[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]                           


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                    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:]
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    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:]
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    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:]
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    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:]
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    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:]
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    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:]
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    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.

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