability,
    and environmental stewardship. All reliability issues can be
    overcome with enough time and money, but assuring reliability
    prospectively when major changes are under consideration will
    present--will prevent unnecessary delays and additional costs
    for consumers. After-the-fact reliability review mechanisms are
    also vital, but they are triggered by emergencies or unforeseen
    conditions, as opposed to preventing them in the first place.
    The members of LPPC are committed to reliability and
    resiliency, and recognize an increased responsibility in that
    regard. Given an increasingly digital world and a variety of
    new and emerging risks, we work closely with Federal Government
    in a variety of ways to proactively address challenges, and we
    are committed to do so going forward.
        I also want to thank the chairman for the discussion draft
    released May 7. LPPC's members are reviewing the specific
    sections and the legislative language in detail, and will be
    pleased to work with the members of this subcommittee and full
    committee to provide more specific input as the language is
    further refined.
        With that, again, I want to thank the chairman and members
    of the subcommittee for their attention, and I would be happy
    to address any questions that you have for me.
        [The prepared statement of Mr. Di Stasio follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you very much, Mr. Di Stasio.
        At this time, our next witness is Emily Heitman, who is
    vice president and General Manager for the Demand Side
    Organization Power Transformers at ABB, Inc., and she is
    testifying on behalf of the National Electrical Manufacturers
    Association.
        So you are recognized for 5 minutes.

                       STATEMENT OF EMILY HEITMAN

        Ms. Heitman. Good morning, Chairman Whitfield, Ranking
    Member Rush, and members of the subcommittee. My name is Emily
    Heitman, I am Vice President and General Manager of Commercial
    Operations for Power Transformers at ABB. Thank you for
    inviting me to speak today on behalf of ABB and the National
    Electrical Manufacturers Association.
        I will be walking through the critical nature of large
    power transformers, the challenges in replacing them, industry
    and ABB's efforts thus far to mitigate resiliency risks, and
    what is lacking in those efforts.
        ABB is a leading manufacturer of power and automation
    products, and services for utilities, industry, Government, and
    transportation. We are the largest supplier of electrical grid
    systems and large power transformers across the globe.
        One of the most essential components of the electrical grid
    is the large power transformer, otherwise known as the LPT.
    LPTs either increase the voltage of electricity from generation
    sources for long-distance transmission, or decrease the voltage
    of electricity close to the end-user. The failure of a single
    LPT can cause a power disturbance, however, the concurrent
    failure of multiple LPTs could lead to a significant widespread
    outage. While designed to withstand operational risks, such as
    lightning strikes and power fluctuations, LPTs are still
    vulnerable to a number of threats, like extreme weather events,
    intentional criminal attacks, geomagnetic disturbances, and
    electromagnetic pulse. Furthermore, the U.S. fleet of LPTs is
    aging, and older units may be more vulnerable to disruption.
        While most utilities do own a spare, for each large power
    transformer design, they are generally placed directly next to
    the units in use and are subject to the same risks that were
    just previously mentioned. Replacing a damaged LPT is
    especially difficult. The time to manufacture a new unit will--
    which requires both designs, since few LPTs are made to the
    same specification, and production, can take anywhere from 12
    to 24 months. LPTs have unique materials and components
    associated with their manufacturing, and unfortunately,
    periodic material and component shortages can also delay their
    production. Once manufactured, the transportation and delivery
    of these large, ultra-heavy units also pose challenges. LPTs
    can weigh more than 400 tons. This size and weight often
    requires delivery by specialized train cars and trucks, of
    which there is limited availability in North America. In
    addition, with many of the existing LPTs having been in place
    for more than 40 years, the routes of access once available may
    have since been derated or even removed, leaving some
    substations and LPTs virtually stranded. Since a large power
    transformer must be disassembled to ship and then reassembled
    on-site, unique knowledge, skills, and equipment are necessary
    to complete the final installation of an LPT.
        Now, industry and Government have both been responsive to
    these challenges. NEMA has brought together transformer
    manufacturers to develop industry recommendations. NEMA is not
    alone. The Edison Electric Institute, the Department of Energy,
    NERC, FERC, and the Department of Homeland Security have all
    taken important steps to address grid resiliency. We support
    and applaud all of these efforts, but we are concerned that
    gaps still remain. At ABB, we are developing solutions to
    significantly increase transformer resiliency. These apply to
    both existing and new transformers. ABB's approach has 5
    components: vulnerability assessment, design modifications to
    harden the transformer, remote monitoring and communications,
    rapid damage assessment and repair, and rapid deployable
    transformers. But it is important to recognize that the
    development of a rapidly deployable transformer will only
    reduce the time it takes to transport and energize an LPT. The
    manufacturing of those units still take months. Should an event
    occur that requires a replacement transformer, utilities would
    still face a long delay if there is no replacement unit in
    reserve.
        H.R. 2244, authored by Congresswoman Renee Ellmers and
    Congressman Jerry McNerney, as well as the Energy and Commerce
    Committee's discussion draft addressing reliability and
    security, direct the Department of Energy to produce a plan to
    create a strategic transformer reserve. ABB and NEMA support
    this legislation. We believe the creation of a strategic
    transformer reserve will fill a gap in our Nation's capability
    to respond to the catastrophic loss of several LPTs. Having
    reserves of LPTs located at strategic points around the country
    would improve grid resiliency and complement existing industry
    programs. Given the complexity of the electric system,
    precisely how a strategic transformer reserve should be
    designed and operated warrants further analysis. H.R. 2244 and
    the committee draft direct DOE to undertake the needed review.
    They offer an appropriate response to a significant
    vulnerability to our Nation's electric grid and we urge the
    adoption.
        ABB and NEMA would like to once again thank the committee
    for inviting us to testify on this important topic. Improving
    the security and resiliency of our energy infrastructure
    requires ongoing cooperation between Government and industry.
    ABB and NEMA are fully committed to this effort.
        I look forward to answering your questions.
        [The prepared statement of Ms. Heitman follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thanks very much, Ms. Heitman.
        And then our next witness is Mr. Elgie--is it Hol-steen or
    Hol-stine?
        Mr. Holstein. Hol-steen, thank you.
        Mr. Whitfield. Hol-steen. Mr. Elgie Holstein, who is the
    Senior Director for Strategic Planning at the Environmental
    Defense Fund.
        We are delighted you are with us today, and you are
    recognized for 5 minutes.

                      STATEMENT OF ELGIE HOLSTEIN

        Mr. Holstein. Mr. Chairman, thank you--and members of the
    subcommittee, thank you for this opportunity to share our
    thoughts about the draft bill before you today.
        Achieving environmental reliability and other goals of grid
    modernization will be hindered by any measures that
    straightjacket rather than enhance the grid's increasing
    agility. That is the risk represented by Section 1202 of the
    draft, which requires the preparation by FERC and NERC of an
    independent regulatory analysis for any major proposed
    environmental rule. Simply stated, this appears to be an
    overreaction to fears about the rapid changes underway in the
    electric utility industry, and perhaps to EPA's proposed Clean
    Power Plan. Those fears are groundless and do not reflect
    processes in place to assure reliability.
        Consider the fact that from 2011 through the end of this
    year, some 36 gigawatts of base load power will have been
    retired with no discernable adverse impact on reliability. At
    the same time, new power plants, more renewable capacity,
    transmission upgrades, and numerous demand side energy
    resources will be added to the diversity and reliability of the
    grid.
        This remarkable ability by the electricity sector to adjust
    to changing market conditions and regulatory expectations
    demonstrates a fundamental point; that the industry, working
    together with FERC, State utility regulatory commissions,
    regional transmission organizations, and independent system
    operators can meet the Nation's need for reliability.
        In a May 15 letter to EPA, the FERC commissioners
    summarized their role in assuring reliability. They said in
    part the following, reliability also depends on factors beyond
    the commission's jurisdiction, such as State authority over
    local distribution and integrated resource planning. The
    commission is not seeking to alter this balance.
        The commissioners' letter is a reminder that planning for
    and delivering grid reliability, including the consideration of
    potential impacts from proposed new environmental rules, is
    secured through the interaction of multiple parties over time,
    including those at the regional and State level, and those
    actively engaged in markets. The problem with Section 1202 is
    that it upsets this balance of interest by elevating the role
    of FERC and NERC in major environmental rulemakings. As the
    FERC commissioners make clear in their letter, a thorough
    assessment of the impacts of, for example, the proposed Clean
    Power Plan, requires the ongoing input of diverse perspectives
    and expertise.
        We have a similar concern with elevating the role of NERC
    in Federal agencies' environmental rulemaking. The fact is that
    NERC has been overly cautious and consistently pessimistic,
    also consistently wrong, about the ability of industry and
    regulators to adjust to changing conditions, including
    environmental rulemakings. Now, NERC does play an important
    role by giving voice to a conservative, worst-case outlook as
    part of a mix of organizations with unique perspectives and
    responsibilities for reliability, but its views should be
    considered along with other voices, not granted an elevated
    role in the environmental rulemaking process. Perhaps a
    stronger case could be made for Section 1202 if environmental
    agencies were failing adequately to consider the reliability
    impacts of their rulemakings, but there is no evidence of that.
        I would like to turn now to a brief discussion of the other
    sections of the draft bill. Section 1201 includes what amounts
    to an opt-out for parties found to be in violation of any
    Federal, State, or local environmental law or regulation while
    operating under an emergency order. Again, there seems to be
    little, if any, need for such provisions. The Department of
    Energy has issued fewer than 10 must-run orders, and only once
    has such an order resulted in a claimed conflict with
    environmental requirements. That was mentioned earlier today by
    one of the members of the subcommittee, who noted the Miron
    Plant, which was the company involved here, but it was later
    found that the plant had not taken prudent actions that it
    could have taken to operate in a manner that was in compliance
    with both DOE's order and EPA's requirements.
        Potential hazard inherent in Section 1201 is that it will
    provide a perverse incentive for utilities to slow their
    compliance activities. Sections 1204, 1205, and 1206 establish
    some potentially worthwhile approaches to addressing critical
    electricity, infrastructure emergencies, and the loss of
    critically damaged large power transformers, as well as the
    need to identify cybersecure technologies. Again, we think
    these provisions are well worth serious consideration by the
    committee.
        Section 1207 usefully directs State commissions to consider
    requiring electric utilities within their jurisdictions to
    develop plans to increase the utilization of resiliency-related
    technologies. Unfortunately, Section 1207 then veers off
    course. By restricting its focus to base load generation, and
    listing reliability attributes, the section marginalizes the
    rapidly grown role of renewable generation, storage, and demand
    side resources.
        And finally, as in Section 1207, the capacity market
    criteria in Section 1208 create the same bias in favor of
    traditional base load generation, and against a broader
    portfolio of resources that are increasingly important to
    capacity markets and, therefore, to reliability.
        Environmental Defense Fund believes that there are some
    worthwhile elements to the draft, especially regarding planning
    for emergencies and for physical and cyberattacks on the grid.
    We look forward to working with you, Mr. Chairman, and members
    of the subcommittee.
        [The prepared statement of Mr. Holstein follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Whitfield. Thank you, Mr. Holstein.
        And thank all of you very much for your patience and
    staying here with us today. We appreciate your testimony.
        You know, these hearings are so enlightening because it is
    always good to hear divergent views on these key issues. And we
    have heard the broad spectrum of views on this discussion
    draft, and it is quite obvious to everyone that the very key to
    this is base load electricity. And some people want to move
    away from that, some people want to protect it.
        But the question that I would ask is--I will ask you, Mr.
    Fanning and Mr. Dominguez, to comment on it. Why is--well, let
    me back up a minute. We have heard a lot of discussion about
    there is really should not be a concern about reliability, and
    maybe we could agree with that, but I would also point out at
    this time renewables minus hydro is producing only 6 percent of
    the electricity in the country. So the fact that there hasn't
    been a reliability problem to this point is encouraging, but
    with the mad rush for more renewables, I don't think that we
    can emphatically say that there won't be a reliability problem
    in the future. But why is base load electricity still
    important, Mr. Fanning?
        Mr. Fanning. Yes, thank you, Chairman. As I mentioned
    before, as CEO of a major company representing 4 \1/2\ million
    customers, and let's remember, of the families we are
    privileged to serve in my area of the United States, fully 46
    percent of those families make less than $40,000 a year. And
    they are making tough kitchen table economic decisions every
    day. And while there are awfully laudable outcomes from efforts
    to improve our air and water and other things, I must be
    accountable to those families by providing a balance of clean,
    safe, reliable, and affordable energy. We can't let any one of
    those attributes essentially subvert the other. And when I
    think about the value of base load electricity, it provides us
    an avenue to essentially play offense against all the economic
    and other challenges this great Nation faces right now. And I
    think when we are able to provide for a sure supply of
    electricity at reasonable prices that will not be volatile,
    remember, when we think about in finance or in business----
        Mr. Whitfield. Is that one of the definitions of base load;
    not volatile?
        Mr. Fanning. Yes, generally. When you think about nuclear
    and coal and some others, it is--biomass, for example, they
    have a much more reliable stream of energy profile over time,
    as compared to the high volatility of natural gas and the
    intermittency of renewables. So it is really important to
    balance clean, safe, reliable, affordable.
        Mr. Whitfield. And one of the things that you point out in
    your testimony, Mr. Dominguez, that on January 7, 2014, you
    went through a litany of outages--forced outages. Is that what
    you were referring to on base load--the importance of base
    load?
        Mr. Dominguez. Yes. I think we get caught up in the use of
    the word base load. Let's substitute the word base load for
    generation that has 3 attributes. It doesn't depend on the
    weather to work. That would be one criterion in the definition.
    The second criterion is it has on-site fuel. For a period of
    time, we don't have to worry about an interstate system to
    bring fuel to it for its just-in-time operation. And the third
    attribute I would say is it provides fuel diversity. Most
    technologies provide fuel diversity and are important, but the
    2 things that base load, the way we have defined it, does is it
    provides certainty that it is going to be here on August 7 of
    this year, January 7 of next year, regardless of the weather
    condition, regardless of whether it is snow or wind or
    whatever. And it doesn't depend on external sources for fuel.
    For example, for nuclear, we have 24 months of fuel loaded in
    the core. That lets the grid operators sleep easy that no fuel
    interruption----
        Mr. Whitfield. Um-hum.
        Mr. Dominguez [continuing]. Is going to cause an outage.
        Mr. Whitfield. Well, was it the consensus among
    professionals in the electric generating business that, in the
    latest polar vortex, that without the base load, as you
    described it, that we would not have been able to meet our
    obligations?
        Mr. Dominguez. Unquestionably true. And I can tell you in
    polar vortex 1 and 2, we saved our customers over $125 million
    by being able to shift fuels from one to another. So the
    diversity--the value of the portfolio is enormous.
        Mr. Whitfield. OK. My time is already running out, but I
    read all of your testimony. I didn't--there was a couple of
    them that came in late last night, I didn't get to finish
    reading those, but I read yours, Mr. Moore, and, Mr. Fanning, I
    know you also addressed Order 1,000, and we would like to
    continue some discussions about Order 1,000 and some of the
    issues that that provides as well.
        So at this time, I would like to recognize the gentleman
    from Illinois, Mr. Rush, for 5 minutes.
        Mr. Rush. Thank you, Mr. Chairman.
        Mr. Dominguez, I want to thank you for your testimony
    today, and especially your comments regarding the nuclear
    fleet's contribution as carbon-free base load power.
        My State of Illinois is--almost \1/2\ of the State's
    electricity comes from nuclear power. And Exelon recently said
    that iit may have to prematurely retire up to 3 nuclear power
    plants in the State of Illinois. And maybe you could take a
    moment or so to explain or to share with me the effects that--
    to the ratepayers in my State if this would happen, and if you
    could also speak to the environmental impact that closing these
    plants would have on my State.
        Mr. Dominguez. Sure. Well, I don't think we need to look
    further than the State reports themselves. In 2014, the
    Illinois House asked State agencies to consider the economic
    environmental reliability and cost impacts of losing 3 of the
    State's 11 nuclear facilities. The conclusions were that, from
    an economic standpoint, we would lose approximately $1.8
    billion in economic activity associated with the employees at
    the plant, and other economic effects.
        The Illinois Commerce Commission commissioned PJM and MISO
    and also other independent experts to analyze the cost of power
    increases associated with losing the plants in a supply and
    demand market. They concluded that the cost on an annual basis
    would be something like $500 million to $1.2 billion a year.
        And then lastly, the Illinois EPA was tasked with asking
    the question about compliance with upcoming rules around carbon
    that EPA is working on 111(d). And conclusion was that without
    the plants, the cost of compliance to Illinois customers could
    be $18 billion higher over a 10-year period.
        So in sum total, they concluded that the cost was about $3
    billion a year in terms of customer and economic impacts
    associated with the loss of the plants. When you think about
    these assets, and there is--I heard some questions this morning
    about assets that are 25 years old, some of these plants are 25
    years old, but that doesn't tell the story. They are designed
    to run for 60 years. They are designed to run up to 80 years,
    we believe. So simply pointing out that something is old
    doesn't provide any information if you don't have context
    around the design life. And the point I am making,
    Representative Rush, is that these impacts will be felt each
    year of that remaining design life where the assets are no
    longer available, because once they are shut down, they don't
    get turned back on.
        Mr. Rush. I want to thank----
        Mr. Dominguez. And we are looking at tens of billions of
    dollars.
        Mr. Rush. Yes, I am running out of time here.
        Mr. Moore, Mr. Holstein, from your experiences, in the more
    than 40 years that EPA has been implementing the Clean Air Act,
    has compliance with air pollution standards ever resulted in
    reliability problems?
        Mr. Moore. The answer is no, Mr. Rush. The answer is no, it
    has not. The EPA regulations have worked in coordination with
    grid operators, reliability authorities, States and others.
    Order 1,000, as you mentioned earlier, really worth a lot more
    discussion probably than we have time here for today, but that
    order really helps create new forums and processes for States
    and FERC and FERC jurisdictional regions to work together, and
    help resolve some of those thorny jurisdictional issues. So
    that is helping now.
        Mr. Rush. Mr. Holstein, do you agree with the approach
    taken in Section 1202 that makes it unclear if FERC has the
    legal authority to delay or block EPA rules if the commission
    was not able to complete its reliability analysis by the
    deadlines mandated in this draft?
        Mr. Holstein. Mr. Rush, as I stated in my testimony, I have
    many reservations about Section 1202 mostly because, even
    though it is clearly intended to help ensure reliability, I
    believe it actually does the reverse because it elevates the
    views of parties, specifically FERC and NERC, who admittedly
    have an important--very important role in the reliability--
    maintenance of reliability. But they don't have the only role,
    and as they indicated in their letter to EPA, they stress
    themselves that a balance must be struck in considering--in
    providing input to rulemaking agencies such as EPA, and that
    balance means let's involve actual market participants and the
    regulators that they work with at the State level. And I think
    it would be a shame if we elevated FERC and NERC's role to the
    detriment of the other entities that play such an important
    role in reliability.
        Mr. Rush. Thank you both.
        I yield back, Mr. Chairman.
        Mr. Whitfield. The Chair recognizes Mr. Olson of Texas for
    5 minutes.
        Mr. Olson. I thank the Chair.
        In using a term from college basketball, welcome to the
    elite eight, all of you.
        My first question is for our friends at ABB, Ms. Heitman. I
    appreciate your support for this bill's strategic transformer
    reserve. I agree this is worth considering. One question I had
    for you though is on hardening new transformers. You mention in
    your testimony, and I don't want you to say anything that can
    be used against those trade secrets, but I would like to ask
    about that. What are some things that the next generation of
    large transformers should be defended against? EMPs,
    cyberattacks, men with rifles like California, what keeps you
    up at night, Ms. Heitman?
        Ms. Heitman. Thank you, Congressman Olson.
        We are absolutely committed to developing technology to
    respond to the resiliency concerns on all four counts that I
    mentioned; the criminal attacks, extreme weather, GMD, EMP.
    Some of the things that we are doing that I can share with you
    today, we are in the final stages of development of a ballistic
    protection for the transformer itself, as well as shielding and
    fortifying the critical components and valves of the
    transformer. We have technology available today for dry
    bushings. Why dry bushings are so important today, the majority
    of transformers installed have oil-filled bushings. In a
    failure mode of any type, which could occur from any of the
    mentioned threats, an oil-filled bushing actually drops down
    into the tank and can cause a failure of the transformer
    itself. Dry bushings on the other hand, we have many videos
    that you can shoot at a--at the dry bushings, no failure occurs
    at all, and most importantly, it does not drop down into the
    tank.
        And finally, with remote cooling, we have this technology
    available to be able to place the cooling at a--in a remote
    location away from the transformer, and potentially in a secure
    location.
        Mr. Olson. And these are all cost-effective steps, correct?
    They will be supported by the economy, they are not
    overburdensome, is that fair to assume?
        Ms. Heitman. The dry bushings have already been adopted by
    many utilities----
        Mr. Olson. Yes.
        Ms. Heitman [continuing]. And remote cooling was actually
    adopted by CenterPoint in the recent example of the recovery
    transformer shipped.
        Mr. Olson. There we go, the market speaks.
        Mr. Fanning, for you, I appreciate your testimony and the
    conversation about information-sharing. It sounds like the ESCC
    is doing a good job, and I would like to delve into where we
    are in keeping an open line of communication between industry
    and Government. What kind of information is being shared today
    from company to company, and between companies and Government?
        Mr. Fanning. Yes, thank you very much for that question. In
    fact, there was a report given to the administration, the
    President, from the National Infrastructure Advisory Council
    that called out the ESCC as kind of the benchmark for all other
    coordinating councils to follow. I think there are a number of
    different reasons why that is, including CEO participation and
    the fact that in the electricity industry, our genetic material
    is all about reliability and keeping the lights on, and that
    really drives the United States' economy.
        With respect to the threats, we have put in place standard
    technologies, software, and information-sharing regimes across
    our companies, and run then through--you had Gerry Cauley on
    earlier, this ES-ISAC, where we have now processes in place to
    assess before the problems occur and take action. And so that
    has been critically important. Aligning ourselves has been a
    great step forward. The next challenge will be aligning our
    other interdependent organizations, including telecom,
    transportation, water, and the financial systems. It is an
    enormous effort and it is something we are working on right
    now.
        Mr. Olson. A lot of work for this committee, obviously.
        Mr. Dominguez, care to comment on that, sir? I am sorry,
    the EEO--what is the acronym here? ESCC.
        Mr. Dominguez. We also are participating. I think Tom
    framed it exactly right, I think there is a lot of good work
    going on and we welcome the conversation going forward.
        Mr. Olson. We are out of time. The final fun question. I
    talked about basketball, the elite eight, to open this line of
    questioning. Ms. Heitman, you are from Houston, Texas; Clutch
    City, USA. Who will win the basketball tonight out there in
    Oakland, the Houston Rockets or the Golden State Warriors?
        Ms. Heitman. I think ABB has no response on that.
        Mr. Olson. Yield back.
        Mr. Whitfield. I also want to thank Mr. Olson for raising
    the issue of dry bushings.
        At this time, I recognize the gentleman from California,
    Mr. McNerney, for 5 minutes.
        Mr. McNerney. Well, I have a projected answer for Mr.
    Olson's question. I think the Warriors are going to do pretty
    good tonight. So, you know, actually----
        Mr. Olson. Fear the bear.
        Mr. McNerney. All the testimony was really good. I would
    love to ask every single one of you specific questions, so
    thank you for coming out and talking.
        I have repeatedly asked my republican colleagues to embrace
    carbon sequestration because climate change is coming, it is
    here, and we need to start doing things about it. If we don't,
    some of the coal-generating facilities are going to be seeing
    more problems.
        Mr. Fanning, you have a project going at Kemper. Could you
    just give us a rundown on where you are on that?
        Mr. Kemper. Yes. Real quickly, you know, people do a lot of
    rhetoric. There is one company in America doing all the above,
    and it is Southern Company. Leading the United States in new
    nuclear, we are building 21st Century Coal, that is the one you
    are talking about. We have made a huge shift in natural gas,
    one of the leading owners of solar, and big in energy
    efficiency.
        With respect to 21st Century Coal, we have developed out
    own technology, we are the only company doing robust,
    proprietary research and development in our industry. We
    developed a technology along with our partner, Kellogg Brown
    and Root, which will take native Mississippi lignite, we will
    essentially gasify it, and we will be able to strip out the CO2
    so that we can produce more electricity with less of a carbon
    footprint than natural gas. And in this case, the CO2 will not
    be a waste stream; we will use it to produce more domestic oil
    production.
        Mr. McNerney. Yes, very good. And you are also, as you
    mentioned, developing nuclear, so you must have done the
    calculations that that is a positive----
        Mr. Fanning. Absolutely.
        Mr. McNerney. Very good. I think I heard you say toward the
    end of your testimony that the--an unregulated utility market
    would lead to some problems. Was I right in hearing that?
        Mr. Fanning. Yes.
        Mr. McNerney. OK, good. Could you expand on that little
    bit?
        Mr. Fanning. Yes, easily. I think the only way you can do,
    and it is one of the reasons why Southern Company is the only
    company in America doing a full portfolio of solutions, is
    there are no price signals in existence today to build new
    nuclear, for example, in a deregulated market. There are no
    price signals in existence to build and advance the notion of
    21st Century Coal in America in any deregulated market. And, in
    fact, when you think about the incentives, I mean I will just
    pull Exelon out, Chris Crane and I--the CEO of Exelon and I--
    agree on this, he is a wonderful friend of mine and all that,
    but, for example, Exelon would benefit, your bottom line would
    benefit, from a carbon tax. You produce a lot of your energy
    from nuclear, which emits no carbon, and that is a good thing.
    A carbon tax would be bad for America, in my view, because it
    raises the price of energy, where America has a global
    competitive advantage.
        So what I get at there is, there are incentives in
    deregulated markets, which reward higher prices. In an
    integrated regulated market, you are rewarded for lower prices.
    In a reregulated market, because prices go up during times of
    scarcity, there are incentives--there are a lack of incentives,
    anyway, to reduce scarcity.
        Mr. McNerney. Right.
        Mr. Fanning. In my market, in transmission and
    distribution, we spend about $1 billion a year in the wires
    business.
        Mr. McNerney. Thank you. I am going to switch you over to
    transformers. Ms. Heitman, you gave a list of things that would
    improve the reliability resilience of transformers. It was kind
    of quick so I wasn't able to write it down. Do you think those
    items should be identified in the legislation, or some more
    general way to discuss those?
        Ms. Heitman. I think that part of them--most of them
    actually already are identified as far as the need to both
    harden the existing--the hardening of the existing units I
    don't believe are--is in the legislation itself. I think that
    has got to be finalized in development by the industry at this
    point, but as far as the ability to respond in an emergency
    situation, yes, I think that is critical. I think the rapid
    replacement in the case of a damage of multiple LPTs has--is
    addressed with the recovery transformer program.
        Mr. McNerney. OK, thanks.
        Mr. Holstein, you--do you see this Section 1208 affecting
    grid modernization or new technologies being developed for the
    grid? In other words, you said that this straightjackets the
    utilities, could you explain that a little bit please?
        Mr. Holstein. Yes, I think the criteria that are laid out
    in the section, as I said in my testimony, create a bias in
    favor of traditional base load generation. And I want to say
    something about that in just a moment. But at--in so doing, it
    reduces or marginalizes the role of many of the other tools
    that are increasingly available to grid planners in order to
    provide reliability. So I think in that sense, it is
    counterproductive. But a fundamental point I want to make is
    that in listening to this discussion, it might be easy to
    conclude that there is some kind of either/or proposition here;
    that you are either for base load generation or you are against
    it. My organization, Environmental Defense Fund, has supported
    lots of base load generation including license extensions for
    nuclear plants. So base load is part of it, but we just want to
    make sure that in legislating for reliability, we don't
    marginalize the many other tools that are available, including
    demand side resources, renewables, et cetera, even if you
    believe that the contributions they make are not as great as
    the contributions that base load makes. It doesn't matter. What
    we are after here is a diverse portfolio and, therefore,
    because there is this connection, a more reliable grid.
        Mr. McNerney. Thank you.
        Mr. Chairman, I yield.
        Mr. Whitfield. Gentleman yields back.
        At this time, I recognize the gentleman from Pennsylvania,
    Mr. Pitts, for 5 minutes.
        Mr. Pitts. Thank you, Mr. Chairman. Thank you very much for
    this very informative and interesting testimony.
        Mr. Dominguez, some argue that maintaining base load
    generation is not critical to reliability, and that such
    generation can be replaced by simple load shedding and other
    demand side management strategies. What is the problem with
    overreliance on load shedding as strategy for mainlining
    reliability?
        Mr. Dominguez. Well, I--you know, I think it almost answers
    itself. When we are asking or customers to give up the use of
    electricity to preserve the reliability of the system, that is
    OK if it is done on a voluntary basis and the customers can
    preplan, but if we are literally putting our system in a place
    where, in order to maintain reliability, we have to
    involuntarily shut down customers, it is a very dangerous spot
    for us to be, and on behalf of the 8 million customers we
    serve, clearly not what they expect from the electric system
    and the service we provide.
        Mr. Pitts. Now, you talk about the need to balance
    reliability and affordability and clean energy, and a lot has
    been made of the push for more renewables in Europe, and I
    Germany in particular, how have those policy decisions affected
    reliability and affordability of electricity?
        Mr. Dominguez. Well, I think the affordability question has
    been answered, unfortunately, for German consumers at least.
    The reliability question still remains. Presently, the rate for
    electricity in Germany is about 50 cents U.S. per kilowatt
    hour. That is about three times or better the rate in the
    Philadelphia area that we serve, Baltimore or Chicago. Many
    have begun to talk about electricity in Germany as a luxury
    product. And I think the lesson from Germany was that it moved
    very quickly into these technologies without fully
    understanding the impact on cost for the average consumer. Mr.
    Fanning talked about the economic issues that face his
    customers. Our customers face the very same issues. 300 percent
    increase in rates would be a problem. At the same time the
    country made a decision to begin shutting down its nuclear
    assets, which has meant that not only prices increased, but
    emissions have also not followed the trajectory one would
    assume through the increase of renewable energy.
        So I think there are a lot of takeaways from the European
    experience. This is a transition that could be managed, but we
    need to manage it carefully. We need to pay attention to the
    resources that keep prices low, that keep electricity reliable,
    and that are working today and could work, and are designed to
    work, for decades into the future.
        Mr. Pitts. One thing we learned recently is that in
    Portugal, which has invested in a lot of renewables and natural
    gas, LNG, that the market now has caused them to buy a lot more
    coal and produce a lot more electricity with coal because it is
    so cheap. I mean the market force is there. You want to comment
    on that?
        Mr. Dominguez. Yes, sure. I mean the situation in Europe is
    different than the U.S. situation in the sense that shale gas
    availability has not reached the same proportional level of
    involvement in Europe. It is a really minimal player, so they
    still depend on natural gas imports from Russia and from other
    countries. And so what they have found in Europe is that, to
    offset the variability of renewables, coal steam generation
    units do a pretty good job of filling the gaps when the
    renewables don't operate for environmental reasons. So as a
    consequence to that, they buy more coal, emissions unexpectedly
    have increased, notwithstanding the substantial and growing
    contribution of renewables in these markets.
        Mr. Pitts. In the minute I have left, you mentioned in your
    testimony that--the fact that hydro and nuclear power was
    primarily responsible for keeping a lot of us from losing power
    during the polar vortex, and that we lost power from natural
    gas and coal. Why did that occur?
        Mr. Dominguez. Well, a couple of different reasons. For--as
    Gerry Cauley mentioned when he was here earlier this morning,
    what we found is that the equipment wasn't robust enough to
    sustain the very severe weather temperatures. And so that took
    about \1/2\--of the 47 percent of natural gas that didn't show
    up, \1/2\ of it was the equipment just didn't work because it
    got real cold. The other \1/2\ was, it was connected to gas
    pipelines but there were no molecules in those pipelines.
        For coal it was a similar story. We saw coal plants that
    weren't appropriately ready for the weather conditions. But
    then in addition to that, you have to recognize that a number
    of the coal plants in PJM require natural gas to start. So if
    natural gas isn't available, you can't start the boilers and,
    therefore, you lost the coal plants. That was kind of the
    story.
        Mr. Pitts. Thank you, Mr. Chairman.
        Mr. Whitfield. Gentleman yields back.
        The Chair recognizes the gentleman from New York for 5
    minutes.
        Mr. Tonko. Thank you, Mr. Chair. Welcome to our witnesses.
        Mr. Bergey, in your testimony you indicated that Section
    1207 of the draft provides ``a counterintuitive emphasis on
    base load generation.'' Some have suggested that adding more
    distributed generation to the grid could indeed reduce its
    reliability because of the integration challenges and the
    variable nature of renewable power. Do you agree with that
    sentiment?
        Mr. Bergey. No. I have heard it for 30 years and it
    hasn't--wasn't true then, it is not true now. In fact, over the
    last 30 years, the power electronics that are used to interface
    the variable resources with the grid have gotten much more
    sophisticated, and they have risen to the degree now that we
    can provide our support, power factor correction, we can even
    reduce harmonics that come from your home computer power
    supply, for example.
        Thirty years ago we were told, and there were rules passed
    that require wind systems, solar systems to go offline almost
    immediately with any grid disturbance. Now, we are coming full
    circle and being asked to stay on and help support the grid
    through short-term disturbances because there is a recognition
    that this can be done safely and cost-effectively with existing
    technology. And this is technology that is on the move. We are
    getting cheaper, more capable, more interconnected electronics,
    and the more that those are spread over with solar, wind,
    storage, and other resources such as that, the rise of micro
    grids gives us, I think, tremendous capabilities for the future
    for adding resiliency.
        Mr. Tonko. Well, with that being said, are you concerned
    that Section 1207, as currently drafted, may discourage further
    innovation and adoption of renewable generation, energy
    efficiency, micro grid, and energy storage technologies?
        Mr. Bergey. I do have concerns with the way it is written,
    if that was the question.
        Mr. Tonko. OK. Any recommendations on how to improve that?
        Mr. Bergey. Well, I think, as I said in my testimony, I
    think elevating base load to a special status is
    counterproductive; that we should take an all-of-the-above
    approach. I agree with many of the statements that have been
    made about the value of base load, and it has an important
    role. I can't tell you how the transition of the power grid is
    going to go over the next 30 years, but I can say that
    distributed generation for certainly--for sure is going to play
    an increasing role and give us increasing opportunities. It
    would be unfortunate if the legislation put a--you know, was
    more of an anchor than a sail.
        Mr. Tonko. Um-hum. Mr. Holstein, in your testimony you
    stated that the capacity market design feature in Section 1208,
    requiring generation to be available essentially every day for
    a period of at least 30 days, may put ratepayers at risk of
    higher costs. Is this because you believe RTOs and ISOs may
    encourage overinvestment in that base load power----
        Mr. Holstein. I think----
        Mr. Tonko [continuing]. Context?
        Mr. Holstein. Yes, sir. I think--but that is not the only
    reason. As I indicated in my testimony, if you look at the
    criteria that are laid out in Section 1208, this is true of
    Section 1207 as well, but in 1208 with respect to capacity
    markets, the legislation as it is currently drafted creates a
    set of criteria, the 30-day limitation, for example, seems
    especially capricious and unnecessary, and overall, I think it
    forces this overreliance on base load, and as I said in my
    testimony, marginalizes all the other resources that can be
    brought to bear, not always perfectly, but nonetheless do play
    a role, and an increasing role, in bringing about the grid
    reliability that the subcommittee members are so concerned
    about maintaining, and rightfully so.
        Mr. Tonko. And what impact do you think that this would
    have on energy efficiency and other demand response or
    management programs?
        Mr. Holstein. I think it would have a chilling effect for
    the reasons I have said, because of this imbalanced emphasis on
    base load brought about by this set of criteria that you can
    see, looking, for example, on page 40, that really puts
    reliability and capacity market reliability through capacity
    markets in a box. And I think that is unnecessarily
    restrictive, and I would hope that the members of this
    subcommittee would embrace once again the notion that
    competitive markets work best, and they work best in providing
    reliability, just as they work best in providing lots of other
    things.
        Mr. Tonko. Mr. Moore, your sense of that? Any comment in
    that regard?
        Mr. Moore. I think Mr. Holstein is right, and that as we
    move increasingly to more renewable energy, base load
    generation isn't as effective as bringing the--integrating the
    renewable energy into the system as other forms of dispatchable
    generation like some combined cycle natural gas plants. One of
    the things I want to bring out is really a groundbreaking study
    that General Electric did for PJM, which is essentially the
    Nation's largest grid operator, last year this study found that
    you could integrate 113,000 megawatts of wind and solar into
    the PJM grid, that is about 30 percent of total generation,
    without any additional reliability effects, and with virtually
    no additional ``backup power.'' So you have those facts, plus
    the fact that you are burning a lot less coal and natural gas,
    saving consumers money that way as well and cutting carbon
    pollution. So you can have an equally reliable grid with a lot
    more renewable energy in it than we have now.
        Mr. Tonko. Thank you.
        Mr. Chair, I yield back.
        Mr. Latta [presiding]. Gentleman yields back.
        The Chair now recognizes himself for 5 minutes.
        Mr. Fanning, if I could ask you. The discussion draft
    permits owners, operators, and users of bulk power system
    facilities to recover prudently incurred costs for complying
    with an emergency order. I assume you support this, and why
    would that be important?
        Mr. Fanning. Absolutely. You know, and the only kind of
    modification would be this notion of prudent, get to
    reasonable, but in the time of an emergency, we absolutely need
    to take the steps necessary to keep the lights on. We don't
    want to get in an argument about what is required at that
    moment. Let's get to job one and take care of that.
        When I think about the broader, non-emergency conditions in
    any sort of RTO or ISO, we need to make sure that there are
    enough mechanisms in place to provide for reliability and
    balance the notions of clean, safe, reliable and affordable. We
    need to make sure all that works well.
        Mr. Latta. Thank you.
        Ms.--is it--I want to make sure, is it Haider?
        Ms. Haider. Haider.
        Mr. Latta. Thank you. Could you describe some of the
    reliability and security benefits of innovative technologies
    such as combined heat and power and waste heat to power?
        Ms. Haider. Sure. I mean, the real benefit of combined heat
    and power, which by the way, is an energy-efficiency
    technology, not a renewable technology, is that it generates
    heat and electricity from a single fuel source. So by capturing
    the waste heat from the electric generation, you are increasing
    your fuel efficiency and eliminating some of that waste. So as
    I stated earlier, CHP can actually use more than 70 percent of
    its fuel inputs, so there is an incredible amount of efficiency
    in that power and heat generation simultaneously.
        Combined heat and power right now is about 8 percent of
    U.S. generating capacity, so it is actually a fair amount of
    capacity; 82 gigawatts of installed capacity.
        Mr. Latta. Thank you very much.
        And, Mr. Di Stasio, do you believe that recent and pending
    environmental initiatives could threatened electric
    reliability, and if so, are there significant economic trends
    and factors affecting that grid reliability today that we
    should be cognizant of?
        Mr. Di Stasio. Thank you. So I think that people have been
    focused, as was on the first panel, with the Clean Power Plan,
    and I would just say that the only difference is, I would agree
    with my colleagues that said we haven't had an issue with
    reliability in 40 years, but there is a cumulative impact over
    time, and there is also, I would say in the CPP, a much more
    transformative nature to it because of the significant change
    in power supply and power flows. That said, our testimony was
    really intended to be focused generically on the fact that we
    are trying to seek key Federal environmental action, and at the
    same time trying to modernize the grid. We are adding more
    digital devices, we are looking to introduce more renewables.
    All of these things are worthwhile pursuits, but being able to
    look at them in a prospective way is what we were advocating.
        And so relative to Section 1202, while all of the
    triggering mechanisms and the time frames for studies may not
    be exactly right as proposed, the point is is that if we took
    some time to make sure we got it right the first time, we will
    make sure that, at the end, consumers won't be exposed to
    unnecessary reliability risks or unnecessary costs, or for
    doing things in a retroactive manner.
        Mr. Latta. Well, thank you.
        And, Ms. Heitman, if I could ask you just a follow-up from
    Mr. Olson from Texas, when you were talking about the LPTs and
    the lifespan of where we are, because I thought it was
    interesting, in your testimony you say that, you know, we have
    some of the units out there being 70 years of age. What percent
    would that be?
        Ms. Heitman. I am not sure exactly what percentage is
    greater than 70 years, but the majority of the transformers in
    the--installed today, according to the DOE report that exists,
    is 25-plus years.
        Mr. Latta. OK, so we don't know right off the bat what
    would be over 70. It is amazing those things are still in
    operation.
        Ms. Heitman. No, I couldn't tell you what percentage is
    over 70 years----
        Mr. Latta. Well, they made them quite----
        Ms. Heitman [continuing]. Only that they do exist.
        Mr. Latta. They made them quite well.
        I am going to yield back the balance of my time.
        And recognize the gentleman from Virginia for 5 minutes.
        Mr. Griffith. Thank you very much, Mr. Chairman. Appreciate
    that.
        Ms. Heitman, welcome. I want to personally welcome you
    because, while we don't make the large power transformers in my
    district, we do make transformers at an ABB plant in Bland,
    Virginia. So thank you very much for those jobs.
        As you were talking about new developments and new products
    that your company was rolling out, I was seeing jobs coming to
    an area of my district that can use those jobs in a beautiful
    county. So we welcome you here today.
        You have answered all the questions that I had in your
    testimony. You have done quite a good job. Is there anything
    that you wanted to touch on that you didn't feel you had time
    to cover?
        Ms. Heitman. I think that we talked a little bit about the
    rapidly deployable transformer----
        Mr. Griffith. Um-hum.
        Ms. Heitman [continuing]. And one of the interesting things
    about that is I think it works very well hand-in-hand with the
    Government programs and with this new technology. Today, ABB's
    development of this rapidly deployable transformer that was
    done in conjunction with DOE, DHS, and EPRI actually allows for
    a modular transformer to be transported very quickly from the
    factory to the utility, but without a reserve production of
    transformers, this only--the months of production are still
    required. So when we looked at that development, it only gets
    us part of the way there, from what we can tell.
        Mr. Griffith. And that is why you favor the strategic plan
    to have some extra transformers that are out there for
    emergency situations?
        Ms. Heitman. Yes, sir.
        Mr. Griffith. And you said this earlier but I just wanted
    to underline it. Your testimony would indicate those have to be
    spread around the country so you can get them there quickly,
    because these units are very large and weigh a lot, and so if
    you had them all stored in one location, it might--and you had
    a--say you stored them all in Florida and you had a problem in
    Washington State, it would take you a long time to get them
    there, isn't that correct?
        Ms. Heitman. Well, the interesting thing was we--the test
    that we ran was from St. Louis, Missouri, down to CenterPoint,
    in Houston. These units were shipped from the back dock of the
    factor in St. Louis, and installed and energized within 5 days,
    10 hours, and 10 minutes. And that was with no overtime. So we
    would leave it up to the DOE. We won't make a recommendation on
    where these should be strategically located, but certainly the
    closer to the region that they are going to be installed, the
    faster that could be--but with the design of this deployable
    transformer, we are talking days and not traditionally weeks of
    transportation that would have occurred.
        Mr. Griffith. Yes, appreciate that. And in your testimony,
    you have just indicated in a number of situations where
    different agencies were working together and so forth, and I
    have to tell you all that I support the 1202 provisions. I
    think they are important for this bill, and I think they are
    good. And one criticism that was made was it wasn't clear
    whether or not they gave the authority to FERC and NERC to slow
    down or stop the EPA. As I read it, it does not, it just makes
    it a part of the report, but if my colleagues on the other side
    of the aisle would like clarity, I would be happy to have an
    amendment drafted that would make it clear that, in fact, a
    report--that reliability would be affected from either FERC or
    NERC could actually stop those regulations, if that is what
    they want.
        Mr. Dominguez, one of the witnesses testified that the
    mercury rules came into effect on April 16, and nothing
    dramatic occurred, but your power company doesn't generally
    have a problem on April 16, it is usually in the heart of
    winter or the heat of summer, isn't that true?
        Mr. Dominguez. Yes, I think, Representative, it is a little
    early to declare success. What we do know and hope works is EPA
    has created some safety valve mechanisms in the rule that will
    allow units that are needed to stay on, to say on. But until we
    are a few years out, after plant retirements and really see how
    the system performs through the most extreme weather, I think
    it is premature to say anything like that.
        Mr. Griffith. And, Mr. Fanning, your opinion would be the
    same on that?
        Mr. Fanning. Yes. I would just add, I am the Chairman of
    the Board of the Atlanta Federal Reserve Bank, and I am an
    Executive of the Committee of the Conference Chair, so the big
    fed, and I can tell you one of the events that happened between
    the passage of HAPSMACT, now MATS, in 2016, is an economy that
    went south in a hurry and demand went way down. And so we have
    had, if you will, the blessing of a poor economy that has
    really helped our reliability.
        Normally, Southern Company would have added, from a
    capacity growth standpoint, 900 megawatts a year. Now, we are
    adding about 400 megawatts a year.
        Mr. Griffith. Right.
        Mr. Fanning. So the economy had an enormous influence on
    the outcomes here.
        Mr. Griffith. Right. And I do note with some interest that
    Mr. Dominguez testified that PJM had some significant risks in
    2014, and you talked about voluntary versus involuntary
    requests to stop using power, but in 2015 in my district, there
    were several occasions when various smaller companies asked
    their consumers not to consume as much. Is that--and I will ask
    Mr. Fanning and Mr. Dominguez both, was that your experience in
    2015 as well, that there were--while there weren't any dramatic
    issues, there were issues in your area? Neither one of your
    companies serves my district, so I am not criticizing your
    companies.
        Mr. Dominguez. No, I would say that is consistent. Look, a
    lot of our customers sign up to voluntarily exercise demand
    response, which is withdraw load. And so as part of the
    protocols as we get up to the edges of the system, we start
    asking people to actually voluntarily curtail, and they get
    paid for that, works quite well. But, sure, we have seen that
    in the last winter.
        Mr. Griffith. And, Mr. Fanning?
        Mr. Fanning. Value is a function of risk and return, and
    the closer we live to the edge of poor reliability, we way
    increase the risk to the United States economy. And so if
    return is growing the United States economy, American commerce
    cannot stay on that kind of volatility.
        Mr. Griffith. Well said.
        I yield back.
        Mr. Whitfield. Gentleman's time has expired.
        At this time, recognize the gentlelady from North Carolina,
    Mrs. Ellmers, for 5 minutes.
        Mrs. Ellmers. Thank you, Mr. Chairman. And I want to thank
    the panel for being here. This has been a really great
    discussion.
        And, Ms. Heitman, I would like to ask you a few questions.
    What are some of the steps manufacturers have to take to help
    address the vulnerability of large power transformers? I know
    we were discussing a moment ago with Mr. Griffith from Virginia
    the need to have ready transformers ready to go in an
    emergency, but what are some of the other things from the
    manufacturing standpoint that need to be done?
        Ms. Heitman. Yes, the vulnerability of the transformers, we
    mentioned the old--older and aging fleet in the--in place
    today, I think the manufacturers can assess and help assess the
    vulnerability of the existing fleet that is in existence, and
    then make recommendations around what repairs may be necessary.
        Mrs. Ellmers. Um-hum.
        Ms. Heitman. Additionally, there is hardening technology
    that is under development in order to protect against potential
    criminal attack in that case. There is modeling that can be
    done for both GMD and ENP to assess the risk there, as well as
    putting together programs in conjunction with utilities today
    in----
        Mrs. Ellmers. Um-hum.
        Ms. Heitman [continuing]. Rapid repair of a damaged
    transformer, and also employing the technology that was
    developed on a recovery transformer to rapidly replace a unit
    if it is damaged.
        Mrs. Ellmers. Wow, you kind of answered all of my questions
    that I have for you in one fell--so you are very good. And
    there again, it is very sobering when we think about the age of
    these transformers, and I know we were talking a moment ago
    about the, you know, a number of them being 70 years old. I
    have 38 to 40 years, but basically, you have indicated that 25
    year and above age is commonplace, correct?
        Ms. Heitman. Very average today, yes.
        Mrs. Ellmers. And, you know, with these--you know, these
    are implications of needed, you know, resources to be applied,
    and I can see how that is an issue, and the challenges that
    exist in relation to that. Can you just designate maybe one or
    two things what--that can be done in the design and production
    of a large power transformer that might play into the age and,
    you know, for instance, when we are looking at the possibility
    of new transformers, you know, how long is that process, what
    can be done, and does it make more sense to really look at
    those aging transformers and try to revitalize them?
        Ms. Heitman. I think that--well, I will start with what--
    why a--why the manufacturing of a transformer is--takes so
    long. First of all, most of the transformers--large power
    transformers are customized by utility. So unlike a lot of the
    other electrical equipment in the substation, which we
    represent as well as NEMA, the manufacturers that make those,
    those are more standardized pieces of equipment, as opposed to
    the LPT----
        Mrs. Ellmers. Um-hum.
        Ms. Heitman [continuing]. Which is designed to the
    specification of the utility. So the process is, first, a
    utility is spending--could spend up to a month to design or
    write the specifications for the specific transformer, then
    following that there is a 1-month process of the different
    manufacturers putting together a--doing a design for the
    quotation of that transformer, followed by a full-out--once
    that decision has been made as to who is to manufacture that
    unit----
        Mrs. Ellmers. Um-hum.
        Ms. Heitman [continuing]. It is almost 3 months in
    electrical and mechanical design, 3 months in procuring the
    specialized materials, 2 months in manufacturing and testing, 1
    month in traditional transportation, and then 1 month in the
    installation and commissioning of the unit itself.
        Mrs. Ellmers. Um-hum. Um-hum.
        Ms. Heitman. And then what I believe that the manufacturers
    can be doing to assist in this process is we are willing to
    assist in technology and also specifications----
        Mrs. Ellmers. Um-hum.
        Ms. Heitman [continuing]. Of a potential reserve program,
    and whether there is even potential to standardize across that
    program.
        Mrs. Ellmers. Um-hum. Thank you so much.
        Mr. Fanning, in the discussion draft directing FERC to the
    study that impacts major rules to make sure we understand the
    impact of electric reliability, I have a couple of questions in
    relation to that. In your opinion, who is the best and most
    unbiased source of information on electric reliability impacts
    of the rule, and why?
        Mr. Fanning. The companies themselves.
        Mrs. Ellmers. Very good. I like that answer. And to that--
    and, you know, I am just going to move on. You mentioned that
    the base load provides voltage and frequency support, and we
    get that, could you explain in more detail what you are
    referring to, and why base load is so important to it, because
    I know there has been a discussion that--you know, we have kind
    of gone back and forth a little bit about reliability and what
    is available, and in conjunction with the renewables and the
    increased amount, but why is it so important that we continue
    to maintain that base load?
        Mr. Fanning. Well, I could give a long answer. I want to
    give a short answer. It is so important to think about the
    portfolio of resources, not only nuclear, 21st Century Coal,
    natural gas, renewables, energy efficiency, each of those has a
    different cost and energy profile.
        Mrs. Ellmers. Um-hum.
        Mr. Fanning. All of those have an important place to play
    in the whole portfolio. When I think though, you know, we all
    kind of get wound around the axel in energy policy about clean,
    safe, reliable, affordable, at the end of the day, we have to
    support the livelihood of the United States economy and help
    these families make tough kitchen table economic decisions
    every day. And one of the things I applaud, Chairman, about
    the--this notion of architecture of abundance, that is exactly
    the right point to follow. That is the principle. And when I
    think about where America is, not in my lifetime or your
    parents' lifetimes, we have this opportunity where we can
    promote energy security, that will promote national security,
    and that will promote economic security, and give America a
    chance to regain its status as the premiere economy in the
    world. It is all those reasons why base load energy capacity
    must play a part in this Nation's energy future.
        Mrs. Ellmers. Thank you so much.
        And thank you, Mr. Chairman, for indulging me and my time.
        Mr. Whitfield. Well, that concludes the questions for this
    panel. I want to thank all of you once again. We have spent the
    last 3 \1/2\ hours together. I hope you all had as much fun as
    we had, but it has been a very important issue that we are
    dealing with, and we do appreciate the different views and your
    opinions on this.
        And in conclusion, since you have been here--if there is
    anyone who wants to make additional comment before we adjourn,
    I will give you the opportunity. OK. OK. That is the end of
    that.
        I would like to ask unanimous consent that the following
    statements and letters be submitted for the record. You all
    have seen these, Mr. Rush----
        Mr. Rush. Yes.
        Mr. Whitfield [continuing]. And you approve of them. A
    letter on behalf of the American Public Power Association,
    Edison Electric Institute, and National Rural Electric
    Cooperative Association, a letter from The Pew Charitable
    Trusts, and a statement from the American Public Power
    Association.
        Without objection, so ordered.
        [The information appears at the conclusion of the hearing.]
        Mr. Whitfield. So that concludes today's hearing. We look
    forward to working with all of you. Thank you again very much.
        [Whereupon, at 1:30 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                     Prepared statement of Hon. Fred Upton

        We all know how a power outage can bring our lives to a
    standstill. It is bad enough for homeowners when the lights go
    out, but it can be even more difficult for business owners and
    their employees. Now imagine the damage to our quality of life
    and the economy if blackouts became more frequent--or, even
    worse, if the power were to stay out for weeks or possibly even
    months at a time. Those are the risks we aim to address with
    this discussion draft, and I look forward to adding these
    measures to enhance electric reliability and security into our
    bipartisan energy bill.
        In addition to the longstanding reliability threats like
    downed power lines from storms, we have relatively new threats
    like terrorists who would like nothing better than to take down
    our electric grid for an extended period of time.
        At the same time, utilities are being asked to comply with
    a number of challenging new environmental requirements which
    may have the unintended consequence of putting reliability at
    increased risk and limiting the ability to respond when things
    do go wrong.
        These and other challenges are made even more serious by
    the fact that the Nation's electric grid is overdue for a major
    upgrade. We may have the best electricity system in the world,
    but it won't stay that way for long without substantial new
    investments.
        The good news is we can address these concerns and ensure a
    reliable and secure power supply for the new century. But it
    will take several policy changes that are included in the
    discussion draft, including measures to promote advanced grid
    technologies that will help us establish a more modern,
    flexible, and resilient grid.
        Other measures in the discussion draft are designed to
    protect the grid against outside threats, be they physical or
    cyber attacks. This includes provisions for Governments and the
    private sector to work together in anticipating the ways bad
    actors could sabotage our electricity system and taking action
    to address and mitigate vulnerabilities.
        Other measures seek to head off any potential conflict
    between environmental measures and reliability. New regulations
    raise potential reliability issues by reducing the diversity of
    the power supply, necessitating early retirements of existing
    base load capacity, introducing more non-base load resources,
    and adding red tape that limits the flexibility to respond to
    an emergency. There is no reason we can't have cleaner air and
    more reliable power, and I welcome NERC and FERC's input on
    what is needed to ensure that new Federal regulations do not
    compromise reliability.
        The National Academy of Engineering cited electrification
    as the greatest achievement affecting the quality of life in
    the 20th century, but it is every bit as important to modernize
    the grid to face the new and emerging challenges of the 21st
    century. I look forward to the continued collaboration on
    reliability and security provisions to better safeguard our
    power supply for the years ahead.

                 Prepared statement of Hon. Frank Pallone, Jr.

        Thank you, Chairman Whitfield and Ranking Member Rush for
    holding this hearing on a serious topic that should know no
    party lines: energy reliability and security. We often take for
    granted that the lights will go on when we flip a switch and
    that, even in an emergency, heat and gasoline, will be
    available.
        But extreme weather events are costing us dearly, both in
    human life and in recovery costs. Our changing climate is
    exacerbating power outages. The power infrastructure is at
    higher risk from storm surges and coastal inundation. The costs
    can be huge--just look at the fallout from Superstorm Sandy.
    Since 2011, there have been more than 42 extreme weather events
    in the United States that each cost at least $1 billion in
    damages.
        These events challenge our confidence in the energy supply,
    so they should also drive our efforts to move toward a new,
    more secure, resilient and sustainable system of energy
    delivery.
        The draft before us takes a few steps in the right
    direction and, in some cases, builds on bipartisan agreements
    previously approved by our committee. That's a good start, but
    it's far from perfect. For instance, I would like to understand
    why the provisions are no longer included in the bipartisan
    GRID Act to address the vulnerability of our critical electric.
        Unfortunately, the bill also takes many steps that are too
    grounded in the past, particularly with regard to the
    reliability of the grid. Instead of embracing new distributed
    and renewable technologies, cutting edge energy storage, and
    demand response, parts of this draft appear to be designed to
    tighten our grip on the large, expensive, and inflexible
    facilities and energy sources of the past. In addition, in
    addressing electricity capacity markets, the draft doesn't
    support distributed generation and renewables. That's
    unfortunate because I think capacity markets are worthy of the
    committee's careful examination and consideration.
        Lastly, I want to outline my concerns with the draft's
    unprecedented requirement for FERC to complete a ``reliability
    analysis'' of major rules that cost over a billion dollars.
    This section appears to be aimed straight at the Clean Power
    Plan, something the Chairman had pledged to avoid in this
    process. FERC certainly has the ability to comment on EPA rules
    if it so chooses, so at a minimum, I'm not sure why this
    provision is needed. But most importantly, it raises the
    specter of reliability failure where none exist. As EPA
    recently said: ``Over the past 45 years, EPA has never issued a
    rule that has threatened the delivery of affordable and
    reliable electricity to American families, and the Clean Power
    Plan will not change that.''
        I couldn't agree more. Mr. Chairman, I'm generally pleased
    to see consensus language on some provisions in this bill. I
    hope we can build on this draft to ensure the enactment of an
    energy bill developed in a truly bipartisan fashion.
        Thank you, and I look forward to hearing from our
    witnesses.

     [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                     [all]