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





 
      DISCUSSION DRAFT ON ACCOUNTABILITY AND DEPARTMENT OF ENERGY 
              PERSPECTIVES ON TITLE IV: ENERGY EFFICIENCY

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON ENERGY AND POWER

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                             __________

                            JUNE 3 & 4, 2015
                             __________

                           Serial No. 114-50


[GRAPHIC(S) 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, California
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

                              ----------                              

                              JUNE 3, 2015

                                                                   Page
Hon. Ed Whitfield, a Representative in Congress from the 
  Commonwealth of Kentucky, opening statement....................     1
    Prepared statement...........................................     2
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     4
    Prepared statement...........................................     5
Hon. Bobby L. Rush, a Representative in Congress from the State 
  of Illinois, opening statement.................................     6
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................    78

                               Witnesses

Kathleen Hogan, Deputy Assistant Secretary for Energy Efficiency, 
  Office of Energy Efficiency and Renewable Energy, Department of 
  Energy.........................................................     7
    Prepared statement...........................................    10
    Additional information for the record........................    58
    Additional information for the record........................    69
    Additional information for the record........................    72
J. Arnold Quinn, Director, Office of Energy Policy and 
  Innovation, Federal Energy Regulatory Commission...............    23
    Prepared statement...........................................    25
Larry R. Parkinson, Director, Office of Enforcement, Federal 
  Energy Regulatory Commission...................................    34
    Prepared statement...........................................    37

                           Submitted Material

Discussion draft, Title IV: Energy Efficiency and Accountability, 
  Subtitle A--Energy Efficiency, submitted by Mr. Whitfield \1\
Discussion draft, Title IV: Energy Efficiency and Accountability, 
  Subtitle B--Accountability, submitted by Mr. Whitfield.........    80

                              JUNE 4, 2015
                               Witnesses

Susan N. Kelly, President and Chief Executive Officer, American 
  Public Power Association.......................................    90
    Prepared statement \2\

----------
\1\ The information has been retained in committee files and also is 
available at  http://docs.house.gov/meetings/IF/IF03/20150603/103551/
BILLS-114pih-SubtitleA-EnergyEfficiency.pdf.
\2\ Ms. Kelly's statement has been retained in committee files and also 
is available at  http://docs.house.gov/meetings/IF/IF03/20150603/
103551/HHRG-114-IF03-Wstate-KellyS-20150603.pdf.
John E. Shelk, President and Chief Executive Officer, Electric 
  Power Supply Association.......................................    92
    Prepared statement...........................................    94
Peter Galbraith Kelly, Jr., Senior Vice President, External 
  Affairs, Competitive Power Ventures............................   111
    Prepared statement...........................................   113
Chrisopher Cook, President and General Counsel, Solar Grid 
  Storage LLC....................................................   122
    Prepared statement...........................................   124
Jonathan M. Weisgall, Vice President, Legislative and Regulatory 
  Affairs, Berkshire Hathaway Energy.............................   134
    Prepared statement \3\
William S. Scherman, Partner, Gibson, Dunn & Crutcher LLP........   135
    Prepared statement \4\

----------
\3\ Mr. Weisgall's statement has been retained in committee files 
  and also is available at  http://docs.house.gov/meetings/IF/
  IF03/20150603/103551/HHRG-114-IF03-Wstate-WeisgallJ-
  20150603.pdf.
\4\ Mr. Scherman's statement has been retained in committee files 
  and also is available at  http://docs.house.gov/meetings/IF/
  IF03/20150603/103551/HHRG-114-IF03-Wstate-SchermanW-
  20150603.pdf.


      DISCUSSION DRAFT ON ACCOUNTABILITY AND DEPARTMENT OF ENERGY 
           PERSPECTIVES ON TITLE IV: ENERGY EFFICIENCY--DAY 1

                              ----------                              


                        WEDNESDAY, JUNE 3, 2015

                  House of Representatives,
                  Subcommittee on Energy and Power,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:45 p.m., in 
room 2322, Rayburn House Office Building, Hon. Ed Whitfield 
(chairman of the subcommittee) presiding.
    Members present: Representatives Whitfield, Olson, Shimkus, 
Pitts, Latta, McKinley, Kinzinger, Griffith, Johnson, Ellmers, 
Flores, Mullin, Hudson, Rush, McNerney, Tonko, Green, Castor, 
Welch, and Pallone (ex officio).
    Staff present: Nick Abraham, Legislative Associate, Energy 
and Power; Will Batson, Legislative Clerk; Leighton Brown, 
Press Assistant; Patrick Currier, Counsel, Energy and Power; 
Tom Hassenboehler, Chief Counsel, Energy and Power; A.T. 
Johnston, Senior Policy Adviser; Dan Schneider, Press 
Secretary; Caitlin Haberman, Democratic Professional Staff 
Member; Rick Kessler, Democratic Senior Advisor and Staff 
Director, Energy and Environment; John Marshall, Democratic 
Policy Coordinator; and Tim Robinson, Democratic Chief Counsel.
    Mr. Whitfield. I would like to call the hearing to order, 
and I want to apologize, initially, to our wonderful panel of 
witnesses that because of these votes which were unexpected, we 
were delayed. So, I do apologize to you all, but we do thank 
you for being with us. Today we are having a continued hearing 
on our discussion draft on accountability in the Department of 
Energy, and today we are going to be focused on perspectives on 
Title IV, the energy efficiency provisions. I would like to 
recognize myself for 5 minutes for an opening statement.

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

    We begin with our draft provisions on accountability, 
especially as it relates to the Nation's electricity system. 
The 2005 energy bill expanded FERC enforcement authority over 
electricity markets, and we have now had 10 years of experience 
with the implementation of those provisions. Many have raised 
concerns about the action of FERC's Office of Enforcement, 
particularly regarding fairness, consistency, transparency, and 
due process. Some have even questioned whether FERC enforcement 
actions are counterproductive and actually impede the proper 
functioning of electricity markets.
    The discussion draft would establish, as many of you know, 
an Office of Compliance Assistance at FERC to address these 
concerns. In addition, FERC order 2000 advanced the formation 
of RTOs and independent system operators. That is now 15 years 
old. This provision sought to promote efficiency in the 
wholesale electricity markets and to ensure that electricity 
consumers pay the lowest possible rate for reliable service. 
However, much has changed since this order first came out, and 
many market participants are calling for reforms ranging from 
price formation, to governance and transparency, as well as 
generation performance assurance.
    FERC has yet to develop effective reforms to ensure fair, 
transparent, and well-functioning competitive markets. They 
have done a good job at that, or at least trying to. This 
discussion draft seeks to fill the void with several proposed 
criteria intended to improve the wholesale electricity markets.
    Finally, PURPA was enacted to promote electric conservation 
efficiency and equitable pricing of wholesale electric energy. 
Like so many other 1970s-era energy policies still in place, 
many of PURPA's provisions are also a little bit out of date. 
In particular, Section 210 incentivized cogeneration and small 
power production by conferring certain advantages on qualifying 
facilities, but increasingly competitive wholesale electricity 
markets have made it inefficient and uneconomic for electric 
utilities to comply.
    Reforms to this section were made in the 2005 energy bill, 
but several market participants and public utility 
commissioners have raised concerns that Section 210 still has 
adverse effects. The discussion draft will include measures to 
address those shortcomings as well.
    With regard to energy efficiency, we held a hearing in 
April on nongovernmental perspectives, so today we are focusing 
on the Department of Energy's point of view. Now I might say 
that manufacturers have worked closely with the Department of 
Energy in trying to obtain additional efficiency in a lot of 
appliances and a lot of other products. But that hearing in 
April really pointed out that price increases, because of these 
efficiency mandates and very small efficiency accomplishments 
or advantages was really hurting the consumer, and the 
manufacturers were really expressing great concern about that.
    So, obviously, we all want more efficiency, but we don't 
want the consumers to be hurt unjustly for very minute and 
small efficiency advantages. So that is something that we look 
forward to talking to you all about, as well as further 
considering.
    So, I look forward to your testimony and the opportunity to 
ask questions.
    [The prepared statement of Mr. Whitfield follows:]

                Prepared statement of Hon. Ed Whitfield

    This afternoon we continue work on our bipartisan energy 
bill. I believe that we are finding areas of agreement on ways 
to improve the Nation's energy policy. Today, we look at 
accountability and energy efficiency, and I welcome our 
Government witnesses before us today and our non-Government 
witnesses who we will hear from tomorrow.
    We begin with our draft provisions on accountability, 
especially as it relates to the Nation's electricity system. 
The 2005 energy bill expanded FERC enforcement authority over 
electricity markets, and we now have 10 years of experience 
with the implementation of these provisions. Many have raised 
concerns about the actions of FERC's Office of Enforcement, 
particularly regarding fairness, consistency, transparency, and 
due process. Some have even questioned whether FERC enforcement 
actions are counterproductive and actually impede the proper 
functioning of electricity markets. The discussion draft would 
establish an Office of Compliance Assistance at FERC to address 
these concerns, and also includes provisions to improve 
transparency in FERC investigations.
    In addition, FERC Order No. 2000, which advanced the 
formation of Regional Transmission Organizations and 
Independent System Operators, is now 15 years old. This 
provision sought ``to promote efficiency in wholesale 
electricity markets and to ensure that electricity consumers 
pay the lowest price possible for reliable service.'' However, 
much has changed since this order first came out, and many 
market participants are calling for reforms ranging from price 
formation to governance and transparency to generation 
performance assurance. Nonetheless, FERC has yet to develop 
effective reforms to ensure fair, transparent, and well-
functioning competitive markets. The discussion draft seeks to 
fill the void with several proposed criteria intended to 
improve for wholesale electricity markets.
    Finally, the Public Utility Regulatory Policies Act of 1978 
(PURPA) was enacted to promote electric conservation, 
efficiency and equitable pricing of wholesale electric energy. 
Like so many other 1970s-era energy policies still in place, 
many of PURPA's provisions are out of date. In particular, 
section 210 incentivized cogeneration and small power 
production by conferring certain advantages on qualifying 
facilities, but increasingly competitive wholesale electricity 
markets have made it inefficient and uneconomic for electric 
utilities to comply. Reforms to this section were made in the 
2005 energy bill, but several market participants and State 
public utility commissions have raised concerns that section 
210 still has adverse effects such as impairing the development 
of cost-effective, competitive, renewable energy and forcing 
ratepayers to pay for unneeded generation or energy that is 
well above market price. The discussion draft includes measures 
to address these shortcomings.
    With regard to energy efficiency provisions in the energy 
bill, we held a hearing in April on nongovernmental 
perspectives, so today we focus on the Department of Energy's 
point of view. Many of these provisions deal with ways the 
Federal Government can reduce its energy consumption, such as 
helping to expand the use of energy savings performance 
contracts for Federal facilities. There are also requirements 
for DOE to look into potential energy savings at Federal data 
centers and through the use of thermal insulation, as well as 
other ideas to reduce Federal energy expenditures. It also 
eliminates the potentially costly and unrealistic requirement 
from the 2007 energy bill that Federal buildings use no fossil 
fuel generated energy by 2030.
    The draft bill also contains measures affecting the private 
sector, including increased legal certainty for the Energy Star 
program, the inclusion of Smart Grid capability on Energy Guide 
labels, and voluntary verification programs for several 
appliances. It also clarifies DOE's role in setting model 
building codes. Finally, it suspends a proposed residential 
furnace efficiency standard, probably the most controversial of 
the dozens of such appliance standards promulgated in recent 
years, until the agency gathers more evidence on whether it is 
technically feasible and economically justified.
    I look forward to a constructive discussion of these and 
related topics as we make progress on our energy bill.

    Mr. Whitfield. At this time I would like to recognize the 
gentleman from New Jersey, Mr. Pallone, for a 5-minute opening 
statement.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Chairman Whitfield. I understand 
that this hearing is the last of its kind on the majority's 
Architecture of Abundance discussion draft legislation. As we 
begin wrapping up these legislative hearings, I want to commend 
you and Chairman Upton. Regardless of whether I agree or 
disagree with all the policies put forth, the chairman and 
majority staff deserve credit for putting forward these many 
proposals and for working with us to put together these 
legislative hearings.
    We continue to want to work with you to try to construct 
energy legislation that can garner support from a majority of 
each of our caucuses. While I believe it is possible to get 
there, it is important to note that we have a long way to go. I 
have already voiced my opposition to the efficiency draft, 
because I believe that in its current form it would actually 
result in a net increase in energy consumption. But I am glad 
we finally get to hear DOE's views on the language today.
    The accountability title that is the primary topic before 
both today's and tomorrow's panels includes proposals that 
range from the relatively innocuous to the absolutely 
disastrous. In particular, I am strongly opposed to the section 
regarding FERC investigations, which, to me, defies all logic 
by casting market manipulation, big banks, and hedge funds as 
victims while handcuffing FERC investigators tasked with 
protecting energy ratepayers. The provision asks us to believe 
that JPMorgan Chase, which agreed to a $410 million settlement 
in 2013 is really a victim rather than the California 
ratepayers who were defrauded. It wants us to be concerned 
about just and reasonable treatment for FERC enforcement order 
subjects like Barclays Bank and the Powhatan Energy Fund rather 
than preventing market manipulation to ensure just and 
reasonable rates for consumers of electricity, a regulated 
commodity.
    I don't understand the majority's rationale, but I do know 
that its enactment would undermine confidence in the fairness 
of energy markets and ultimately the ability of those markets 
to function at all. It is clear from the inclusion of a market 
reform section in the draft that the majority already has 
concerns with the functioning of the regional electricity 
markets. What is not clear is exactly what problems the 
language is attempting to solve or whether it would solve them.
    Nonetheless, I look forward to hearing from our expert 
witnesses with extremely divergent views of electricity 
markets. This is a complex but critical issue that should be 
the subject of multiple oversight hearings and vigorous debate.
    Another matter that the committee should examine more 
closely before legislating is implementation of PURPA, Section 
210, which laid the early groundwork for wholesale electricity 
competition and the growth of renewable energy. Ten years ago, 
this committee and Congress significantly reformed the law to 
essentially say that if FERC found that fair and robust 
competition existed in a given region, then utilities within 
that region no longer had to sign mandatory power purchase 
agreements with qualifying facilities, and that reform seems to 
have worked. Perhaps there are tweaks to be made, and I am 
willing to address demonstrated problems. However, the 
discussion draft goes way too far by essentially deeming 
competition to exist even where it doesn't, completely flipping 
the burden of proof and undoing the simple, fair, and elegant 
agreement we enacted in EPACT 2005.
    In closing, I hope that we will take the time to try to 
work through these issues and not rush to meet some arbitrary 
deadline. While nothing is ever guaranteed, I think it is 
possible that working together, we can move from the 
architectural phase to the construction of broadly bipartisan 
energy legislation that could be enacted before the end of this 
Congress. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Pallone follows:]

             Prepared statement of Hon. Frank Pallone, Jr.

    Thank you Chairman Whitfield and Ranking Member Rush for 
holding this hearing, which I understand to be the last of its 
kind on the Majority's Architecture of Abundance discussion 
draft legislation.
    As we begin wrapping up these legislative hearings, I want 
to commend Chairman Whitfield and Chairman Upton. Regardless of 
whether I agree or disagree with all of the policies put forth, 
the chairmen and majority staff deserve credit for putting 
forward these many proposals and for working with us to put 
together these legislative hearings. We continue to want to 
work with you to try to construct energy legislation that can 
garner support from a majority of each of our caucuses.
    While I believe it is possible to get there, it's important 
to note that we clearly have a long way to go. I have already 
voiced my opposition to the efficiency draft because I believe 
that, in its current form, it would actually result in a net 
increase in energy consumption, but I'm glad we'll finally get 
to hear DOE's views on the language today.
    The ``accountability'' title that is the primary topic 
before both today's and tomorrow's panels includes proposals 
that range from the relatively innocuous to the absolutely 
disastrous.
    In particular, I am strongly opposed to the section 
regarding FERC investigations which to me defies all logic by 
casting market-manipulating big banks and hedge funds as 
victims, while handcuffing FERC investigators tasked with 
protecting energy ratepayers.
    The provision asks us to believe that JP Morgan Chase --
which agreed to a $410 million settlement in 2013-- is really a 
victim, rather than the California ratepayers who were 
defrauded. It wants us to be concerned about ``just and 
reasonable'' treatment for FERC enforcement order subjects like 
Barclays Bank and the Powhatan Energy Fund, rather than 
preventing market manipulation to ensure ``just and 
reasonable'' rates for consumers of electricity, a regulated 
commodity. I don't understand the Majority's rationale, but I 
do know that its enactment would undermine confidence in the 
fairness of energy markets and, ultimately, the ability of 
those markets to function at all.
    It's clear from the inclusion of a ``Market Reforms'' 
section in the draft that the majority already has concerns 
with the functioning of the regional electricity markets. 
What's not clear is exactly what problems the language is 
attempting to solve or whether it would solve them. 
Nonetheless, I look forward to hearing from our expert 
witnesses with extremely divergent views of electricity 
markets. This is a complex but critical issue that should be 
the subject of multiple oversight hearings and vigorous debate.
    Another matter that the committee should examine more 
closely before legislating is implementation of PURPA Section 
210, which laid the early groundwork for wholesale electricity 
competition and the growth of renewable energy. Ten years ago, 
this committee and Congress significantly reformed the law to 
essentially say that if FERC found that fair and robust 
competition existed in a given region, then utilities within 
that region no longer had to sign mandatory power purchase 
agreements with qualifying facilities. That reform seems to 
have worked. Perhaps there are tweaks to be made and I am 
willing to address demonstrated problems. However, the 
discussion draft goes way too far by essentially deeming 
competition to exist even where it doesn't, completely flipping 
the burden of proof and undoing the simple, fair and elegant 
agreement we enacted in EPACT 05.
    In closing, I hope that we will take the time to try to 
work through these issues and not rush to some meet some 
arbitrary deadline. While nothing is ever guaranteed, I think 
it is possible that, working together, we can move from the 
architectural phase to the construction of broadly bipartisan 
energy legislation that could be enacted before the end of this 
Congress. Thank you.

    Mr. Pallone. Would you like me to yield to you? I yield to 
the gentleman from California, Mr. McNerney.
    Mr. McNerney. Thank you. And I just want to say a few 
things about the accountability section. I appreciate the 
thought that went into it, but there are some things that seem 
counterintuitive. For example, Section 4221 seems to be counter 
to what Republicans might want in terms of reducing regulatory 
burden, so I am kind of wondering what brought that about.
    And on the section of 4212, California went through Enron 
manipulations in the year 2000, and we went about $9 billion in 
debt. Undoing the constraints that were put into place 
following that episode are mysterious to me why we would want 
to move forward in that direction. 4221, it would be good to 
have some clear understanding of what that section is trying to 
accomplish because it is not clear from what we have seen so 
far.
    So with that, I am just asking the chairman to consider 
working with us on improving these so that we have something we 
both can support. I yield back.
    Mr. Whitfield. The gentleman yields back. Is there anyone 
on our side of the aisle that wants to make a comment? If not, 
at this point, I would like to recognize Mr. Rush for his 5-
minute opening statement.

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

    Mr. Rush. Thank you, Mr. Chairman, for holding the hearing 
today. This hearing, as has been stated before, is on energy 
efficiency standards and FERC accountability. I commend you for 
allowing members the opportunity to hear from DOE on the energy 
efficiency title of the discussion draft following the April 30 
hearing when we also heard from energy stakeholders. In 
particular today, Mr. Chairman, I am looking forward to 
engaging Deputy Assistant Secretary Hogan on the pending final 
DOE rule updating efficiency standards for nonweatherized gas 
furnaces and mobile home furnaces. This is an issue that has 
gotten a lot of attention, and we have heard competing 
arguments on how this rule would impact low-income families and 
renters.
    Mr. Chairman, I am pleased in hearing from the agency 
itself on the rationale behind promoting this rule as well as 
the impact it expects this rule to have on consumers and on the 
environment. Mr. Chairman, I am also looking forward to 
engaging FERC on the accountability title of the discussion 
draft and getting feedback on how these provisions, as 
currently drafted, would impact the agency's work. 
Specifically, I am interested in getting more insight from the 
agency regarding Section 4211, which would create a new Office 
of Compliance Assistance with 10 full-time employees and a 
Commission-appointed Director, but does not include any 
additional funding.
    The responsibilities that this new office will be tasked 
with, including making recommendations regarding consumer 
protections, market integrity, and consistent compliance of 
rules and orders seems comparable to the Office of Public 
Participation that was previously authorized under Section 319 
of the Federal Power Act.
    Similarly, that office, too, was never funded and duties 
from that office have since been dispersed throughout other 
offices within the agency.
    Mr. Chairman, we need to make sure that this new unfunded 
office mandated in Section 4211 will not have the unintended 
consequence of unnecessarily pulling staff from their current 
duties to perform tasks that are duplicative in nature.
    I also have serious concerns over Section 4212 and what 
impact this legislation would have any investigatory process. 
Section 4212 takes the unprecedented step of applying the Brady 
rule of disclosing any evidence favorable to an investigative 
phase among FERC enforcement effort rather than the 
adjudication or trial phase of a case. I am also concerned that 
Section 4212, which-imposes an extremely burdensome requirement 
that all communications between the FERC staff be carried out 
in writing and made part of the record, which would negatively 
affect the agency's enforcement efforts.
    Mr. Chairman, this section would take the unprecedented and 
particularly harmful step of giving subjects who are being 
investigated equal weight to the Commission's own staff with 
regard to communicating directly with Commissioners during an 
investigation.
    So Mr. Chairman, the accountability title we have before us 
would make significant changes on how the Commission conducts 
its business, and I look forward to hearing from agency 
officials on how their work would be impacted. With that, I 
yield back.
    Mr. Whitfield. The gentleman yields back, and thank you 
very much for those statements. At this time I would like to 
introduce our panel of witnesses, and I am just going to 
introduce you as I introduce you to make your statement.
    So the first one is Dr. Kathleen Hogan, who is a Deputy 
Assistant Secretary for Energy Efficiency at the Department of 
Energy. And we appreciate your being with us. Sorry again for 
the delay, and you are recognized for 5 minutes for your 
opening statement.

 STATEMENTS OF KATHLEEN HOGAN, DEPUTY ASSISTANT SECRETARY FOR 
 ENERGY EFFICIENCY, OFFICE OF ENERGY EFFICIENCY AND RENEWABLE 
ENERGY, DEPARTMENT OF ENERGY; J. ARNOLD QUINN, DIRECTOR, OFFICE 
  OF ENERGY POLICY AND INNOVATION, FEDERAL ENERGY REGULATORY 
    COMMISSION; AND LARRY R. PARKINSON, DIRECTOR, OFFICE OF 
       ENFORCEMENT, FEDERAL ENERGY REGULATORY COMMISSION

                  STATEMENT OF KATHLEEN HOGAN

    Ms. Hogan. Terrific. And good afternoon, Chairman Upton, 
Ranking Member Pallone, Chairman Whitfield, Ranking Member 
Rush, and members of the subcommittee. Thank you for the 
opportunity to testify today on behalf of the Department of 
Energy's Office of Energy Efficiency and Renewable Energy, also 
known as EERE. As Deputy Assistant Secretary for Energy 
Efficiency at EERE, I oversee DOE's energy efficiency portfolio 
across buildings, advanced manufacturing, Federal energy 
management, weatherization, and intergovernmental programs. 
These efforts develop and help provide businesses, consumers, 
government agencies, with innovative, cost-effective, energy 
saving solutions to improve their energy efficiency, from high 
efficiency products, to new ways of designing homes and 
buildings, to new ways of improving the energy intensity and 
competitiveness of American manufacturers.
    Energy efficiency is a large low-cost and underutilized 
U.S. energy resource. Increased energy efficiency offers 
savings on energy bills, opportunities for more jobs, and 
improved industrial competitiveness, and lower air pollution. 
So, indeed, I am pleased to be here today and look forward to 
working with Congress and this committee in particular on how 
we can better use energy efficiency to help address our 
Nation's energy challenges.
    I have been asked to testify today on the energy efficiency 
provisions contained within Title IV, Energy Efficiency, 
currently before the committee. While the administration is 
still reviewing this bill, we support the ongoing bipartisan 
efforts to promote energy efficiency and look forward to 
continuing to work with the committee and the range of bill 
sponsors.
    The administration strongly supports the goal of improving 
energy efficiency, and is making real progress in helping cut 
energy waste, save money, and improve energy productivity. For 
example, the Department is on track to set energy efficiency 
standards under existing authority, which will help save 
billions of dollars in coming years. We are making important 
progress helping States understand the energy savings achieved 
through building codes and realize the benefits that building 
codes offer, and we are engaged with hundreds of organizations 
of all kinds showing how to cut energy costs by 20 percent or 
more. In addition, the recent release of the executive order 
13693 will advance the energy efficiency and sustainability of 
the Federal Government, the Nation's largest consumer of 
energy, and the Federal Government is halfway to meeting a $4 
billion performance contracting goal by 2016.
    The Department does have a number of concerns with the 
proposed language in Title IV that we believe undermines the 
Department's efforts to help cut energy waste, including its 
ability to effectively set product efficiency standards and the 
ability to help keep model energy codes up to date and help 
States understand and benefit from building codes.
    However, I do want to reiterate my appreciation for ongoing 
bipartisan efforts to promote energy efficiency, including this 
year's passage of the Energy Efficiency Improvement Act, and 
look forward to continuing to work with the committee. 
Generally the efficiency title addresses many important aspects 
of energy efficiency, including but not limited to, Federal use 
of energy savings performance contracts and utility energy 
savings contracts, energy efficiency for commercial and 
residential buildings, which, as we all know, consume more than 
40 percent of the Nation's total energy and more than 73 
percent of its electrical energy, and represent opportunities 
for significant savings, as well as appliance energy efficiency 
standards, which do have the opportunity to provide an 
estimated $1.8 trillion in savings through 2030.
    So EERE's program offices are implementing strategies 
similar to the activities highlighted in the legislation before 
the committee today, and I am proud to report that with 
Congress' support, EERE is making headway in helping reducing 
U.S. reliance on oil, saving American families and businesses 
money, and reducing pollution.
    So, again, I thank you for the opportunity to speak today 
and will look forward to answering any questions.
    [The prepared statement of Ms. Hogan follows:]
    
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    Mr. Whitfield. Thank you, Dr. Hogan. And our next witness 
is J. Arnold Quinn, who is the director, Office of Energy 
Policy and Innovation at the Federal Energy Regulatory 
Commission. Thank you very much for joining us, and you are 
recognized for 5 minutes.

                  STATEMENT OF J. ARNOLD QUINN

    Mr. Quinn. Good afternoon, Chairman Whitfield, Ranking 
Member Rush, and members of the subcommittee. Thank you for the 
opportunity to appear before you today. My name is J. Arnold 
Quinn. I am the director of the Office of Energy Policy and 
Innovation at the Federal Energy Regulatory Commission. I am 
here today as a Commission staff witness, and my remarks do not 
necessarily represent the point of view of the Commission or 
any individual Commissioner. My testimony will focus on those 
parts of the discussion draft that require reporting and 
planning to improve the wholesale electricity markets, Section 
4221, and establish an Office of Compliance Assistance, Section 
4211.
    The Commission is in the process of exploring many of the 
issues identified in the criteria articulated in Section 4211 
of the discussion draft. Further Commission action on these or 
other criteria articulated in Section 4221 prior to the 
enactment of the Act may diminish the need for and the benefit 
of congressional direction for the RTOs and ISOs to address 
these issues. The process Section 4221 requires is somewhat 
similar to the process the Commission has used to develop new 
market rules as system needs evolve. Such a process allows each 
ISO and RTO and its stakeholders to describe whether and how 
current market rules address an identified concern or system 
need in a manner reflective of regional differences. If 
Congress directs the Commission to take action beyond what the 
Commission is currently pursuing, it would be useful to clarify 
that Section 4221 of the discussion draft would require a 
process that is consistent with the Commission's existing 
processes under Sections 205 and 206 of the Federal Power Act.
    Further, the Commission prefers to focus on services and 
performance quality that the electric power system needs and 
establish market rules that ensure the cost effective provision 
of those services at the required level of performance. While 
the Commission recognizes the need to encourage an adequate 
supply of resources that provide operational characteristics 
that are responsive to system needs, some criteria in Section 
4221 may impair the competitive actions of these markets to the 
ultimate detriment of consumers or may cause unnecessary 
conflicts between Federal and State regulatory efforts.
    In light of the Commission's mission and existing 
practices, it appears that an Office of Compliance Assistance 
could create duplicative proceedings for consumers and 
regulatory entities. An office of compliance assistance within 
the Commission that is meant to be independent of the rest of 
the Commission staff, could undermine the current coordination 
amongst Commission program offices and impede the Commission's 
ability to fulfill its mission.
    Finally, although Commission staff currently endeavors to 
provide timely guidance in response to requests for compliance 
matters, the information gathering and analysis necessary to 
provide the compliance guidance makes doing so in real time 
challenging in virtually all circumstances.
    The Commission is always looking for ways to improve 
efficiency, transparency, and competitiveness of the markets 
its regulates, but it is important to recognize the duplication 
of effort and the potential unintended consequences that could 
result from this proposed legislation. Thank you for inviting 
me to testify today on the discussion draft. I look forward to 
working with you in the future on these issues, and I am happy 
to answer any questions you may have.
    [The prepared statement of Mr. Quinn follows:]
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Whitfield. Thanks very much, Mr. Quinn. And our next 
witness is Mr. Larry Parkinson, who is the director, Office of 
Enforcement, at the Federal Energy Regulatory Commission. 
Thanks for being with us, and you are recognized for 5 minutes.

                STATEMENT OF LARRY R. PARKINSON

    Mr. Parkinson. Thank you, Mr. Chairman, and Ranking Member 
Rush, and members of the subcommittee. My name is Larry 
Parkinson, Director of the Office of Enforcement at FERC. As 
with Mr. Quinn, I have to have the disclaimer that my comments 
don't necessarily reflect the views of individual Commissioners 
or the Commission itself.
    I have submitted a longer statement for the record, but I 
wanted to take a couple minutes just to give a little bit of an 
overview of the enforcement program. Congress, 10 years ago in 
EPACT 2005, I think, gave FERC a very strong direction when it 
came to enforcement. Much of the provisions relating to 
enforcement stemmed from the abuses by Enron, in particular. 
And I think the message was we expect FERC to have a strong 
enforcement program. We expect you to ensure the integrity of 
the markets. We expect you to catch bad actors, particularly 
those who manipulate the markets, and we expect you to protect 
energy consumers.
    And Congress gave FERC very important enforcement tools, 
including significantly increased penalties; and FERC took that 
direction seriously. It quickly adopted an anti-manipulation 
rule. It built up its enforcement capabilities. Much of that 
credit is due to the current chairman, Norman Bay, who headed 
the Office of Enforcement previously.
    We now have a very strong, capable, multidisciplinary group 
of professionals who are in charge of our enforcement program 
and carry it out. And I would say that we have achieved notable 
results. We are still relatively new. It is only a 10-year-old 
program since we got the new authorities, but in those 10 
years, we have returned almost $1 billion to consumers and 
ratepayers and to the U.S. Treasury from malfeasance by market 
actors. We are committed to fairness and professionalism, and 
we are committed to ensuring the confidence in the markets.
    It is important to point out that we have a bipartisan 
Commission that owns and directs the enforcement program. The 
Office of Enforcement is not some standalone enforcement entity 
out there doing its thing without any oversight from the 
Commission. And there has been, over the last 10 years, 
remarkable consensus amongst that commission of virtually all 
of our enforcement matters, whether it is approving settlements 
that we have reached in the enforcement program, or issuing 
orders to show cause or other orders, have been virtually all 
unanimous. So we have had a couple of instances where an 
individual Commissioner has dissented on one piece or another, 
but virtually everything has been unanimous.
    I would point out, and we will get to this probably in 
questions, but it is a little ironic that a couple of the 
provisions at least in the draft are designed in part to seal 
off the enforcement staff, or at least to erect barriers 
between the enforcement staff and the Commission. And I think 
in that respect, they are particularly puzzling if one of the 
goals is to make sure that the enforcement program has proper 
oversight by the Commission.
    I would point out that some, a couple of characters, a 
couple of individuals, have caricatured our enforcement program 
as a bit of an outlier in the Federal enforcement process. I 
will say I have been in the Federal enforcement world for 
almost 30 years. I have worked at a number of different places 
under both Republicans and Democratic administrations. I will 
say that when I came to FERC 5 years ago, I was a little bit 
surprised because we are an outlier. We are an outlier in the 
sense that we give an enormous amount of process to 
investigative subjects during the investigative phase. I still 
am surprised at how much process FERC gives during that phase 
of the process. And I would point out that process produces 
delay, and too much delay can be detrimental, not only to the 
investigative subjects, but certainly to the public and market 
participants.
    One key to understanding the enforcement process is there 
are two phases, and it is not unique to FERC. It us the same in 
every Federal enforcement process. And that is there is the 
investigative phase, which is the fact-finding phase, and there 
is an adjudicative phase. And there has been, by some, an 
attempt--not by this committee--but by some in the community to 
conflate those two components. And part of the language that we 
are looking at today tries to engraft trial-type processes onto 
the investigative phase, and I think it is important to keep in 
mind those two processes are different.
    A Federal investigation is a fact-finding process. It is 
not civil litigation. It is not ordinary civil litigation, and 
the attempt to engraft civil litigation process on a fact-
finding process, I think would be highly detrimental to that 
process.
    I have described in some detail in the testimony our 
concerns about the four specific provisions. I will just 
mention them briefly. We do have a Brady policy that works. It 
was voluntarily introduced. On the transcript issue, witnesses 
to get access to their transcripts, but in rare occasions 
access is delayed to protect the integrity of an investigation. 
And the other two provisions, restricting communications, which 
I think really would restrict communications, those provisions, 
between the enforcement staff and the Commission and other 
offices in the building, would seriously impede not only 
investigative process itself, but the Commission's ability to 
manage its own enforcement process.
    So in closing, I would urge the subcommittee to, before it 
adopts provisions like the ones that are drafted, to look at 
other Federal enforcement programs. I think some of these are 
unprecedented. They don't exist in other agencies. I think when 
Congress gave us new authorities in 2005, the intent was to 
give FERC enforcement the same sorts of tools and abilities 
that other Federal enforcement agencies have. We have used 
those, I think, responsibly and professionally, but I think 
some of the amendments, if adopted, would undermine that 
authority.
    We welcome constructive critique of our enforcement 
program. I think we are known for that, and we analyze how we 
are doing our business on a regular basis, and we look forward 
to any suggestions from the committee. Thank you for the 
opportunity to participate, and I look forward to your 
questions.
    [The prepared statement of Mr. Parkinson follows:]
    
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    Mr. Whitfield. Mr. Parkinson, thank you very much for that 
statement. And I recognize myself for 5 minutes of questions.
    I think on both sides of the aisle, while we frequently 
have different philosophies, political philosophies, and differ 
on a lot of these issues, I think all of us agree that this 
regular order process of bringing legislation, forming 
legislation, coming up with a final product, is the way to go. 
And when we have these hearings, and we have had a lot, we hear 
from the administration and we ask questions, and that is how 
we try to narrow this focus down and try to come up with the 
best product that we can, recognizing that you are not going to 
necessarily agree with everything that we are doing, and we 
don't necessarily agree with what we are doing sometimes with 
each other. But we come out with a final product, and that is 
what our goal is today.
    So, Dr. Hogan, when the Energy Policy and Conservation Act 
was first passed in 1978 in the Carter administration, one of 
the missions and the intent was certainly to develop minimum 
efficiency levels for certain appliances as measured in 
kilowatt hours. Would you agree that that was one of the 
original intents of the original Act in 1978?
    Ms. Hogan. I think it is to set minimum standards to, you 
know, look for efficient, to help set thresholds for efficiency 
so that people can save money through better efficiency 
products. That is right.
    Mr. Whitfield. Save money as well save the use of energy, 
use less energy?
    Ms. Hogan. That is right.
    Mr. Whitfield. And as I noted in my opening statement, that 
hearing we had with the private sector, not only the hearing 
but also letters, calls, there is more and more concern being 
generated by these manufacturers who worked closely with the 
Department of Energy in coming up with better efficiency 
standards that the additional efficiency being generated is 
very small, and the cost is going up. And some people may take 
offense at this question, but I am going to ask it because it 
is of concern to us.
    It seems to some of us that DOE is using the Energy Policy 
Conservation Act to further the President's climate goals, an 
objective wholly outside the statutory purpose and requirements 
of EPCA. And so, this would lead me to believe that the DOE's 
aggressive efficiency push is to benefit the President's 
negotiating position in Paris this year, rather than what may 
be in the best interests of American consumers and 
manufacturers.
    So I would ask you, I mean, that is a feeling that some of 
us have. That is statements we have heard from various 
manufacturing and consumer groups. I would ask you, do you feel 
like you are going beyond the original intent and purpose of 
the Energy Policy Conservation Act?
    Ms. Hogan. I certainly appreciate you asking that question, 
if that is what you are hearing and that is what you may feel. 
You know, there is very clear language in the authorities that 
have been given to us by Congress, and that is for us to set 
standards that are technically feasible and economically 
justified. And that is being done on an economics basis. We 
also are asked to, once we set standards, to go back every 6 
years typically and look to see if those standards are 
appropriate for being updated, a so-called 6-year look-back 
provision.
    That is, indeed, what we are doing at the Department of 
Energy, is proceeding under the good direction that we have 
been given by Congress to set these standards in a way that 
makes sense on a cost-benefit basis for how we can help 
businesses and consumers to continue to save energy and save 
money.
    Mr. Whitfield. Yes, save energy and save money, but when it 
escalates the cost of the product, that is not helping the 
consumers. And, you know, I asked the staff to prepare a list 
of regulated residential products that you all are involved in 
right now: Clothes dryers, close washers, central air-
conditioners, heat pumps, ceiling fans, battery chargers, 
dehumidifiers, heating equipment, dishwashers, kitchen ranges, 
ovens, microwaves, pool heaters, refrigerators, and it goes on 
and on; and then we get into the commercial and industrial 
side, and it is even a longer list. And so, you know, we are 
just trying to bring a more balanced approach to some of this, 
recognizing that you have your responsibility, but it is more 
than--I mean, we all like to say, OK, we want to be more 
efficient, less energy, and save consumers money.
    But at the same time, if it costs them so much going in, 
and it makes the products not work as well, maybe short-lived, 
then I am not sure that it is accomplishing the purpose that 
was intended. So we are going to continue to discuss about this 
because we don't have a final product yet, but I just wanted to 
get that out there, and my time is now expired. So, Mr. Rush, I 
recognize you for 5 minutes.
    Mr. Rush. Thank you, Mr. Chairman. Deputy Assistant 
Secretary Hogan, one of the more contentious provisions 
included in the discussion draft is Section 4124, which would 
prohibit the Department from promulgating a final rule amending 
efficiency standards for nonweatherized gas furnaces and mobile 
home furnaces. And we have had several meetings in my office on 
both sides of this issue, and I want to hear directly from the 
Department on this issue for the record.
    And let me begin by asking a question. First of all, Mr. 
Chairman, I am not offended, but I am kind of really startled 
by your question, but I am going to move on beyond it. I don't 
think the President would stoop to the level that he would use 
a Federal agency to buttress some kind of advantage at a 
conference in Paris, or in any other place in the world in the 
fall or the winter or any other time. I think the President has 
a sense of responsibility, and he is sworn to his office and 
duties just as we all are. I am not offended. I am just 
somewhat taken aback a little bit by that statement.
    Madam Assistant Secretary, in the previous energy 
efficiency hearing we heard several, as I mentioned before, 
conflicting comments in this room on low-income consumers. And 
I want you to speak on the record about the rationale behind 
this rule, and its expected impact on the lower-income 
communities, and if you will give us an overall expectation 
environmentally in terms of the impact of this rule?
    Ms. Hogan. So we do have a rulemaking that is underway for 
gas furnaces. At the top level, this rule, as proposed, and let 
me stress that this is a proposed rule, would offer net 
benefits on the order of $16 billion in the coming years, so 
significant benefits. When we do do our rulemakings--again, it 
is a proposed rule--we do look closely at low-income 
communities and senior households, so we do look at the impacts 
on the full set of households that are out there. Certainly, 
but I guess the other thing I do want to continue to emphasize 
is that this is a proposed rule. I think it is also a rule 
where we are trying to be and are being as open and as 
transparent and working with as many stakeholders as possible 
so that we can get all of the best information that we can and 
to hear their concerns before we would move forward to finalize 
this rule.
    We have had multiple public meetings. We have extended the 
comment period. It remains open as we sit here today, and even 
after the comment period closes, industry and others can come 
in and engage with the Department to share data and issues, and 
we are open to all of that information. I know we have also 
been up on the Hill briefing various staffs, including yours. 
We are happy to continue this conversation, and I think we can 
find a way, the right place, for this rule to land.
    Mr. Rush. Do you foresee the possibility that as a result 
of your actions, that your costs for furnaces and heaters, that 
that would be prohibitive to the poor in this Nation? Do you 
foresee that as being a likelihood or even a distinct 
possibility in the future?
    Ms. Hogan. So like with any product, we see a range of 
costs, depending on the characteristics of a household. 
Certainly those people that are in the colder climates that 
have homes that have less insulation, for example, would be the 
type of households that would benefit the greatest from a 
furnace standard.
    So we see that there can be really great benefit from this 
rule for some low-income homeowners that would be in certain 
situations. I guess the other thing I should just point out, 
because some people sometimes don't understand this, is when we 
do a rulemaking, it really affects the purchase of a new 
furnace. There is a lot of furnaces that would be in place that 
will be in place for quite a while because the real thing you 
will do for them if there is an issue, is you will repair them. 
There is a lot of repair opportunities for furnaces that are in 
today's homes, and the standard really applies at the point 
when you are totally replacing that furnace. I also think when 
you look at the low-income population, you will see a fair 
amount of use of radiators and boilers and other technologies 
that this rule will not apply to.
    Mr. Whitfield. The gentleman's time is expired. At this 
time, I recognize the gentleman from Texas, Mr. Olson, for 5 
minutes.
    Mr. Olson. Thank you, Mr. Chairman, and welcome to Dr. 
Hogan, Mr. Quinn, and Mr. Parkinson. My first question will be 
for you, Dr. Hogan. In a prior hearing of this subcommittee, we 
heard concerns about how DOE sets appliance standards for 
efficiencies. The chairman brought up examples like water 
heaters and furnaces. I want to talk about how DOE considers 
the economics of these improvements. Obviously, there are some 
parts of the country where local situations dominate. For 
example, spending a few thousand dollars in New England makes a 
lot of sense on a furnace because they have two seasons of 
cold, cold, and one season of colder. In Houston, Texas, we 
have one season, hot and humid, with three seasons of 95 
degrees and 95 percent humidity.
    So clearly, some sort of furnace doesn't matter too much to 
me, but an efficient air-conditioner means a heck of a lot in 
Houston, Texas. So could you please discuss how you consider 
regional differences when you look at these new standards? Do 
you consider them?
    Ms. Hogan. So we do look at a variety of options when we 
set standards for things like furnaces and air-conditioners. 
Actually, if you look at air-conditioner standards in place in 
this country right now, you will see that we do have regional 
standards. Those regional standards are in place because 
industry came to us with a consensus recommendation that that 
is the approach that we should take. So certainly we have been 
able to consider that in the past and are certainly open to 
that conversation.
    Mr. Olson. Great, because it is not a problem for air-
conditioners. Obviously heaters, for instance, and just as well 
because, again, in Houston we use ours probably five times a 
year. My kids love to kick on the gas fireplace and keep warm 
with that. So please make sure you commit to making sure you 
take regional differences into account with these new 
standards, making sure that one size doesn't fit all because in 
Houston, Texas, it is much different than Boston, 
Massachusetts.
    Ms. Hogan. We certainly understand the climate differences 
across the country. We do.
    Mr. Olson. OK. Take this into account, please, ma'am. Thank 
you.
    Next question is for you Mr. Parkinson. You said a worth 
that makes Texans shudder: Enron. Houston still remembers local 
and national crisis caused by Enron's collapse. There is no 
place for bad actors in the energy market. However, I know 
there are plenty of good actors out there working through a 
very complex system. I appreciate, therefore, in the draft, 
discussion draft the concept behind an Office of Compliance 
assistance to help companies navigate through the FERC process. 
Can you tell me what resources are currently available today 
for companies to stay on the right side of the law, and do you 
believe that these resources are convenient and located inside 
FERC conveniently? What is out there, sir?
    Mr. Parkinson. I do think they are sufficient, and Mr. 
Quinn may want to weigh in as well. We do have multiple avenues 
for folks to come in and receive guidance from FERC. On the 
market side, in particular, there is an opportunity for actors 
in the markets to come, and if they are wondering about whether 
a particular activity is lawful or not, they can request a no-
action letter. There is a process by which any market 
participant can seek a no-action letter. Very few people do it 
in the enforcement world. And I am not sure why they don't do 
it, but I will say that that opportunity is there. We freely 
communicate in the enforcement side with counsel, and with our 
investigative subjects about what we think. There is very 
little mystery about what we have concluded and what we think 
the law is.
    The Commission tries to set forth in detail its rationale 
for what it considers market manipulation. There are dozens of 
settlement orders out there where the Commission has tried to 
set forth that guidance, as well as in Order 670 itself. So the 
Commission does make a significant effort to educate. An 
example last week, the Commission issued an 89-page order in 
one of our market manipulation cases which laid out in great 
detail not only facts, but its legal conclusions and what it 
believed the standard should be. That is pretty unusual in the 
Federal Government to have a Commission put that kind of time 
and effort and try to lay out that sort of guidance in that 
kind of detail.
    Mr. Olson. Mr. Quinn, final comments? I am over my time, so 
make it quick please.
    Mr. Quinn. I would just add that there is other informal 
methods for getting guidance. There is a compliance help line. 
There are also formal ways to do that through a request for 
declaratory order.
    Mr. Olson. Thank you. Yield back.
    Mr. Whitfield. At this time I recognize the gentleman from 
California, Mr. McNerney, for 5 minutes.
    Mr. McNerney. Thank you, Mr. Chairman. And I appreciate the 
effort that is going into this bipartisan bill. Dr. Hogan, how 
much do you think the Clean Power Plan's goals could be met by 
energy efficiency improvements alone?
    Ms. Hogan. As you know, the administration supports sort of 
an all-of-the-above strategy, and clearly, energy efficiency is 
part of that all-of-the-above approach. There is a substantial 
amount of energy efficiency that is available in all parts of 
the country, but I am not sure I want to go too much farther 
than that other than there is energy efficiency available as a 
low-cost resource in all parts of this country.
    Mr. McNerney. And that wouldn't affect the grid's 
reliability?
    Ms. Hogan. It should help the grid's reliability.
    Mr. McNerney. Thank you. Mr. Quinn, on Section 4211, how 
much regulatory burden do you think that that section would add 
to energy producers in this country?
    Mr. Quinn. I think our primary concern is simply that most 
of what Section 4211 requires is already being done by 
Commission staff with a secondary concern that to the extent 
that you had a separate independent office doing that, there is 
the potential that the guidance presented in the 
recommendations for improvement would become inconsistent with 
other guidance from Commission staff.
    Mr. McNerney. OK. Mr. Parkinson, do you believe this 
regulation would make the States more vulnerable to market 
manipulation like was experienced in California in the year 
2000?
    Mr. Parkinson. With respect to the four amendments that are 
in the draft, yes.
    Mr. McNerney. Thank you. Mr. Parkinson, what are the 
implications of the phrase ``helpful and potentially helpful'' 
in Section 4212?
    Mr. Parkinson. That is really a pretty dramatic rewrite of 
what people refer to as the Brady doctrine, even in a criminal 
context, which is where it really applies. Brady does not apply 
legally, at least constitutionally, in a civil context like we 
are under, even though we voluntarily adopted it as a 
Commission in 2009. But it really, under that standard, 
essentially what it would end up being is an open file 
discovery policy. If you say you are entitled to information 
and possession of FERC that is helpful or potentially helpful 
to the defense, I don't know what wouldn't be, whether it is 
inculpatory, exculpatory or anything even neutral.
    If I am defending an investigated subject, of course 
everything that the Government has is helpful to me, or 
potentially helpful, even if it is--maybe especially if it is 
inculpatory, I would like to know that because it is helpful to 
me in preparing my defense. I think that that language, in 
particular, is our biggest concern about that part of the 
proposed 4212.
    Mr. McNerney. So you feel it would be an advantage to 
eliminate that terminology?
    Mr. Parkinson. Absolutely.
    Mr. Whitfield. Would you tell us what that terminology is 
again?
    Mr. McNerney. Helpful or potentially helpful in Section 
4212(1). Next question, in Section 4212(4), would that section 
compromise the attorney client privilege or affect impartial 
fact-finding conducted by FERC?
    Mr. Parkinson. It certainly could. I don't think there is 
any question it would impede the ability of the enforcement 
staff to regularly communicate with the Commission and with 
others in the agency. It simply is unworkable to restrict the 
enforcement staff from those communications unless we ignore 
the fact that the Commission itself owns and manages its 
enforcement program. I mean, it does wear two hats in this 
world. It is responsible for having a strong enforcement 
program, and it is also responsible at later stages in 
particular cases to be adjudicators.
    But much of the discussion around this has been focused 
only on the adjudication phase. I don't know how a Commission 
effectively oversees an enforcement program if the enforcement 
staff isn't able to regularly communicate with them without 
having to put it in writing or without having to give the 
investigative subject the opportunity to address the Commission 
in the same way. We are counsel to the Commission, and our 
investigators are lawyers, and we give legal advice to the 
Commission on an ongoing basis.
    Mr. McNerney. Thank you, Mr. Chairman.
    Mr. Whitfield. At this time I recognize the gentleman from 
Illinois, Mr. Shimkus, for 5 minutes.
    Mr. Shimkus. I just got back, Mr. Chairman, so I will yield 
to the next member.
    Mr. Whitfield. OK. Mr. McKinley of Virginia for 5 minutes--
I mean, from West Virginia.
    Mr. Griffith. Mr. Chairman, some of us in Virginia never 
acknowledged that they lawfully were transferred.
    Mr. Whitfield. Well, Mr. McKinley is such an easygoing guy. 
I knew it wouldn't bother him.
    Mr. McKinley. Just like this all the time. The question 
that I was wrestling with a little bit on the efficiency issue 
has to do with a little bit deeper from an engineering 
perspective, and that is on indoor air quality and the impact 
that has on energy efficiency, and I am just curious as to how 
you have taken that into consideration, because as we know, we 
can be, we can have the best equipment available, but if we are 
not using it properly, we are going to defeat the purpose. And 
we know that--that was one of our practices in architecture 
engineering, what we did was we went into schools, and we found 
out schools all over America that we were called into are not 
operating their equipment. They may have new equipment, but 
they are not operating it properly. So we can spend all this 
money to put all this new equipment in, but if it isn't 
operating, so where are we going within energy efficiency 
within FERC or with the DOE?
    Ms. Hogan. Certainly we pay attention to indoor air quality 
at the Department of Energy as we think through energy 
efficient homes and buildings. We have got a program now that 
we are working on with builders across the country, called Zero 
Energy Ready Homes, which is really a way of saying energy 
efficiency first, and then rolling in renewable energy as it 
makes sense. And that is a high-performance home specification 
that builders are building to that gives a lot of thought to 
indoor air quality issues, water management, home design, sort 
of the whole package.
    Mr. McKinley. And in conjunction with that, that is where 
some people are saying, and I am just taking into consideration 
from the professional engineering position, is that the tighter 
we make our buildings and more efficient, or effective with 
this wrap and the closed windows and we don't get in fresh air, 
it is its no wonder that we are having more indoor air quality 
problems, that people are having asthma and other health-
related issues as a result of this.
    I am not convinced yet that we have the answer. We know the 
EPA, in and of itself, has said that indoor air quality is 
probably 90 times worse than the outdoor air quality, and they 
relate it to the levels of formaldehyde that we have in our 
indoor air because of our carpet, our furniture, our clothing, 
all giving off these gases; and we are not circulating the air 
the way we are supposed to. So we may have the best equipment, 
but if we are not handling it right, what are we doing?
    Is anyone willing to acknowledge that perhaps some of the 
health risks that we have--you have heard the rattle off. I 
have heard it from across the aisle--all the asthma attacks, 
the early health risks, sick days, are all caused by coal. 
Well, I want to submit to you that perhaps it is a lot caused 
by indoor air quality when we are not operating our homes in 
the most efficient way. How can you respond to that? Would you 
agree that indoor air quality is a problem?
    Ms. Hogan. I certainly agree that indoor air quality is 
something that we need to pay close attention to.
    Mr. McKinley. Is it a problem?
    Ms. Hogan. We work with EPA on indoor air quality issues.
    Mr. McKinley. Do you think--I am sorry.
    Ms. Hogan. Absolutely it is an issue that----
    Mr. McKinley. OK. I just wanted to hear you say that it is 
a problem, because I haven't been able to get anyone else to 
acknowledge that it is a problem. So thank you for stepping up. 
OK. Thank you.
    So where do we go from that?
    Ms. Hogan. We continue to work on it. I think one of the 
other ways that we are working on it, we are a participant in 
the ASHRAE committees that are looking at, you know, standards 
around airtightness for homes and----
    Mr. McKinley. And school classrooms. We know that school 
systems, public buildings, Federal buildings, they will close 
dampers so they will shut off so that fresh air--they are not 
bringing fresh air into it, so that they don't have the air 
turnover. We know a classroom should have two to four air 
turnovers per hour, and they are not getting it. Little Johnny 
is sitting there sneezing next to Nancy, and they are dealing 
with the same air all day long, and then they wonder why does 
little Johnny get sick.
    Ms. Hogan. That is right. And there is a lot of effort 
being put on ongoing continuous commissioning of buildings so 
that you can keep the buildings and their equipment in sort of 
top notch operating, you know, performance, and that is another 
effort that the Department of Energy is continuing to work on 
for really buildings of all types.
    Mr. McKinley. Well, I am just saying that I know the 
frame--we are running out of time, but I just hope as we 
develop this final draft and as we work down through it is that 
we take into consideration into indoor air quality because--and 
thank you for acknowledging that it is a problem and that--see 
how we can work that into it because having the best equipment 
doesn't always solve the problem. And having the most efficient 
doesn't solve the problem if people aren't operating the 
building properly.
    Thank you. I yield back my time.
    Mr. Whitfield. Chair now recognizes the gentleman from New 
York, Mr. Tonko, for 5 minutes.
    Mr. Tonko. Thank you, Mr. Chair.
    Dr. Hogan, Section 4115 of the Energy Efficiency Discussion 
Draft repeals a provision of the Energy Conservation and 
Production Act that sets out an aggressive set of energy 
efficiency goals for Federal buildings. I don't support 
repealing this provision, and I believe the Federal Government 
should be a leader in demonstrating what can be achieved with 
new technologies and building design.
    The administration has a number of executive orders that 
address energy efficiency goals for the Federal Government.
    Would you please talk a bit about these and what the 
administration believes are achievable efforts for Federal 
buildings.
    Ms. Hogan. Sure. So, you know, we have a very recent 
executive order as of March of this year that came from the 
White House that outlines a set of extended and/or new goals 
across much of the Federal facilities, fleets, and so that 
includes things like reducing our greenhouse gas emissions by 
40 percent by 2025 relative to a 2008 baseline. It includes 
continuing to improve the efficiency of our Federal facilities 
by 2 \1/2\ percent per year through 2025, though that 2 \1/2\ 
percent per year does not just have to be energy efficiency, it 
can be through the use of on-site renewables. It also includes 
continued goals for saving water, as an example, and continued 
growth in the amount of our electricity use that we would get 
from renewable energy sources growing to about 30 percent by 
2025 relative to where we are right now, which is a little 
under 10 percent.
    So these are what we believe to be aggressive but 
achievable goals, and if you actually cost it out from the 
savings that we think we can deliver to the taxpayer as we 
would meet these goals, we estimate about $18 billion in 
savings from working to achieve these goals.
    Mr. Tonko. Thank you. Thank you.
    And the Department has been working on a number of 
important standards to improve the energy efficiency of various 
products. Now, the effort to develop a standard for residential 
non-weatherized gas furnaces is one of those.
    I have seen the projected savings for consumers for this 
rule, and it is very impressive. Since these furnaces are in 
place for about 20 years, it is important so have an aggressive 
standard.
    This discussion draft sets this rulemaking back, I believe, 
by a considerable period, further delaying progress on 
efficiency. I am also not convinced this study will do anything 
to resolve the potential problems the rule's critics have 
noted, primarily, that some low-income homeowners might not be 
able to afford the installation of these furnaces, or that all 
homes and buildings cannot accommodate these furnaces. I 
believe the experience has been that installation costs drop 
and new installation methods develop as familiarity with new 
products and their installation goes forward. In fact, this 
usually results in the cost estimates for these rules being 
high relative to actual experience.
    My understanding is the furnaces the rule is recommending 
are already on the market and account for between 40 and 50 
percent of new sales. Would you agree with that?
    Ms. Hogan. I certainly know that the products are on the 
market. They represent a fair amount of new sales. I would have 
to go back and confirm those specific numbers, and would be 
happy to do that.
    [The information follows:]

        The Department of Energy observed that 36 percent of the 
        residential furnace market wasat or above the proposed energy 
        efficiency level in the Notice of Proposed Rulemaking. In 2021, 
        41 percent of the market is expected to be at or above the 
        proposed level.

    Mr. Tonko. OK. And also would you happen to know the 
projected consumer savings for this rule?
    Ms. Hogan. We think the net present value of savings for 
the rule is $18 billion.
    Mr. Tonko. Thank you. And DOE's proposed rule takes a 
different view from that of the rule's critics with respect to 
the cost effectiveness of this standard.
    Do you believe the rule meets the statutory requirement 
that the standard be, quote, ``economically justified''?
    Ms. Hogan. The proposed rule clearly meets that 
requirement, absolutely.
    Mr. Tonko. And I also note that the statutory requirement--
that the statutory requirement is that a new standard achieve 
the maximum improvement in energy or water efficiency.
    Does the rule meet those given requirements?
    Ms. Hogan. Yes. We believe that this rule is within our 
statutory responsibilities.
    Mr. Tonko. OK. Well, I thank you, Dr. Hogan. I think this 
rule offers tremendous benefits to consumers.
    With that I yield back, Mr. Chairman.
    Mr. Whitfield. Chair recognizes the gentleman from 
Illinois, Mr. Shimkus, for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman, and thank you for 
letting me defer to--and welcome. This is a great committee. We 
love talking public policy and these relationships.
    Ms. Hogan, I hope that in this debate about efficiency, I 
have kind of--I am from rural Illinois, 33 counties, small 
communities. I understand efficiency, and I have accepted some 
of the arguments that there is return on investment, but I 
think, you know, Mr. McKinley--and there are some points about 
new technology that ends up being more costly. Get a new 
furnace, you have to get new filters. You don't get these 
little ones anymore, you get the--you don't get the $12 
filters, you get the $60 filters. A service call is not 100 
bucks, it is 250 bucks. Are some of those costs to middle-
income, lower-income folks taken into consideration?
    Ms. Hogan. When we do our work, our analysis, we look at 
all the installation, O&M costs, associated with a change to a 
higher efficiency unit, absolutely----
    Mr. Shimkus. Because I am personally starting to have a 
debate just in my own house about how much savings I have 
versus the actual cost, because you got to have those 
technicians out all the time. You know, spring and fall, and, I 
mean, I just think there is--I hope we are because I am not 
sure how people, middle to lower income, can afford high 
efficiency, and the maintenance requires you keep them running 
at the standard, I think Mr. McKinley was raising, to get that 
return on investment. Because most people--those old furnaces, 
they would work. They would work 20 years. Not efficient, but 
they weren't high tech. If a belt broke, you replaced the belt. 
Right? So I just want to highlight that.
    The other thing is, Mr. Quinn, did we meet recently? I met 
with FERC on a recent auction. Were you part of that meeting?
    Mr. Quinn. I was not part of that meeting.
    Mr. Shimkus. OK. I couldn't remember. I am trying to ask my 
staff.
    So this is also timely, and just the auction issue, I am in 
the MISO area. So we had an interesting auction. I found out 
that those auctions happen every now and then throughout the 
country. So these questions kind of deal with that a little 
bit.
    In the committee's legislation, you make a statement that 
some of it is unnecessary because did youalready have a lot of 
pending documents to address several of the wholesale 
electricity market criteria that the committee highlights in 
its draft market reform legislation, including price 
formulation in energy markets, fuel assurance, and performance 
assurance in capacity markets.
    Do you have any idea when these pending docket decisions 
will be made?
    Mr. Quinn. Congressman, I can't say when the Commission 
will take action. Just simply----
    Mr. Shimkus. No. That is fine. Just getting it on the 
record.
    Since you can't provide additional details on timing at 
that moment, will you commit to following up for the record to 
provide information regarding the expected timeline for the 
Commission action on these initiatives?
    Mr. Quinn. Congressman, staff has limitations on--legal 
limitations on saying when the Commission will take action, 
partly just by matter of law. Second, because it is a five-
member Commission, you have got to get----
    Mr. Shimkus. Yes. So here is our problem. The dilemma is we 
believe in markets, we believe in competition, but sometimes 
they go awry and we have a hard time understanding how that 
happens. I mean, in my briefing, I think the formula per laid 
out probably was right, but the answers--when you have, in 
essence, a 300 percent increase, which I think it was in the 
MISO region, to the average person, there is a concern that 
somethingis not right with the form--somethingis not right with 
the process. If--so we--maybe a lot of members, Republicans 
specifically believe in markets, we believe in competition, 
but--and what our concern is that if we don't get some warm and 
fuzzies from the FERC, that there may be a call to legislate in 
the areas of electricity markets in the absence of concrete and 
timely action by the Commission, we may not have any other 
choice. So maybe that is a message you can take back to the 
Commissioners, and you can respond if there is anything else 
you want to add to that.
    Mr. Quinn. The only thing I would add is simply that the 
amount of work that the Commission staff has done on a number 
of efforts, including price formation, fuel assurance, has 
brought together a large number of stakeholders, offered a 
large number of perspectives on what are really complex issues, 
allowing the Commission to pursue those activities as they 
currently are now, understanding the need for timely action 
would allows us to get the benefit of what that stakeholder 
community has provided.
    Mr. Shimkus. Thank you.
    Thank you, Mr. Chairman.
    Mr. Whitfield. At this time, the Chair would like to 
recognize the gentleman from Vermont. And I want to a 
apologize. I had two Democratic orders. In one of them you were 
before Mr. Tonko, and the other you were behind, but you are 
recognized for in 5 minutes and 15 seconds.
    Mr. Welch. I am happy to get my time. Thank you.
    A couple of things. One, I am so grateful to DOE and FERC 
and all of the advocacy organizations that have worked so hard 
for so long on focusing attention on energy efficiency. And 
there is two things I think we need in order to ultimately be 
really successful. One is we need bipartisanship on the 
jurisdictional committee, and we have got that. It is 
tremendous.
    And, number two, we need to have cooperation and 
communication between the advocacy community, the regulatory 
agencies, DOE, and FERC, and the private sector who are in the 
real world dealing with some of Mr. Shimkus' concerns, because 
if we have a standard that has the maximum efficiency but 
nobody can afford it, it is not going to save money and it is 
not going to save on energy.
    So I appreciate this sort of cooperation that recognizes 
that all of us have to be involved in some give and take, 
taking into account the real world where home builders are out 
there banging nails, where the energy efficiency folks are 
looking at policy and seeing best practices, and where the 
legislature has a responsibility to try to find that common 
ground.
    But so, Dr. Hogan, I just want to ask you a couple of 
things. We have got a great bill here. And there is a few 
things that have to be wrinkled out. Mr. McKinley and I have 
some provisions in there that are being debated, and our 
colleagues, Ms. Blackburn and Mr. Schrader, have an alternative 
offer on that, and we want to try to work that out. But I want 
to just ask you a couple of questions about that because that 
has to do with the DOE rule.
    Under current practices, when new building codes are being 
developed, does DOE consider the cost effectiveness of the 
codes that it proposes? And, if so, can you describe what that 
analysis looks like, because there has been some debate on if a 
10-year simple payback period analysis would be more effective. 
You know, it is simple and straightforward, or if a life cycle 
cost analysis provides also, in some cases, a more complete 
picture of the cost and benefits of these codes on homeowners?
    Ms. Hogan. Well, thank you for the opportunity to address 
that question.
    DOE does do assessments of measures to take to an 
independent code body for their consideration as part of 
updating the national model energy code. And in doing that 
work, we do do a life cycle approach, life cycle cost 
effectiveness approach, because we do believe that is a better 
representation of the cost of more efficient measures that 
aligns with the way most people buy homes these days. Most 
people are taking out mortgages.
    Mr. Welch. Can you also do 10-year analysis too on the 
payback?
    Ms. Hogan. We can do any analysis that we are asked to do. 
I think we do believe that a life cycle approach is one that 
tells sort of the best story aligned with the way most people 
buy their homes. But we certainly can do multiple approaches.
    Mr. Welch. OK. Well, that makes sense.
    Another thing, DOE does provide right now robust technical 
assistance to States and model code development bodies upon 
their request in the development and adoption of building 
energy codes. What would be the impact if we were to restrict 
this technical assistance to only providing those bodies that 
have requested it with information on proposals with a payback 
of 10 years or less using simple payback only, and not also 
providing with the life cycle analysis that they could consider 
and accept or reject?
    Ms. Hogan. Well, we haven't looked in great detail in terms 
of what specifically would change if we were limited to a 10-
year simple payback. We don't think it would be as helpful to 
the States in terms of understanding what the measures are, and 
what the savings are that they could then deliver to home 
buyers in their State. We do think having, you know, as you can 
tell, we think doing a life cycle approach is really a better 
approach, but also just having the opportunity to do multiple 
approaches so people can actually figure out truly what works 
for them would be much better.
    Mr. Welch. OK. And just my last quick question, the draft 
text includes a provision to repeal Section 433 of the 2007 
Energy Independence and Security Act. Mr. McKinley and I are 
working on an alternative proposal to reform it rather than 
repeal that provision. Our proposal would replace Section 433 
with an extension of energy efficiency improvement targets in 
Federal buildings and require Federal mortgage agencies to 
include energy efficiency as a factor in determining value.
    What is the DOE view of repealing Section 433? And what do 
you think about the McKinley Welch approach as an alternative?
    Ms. Hogan. So we think it is great when the Federal 
Government has sort of a full tool kit of things to help guide 
its investments. We think Section 433 provides an aspect of 
that, particularly focused on what we can be doing in major 
renovations of our buildings. That is in a gap currently in 
sort of the Federal tool kit. DOE's been making some important 
progress in, you know, moving forward on 433. But it is really 
that gap that we think is the important part.
    So the extent there are, you know, direction from Congress 
on how we can continue to have a full tool kit, you know, that 
is the type of thing we would be happy to work with Congress on 
to find something that is workable there.
    Mr. Welch. Thank you.
    Ms. Hogan. And we are certainly excited about some of the 
things going on in the SAVE Act.
    Mr. Welch. Well, good. I thank all the panel members, and I 
yield back.
    Mr. Whitfield. At this time the Chair recognizes the 
gentleman from Ohio, Mr. Latta, for 5 minutes.
    Mr. Latta. Well, thank you very much, Mr. Chairman. And to 
our panel, thanks very much for being with us today.
    If I could, Dr. Hogan, Representative Welch, who was just 
speaking, and I have also introduced legislation that would 
ensure customers are protected when products are disqualified 
under the Energy Star program by requiring the EPA to make a 
determination as to whether consumer compensation is required. 
This language is supported by many outside groups, including 
the Alliance to Save Energy, the American Council for Energy 
Efficiency Economy, and the National Association of 
Manufacturers.
    Let me ask, do you agree that consumers benefit from a 
strong Energy Star program?
    Ms. Hogan. Yes. As you may know, the Department of Energy 
is a partner with EPA in the Energy Star program, and we are 
very supportive of efforts that would help maintain the 
integrity and the credibility of the Energy Star program, 
absolutely.
    Mr. Latta. And, again, because the reason I ask is that, 
you know, we don't want to have manufacturers out there fearing 
that if they get caught up in lawsuits certain times and with 
warranty issues and things that there are implied warranties 
that all of a sudden, you know, they just start saying, you 
know, we are just going to start dropping the Energy Star 
program from their lines, and I think you--you are absolutely 
right that Energy Star is something that we have to maintain, 
and that is why we are very much for it in the legislation.
    If I could ask another question, that is, you know, for 
over 60 years air-conditioning, heat pump, furnace, boiler, and 
water heating manufacturers relied on voluntary independent 
certification programs that determine efficiency compliance 
with both the Department of Energy and the Energy Star program. 
These industry led voluntary certification programs continue to 
be the gold star for market surveillance and for ensuring 
product compliance. And, again, I have introduced bipartisan 
Voluntary Verification Program Act which would require the 
Federal Government to recognize voluntary industry verification 
programs to demonstrate energy efficiency standards.
    And would you comment on your willingness to work with us 
to make sure that we can get this enacted into law?
    Ms. Hogan. Yes. We are very supportive of industry led 
voluntary verification programs. You know, we see that that can 
play a very important role in that verification space, and we 
would be very happy to work with you to make sure that 
something can be constructed that can do that--do that well.
    Mr. Latta. I appreciate that. Also during our April 30 
energy efficiency hearing, we received testimony from one 
appliance manufacturer who stated that the legislative approach 
taken in the committee's discussion draft regarding the 
voluntary independent verification programs conserves DOE 
resources, reduces taxpayer costs, and provides clarity for a 
manufacturer bringing products to market.
    Would you agree with that statement?
    Ms. Hogan. We would agree that a well-constructed, you 
know, industry led verification program can absolutely do those 
things.
    Mr. Latta. OK. Let me just follow up. When you say a 
``well-constructed,'' how would you define well-constructed?
    Ms. Hogan. Well, just one that works well with the Federal 
Government in terms of sharing information back and forth so 
that we sort of know what is going on there and can--and can 
leverage and benefit from that information.
    Mr. Latta. And right now do you think that there is that 
good back and forth from the industry to the Federal Government 
on that between the industry?
    Ms. Hogan. So we have a model program that we do work with 
with AHAM, and we have been in conversation with the heating 
and cooling and, you know, industry as well about how to 
structure such an effort through--through, you know, a fairly 
lengthy conversation.
    Mr. Latta. OK. In that conversation that you were having, 
what is the feedback you are getting from the industry side?
    Ms. Hogan. So we are talking with them. We are also talking 
with people on the Senate, really, who are also constructing 
similar legislation, and we think we are really close in 
getting to some good language.
    Mr. Latta. Mr. Chairman, I yield back the balance of my 
time.
    Mr. Whitfield. Gentleman yields back.
    At this time, the Chair recognizes the gentlewoman from 
Florida, Ms. Castor, for 5 minutes.
    Ms. Castor. Thank you, Mr. Chairman, and thank you to our 
panelists today.
    I have to say like the ranking member, Chairman Whitfield's 
comments got my attention at the beginning of the hearing. I 
know he is a zealous advocate for his district, and, Mr. 
Chairman, if you believe that we need to broaden the 
authorities of FERC and the Department of Energy to more 
directly address carbon pollution, and to reduce carbon 
pollution and make it more explicit as part of their missions, 
I would be willing to work with you on that.
    Mr. Whitfield. Thank you.
    Ms. Castor. But you mentioned the--at the outset the Energy 
Policy and Conservation Act which is the bedrock--one of the 
bedrock components of energy laws in America, and I do believe 
it was signed into law by President Ford and not President 
Carter. So the history of energy efficiency has always been 
bipartisan because that--the goals of that law were to increase 
production and supply, energy supply, to reduce demand. We have 
done a good job on those things. You look around America now, 
and we have robust energy supplies, and we are going to be a 
net exporter. We have done this while being able to reduce 
demand. And Mr. Olson left, but I can talk about a hot and 
humid climate as well, and we rely on air-conditioning, and we 
need to make sure that we have both, we have a robust supply, 
but that it is cost efficient for all of our neighbors. The law 
also said: America, you have the tools to address an energy 
crisis, and then importantly it said: Let's unleash American 
innovation through energy efficiency and conservation. Look 
what has happened in our fuel economy standards for cars, and 
now we are setting goals for trucks. This has been an enormous 
success for Americans, for consumers, for the auto industry. It 
has put a lot of money back into the pockets of my neighbors at 
an important time.
    Also the businesses that have been created across our great 
Nation in conservation and lighting, building, building on a 
lot of the bipartisan efforts here with Mr. Welch, Mr. 
McKinley, Mr. Kinzinger. I have been focused on benchmarking 
buildings across the country so that we can measure this and 
hold folks accountable.
    This--while climate change and carbon pollution may not be 
the overriding goal of our energy efficiency agency, it does 
dovetail nicely with their mission while lowering costs for 
consumers, addressing the impacts of climate. I know there has 
been discussion about cost and do these energy efficient 
appliances, do they--are they really cost efficient? And I 
think when you look at the decades gone by you, the 
overwhelming answer is yes. This has been incredible to create 
jobs, lower energy bills for so many of our neighbors. And now 
it is even more important now that we understand the impacts of 
the changing climate.
    And when you talk about costs, if we do not do some things 
to become more efficient and reduce carbon pollution, the costs 
are going to be enormous. They are going to be astronomical. 
Already increases in property insurance, flood insurance; we 
are having to make investments in water supply due to droughts 
and sea level rise. We are anticipating more intense lightening 
storms. Tampais known as the lightening capital of the world, 
and I am not just talking about the Stanley Cup finals that 
begin tonight. But think about that. If electrical storms begin 
and they are more intense, the risk that we put our businesses 
and neighbors at.
    I think part of the problem, Mr. Chairman, is the old 
traditional electric utility model on selling as much energy as 
we possibly can simply doesn't fit the modern challenges we 
have today. We have got to build in additional incentives to 
become more efficient. And based upon the evidence of the past 
that it helps create jobs, it helps lower costs for our 
neighbors, we can do this.
    So I don't have any questions today. Thank you for letting 
me go on on that, Mr. Chairman. You inspired me to make some 
comments, and I look forward to working with you on this draft.
    Mr. Whitfield. Well, I am glad I got you excited there, Ms. 
Castor.
    At this time I would like--inspired. Maybe I should say 
inspired. This hasn't really been a good afternoon for me, 
truthfully.
    At this time I would like to recognize the gentleman from 
Virginia, Mr. Griffith.
    Mr. Griffith. Well, I got inspired too. I have got to tell 
you, Mr. Parkinson, I am really curious. What is the worst-case 
scenario offense that you all would investigate?
    Mr. Parkinson. Worst case offense? Manipulating the energy 
markets.
    Mr. Griffith. OK. And I was a little surprised in regard to 
the Brady information, and you said what would be helpful, 
inculpatory information would be helpful. Yes, it is helpful. 
If you are trying to defend somebody who is being accused of 
doing something improper, having all the information is 
helpful. And you said, well, this would be you like an open 
file policy. Well, I always found in my years of lawyering that 
the really good prosecutors, and I don't know how you all did 
it wherever you were, but the really good prosecutors, unless 
it was a serial murderer, child sex offender, something really 
heinous, they gave you the open file because it helps you reach 
a settlement.
    And so I don't understand the resistance. I am having a 
real hard time sitting here listening to you talk about how 
there is--sometimes this is our problem, giving people 
information so that you can reach a settlement is a problem. 
That is not a problem. That is the way you want to get a lot of 
these cases resolved. It would make you all more efficient. You 
could get on to bigger problems. It is the people that you are 
not talking to. And then you seem to have a problem with giving 
a witness their own statement.
    How in the world is that not just regular course of order? 
I mean, maybe it is just a Southern thing or a small town 
thing, but I think if I make a statement to you, I ought to 
have a copy of my statement.
    Now, if you want a court order that says I can't talk to 
anybody else, that is fine. But I am going to remember most of 
my statement to the ability that if I am going to go out and 
try to collaborate or get our stories straight, I am going to 
do that without a written transcript of my statement, but if I 
want to be able to show my lawyer what is going on, or maybe 
get advice from a second lawyer, that seems to me to be 
reasonable. Can you answer any of these questions for me? And I 
got more.
    Mr. Parkinson. Yes. Sure. I would love to, Congressman. Let 
me start with the first one about this is not a hide-the-ball 
kind of process.
    Mr. Griffith. Because that is what you made it sound like.
    Mr. Parkinson. If I made it sound that way, then I misspoke 
or was misinterpreted.
    We are talking about a pretty narrow issue about Brady, 
which is what the amendment does. We have a process at FERC and 
FERC enforcement where we lay out in extraordinary detail for 
the subjects of our investigations everything we have 
concluded, both factually and legally. We lay it out often in 
preliminary findings letters. They go on for dozens and dozens 
of pages, unlike any other Federal agency that I am aware of. 
This is--we have regular communications with counsel throughout 
the investigation. We--and during the--near the end stages of 
the investigation we lay out our preliminary findings. They 
have an opportunity to submit with no limitation on length. 
Whatever they want to submit. There is two other additional 
opportunities to do that.
    Mr. Griffith. But I guess my problem is your testimony 
earlier was you were opposed to some of the language that does 
just what you are saying you do. Why would you be opposed to 
something if you agree with me that it is the right thing to do 
and the fair thing to do, why would you be opposed to it?
    Mr. Parkinson. There is a significant difference between 
laying out everything we have concluded and laying out during 
the course of an investigation, which is what this is talking 
about. This is not the adjudication phase. This is not the 
phase where we brought charges and there is a process in place.
    Mr. Griffith. Well, let me go there because I am--I could 
probably go on for an hour. I am troubled about so many things. 
So let me get this straight. You all have a process--I mean, I 
think the bill ought to be expanded, Mr. Chairman. You all have 
a process by which the Commissioners are involved in the 
investigation, because you then establish an attorney/client 
relationship with the Commissioners, and then, those same 
Commissioners are judging the case.
    Now, let me give you an analogy that I think is fairly 
close. You got a building official who is investigating 
somebody who may not have followed the building code in 
building a building. And they go talk to the judge in advance 
and say, how do you think we ought to investigate? How do you 
think we ought to lay out our case on this? And then you expect 
that the defendant, or the person who is accused, whatever 
terminology you use, thinks they are getting a fair hearing 
when they walk in front of the judge who has an attorney/client 
relationship with the person who is prosecuting them? How does 
that work? How is that fair? How is that due process?
    And I am running out of time, but you said a couple times 
that, you know, that some of these things could be burdensome. 
Yes. Due process is burdensome. Liberty is hard to hold on to. 
And having the Government not take your property, your money, 
without a fair hearing is burdensome. But it is the American 
way. And so next time you start talking about how these 
requirements might be burdensome, you might want to think about 
in the real world, people hearing that think that you have got 
some kind of cloak-and-dagger operation going on that is not a 
due process or fair system.
    And I am out of time. So I yield back.
    Mr. Rush. Gentleman yields to me a few seconds?
    Mr. Whitfield. Sure.
    Mr. Rush. I want to yield--you don't want to respond to 
that--Mr.----
    Mr. Parkinson. Sure. It would take a while. I mean, 
burden--we recognize that there are burdens. I am not 
complaining about burdens. We believe deeply in due process. I 
think the example--there is nothing unique. I think one thing 
that is really critical to understand is thereis nothing unique 
about FERC, and the notion that the Commission--in particular 
on the Commission, the Commission wears two hats. You can't--
unless you are going to separate the Commission, which, again, 
is a bipartisan Commission, there are five members.
    Unless you are going to say the Commission has no role in 
enforcing--in administering its own enforcement program, you 
can't isolate the Commission from the investigative and from 
the enforcement process. You can't. I guess you could legislate 
that, but it would be--it would be different than every other 
Commission process in the Federal Government.
    Mr. Whitfield. Well, you know, Mr. Parkinson, I think----
    Mr. Parkinson. And just one other point if I might----
    Mr. Whitfield. Yes, and I think what would also be helpful 
in 4212, which is what we are discussing, that we have an 
opportunity to sit down with you and some others and Mr. 
Griffith and just go in more detail.
    Mr. Parkinson. I would be delighted to do that.
    I just wanted to make one more point if I could, Mr. 
Chairman, and that is--and that is ultimately everything the 
Commission does is reviewable by the Federal courts. If there 
is a trial within FERC, that can be appealed to the DC Circuit 
or Court of Appeals. If the Commission orders--issues an order 
assessing a penalty as it did last week in one of our 
manipulation cases, we go straight to district court, and then 
we are in a Federal court process and--and the ultimate--
ultimate say belongs in the Federal court. So it is not an 
adjudication that is unreviewable.
    Mr. Whitfield. Well, like I said, we look forward to having 
further discussions with you about it. Because 4212 was the 
subject of this, and there are some language in here that seems 
pretty judicial normal process to us, due process, and so we 
will discuss that more with you and others.
    At this time I would like to recognize the gentleman from 
Texas, Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    Secretary Hogan, in 2007 Congress passed the Energy 
Independence and Security Act. EISA in 2007 was the last energy 
package this body has passed. In that legislation there is a 
provision under--and it has already been mentioned--Section 433 
that required the reduction of fossil fuel-based energy 
consumption. Section 433 required Federal buildings to 
eliminate 100 percent of fossil fuel consumption by 2030. In 
October of 2010, the Department of Energy issued a notice of 
proposed rulemaking to begin the rule propagation process.
    What is the current status of that rulemaking?
    Ms. Hogan. The most recent action on that rulemaking that 
is public is that we put out a supplemental notice of proposed 
rulemaking in the fall and took comment on that. And in that 
supplemental notice, what we proposed was any number of ways to 
provide the Federal agencies with increased flexibility in 
terms--in--in how to meet the requirements of Section 433.
    Mr. Green. OK. There had been considerable debate on 
regarding the length of time that DOE took to begin the 
rulemaking.
    What issues has DOE faced while attempting to draft this 
rule?
    Ms. Hogan. I think we are looking to provide, you know, 
good flexibilities to the Federal agencies as they would, you 
know, be required to meet the fossil fuel requirements as--that 
which, you know, get increasingly more stringent as you walk 
through time. You know, this is a provision that looks at major 
renovations as well as our buildings, sort of newly constructed 
buildings, but we do see it playing a really major role with 
our major renovations. So really being thoughtful about the 
types of flexibilities that we could offer up to the Federal 
agencies has been sort of the big subject of solving that we 
needed to do.
    Mr. Green. This last March, the White House issued an 
executive order entitled Planning for Federal Sustainability in 
the Next Decade. The executive order requires about 2025 no 
less than 30 percent of the electricity energy consumed is 
attributable to renewable energy.
    Does DOE consider the executive order an admission at the 
administration that 100 percent by 2030 of no fossil fuel is 
not attainable?
    Ms. Hogan. No. We view these as complementary tools, and 
that the executive order which would go through 2025 is a 
management framework for the Federal agencies through 2025 of 
ambitious but achievable goals.
    Mr. Green. I think the reason 433 is part of the package is 
that--I think all of us would hope that we would not need 
fossil fuel by 2030, but, you know, that includes natural gas 
also, and typically that is going to be the fuel of the future. 
We can do wind power, and in Texas we are doing a lot of wind. 
I wish we could do solar. We could use some help from our 
legislature sometime to do what we have done with wind, but I 
just don't think that by 2030, 100 percent without, you know, 
fossil fuels is possible.
    I would like to discuss natural gas furnaces. In 2007 the 
DOE made the first attempt to--in more than 20 years to 
increase efficiency standards for indoor furnaces. And I think 
it is safe to say there has been some disagreement over the 
proposed rulemaking standard setting.
    Where does the DOE rulemaking process stand today?
    Ms. Hogan. Again, we have a proposed rule out right now for 
comment. The comment period remains open. We were asked to 
extend it. We have extended it. And we are actively looking to 
get as many comments as we can so that we can really look at 
each and every one of those comments seriously and then take 
the next steps with----
    Mr. Green. Do you know if there is any groups that DOE 
hasn't talked to about the--regarding the proposed rule? I 
think that might be a smaller group than who you have talked 
to.
    Ms. Hogan. No, we have certainly talked with a lot of 
stakeholders around the furnace rule, and at many levels of the 
agency.
    Mr. Green. Do you have any possible effective date for the 
new gas furnace rule?
    Ms. Hogan. You know, typically a rule is effective within 3 
years of it going final. Maybe this one is longer. But we will 
get back to you with that timing. I mean, we are proceeding 
with our rulemaking process. Once we complete the public 
comment process, take the time that we need to take to go 
through all the comments that will come in, and then put 
together a final rulemaking.
    [The information follows:]

        The compliance year considered in the analysis for the proposed 
        rule to revise the energyconservation standards for non-
        weatherized gas furnaces is 2021.

    Mr. Green. Thank you.
    Mr. Chairman, I know I am out of time, but I appreciate 
this section of our energy bill on efficiency, and I am glad we 
are reworking some of the things may not--it may be have been 
an earlier law that may not be really practical in 2015. Thank 
you.
    Mr. Whitfield. Well, thank you. Yes, we have a long way to 
go, but I think we are making progress, and these types of 
hearings certainly help.
    At this time I recognize the gentleman from Illinois, Mr. 
Kinzinger, for 5 minutes.
    Mr. Kinzinger. Well, thank you, Mr. Chairman. And to our 
witnesses, thank you for being here. We appreciate it.
    First to Assistant Secretary Hogan, we have heard from our 
manufacturing communities that when it comes to developing new 
efficiency standards they prefer a consensus-driven approach 
that includes input from Government, from stakeholders, and 
NGOs as a preferred approach to developing efficiency standards 
more than a formal notice and comment method.
    Will DOE commit to a more consensus-driven approach as it 
moves forward with new standards?
    Ms. Hogan. We also really do like the engagement that we 
can get through what we call negotiated rulemakings. This is 
something that the agency has taken on in the last several 
years where we have stood up a Federal advisory committee, a 
FACA, and then through that, we can participate in a negotiated 
rulemaking process. That is a little bit different than a 
consensus--some of the consensus agreements that have been 
brought to us in the past where DOE isn't actually a party to 
the conversation, but the stakeholders get together, come to 
consensus, and then bring it to us.
    Certainly this is one where we can be at the table bringing 
all of our analytical abilities to the table and having very 
robust conversations around what can really work for everybody. 
We are quite excited that over the last several years, we have 
been able to participate in nine rulemakings through such a 
process, and four of them have been brought to completion, and 
we really are committed to using this tool wherever it makes 
sense.
    Mr. Kinzinger. You know, obviously, I think the more we can 
strive to consensus. So several of DOE's recent final standards 
have been challenged in the courts by manufacturers.
    Does this suggest a flaw in the current rule development 
process?
    Ms. Hogan. We certainly, you know, are being challenged in 
the courts. We do not think that suggests a flaw in the current 
rulemaking process. We do, again, to your earlier question, we 
do believe that a negotiated rulemaking process does help in 
getting a lot of information on the table. But I also think 
that the traditional process really can work. Because we are 
also working hard to run the traditional process in as open and 
as transparent a way as possible, putting really good 
information on the table, holding public meetings, walking 
people through our analysis assumptions, and also----
    Mr. Kinzinger. All right. Well, let me--I have been lucky 
enough to work with Congressman Welch to have some sections 
included in the discussion draft in relation to ESPCs and--in 
order to clarify their authority. And the committee has been 
very supportive of these efforts so far, which I appreciate.
    In relation to the current use of ESPCs and UESCs, do you 
have any idea what percentage of the Federal energy intensity 
reduction goals is a result of their use?
    Ms. Hogan. So the Federal Government has a long history of 
improving Federal energy intensity, and let me just say that 
performance contracting has played a really important role. You 
know, currently, we have got a $4 billion challenge for 
investment that the Federal agencies are working toward. We 
have got $2 billion of that $4 billion in place, and will 
continue for that next $2 billion. And as you can imagine, that 
is an important amount of money to be bringing into the Federal 
Government through third-party financing and not having to look 
to appropriations.
    Mr. Kinzinger. OK. And we have been told that the 
administrationis currently trying to use a ESPC for data center 
consolidation.
    Could you update us on the status of that?
    Ms. Hogan. Just--so the Department of Energy is--you know, 
does have a goal as part of this performance contracting 
challenge. The Department of Energy has done a number of 
projects. It is considering this data center project as one of 
its projects, and I don't know sort of the latest, but we 
should have some information on that soon.
    Mr. Kinzinger. OK. And then, Mr. Quinn, just very briefly, 
wind power and other renewable resources get a very generous 
Federal credit of about $23 per megawatt hour. It is very 
generous, and so generous that wind generators bid into the 
market at zero sometimes or they often bid in at a negative 
price. That is, the taxpayers pay them so much that they the 
market to take their electricity. The discussion draft requires 
FERC to consider how such market distorting incentives impact 
wholesale markets.
    So just quickly, how often does wind power bid at or below 
zero in the PJM market, and what effect does this have on other 
generators in the market?
    Mr. Quinn. Congressman, I don't have data on how often that 
happens. We would be happy to take the question for the record.
    With regard to how that affects the rest of the market, 
various markets have taken steps to automate the process so 
that the prices are clear and reflective of wind doing that, 
and that when prices get low, that wind can be curtailed or 
other generations can be curtailed based on price rather than 
some manual process, and those things ensure reliability.
    Mr. Kinzinger. OK. Thanks, Mr. Chairman. I yield back.
    Mr. Whitfield. At this time I recognize the gentleman from 
Ohio, Mr. Johnson, for 5 minutes.
    Mr. Johnson. Thank you, Mr. Chairman. I appreciate the time 
and thank the panel for being with us today.
    Dr. Hogan, continuing with you, a few questions here, we 
have heard complaints from various constituencies who have 
interpreted the Section 433 fossil fuel ban as limiting, and 
ultimately prohibiting, the adoption of highly efficient 
technologies using natural gas in Federal facilities such as 
combined heat and power, fuel cells, and waste heat recovery 
systems. Based on the express statutory language of Section 
433, would you agree with this interpretation?
    Ms. Hogan. I spoke a little earlier to some of the 
flexibilities that we think we have been able to provide the 
Federal agencies as they would respond to Section 433 once 
there would be a final rule. And we have figured out how to 
allow the Federal agencies to take advantage of things like 
combined heat and power as the fossil fuel rule would be in 
effect. So we do think we have been able to do a good job in 
terms of finding a good balance for this section that allows 
agencies to take advantage of these technologies.
    Mr. Johnson. OK. Well, a follow-on. Does the Department of 
Energy measure the cost implications to homeowners of 
increasingly stringent model building energy codes? And, if so, 
what are those costs?
    Ms. Hogan. Yes. The Department of Energy participates in 
the code process in a number of ways. One is we will take 
proposals to the code body that is responsible for updating the 
code approximately every 3 years, and we certainly do cost-
effective analyses on the measures that we think are ripe to be 
considered as part of an update cycle. And then the code body 
votes. So it is sort of hard to speak holistically about those 
costs. Each measure is a little bit different. Certainly we 
look to things that are life cycle cost effective, and we think 
that that is a great metric to use because it is very well-
aligned with taking a mortgage out on a home because then you 
can see that the total cost of ownership leaves the homeowner 
in a cash flow positive----
    Mr. Johnson. Can you take a question for the record, then, 
and get us that information on what some of those costs would 
be in that analysis?
    Ms. Hogan. In the recent code cycle?
    Mr. Johnson. Sure.
    Ms. Hogan. Sure.
    [The information follows:]
    
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    
    
    Mr. Johnson. OK. Thank you.
    You know, we are coming out of the worst economic downturn 
since the Great Depression. Housing is just barely coming back 
and families are still living on strict monthly budgets. Don't 
you think that any energy mandates that are imposed on 
homeowners should be cost effective? I mean, it seems to me a 
10-year payback seems completely reasonable. What are your 
thoughts?
    Ms. Hogan. You know, I think we are in the area where we 
think multiple ways to look at cost effectiveness makes sense 
because people make decisions a little bit differently. And we 
certainly----
    Mr. Johnson. People at home make decisions with their 
checkbook around the dining room table. That is how they make 
decisions.
    Ms. Hogan. Absolutely. But I think also when you think 
through that most homes are financed these days through 
mortgages that a life cycle approach also makes sense in that 
context, and particularly when you align it with the other cost 
that go with----
    Mr. Johnson. Wait a minute. Hold on. You just lost me there 
for a second. We are talking about the monthly budget. The 
energy efficiency of their home doesn't affect their mortgage 
payment. We are talking about the monthly out-of-pocket 
expenses as it relates to some of these energy mandates. So 
help explain. You lost me for a second.
    Ms. Hogan. So what a life cycle analysis helps you do is 
understand so what is cost effective sort of over the lifetime 
of a measure, and then you can put that on a monthly cash flow 
bases also with the mortgage that goes with the home. Because 
as you are saying, the home may cost a little bit more up 
front, but if--and so that gets rolled into your monthly 
mortgage. But if your energy bill is then lower on a monthly 
basis and then the homeowner is better off on a monthly basis 
from a cash flow perspective, then truly that is what leaves 
them in a good place from their pocketbook.
    Mr. Johnson. No, homeownership is something that most 
Americans aspire to. And the cost of that mortgage in the early 
years of a new family, that is what--that is what makes the 
difference. That is what determines whether or not many people 
can get a mortgage and own a home or not. So I am--I am not 
sure--I understand the life cycle perspective, and I understand 
why that would be--that might be meaningful to people inside 
the Washington Beltway, but for the people that are writing the 
check and trying to get into their new homes, I am not sure 
that that is an argument that sells.
    Ms. Hogan. Well, we would be happy to talk with you about 
that further. I mean, the--you know, reducing their energy 
bills is also an important part of people's sort of monthly 
budgets as well, and I think the benefits that you get there 
really do help these families.
    Mr. Johnson. Mr. Chairman, I yield back.
    Mr. Whitfield. At this time I recognize the gentleman from 
Texas, Mr. Flores, for 5 minutes.
    Mr. Flores. Thank you, Mr. Chairman.
    Dr. Hogan, there were three quotes that I wrote down from 
your testimony and your answering of some earlier questions.
    The first one was that you standards are technically 
feasible, and, number two, that they are economically 
justified. The second thing you said is that the DOE is open to 
the rulemaking process. And the third is just a more detailed 
example, said the gas furnace net benefits are about $16 
billion.
    Look, we all believe in efficiency. We believe in saving 
energy. We believe in saving money. But we are getting to the 
point of diminishing returns. And so if you look at the average 
house, it has been estimated that the recent standards that 
have been proposed by DOE raise the cost of a house by $7,000. 
So let's say you have a house that started at $50,000 and then 
you overlay your standards onto it that raise the cost to 
$57,000. Who does that hurt the worst? Who are the typical 
buyers for that $50,000, now $57,000 home? Well, it is lower-
income America. And so if the average payback is like forever. 
I mean, you talk about the life cycle of a house, most people 
don't stay in a house 17 years, which is the life cycle--or the 
payback periods of many of the new rules that you proposed. In 
some cases there is no payback.
    And so the policies that the DOE has adopted, although they 
seem altruistic, are hardest on low-income and lower-middle-
income Americans. So what winds up happening when we price 
those people out of a house, or let's say they are even in a 
multifamily unit. If they are in a condo, they can't buy the 
condo. Or if they are in an apartment they can't afford the 
rents because the rents have gone up because the developer had 
to pay more for it. So who gets hurt? And what happens when 
that--because they are hurt. They wind up in a low-efficiency, 
dumpy apartment or a home that is low efficiency and nobody has 
been helped. Everybody has been hurt.
    You know, you talk about the furnace situation. I mean, 
some of the furnace standards today are set up in such a way 
where you cannot retrofit an older house with some of the newer 
technology furnaces. And it seems like even though I have heard 
the word ``flexibility'' a lot from your testimony, it seems 
like DOE does seem to be very rigid and not really looking at 
the real world impact on real families about what is happening.
    Now, you could do this to me all day long. It doesn't hurt 
me. I have converted most of my home to LED. I produce about 50 
percent of my annual power for solar-generated electricity. I 
have got high-efficiency everything, and I have swapped it out 
continuously. So it doesn't hurt me, but it hurts the people 
that, you know, we think the Government is trying to protect.
    And the contracting community, the manufacturing community, 
is telling me that DOE has been--is not listening to those 
arguments. So tell me that you are listening to those 
arguments, number one; and, number two, what are you doing 
about it?
    Ms. Hogan. So let me clearly say to you that we do listen 
to those arguments. We make sure that our work takes in what is 
going on in the low-income communities. And, again, you sort of 
raised two issues here, one around the building codes and the 
cost of a new home, and you have raised issues around the 
furnaces. So, I mean, let me repeat that our----
    Mr. Flores. The furnace is more of a detailed example, but 
keep going.
    Ms. Hogan. Yes. That the furnaces is--you know, it is an 
open comment period that we have right now, and we want all and 
every comment that we can get so that we can make this rule be 
the best that it can be for all the households----
    Mr. Flores. So let's dig into that for a minute. So, you 
know, we have just told you what folks are telling me. So what 
would your change be to your rules to deal with that comment?
    Ms. Hogan. You know, we do have to make data-based 
decisions. What we ask for as we go out for public comment is--
first we present our analysis. We present it for households 
across the country. We present it with a special analysis 
looking at low-income and elderly households.
    Mr. Flores. Do you look at what happens when you price them 
out of the market and you have kept them in a low-efficiency 
environment?
    Ms. Hogan. Let's sort of separate the furnaces. So what do 
we do around building codes again? The Federal--DOE does not 
make the national building codes for the country. We take 
proposals that we have analyzed to an independent code body, 
and then the independent code body, you know, runs a process by 
which they come up with the next updated----
    Mr. Flores. But I think you know that--I think you candidly 
know if we peel the layers back from this, that DOE is really 
pushing these code bodies to adopt your recommendations. It is 
not just these are recommendations anymore, it is, ``We want 
you to do this.'' You know, ``We are strongly advocating that 
you do this.''
    Ms. Hogan. We are a stakeholder in a many-party process. 
And we believe what our role is, and what we are committed to 
do is to take good data-driven analysis to that process so 
people can have that conversation. So that is what we are 
doing.
    Mr. Flores. Well, I have run out of time. I hope that is 
what is really happening. I am just not hearing the same thing 
that--from the real world that I am hearing from you. So I hope 
that we can have a better discussion later.
    I yield back.
    Mr. Whitfield. At this time I recognize the gentlelady from 
North Carolina, Ms. Ellmers, for 5 minutes.
    Mrs. Ellmers. Thank you, Mr. Chairman. And thank you to our 
panel for being here today.
    I do want to take a moment, Mr. Chairman, to start off and 
thank you and the committee staff for working with me and my 
colleague, Jerry McNerney, on the promotion and implementation 
of grid innovation technologies, especially the inclusion of 
the smart grid capable appliances on energy guide labels. I 
believe we need to promote energy efficiency, but in a 
transparent way, and with industry and stakeholder input. 
Energy efficient technology should benefit consumers and be 
affordable to working American families, very much like the 
conversation we were having just a moment ago.
    So with that, Mr. Chairman, I will go ahead and ask my 
questions.
    Dr. Hogan, I have two questions for you, and in the 
interest of time I am going to try to--I have an example I want 
to give you first. You know, the DOE's process rule requires 
DOE to use qualitative and quantitative methods that are, 
quote, ``fully accessible to the public'' and that--and that 
produce results that can be, quote, ``explained and 
reproduced.'' DOE is not using third party validated models for 
information, thus the only way to effectively validate the 
models is by allowing full access by the stakeholders. DOE has 
violated this requirement by relying on the analysis determined 
through models that are not fully accessible to stakeholders.
    And as an example, I will just use this. In the automatic 
commercial ice maker ruling of January 2015, DOE relied upon a 
model developed in the mid-1990s that had few minor updates. 
But the DOE, Navigant, claimed was fully protected by 
copyright. DOE refused to allow stakeholders access to the 
model to run their own data analysis or validations, only 
allowing the submission of the data to DOE's consultants.
    Why is the DOE not following its own process rule and what 
can be done to ensure the agency adheres to its own process 
rule?
    Ms. Hogan. Certainly we do strive to be as transparent and 
open as possible. At the same time, one of the things we also 
have to do is protect proprietary information that business 
does give us as part of the rulemaking process. You know, one 
of the things that we do do so that we can have access to the 
best information that we can is organizations like Navigant 
under contract to DOE, they go out and they do do interviews 
with manufacturers, and manufacturers provide information that 
can be very important to their own, you know, business 
objectives, and that type information, of course, is then held 
in a way that we cannot--I mean, it is business sensitive. So 
we do have to protect----
    Mrs. Ellmers. Right.
    Ms. Hogan [continuing]. Their proprietary information.
    Mrs. Ellmers. So, but along that line, do you see a way 
forward that we can actually ensure that this process is 
moving--I mean, that--that we are ensuring that the agency is 
adhering to this? I mean, is there something that you see that 
we can do that can change this?
    Ms. Hogan. We are happy to continue that conversation with 
you because, again, we want to be as transparent and open as we 
can and sharing of the data that we get so people can see what 
our assumptions are and help us make these rules be the best.
    Mrs. Ellmers. Good. I would appreciate that, and our 
office, we will work with you and committee on this then. My 
last question is, by comparing the Department's current life 
cycle costs, which we have had this discussion, cost analysis, 
issued by the proposed rule for the life cost analysis DOE 
issued in the 2011 direct final rule, some disturbing 
inconsistencies become evident. For example, I will use this 
example: The Department maintains that the cost of buying and 
installing a noncondensing furnace increased by approximately 
25 percent between 2011 and 2014, even though these are mature 
products that have been on the market for decades. Meanwhile, 
the Department asserted that the more technically sophisticated 
condensing furnaces increased by only 9 percent during the same 
period.
    Based on these questionable numbers, the cost differential 
between the current standard furnace and the proposed standard 
furnace has dropped by nearly 30 percent between the two 
rulemakings. If the Department used the 2011 cost estimates, in 
its current analysis, wouldn't that undermine the economic case 
for the proposed energy efficiency standard? It is a word 
problem apparently. I apologize for the numbers. But I guess 
the point is, is are we moving in the right place so that we 
are making sure that these products are cost efficient for the 
consumers, but at the same time, the effectiveness is there.
    Ms. Hogan. Certainly that is what we are really striving to 
do; and, again, I would point to the furnace rulemaking as one 
of the places where we are trying to be absolutely as 
transparent and as engaged with stakeholders as we can be. 
Again, we have held multiple public meetings so that we can go 
through the details of the DOE analysis, you know, as much as 
stakeholders want to so that they can understand what we have 
done. And we have had multiple meetings, multiple stakeholder 
engagement, extended the public comment period. And, again, we 
want to get as much good data from people as possible so that 
we can make this be a very good rule for people.
    Mrs. Ellmers. I would like to continue to work with you on 
that as well then. Thank you, Mr. Chairman. I yield back.
    Mr. Whitfield. Well, thank you. And we appreciate you three 
witnesses being here with us today. We have a lot of work to 
do; and as you can tell from the questions on both sides, there 
are a lot of concerns about the impact of these regulations in 
the pocketbooks of many people in America. I mean, I just think 
50 years ago, no one would have imagined that there was an 
agency of the Federal Government here in Washington, DC, making 
all these decisions about all of this litany of appliances and 
what can be used and what cannot be used. It is really kind of 
amazing, but we thank you very much, and we are going to recess 
the hearing until 10:15 in the morning, at which time we will 
reconvene for the second panel. So we look forward to working 
with you all, and thank you for being here.
    [Whereupon, at 4:48 p.m., the subcommittee recessed, to 
reconvene at 10:15 a.m., Thursday, June 4, 2015.]
    [Material submitted for inclusion in the record 
follows:]\1\
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    \1\ The discussion draft of Title IV: Energy Efficiency and 
Accountability, Subtitle A--Energy Efficiency has been retained in 
committee files and also is available at  http://docs.house.gov/ 
meetings/IF/IF03/20150603/103551/ BILLS-114pih-SubtitleA- 
EnergyEfficiency.pdf.
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                 Prepared statement of Hon. Fred Upton

    Today's hearing continues what is shaping up to be a banner 
week for our Architecture of Abundance efforts. Much of our 
draft bipartisan energy bill is related to the American energy 
renaissance, and several of its titles seek to create policies 
that allow the Nation to realize the full economic and 
geopolitical potential of our growing energy abundance. In 
Southwest Michigan and all across America, folks are better off 
because of our good energy fortune. But our draft bill is not 
only about new energy sources, it also addresses accountability 
and improved operation of existing energy markets as well as 
increases in energy efficiency. That is the subject of this 
two-day hearing.
    In particular, we have carefully reviewed FERC's role in 
energy markets and see some areas where changes would be 
beneficial. For example, we have learned from experience that 
the provisions in the 2005 energy bill expanding FERC's 
enforcement authority, as well as FERC's order establishing 
regional transmission organizations, have created a number of 
unintended consequences for electricity markets and have not 
kept up with some of the changes in the industry. Our 
discussion draft seeks to address these issues while 
maintaining FERC's enforcement and oversight role. The Public 
Utility Regulatory Policies Act of 1978 is also in need of 
updates to better reflect current electricity markets, 
technologies, and resources, and our targeted provisions seek 
to do just that.
    On the subject of energy efficiency, our discussion draft 
begins with America's largest energy user--the Federal 
Government. And there is room for improvement, ranging from 
greater use of energy savings performance contracts to improved 
energy efficiency at Federal data centers, and several other 
ideas contained in our discussion draft.
    We also seek improvements in energy efficiency programs 
affecting manufacturers and consumers. This includes changes to 
the Energy Star Program and the Energy Guide labels, and 
important clarifications to the Federal role in establishing 
voluntary State and local building energy codes.
    I look forward to a constructive and bipartisan discussion 
of these issues so that the accountability and energy 
efficiency provisions strengthen our energy bill and provide 
benefits for energy producers and consumers. Our plan embraces 
our newfound energy abundance, and we will continue to advance 
this vision.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


      DISCUSSION DRAFT ON ACCOUNTABILITY AND DEPARTMENT OF ENERGY 
           PERSPECTIVES ON TITLE IV: ENERGY EFFICIENCY--DAY 2

                              ----------                              


                         THURSDAY, JUNE 4, 2015

                  House of Representatives,
                  Subcommittee on Energy and Power,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:17 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Ed 
Whitfield (chairman of the subcommittee) presiding.
    Members present: Representatives Whitfield, Shimkus, Latta, 
Griffith, Johnson, Long, Rush, McNerney, Tonko, Castor, 
Sarbanes, Welch, and Pallone (ex officio).
    Staff present: Nick Abraham, Legislative Associate, Energy 
and Power; Will Batson, Legislative Clerk; Leighton Brown, 
Press Assistant; Allison Busbee, Policy Coordinator, Energy and 
Power; Patrick Currier, Counsel, Energy and Power; Tom 
Hassenboehler, Chief Counsel, Energy and Power; A.T. Johnston, 
Senior Policy Advisor; Brandon Mooney, Professional Staff 
Member, Energy and Power; Dan Schneider, Press Secretary; 
Caitlin Haberman, Democratic Professional Staff Member; Rick 
Kessler, Democratic Senior Advisor and Staff Director, Energy 
and Environment; and John Marshall, Democratic Policy 
Coordinator.
    Mr. Whitfield. I would like to call to order our recessed 
hearing from yesterday and continue with our panel of 
witnesses. And we appreciate very much this second panel 
joining us as we continue our discussion on our discussion 
draft relating to energy. And we have a great panel of 
witnesses today. I am going to call on each one of you for 5 
minutes to discuss the draft and your perceptions and thoughts 
about it, and then we will open it up for questions.
    And I am just going to introduce you as I recognize you for 
the 5-minute opening statement. So our first witness is Ms. Sue 
Kelly, who is the President and CEO of American Public Power 
Association. Ms. Kelly, thanks for being with us, and you are 
recognized for 5 minutes. And I would just ask all of you just 
make sure the microphone is turned on. And, of course, when the 
red light goes on, that means your time is up. So, Ms. Kelly, 
you are recognized for 5 minutes.

  STATEMENTS OF SUSAN N. KELLY, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, AMERICAN PUBLIC POWER ASSOCIATION; JOHN E. SHELK, 
 PRESIDENT AND CHIEF EXECUTIVE OFFICER, ELECTRIC POWER SUPPLY 
ASSOCIATION; PETER GALBRAITH KELLY, JR., SENIOR VICE PRESIDENT, 
EXTERNAL AFFAIRS, COMPETITIVE POWER VENTURES; CHRISTOPHER COOK, 
PRESIDENT AND GENERAL COUNSEL, SOLAR GRID STORAGE LLC; JONATHAN 
    M. WEISGALL, VICE PRESIDENT, LEGISLATIVE AND REGULATORY 
 AFFAIRS, BERKSHIRE HATHAWAY ENERGY; AND WILLIAM S. SCHERMAN, 
              PARTNER, GIBSON, DUNN & CRUTCHER LLP

                  STATEMENT OF SUSAN N. KELLY

    Ms. Kelly. Good morning, Chairman Whitfield, Ranking Member 
Rush, although you are not here yet, and other members of the 
subcommittee. Thank you for inviting me to testify. APPA 
commends your hard work putting together the first 
comprehensive energy package since 2005. We stand ready to work 
with you to improve America's access to affordable, reliable, 
and environmentally responsible electric power.
    Today, I am going to discuss APPA's views on Title IV, 
Subtitle B, of your discussion draft. I will address the 
subtitle sections in the order they appear.
    APPA certainly supports increased compliance by regulated 
energy subject to FERC's regulations, but APPA is not convinced 
that proposed Section 4211 is the best way to do this. It might 
make more sense for FERC to review its current procedures and 
policies, and revamp them as needed to make sure that regulated 
entities get meaningful and timely guidance. I do note that it 
would be easier for market participants to comply with FERC-
approved tariffs if the applicable market rules were simpler 
and clearer, and I will speak to that issue later.
    Moving to Section 4212, APPA believes that unless there are 
compelling reasons for Congress to step in, FERC should set the 
procedures for its own investigations. The public has to rely 
on the Commission's enforcement staff to protect its interests 
as electric consumers in these investigations. This is because 
third parties have no right to participate in these cases at 
all. If Congress, does subject--or give the subjects of FERC 
investigations additional protections, Congress must make sure 
that these new protections do not adversely impact enforcement 
staffs' ability to protect the public from market manipulation.
    Turning to proposed Section 4221, APPA very much 
appreciates the interest the subcommittee has shown in the 
problems with wholesale electricity markets. In my written 
testimony, I provide detailed comments on the provisions of 
that section. Some of them would be helpful, in our view, but 
others would not. APPA has been concerned over the past 10 
years about the restructured wholesale electric markets that 
regional transmission organizations and independent system 
operators, which we call RTOs, operate. Public power utilities 
must deal with RTOs and their markets because they are located 
inside the boundaries of their RTO's footprints. They are often 
geographically and electrically embedded in the transmission 
systems of larger investor-owned utilities that decided to 
participate in that RTO. So while our participation in these 
RTOs and their markets may, in theory, be voluntary, in fact, 
they are not because of the interconnected nature of the grid.
    These APPA members deal with the day-to-day complexity and 
costs of operating in these markets. They must participate as 
best they can in time-consuming and resource-intensive RTO 
stakeholder processes. These processes in most regions are 
heavily skewed towards the interest of large transmission and 
generator asset owners, and the governance processes of some of 
the RTOs is less than transparent. So many public power 
utilities' only choice is to work with Congress and with FERC 
to seek needed reforms.
    Many of the wholesale electric markets that FERC has 
authorized are not, in fact, markets as you or I would normally 
think of that term. They are highly complex administrative 
constructs with a maze of complicated rules. APPA's concerns 
about RTO-operated markets include extensive and frequent rule 
changes, volatile pricing, which can sometimes rise to very 
high levels with very little warning, and limited data 
transparency. The most troublesome RTO markets are the 
mandatory capacity markets that three eastern RTOs, ISO New 
England, PJM, and the New York ISO, operate. These 
administrative constructs account for a substantial share of 
total electric bills that consumers and businesses in those 
regions have to pay, but they haven't shown that they can 
support a reliable and diverse supply of power, or incent the 
building of new generation resources where they are most 
needed. Consumers have paid billions of dollars in charges for 
these markets, but don't see corresponding benefits.
    APPA has recommended that FERC phase-out these eastern 
capacity markets over time. They should be replaced with 
voluntary residual capacity markets that better support State 
and local resource decisions and policies. But short of that, 
APPA proposes the following steps. First, RTOs that have not 
yet implemented a mandatory capacity market should not do so 
without the unanimous support of all the States in that region. 
And second, RTOs that already have a mandatory capacity market 
should not keep utilities and States from meeting their own 
capacity obligations through resources that they build, owned, 
control, or contractor for.
    Finally, APPA supports the goals of Section 4231, dealing 
with purpose mandatory purchase obligations, but we can't 
support that section in its current form. As drafted, the 
section would preclude public power utilities from getting any 
relief from their obligations to purchase power from QFs under 
the provision. This could leave them at a competitive 
disadvantage compared to neighboring utilities that do qualify 
for that relief.
    So again, thank you for the opportunity to appear today, 
and I am happy to answer any questions. Thank you.\1\
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    \1\ Ms. Kelly's prepared statement has been retained in committee 
files and also is available at  http://docs.house.gov/meetings/IF/IF03/
20150603/103551/HHRG-114-IF03-Wstate-KellyS-20150603.pdf.
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    Mr. Whitfield. Thank you, Ms. Kelly.
    And our next witness is John Shelk, who is the President 
and CEO of the Electric Power Supply Association. Mr. Shelk, 
thanks for being with us, and you are recognized for 5 minutes.

                   STATEMENT OF JOHN E. SHELK

    Mr. Shelk. Well, thank you, Mr. Chairman, Ranking Member 
Rush, and the other members of the subcommittee. I appreciate 
the invitation to participate in the hearing today.
    EPSA is the national trade association for leading 
competitive wholesale suppliers. EPSA members together have 
over 200,000 megawatts; fuel-diverse megawatts, essential to 
reliability. Over 95 percent of these assets are in the 
Independent System Operator and Regional Transmission 
Organization territories that are the subject of the discussion 
draft. Reliability in these and other markets requires 
generation from a network of power plants, operating 
simultaneously with base load, mid-merit and peaking 
capabilities, deploying a range of fuels and technologies, 
because electricity demand fluctuates during the day and 
seasonally.
    As you all know, and as your hearings have demonstrated, 
the electric sector is in the early stages of what will likely 
be a multiyear, even multidecade, series of profound changes, 
fundamentally altering the way electricity is generated and 
consumed. Well designed and properly regulated competitive 
wholesale markets, in our views, remain the best model to 
manage these many changes because markets, properly regulated, 
are inherently more flexible, adaptable, and place more risks 
on investors than consumers.
    EPSA appreciates the inclusion in the discussion draft of 
energy price formation principles in Section 4421 of the draft 
for required wholesale power market improvements. Importantly, 
it is important to point out that EPSA is joined in urging FERC 
to act on this issue by the Edison Electric Institute, the 
Nuclear Energy Institute, the Natural Gas Supply Association, 
and American's Natural Gas Alliance, in a joint letter to the 
Commission back on March the 9th of this year.
    Energy price formation refers to how these ISOs and RTOs 
determine the granular locational marginal prices for electric 
energy sold in their markets. For most power plants, energy 
sales are the prime resource of revenue. As Sue indicated, 
LMPs, associated revenues, and other aspects of these markets 
are tightly bounded by FERC-approved market designs, tariff 
rules, and grid operator actions. Absent accurate prices in 
these markets, energy markets will send distorted information 
about when, where, and how to invest efficiently to meet future 
electricity infrastructure needs. There are unique 
characteristics of electricity that make it a challenge to 
arrive at prices truly reflective of total costs of providing 
reliable service, and we can discuss those later if you wish.
    Importantly, through this issue, the grid operators, 
independent of generators, ultimately determine the dispatch of 
specific power plants in their regions. This generally works 
well to produce competitive pricing outcomes, as documented 
through regular quarterly and annual data-driven, state-of-the-
market assessments from the independent market monitors in each 
of these regions. However, when the grid operator takes out-of-
market actions, the effect is to call on plants out of merit 
order, and others have to stand by in reserve, or do not run at 
all, even if they would otherwise be operated on a purely least 
cost basis. These out-of-market plants, when they are called in 
that manner, are paid what is called uplift, not the market 
price. Uplift, like an elevated body temperature, can be a sign 
of potentially unhealthy conditions, which is why the 
provisions of the discussion draft are so important.
    To its credit, the Federal Energy Regulatory Commission has 
been working on these issues since 2013, including 3 daylong 
technical conferences, preceded by 4 detailed staff reports, 
from September through December of 2014. Earlier this year, 
FERC posed a series of thoughtful questions for public comment, 
on which numerous submissions from a variety of points of view 
have been received, and we think that docket now stands as 
compelling evidence that action needs to occur.
    While we assume that FERC is presently considering its 
options for next steps, we and the others in our group cannot 
overstate the importance of public FERC follow-up in the next 
several months. Decisions as to whether to retire, replace, or 
repower large amounts of existing megawatts throughout each of 
the RTOs will be made this year, impacting reliability for 
decades. Competitive suppliers have proven that they will 
respond with timely investments in these markets, without 
preferential stamping of the contracts, when accurate price 
signals show the need and the results from recent capacity 
auctions demonstrate that that is the case.
    So we commend you for including this provision in the 
draft. We think it is important to draw attention to the issue. 
And we think, frankly, FERC hopefully will act prior to the 
enactment of legislation because, again, decisions are being 
made now, and investment signals are distorted, and the ISO RTO 
Council, which is the group of all of them, just last week put 
out a report based on a third-party assessment of investor 
sentiment, and this issue of out-of-market actions that the 
subcommittee draft would address is one of the impediments to 
investment noted in that report. So we appreciate the inclusion 
of the language that you have put in the draft.
    Thank you.
    [The prepared statement of Mr. Shelk follows:]
   
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
  
    
    Mr. Whitfield. Thank you, Mr. Shelk.
    Our next witness is Mr. Peter Kelly, who is Senior Vice 
President, External Affairs, for the Competitive Power 
Ventures, Inc. Thanks for joining us, and you are recognized 
for 5 minutes.

            STATEMENT OF PETER GALBRAITH KELLY, JR.

    Mr. Kelly. Mr. Chairman, members of the committee, thank 
you for the time and the opportunity to address these what are 
very critical issues to us and to ratepayers.
    We are developers of power plants. We develop natural gas-
fired and wind generation all across North America. We, in that 
process of development, identify a need, expend tens of 
millions of dollars in development, and then seek to 
commercialize those projects. This is over the course of 2 to 3 
years. In some cases, projects have taken as long as 11 years 
to fully permit and go to commercialization.
    When we get to the point of commercialization, there are 
two paths; either merchant in the market where, depending on 
the market you are working in, you have either a 1-month to 6-
month, or a 3-year price commitment, 1-year guarantee--that you 
know your price for 1 year. Makes it, at times, extraordinarily 
difficult to finance a project efficiently.
    Under a contracting model, you have a commitment of 10, 15, 
or as many as 20 years. That commitment allows you to finance a 
project at anywhere from 22 to 30 percent lower cost of 
capital; all inuring to the benefit ultimately of ratepayers.
    There have been recent challenges to State contracting, 
and--on a--three plants in the mid-Atlantic. We expect 
continued activity in this litigation throughout New England, 
as New England moves on in complying with the Clean Power Plan. 
There has been raised concern that these projects that are 
under contract cause--you know, could be referred to as market 
manipulation, impacting the market rates for all of the other 
generators. There are protections in place that are crystal 
clear in all of these eastern markets. There is mitigation or a 
minimum offer price rule where, if the project is determined to 
be economic or not economic. If it is not economic, do you not 
pass the mitigation, you cannot enter the market. If you do, 
clear mitigation. You are economic, you are determined to be 
needed by the market, and your contract at that point is valid. 
And that was the theory we were operating under.
    As we move on with development across North America, there 
is an enormous need for new infrastructure. We have an aging 
fleet of generation, we have a Clean Power Plan that is going 
to make significant changes, and we have an abundant supply of 
natural gas that has had a fundamental change in the energy 
markets. And we are looking at States such as Ohio and Illinois 
and Connecticut and New York that are all seeking to retain 
generation, such as nuclear power in one instance, some coal, 
and natural gas and renewables. Whether they have the ability 
to do that or not will be predicated--dictated by the authority 
in the--what we see as a change in the authority, moving 
States' current authority to FERC and to the RTOs, to take on 
and undertake what is ultimately historical province of the 
States. The criteria in some cases as they are listed under 
4221(b), many of those are within the province of what the 
States have traditionally done, and I am not convinced that the 
transfer of that authority will serve, ultimately, the goals.
    [The prepared statement of Mr. Kelly follows:]
  
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
  
    
    Mr. Whitfield. All right, thank you, Mr. Kelly, very much.
    And our next witness is Mr. Christopher Cook, who is 
President and General Counsel, Solar Grid Storage Company. 
Thanks for being with us, Mr. Cook, and you are recognized for 
5 minutes.

                 STATEMENT OF CHRISTOPHER COOK

    Mr. Cook. Thank you, Mr. Chairman, Ranking Member Rush, 
fellow members of the committee. Thank you for the opportunity 
for us to testify here before the committee today on the 
discussion draft.
    I am president and also cofounder of Solar Grid Storage. It 
is a new company. Quite small in the energy business. We 
provide a financed battery storage solution to commercial, 
solar, and wind installations, and we developed a product we 
call the power factor, which provides back-up power to those 
customers with a collocated solar or wind system at their site 
during grid outages.
    In addition, and key to our business proposition, was 
FERC's issuance of Order 755, which opened ancillary services 
markets to new and fast responding technologies like ours.
    Solar project developers are our key customers. We are 
focused on providing a finance battery solution to this market 
segment, as it is the fastest growing market segment in the 
energy business.
    As I reference in my written testimony, not only is the 
industry growing rapidly, solar costs are declining. So pardon 
the pun, it has a very bright future.
    We are--we currently operate four systems in the PJM ISO 
totaling 1.1 megawatts. So we are a very small company, but we 
are innovators in the energy space; a space where it is very 
difficult to innovate.
    I would like to focus my comments on the discussion draft, 
Section 4221, particularly Section B, and 4231. We see for our 
business many valuable provisions in Subsection B. First 
though, I would point out that the title of the section 
discusses properly evaluating generating assets. As a storage 
asset, we are not either generation, we are also load, and it 
is difficult often for the utility industry and the ISOs to 
classify us. They try to put us in one category or the other. 
Storage is not generation. We can only take into our storage 
facilities in equivalent amounts of kilowatt hours what we put 
out. If we are storing solar energy, all we do is delay in time 
when that solar energy goes to the grid or to the customer.
    The--excuse me. In Subpart B, the operational 
characteristics of generation of electric energy during 
emergency and severe weather conditions. That is principally 
one of the things that we offer to our customers. For typical 
commercial customers who install a solar system, when the grid 
goes down, that solar system no longer functions. When they add 
storage to that solar installation, that installation can 
function throughout the grid outage in combination with the 
onsite solar. It is very valuable. We are seeing very strong 
interest in the areas of the country where they have suffered 
natural and other disasters that have taken down the power 
grid.
    One of the key sections in Subsection 4 directs FERC to 
promote advanced grid technologies. We are certainly one of the 
most advanced grid technologies. We dispatch our systems into 
the PJM ISO every 2 seconds. We monitor our systems on a 
continuous basis. We are an incredible, fast-responding 
technology based on traditional grid resources.
    In Section 5, and this is one of the keys for us, having 
FERC address regulatory barriers to entry. As a small company, 
and I would reflect the testimony of my co-panelist from APPA, 
it is very difficult for us to participate in these work groups 
and the other kinds of arcane procedures that both FERC and 
ISOs have implemented. We simply do not have the staff or the 
resources to adequately participate. So that--I mean, goes on 
as a continuous regulatory barrier to entry of our 
technologies.
    Turning to Section 4231, the changes to PURPA. We would not 
support those changes. We feel that FERC had the appropriate 
balance in its Order 688, distinguishing between large 
generation systems above 20 megawatts that had open access to 
the grid, and those below 20 megawatts that did--on a 
rebuttable basis, did not have nondiscriminatory access to the 
grid. We feel that FERC struck the proper balance there, 
allowing a rebuttable presumption such that if there was an 
open access transmission tower for those small generators, the 
entity that was suggesting the small generation did not have 
open access could go to FERC and rebut that presumption. They 
have the resources. They have fast superior resources in the 
small generators in almost all cases, and are able to support 
that. In addition, the breakpoint of 20 megawatts is a good 
one. Typically, above 20 megawatts, those systems are all 
interconnecting at the transmission grid. Much more expensive 
projects, much more complex projects. Below 20 megawatts 
includes, under some of the FERC orders, systems down to the 
residential size. And can you imagine a residential customer 
who is installing solar on their house and perhaps a battery, 
with the potential opportunity to earn revenues from those 
systems in those grid markets, having to present their case at 
FERC that they are entitled to those PURPA qualifications?
    Thank you.
    [The prepared statement of Mr. Cook follows:]
  
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
  
    
    Mr. Whitfield. Thank you, Mr. Cook.
    Our next witness is Mr. Jonathan Weisgall, who is the Vice 
President, Legislative and Regulatory Affairs, for Berkshire 
Hathaway Energy.
    Mr. Weisgall. Thank you, Mr. Chairman.
    Mr. Whitfield. Thanks very much for being with us. You are 
recognized for 5 minutes.

               STATEMENT OF JONATHAN M. WEISGALL

    Mr. Weisgall. I appreciate it. Thank you, members of the 
subcommittee.
    At Berkshire Hathaway Energy, we own three regulated 
utilities that serve 5.3 million customers in 11 States. Like 
Mr. Cook and Ms. Kelly, I do want--I also want to address 
Section 4231 of your discussion draft on PURPA, the Public 
Utility Regulatory Policies Act of 1978.
    PURPA mandates utilities to buy renewable energy from QFs, 
qualifying facilities. That law today is imposing significant 
and unnecessary costs on utility customers. For example, it 
requires a utility to buy electricity from a QF regardless of 
whether the utility needs that power. PURPA contracts are not 
subject to the same resource planning and cost scrutinies of 
the utility decisions, and they can cause operating 
inefficiencies and reliability issues because the host utility 
has no control over where they are sited or integrated into its 
system.
    Let me give you a specific example. The long-range plan for 
our PacifiCorp utility, approved by our State regulators, shows 
no need for additional generation until 2028. However, over the 
next 10 years, PacifiCorp must purchase 39 million megawatt 
hours under its PURPA obligations, at an average price of $66 
per megawatt hour, although the average market price today is 
$38; 43 percent lower. That means that our customers must pay 
$1.1 billion above market prices for PURPA-mandated power that 
they don't even need. And this is not an isolated example. Many 
other utilities are facing similar dilemmas.
    Now, Congress amended PURPA in 2005 to relieve a utility of 
its mandatory purchase obligation if it can show that the QF 
can compete to sell its power, in other words, has access to a 
competitive market run by an RTO or an ISO. That is actually 
why many of you have not been hearing about this issue from 
your constituents because your local utilities belong to one of 
these competitive markets; PJM, ISO New England, New--you know, 
New York ISO, MISO, and the like. But PURPA and FERC's overly 
restrictive implementing regulations have not kept pace with 
market changes in our industry. Today, new energy in balanced 
markets, competitive resource solicitations, and FERC's 
interconnection rules for smaller facilities have effectively 
removed any remaining barriers for new entrants, including QFs, 
to supply energy to markets where the host utility is an 
organized market or not. PURPA needs to be modernized to 
recognize these changes.
    My written testimony details the technical suggestions that 
we and the Edison Electric Institute have for modernizing 
PURPA. The first is to expand the definition of comparable 
markets that are eligible for termination of the mandatory 
purchase obligation to include voluntary, auction-based energy 
imbalanced markets, and other subhourly markets. The second is 
to eliminate the presumption in FERC Order 688 that QFs under 
20 megawatts lack nondiscriminatory access to markets, provided 
that the QF is eligible for service under FERC-approved tariffs 
and interconnection rules, and can participate in utility 
competitive solicitations. The third is to terminate the 
mandatory purchase obligation upon a State regulatory agency 
determination, if certain conditions are met. And the fourth is 
to prevent larger QF projects from being divided into smaller 
ones to essentially gain the so-called FERC 1-mile rule.
    Now, some say PURPA should be repealed outright. We don't 
believe that is the right approach. Our proposals are not about 
removing the mandatory purchase obligation where competition 
does not exist. Not all utilities operate in States where there 
is an organized market. Not all State regulators require 
competitive bidding when a utility is looking to secure new or 
replacement power. In those States, PURPA still serves a useful 
purpose, and our proposals would not change that. Others have 
asked that if PURPA was passed to promote renewable energy, 
aren't these suggestions designed to inhibit renewable energy. 
My answer is an unqualified no. After 37 years since PURPA was 
passed, renewable energy is flourishing, and our company is 
among its strongest proponents. Indeed, not including our 
original geothermal assets, we have invested nearly $18 billion 
in the last decade alone in wind and solar projects in 10 
different States. But these projects have been driven by 
policies other than PURPA. They have been driven by State 
renewable portfolio standard mandates, Federal tax incentives, 
technological improvements, and stricter EPA air regulations. 
Are these changes designed to inhibit expensive and gained 
renewable energy? Yes. But regardless of your views on 
renewable energy, everyone should be in favor of fair market 
rules, as well as getting customers low-cost electricity, not 
high-cost electricity caused by what is now outdated 
legislation.
    Thank you for the opportunity to share our views. Look 
forward to any questions you may have.\1\
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    \1\ Mr. Weisgall's prepared statement has been retained in 
committee files and also is available at  http://docs.house.gov/
meetings/IF/IF03/20150603/103551/HHRG-114-IF03-Wstate-WeisgallJ-
20150603.pdf.
---------------------------------------------------------------------------
    Mr. Whitfield. Thank you very much.
    And our next witness is Mr. William Scherman, who is a 
Partner at Gibson, Dunn & Crutcher. Thanks for being with us, 
and you are recognized for 5 minutes.

                STATEMENT OF WILLIAM S. SCHERMAN

    Mr. Scherman. Thank you, Mr. Chairman, and Ranking Member 
Rush. I appreciate being here. I have to say at the outset, 
these are my own views and not the views of any of my clients.
    Let me start by saying there must be meaningful and 
structural due process reform of the FERC enforcement process, 
both substantively and procedurally today. Entities subject to 
the FERC enforcement process do not receive due process of law. 
It is not only important that they receive due process of law, 
but without it, the very competitive markets that this 
committee is trying to promote in other sections of the bill 
will be harmed, as people and market participants continue to 
flee from markets, and liquidity is decreased and price 
discovery becomes nonexistent. It is simple fairness to require 
FERC to give people exculpatory or potentially exculpatory 
information. It is simple fairness to allow access to 
transcripts. It is simple fairness to allow subjects of 
investigation comparable access to the adjudicator, the FERC 
Commissioners who decide their case.
    What you heard yesterday was none of these reforms are 
needed because, at the end of the day, many participants have 
the right to go to Federal court to seek review of FERC 
enforcement matters. If only that were true. What occurs today 
is that, in those instances where you have to go through a FERC 
administrative process, the Federal rules of evidence do not 
apply, the Federal rules of civil procedure do not apply, and 
when the case gets to the Court of Appeals, the record that the 
FERC has developed under flawed procedures is given deference. 
And even when you can get the Federal District Court under de 
novo review, the FERC today, in two pending cases, is doing 
everything possible to restrict having the ability to have a 
full trial in Federal court, with the full rights of discovery, 
and the full rights to have meaningful opportunity to test 
FERC's cases. That is the process that FERC is trying to tell 
you is occurring--is not occurring today, and why we badly need 
procedural reforms.
    I also strongly support the section of the bill that would 
require FERC to address the existing RTO and ISO markets. There 
is strong evidence to suggest that the existing ISO and RTO 
markets are no longer producing competitive results. There is 
strong evidence to suggest that they are no longer balancing 
supply and demand. It has not been since the Federal Power Act 
was first enacted, and the just and reasonable standard was 
adopted, that the Congress has helped to define what 
constitutes just and reasonable markets, even though these 
markets have become, as Ms. Kelly said, incredibly complicated 
and very much complicated to participate in. It is time the 
Congress help define what constitutes just and reasonable 
markets in this current market environment.
    What you heard yesterday in response to a question from Mr. 
Shimkus was that the FERC is working on these matters. Mr. 
Shelk talked about that this morning. The FERC has been working 
hard on these matters, but without the Congress spurring the 
FERC to act, either through legislation or through a letter 
from the committee asking them to act by a date certain, many 
of us are concerned that the FERC is hopelessly deadlocked and 
cannot achieve a consensus on these important initiatives. That 
section of the bill might very well spur action, and I support 
it completely.
    I agree with the PURPA reforms that have been put in the 
bill. I won't spend a lot of time on that, but I want to talk 
about three parts of the investigation process in a little bit 
more detail in the few minutes I have left.
    Yesterday, you heard that there is a difference between the 
adjudicative phase and the investigatory phase of FERC 
investigations. That is an illusion. It does not exist. How do 
we know that? Because in April of 2013, the FERC ruled that a 
show cause order is not part of an adjudication; it is part of 
the investigatory process. That is a FERC order. The reason why 
FERC wants to give you this illusion that there is an 
adjudication at FERC is because they understand and have 
admitted, in the law review article that was cited in their 
testimony, that in the investigation stage at FERC, witnesses 
and subjects of investigations do not receive due process. That 
is in the law review article that they cited to you yesterday. 
So in order to get around this admission, they have to try to 
convince the Congress that there is a real adjudication phase 
at FERC. There isn't. It is not an adjudication phase when a 
witness gets--a subject gets no rights of discovery, gets no 
ability to test the other side's case, gets no access to the 
decision-maker. That is not an adjudicatory process.
    You heard yesterday that the Brady reforms in the bill are 
not necessary, and they would be unparalleled. That is 
shocking. The language in the bill comes straight out of 
district court cases on Brady, and if, in fact--and, in fact, 
those cases have been cited to the Commission in a number of 
key cases. That is absolutely not true. But there is a simple 
fix. Take out the word helpful that Mr. Parkinson objected to 
yesterday, and put the word favorable in. In two places, delete 
the word favorable, put the word--delete the word helpful, put 
the word favorable in. There is no possible way at that point 
that they could object to that.
    Finally, the staff has now admitted--the FERC enforcement 
staff has now admitted to this committee that they have 
violated their own regulations and the Administrative 
Procedures Act at least 12 times in denying access of a witness 
to their transcripts. That is now on the record in this 
committee. So if there any doubt that these reforms are needed, 
I would suggest look at the record.
    Thank you.\1\
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    \1\ Mr. Scherman's statement has been retained in committee files 
and also is available at  http://docs.house.gov/meetings/IF/IF03/
20150603/103551/HHRG-114-IF03-Wstate-SchermanW-20150603.pdf.
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    Mr. Whitfield. Thank you very much, Mr. Scherman. And thank 
all of you for your time.
    I will recognize myself for 5 minutes of questions.
    And I would like initially to just focus on 4231, relating 
to so-called PURPA reform. Ms. Kelly, you had indicated that 
you felt like there should be some reform perhaps, but our 
language you did not particularly agree with. Would you explain 
more detail what you would recommend?
    Ms. Kelly. The situation is this. The way the provisions 
that you have drafted are written is--applies to, in effect, to 
State-regulated facilities, or FERC-regulated utilities. My 
members are units of State and local government, and by and 
large are regulated at the local level by their governing 
boards. So the way the language is written, and this may well 
have been an oversight, was just in a way that----
    Mr. Whitfield. You are left out.
    Ms. Kelly [continuing]. We don't qualify.
    Mr. Whitfield. You are left out.
    Ms. Kelly. Yes, we are left out. Thank you.
    Mr. Whitfield. OK.
    Ms. Kelly. That is the long and the short of it.
    Mr. Whitfield. OK. What is that? OK. And, Mr. Weisgall, 
now, you had mentioned that you are paying something like $68 a 
megawatt for power, and the actual cost is $30-some, and parts 
of your operation, I guess, was in California or Portland, or--
--
    Mr. Weisgall. Northwest, yes. Um-hum.
    Mr. Whitfield. Yes. Now, is that a result of the 
calculation of the avoided cost, or what--is----
    Mr. Weisgall. Yes. I mean the avoided cost calculations are 
made by State regulatory agencies. PURPA contracts have lengthy 
duration. So we are looking at contracts with fixed price costs 
for a long period of time. Markets fluctuate, that is why we 
prefer the competitive process in the market, but when you are 
stuck with a PURPA contract, historically, those have tended to 
be way above market. Now, that is not a congressional problem; 
that is more a result of State regulatory agencies in that 
avoided cost proceeding. And figuring out avoided cost is 
really a full employment job for lawyers, and has been for 
many, many years under PURPA. It has been very complicated, but 
the tendency has been way above market cost.
    Mr. Whitfield. Yes. So, Ms. Kelly is avoiding costs and the 
issue from your perspective, or--your--go ahead.
    Ms. Kelly. It is less of an issue for us, the actual 
calculation that was referred to, because in the case of State-
regulated utilities, they are developed by the State PUC----
    Mr. Whitfield. Um-hum.
    Ms. Kelly [continuing]. And they can be very 
administratively determined.
    Mr. Whitfield. Um-hum.
    Ms. Kelly. At the local level, you know, we have a better 
read on what our potential options are, so we have a little 
more leeway in setting avoided costs.
    Mr. Whitfield. Um-hum.
    Ms. Kelly. So it is not--that part is not as big a problem 
for us as the fact that we may be--in effect, it is a put at a 
certain price, and we have to take it----
    Mr. Whitfield. Right.
    Ms. Kelly [continuing]. Whether we need the power or not.
    Mr. Whitfield. In 1978, when PURPA was adopted, I don't 
think that many people thought the investor-owned utilities 
would also be qualifying facilities, at least initially. What 
percent of qualifying facilities today would you say are owned 
by investor-owned utilities? Do any of you have any idea on 
that at all?
    Mr. Shelk. I would think it is pretty low to almost 
nonexistent, given the size. If I could just add the issue--as 
I indicated earlier, 95 percent of our member assets are in the 
RTOs, so this is not an issue for our members, but I can see it 
is an issue for the independent power producers outside of the 
RTOs----
    Mr. Whitfield. Um-hum.
    Mr. Shelk [continuing]. And the reason is, notwithstanding 
what Mr. Weisgall said from their perspective, and I would urge 
you to talk to them, if you don't at least address what it 
means to have a competitive solicitation, I think the bill has 
the right directional idea. I was very much involved in the 
compromise negotiation in 2005. The issue, however, is just 
because a State has a competitive solicitation on the books 
doesn't mean it is a fair one. So you may want to think about 
at least expanding what type of competitive solicitation you 
think would qualify, because right now, the utilities, like 
Berkshire Hathaway, outside the RTOs, they get to run the 
solicitation, they get to put their own projects up, and 
miraculously, they pick themselves, you know, well over, you 
know, 95 percent of the time. So I think you would want to be 
clear that--in the draft what type of competitive 
solicitation----
    Mr. Whitfield. Yes.
    Mr. Shelk [continuing]. With a third-party----
    Mr. Whitfield. Yes.
    Mr. Shelk [continuing]. Evaluator would qualify for the 
exemption.
    Mr. Whitfield. Yes.
    Mr. Shelk. Otherwise you risk----
    Mr. Whitfield. Yes.
    Mr. Shelk [continuing]. Reducing competition----
    Mr. Whitfield. Yes.
    Mr. Shelk [continuing]. In those regions.
    Mr. Whitfield. And would one of you make just some brief 
comments on the transparency issue at the RTOs relating to 
price? I think you and Ms. Kelly had indicated that was an 
issue from your perspective.
    Ms. Kelly. Yes, that is an issue, and thank you for the 
question. I think one of the things that strikes us with some 
regularity is the volatility in the prices. For example, in 
capacity auctions, prices can vary very substantially from 
auction to auction, both up and down. It is unclear why that 
happens. The data that goes into those prices is closely held. 
We have talked about increased transparency of bids and offers 
in the past. A lot of other people have opposed that, so that 
has not yet happened. We--actually, it was considered in the 
stakeholder process back in 2008, 2009, at our request, but 
shockingly, by the time it got done with the stakeholder 
process, the consensus was that that wasn't required.
    Mr. Whitfield. Um-hum.
    Ms. Kelly. So there have been issues with that in the past.
    Mr. Whitfield. And I would at some point like to discuss in 
more detail the phasing-out of capacity markets in the east, 
and I think you made reference to that as well.
    Ms. Kelly. I would be happy to do that.
    Mr. Whitfield. OK.
    Ms. Kelly. I would note that that is a longer-run 
prescription. These markets are very complex, and they do 
operate on a 3-year forward basis.
    Mr. Whitfield. Yes.
    Ms. Kelly. So we are not saying that that is something 
that, you know, can be done in a flash cut. We understand it 
is----
    Mr. Whitfield. Yes.
    Ms. Kelly [continuing]. A complicated----
    Mr. Whitfield. Mr. Scherman, do you want to make a comment?
    Mr. Scherman. Yes. I just think it is important for the 
committee to understand that when a competitive solicitation is 
run by a utility, if that utility would like an affiliate to 
participate, the FERC has very stringent rules called the Edgar 
Allegheny Rules. I won't bore the committee with the details.
    Mr. Whitfield. The Edgar Allegheny Rules?
    Mr. Scherman. They are based on two cases. Everything has 
to have a name, Mr. Chairman.
    Mr. Whitfield. Yes.
    Mr. Scherman. There is an Edgar case and an Allegheny case, 
and so it has become known as the Edgar Allegheny Rules.
    Mr. Whitfield. Right.
    Mr. Scherman. They are very prescriptive as to how the 
evaluation has to be done by an independent evaluator, what has 
to go into competitive solicitation, and how that record has to 
be developed before a utility can pick an affiliate. Those 
rules are very robust, so it is not as easy as the utility just 
picks its affiliate.
    Mr. Whitfield. Yes.
    Mr. Weisgall. And, therefore, Berkshire Hathaway Energy 
sometimes loses.
    Mr. Whitfield. OK. I want to just----
    Mr. Shelk. But they only apply in the FERC context, they 
don't apply at the State level when the decisions are made to 
select which projects----
    Mr. Whitfield. Yes. Yes.
    Mr. Shelk [continuing]. So it is sort of comparing apples 
and oranges.
    Mr. Whitfield. Do you know if Exelon and the Exelon Nelson 
case in Texas appealed that Fifth Circuit Court of Appeals 
ruling?
    Mr. Scherman. I do, and I believe they were not successful.
    Mr. Whitfield. OK, thanks.
    At this time, recognize the gentleman from Illinois, Mr. 
Rush, for 5 minutes.
    Mr. Rush. Thank you, Mr. Chairman.
    Mr. Kelly, in your written testimony you argue that Section 
4221 as currently drafted may result in an unintended 
consequence of putting FERC and the RTOs into an unnecessary 
and potentially divisive debate, and result in States having to 
rely increasingly on the volatile short-term markets.
    My question to you is what recommendations, if you have 
any, that you would suggest to this committee to put improving 
the language in Section 4221, or do you believe this entire 
section is of no use and may even be counterproductive?
    Mr. Kelly. No, there are certain sections--certain parts of 
the section that I think have value, but I think we look at 
traditional function and role of the States and their public 
service commissions and legislature in determining, you know, 
such as I believe it is 2(a), operational characteristics, the 
generation of electric energy on a continuous basis. That is a 
State--ultimately a State issue. Whether or not the State is 
going to site, for instance, dual fuel generation for us in the 
natural gas generation, they request or require at times that 
you have oil available so that you can run for a minimum period 
of time. The ISOs and RTOs have rules as well, and there are 
some payment structures in place that ultimately you--force you 
to have that ability, or penalize you if you don't.
    Mr. Shelk. Mr. Rush----
    Mr. Rush. Yes.
    Mr. Shelk [continuing]. If I could just add briefly----
    Mr. Rush. Yes.
    Mr. Shelk [continuing]. We don't view the section or read 
the section the same way Mr. Kelly does. It is not changing 
what is a bedrock principle of the Federal Power Act, which is 
that the Federal Government, through FERC, has jurisdiction 
over the sales of electric energy, interstate commerce, and 
transmission. That has not changed at all. What the section 
says is to the extent FERC does things, and FERC does important 
things, we may disagree about how they do them but the 
wholesale markets that FERC administers for energy and capacity 
are what supply the power in Illinois and other States in the 
committee where the RTOs exist. And so FERC does decide the 
market rules. Sue and I may disagree on how they do it, but 
FERC is the agency that decides how wholesale markets operate. 
That has been upheld by the courts. So I think the section, at 
least the way we read it, is directing the Commission to 
consider a range of issues; some we like, some we don't, but I 
think it is a pretty good balanced list directed at FERC. It 
would not upset the Federal-State balance.
    Mr. Rush. Are there any other witnesses who might want to 
weigh-in on this?
    Ms. Kelly. Yes.
    Mr. Rush. Ms. Kelly?
    Ms. Kelly. First of all, I would note that the way the 
section is set up, and I noted this in my written testimony, is 
it directs each RTO to develop in consultation with the 
stakeholders. So at the very get-go you are sending it off to 
the stakeholder process. And that is an endless frustration 
loop for my members for the last 10 years because those 
processes, especially in the RTOs where the market, you know, 
problems are the most acute for them, the large generation and 
transmission asset owners have a--hold a great amount of sway, 
for the reasons in my testimony. So that right there is a 
problem.
    Some of the provisions of the things that they are supposed 
to consider, I think, are very salutary. Others I think are 
less salutary. But to me, the immediate problem is it goes off 
to the stakeholder process and, you know, that is something you 
all probably need to look at more carefully. Thank you.
    Mr. Rush. Mr.----
    Mr. Scherman. I think the simplest way to fix that problem 
is to make it clear that when the Commission is exercising the 
authority in the section, that it is being done pursuant to 
Federal Power Act, Section 206. And, therefore, when the RTOs 
and ISOs have to respond, they have to make a filing under the 
Federal Power Act to comply with those specific criteria. And 
at that point, there will be no doubt that it is wholesale only 
and not trying to affect the retail market.
    The second point is absolutely what Ms. Kelly--is 
absolutely true, the current stakeholder and governance process 
of the RTOs is so cumbersome and so complex that it leads to 
least cost, least common denominator decision-making that is 
frustrating innovation and stifling competition. The Congress 
really does need to address that if the FERC can't.
    Mr. Rush. Mr. Cook?
    Mr. Cook. Thank you. I think the concept behind Section 
4221 is good, particularly the things that direct FERC and the 
ISOs to look at advanced grid technologies, and to look at the 
kinds of regulatory barriers that exist in incorporating those 
technologies into the grid. Our technology is a customer-sided 
technology, and it really makes some of the ISO leaders' heads 
spin that customer-sided technology----
    Mr. Rush. Um-hum.
    Mr. Cook [continuing]. Could provide transmission grid 
services, but yet, in fact, we do that. We dispatch our systems 
as a virtual power plant.
    Mr. Rush. Um-hum.
    Mr. Cook. I would agree, however, with my fellow panelist, 
Ms. Kelly, that the stakeholder process is extremely cumbersome 
for small companies like ours. Being able to dedicate the kinds 
of resources that are necessary to them for daylong meetings 
that occur every other week, that could go on for 6 to 18 
months, is virtually impossible. So our voice does not share 
the same weight as the voice of the traditional transmission 
owners, the big utilities that are involved in those processes.
    Mr. Rush. Um-hum. I want to thank you. Mr. Cook, I have a 
few more minutes, and in your testimony, you state that you 
believe that FERC struck a proper balance in Order 688. With 
this presumption, the larger generators had open access to 
transmission markets, but also a rebuttable presumption that 
smaller systems do not. What changes do you think are necessary 
in the discussion draft in order to maintain the balance of 
FERC Order 688, and to maintain the rebuttable presumptions 
regarding access to open transmission markets?
    Mr. Cook. Well, the simple response would be no changes are 
necessary. I believe that that is the proper balance. The new 
language in Section 4231 would change that presumption, and 
says specifically that generators of any size are presumed to 
have open access. I don't believe that is factually correct. 
The small generators typically have barriers. If you are a 100 
kilowatt generator, for example, in many ISOs you can't 
participate in any of their markets simply because of your 
size. They arbitrarily set the threshold of participation at 1 
megawatt. So there are numerous different barriers that small 
generators face.
    I believe that what FERC did was to say, well, if you have 
access to an open access market, there is a presumption for the 
big generators that you don't have--need any of those 
protections. But there is a different presumption than on the 
small generator side, you do need those. It is a rebuttable 
presumption, so it is not guaranteed that you are going to get 
those protections. In addition, I think on the avoided cost 
question, the issue of the proper setting of avoided cost is 
done by the utilities and the State regulators. The small 
generators that avail themselves of that avoided cost 
typically, again, do not have the same representation in those 
proceedings. So if there is an error in the avoided cost 
calculation, I think it is incumbent upon the participants in 
that proceeding to properly set that so the avoided cost is 
truly reflective of a utility's cost, and there isn't an 
overpayment of the small generators.
    Mr. Rush. Thank you, Mr. Chairman----
    Mr. Whitfield. Yes.
    Mr. Rush [continuing]. For your generosity.
    Mr. Whitfield. Yes. Well, you know, these issues are so 
simple and not very complicated, that we don't need a lot of 
time to talk about them.
    Ms. Kelly. Might I just say one thing to your----
    Mr. Rush. Yes, please.
    Ms. Kelly [continuing]. Question, Congressman Rush? I would 
just note that there are also small utilities in addition to 
small generators, and for some of them, the 20 megawatt cutoff 
is a lot bigger than they are. So--and I actually, back in 
private law practice, had an--a rural electric co-op client who 
was asked, in effect, to purchase the output of a small 
generator, much larger than it was, or to wheel that out when 
that was, you know, bigger than its entire system. So you need 
to be----
    Mr. Whitfield. Yes.
    Ms. Kelly [continuing]. Sensitive to it on both sides.
    Mr. Whitfield. Yes.
    At this time, recognize the gentleman from Virginia, Mr. 
Griffith, who understands all of this completely, for 5 
minutes.
    Mr. Griffith. Well, thank you, Mr. Chairman. And, you know, 
I am just a simple country, small town lawyer. But listening to 
Mr. Parkinson's testimony yesterday, I came away clearly, from 
his initial testimony, he backed away from it a little bit, in 
fairness, but came away from it initially believing that our 
system does not allow due process, and that it is not fair to 
those people who are being accused of having manipulated 
electric rates or--et cetera.
    Mr. Scherman, I gathered from your testimony that I might 
have had the right sense.
    Mr. Scherman. Yes, sir, I fully agree. I have great--and 
let me just state, none of this is personal. Mr. Parkinson is a 
fine fellow, Chairman Bay is a fine fellow, but the due process 
people receive at FERC today is in name only. The FERC is doing 
everything possible to frustrate constitutional due process 
requirements. And all you have to look at, Mr. Griffith, is the 
disproportionality between--in the most--in the current pending 
cases, between what the FERC is alleging as the market harm and 
the size of the penalties. And if I could just enter a couple 
of those into the record.
    Mr. Griffith. Please do.
    Mr. Scherman. In the current Maxim Power case, the FERC has 
alleged a $5 million civil penalty with zero unjust enrichment, 
zero disgorgement of alleged unjust profits. In the current, 
Powhatan case, the disproportionality between the alleged 
disgorgement and civil penalty is 634 percent. In the current 
BP case pending before the Commission, the disproportionality 
between the civil penalty that is being sought and the alleged 
unjust enrichment is 3,500 percent. In the Barclays case, the 
disproportionality between the alleged unjust enrichment and 
the civil penalty is 1,300 percent. In the Lincoln case, the 
disproportionality is 1,300 percent.
    So if you just look at whether the proportionality between 
the alleged unjust enrichment, the alleged amount that they 
shouldn't have earned, and the civil penalties, it is clear 
there is no proportionality in the way the FERC is 
administering the enforcement process.
    Mr. Griffith. Well, and I appreciate that testimony. I was 
struck with just the basic principles of due process that have 
evolved over the years in the Anglo-American system when, you 
know, I heard things like, you know, we don't really want third 
parties to have to worry about Brady, in other words, 
information that might say the person or the accused didn't do 
what they have been accused of. Well, a third party shouldn't 
be burdened with that. That bothered me. And then the whopper 
of all, and the defense was, well, other people do it. I don't 
accept that for my children, and I am not going to accept it 
from the Federal Government, of which I am a representative of 
the people, was, well, you can't really talk about settlement 
with the Commissioners because they are part of the prosecution 
team, because we have an attorney-client privilege with them 
and we don't want that to be violated in any way. Say what? 
There is an attorney-client privilege between the trier of fact 
and the investigators who bring the case? That just struck me 
as abhorrent to the American legal system. Do you agree or 
disagree, and what are your comments?
    Mr. Scherman. I fully agree. The Commission is applying the 
wrong Brady standard. It is clear from the testimony that they 
are applying the post-trial Brady standard, not the pre-trial 
Brady standard.
    Other regulatory agencies, including the CFTC, rejected as 
part of their process the post-trial Brady standard over 20 
years ago. This is not a new concept.
    On the settlement process, it is like--it is the classic 
case of trying to negotiate for a car. You negotiate with the 
enforcement staff, only to be told, oh, I have to go talk to my 
manager. Well, we know what happens every time you go talk to 
your manager. And in a recent case where I asked directly to 
negotiate with the Commissioners on the settlement, and I said 
I would be more than happy to have the enforcement staff in the 
room at the time, I was told it was against policy to talk 
directly to the Commissioners, even though I said I would be 
happy to have the enforcement staff in the room at the time.
    Mr. Griffith. Sure. And I can understand that while they 
might want to have ex parte communications with the 
Commissioners, but if they are part of the prosecution team, it 
does seem kind of strange.
    Do you think we would be better off allowing the 
Commissioners to continue to have the settlement power, but 
just move any disputes directly to the district court where you 
can have a legitimate due process-filled trial?
    Mr. Scherman. I think that would be a very good suggestion, 
if the Commission itself would recognize the words de novo 
review in the statute mean a trial. What is happening in the 
Lincoln case and the Barclays case now is the Commission is 
taking the absurd position that the words de novo review does 
not lead to a full trial, does not lead to discovery, does not 
lead to the right to confront witnesses. They are taking the 
position that a de novo review is essentially no different than 
a court review, where the Commission gets deference on the 
record that they have built in a flawed process.
    Mr. Griffith. Yes.
    Mr. Scherman. So if the Congress would clarify and confirm 
the existing language means what it means, and it should apply 
to the Gas Act, the Power Act, the NGPA, that would help a lot.
    Mr. Griffith. Well, and even a simple small town lawyer 
knows that de novo means you get a new one. That is what novo 
means, new. And that if--that was their defense yesterday, in 
part, was that, well, you can always go to the district court. 
I would think that would be a big fix if you could actually get 
a new hearing with all of the discovery rights that you get 
in----
    Mr. Scherman. Absolutely.
    Mr. Griffith [continuing]. The normal court system.
    Mr. Scherman. The Power Act supposedly provides for that, 
but apparently, the Commission doesn't agree with that.
    Mr. Griffith. Well, I appreciate it.
    My time is up. I yield back. Thank you, Mr. Chairman, for 
this important hearing.
    Mr. Whitfield. You know, I had about 7 minutes. Mr. Rush 
had 7 minutes. Do you want to take another couple of minutes, 
and then we will give everybody 7 minutes, because this is a 
complicated issue and we want to give everybody an opportunity. 
So if you want to go for another minute and a half.
    Mr. Griffith. Well, and I will say that I was a little 
concerned that the Commissioners are part of the prosecution 
team, as we have previously discussed. And do you think that 
that is a new development, or is that something that has been 
evolving over the years?
    Mr. Scherman. It is both. It is certainly something that is 
not a new development, but it has evolved over the years in a 
much greater sense. And part of the problem is, when I was 
general counsel of FERC, the enforcement process reported to 
the general counsel. There was a layer between the enforcement 
process and how that was administered on a day-to-day basis, 
and the Commission. What you heard in Mr. Parkinson's testimony 
was that there is free regular communication between the 
investigators, the prosecutors, and the ultimate decision-
makers. And that because--and just human nature would suggest 
that that cannot be a fair adjudication. It has nothing to do 
with the integrity of the Commissioners personally, but if you 
are told for 5 years that somebody is guilty of fraud, if you 
are told for 5 years that somebody has manipulated the market, 
if you are told for 5 years that somebody has unjustly enriched 
themselves at the detriment of consumers, and then all of a 
sudden at the very last part you get--you then have to sit 
where only 1 party has had access to you, where only 1 party 
knows what you are thinking, where only 1 party has had a free 
exchange, that is a problem. It--may I give you an analogy?
    Mr. Griffith. Sure, because I agree with you completely.
    Mr. Scherman. May I have 1 minute to give an analogy, Mr. 
Chairman?
    Mr. Whitfield. You have 30 seconds.
    Mr. Scherman. OK. Suppose there is an FBI agent who 
investigates a case for a number of years. That agent is also a 
lawyer, as many of them are. That FBI agent then decides I am 
going to go be a lawyer and goes clerking for a Federal judge. 
And suppose that same lawyer that--who is now a clerk ends up--
the judge that he is working for ends up being the person who 
hears the case that he was investigating, and he gives him 
advice for a couple of years about what the cases he is 
investigating. And then he supposes after a couple of years of 
clerking, he wants to go be a prosecutor. So he is assigned as 
a prosecutor, and lo and behold, he gets the case that he 
investigated, and then he advised the judge on how to decide 
the case, and then he is the prosecutor.
    Mr. Griffith. Well, I think----
    Mr. Scherman. That is the FERC process.
    Mr. Griffith. And I think any time you have an attorney-
client privilege with somebody, they ought to be disqualified. 
It creates interference.
    Mr. Whitfield. OK. Recognize at this time Mr. McNerney for 
5--7 minutes.
    Mr. McNerney. Seven second? Thank you, Mr. Chairman. Mr. 
Chairman, I just want to let you know I appreciate your 
devotion to fair play because that is what makes America great.
    Where I am coming from is a point of skittishness after 
being manipulated in California, having Enron take $9 billion 
and leaving us with a lot of problems.
    So what I ask is, Do you feel it makes sense for us to try 
and persuade FERC to improve their behavior, or do you think it 
makes sense for us to enact new legislation to force the issue?
    Mr. Scherman. I would certainly prefer the latter, but if 
there is some way to do the former, that would be great, but 
there is no evidence to suggest that would work.
    And let me just say about Enron. I understand the 
California energy crisis is still a hangover, if you will, over 
how we all think about this. What caused the California energy 
crisis, which harmed consumers, no doubt, was a myriad of 
factors. One of the most important one is what this committee 
is trying to do in other parts of the bill, which is to get 
efficient market design. One of the key problems in California 
was that it was an inefficient market. The market design was 
badly flawed. One of the key ways to prevent those kind of 
crises from recurring again is to make sure the RTO markets, 
the California ISO, is operating in an efficient way. That is 
an important reform that, along with the ex partes, would 
ensure that those kinds of problems don't happen again.
    Mr. McNerney. Well, I have heard this morning that--from 
Mr. Shelk, about the importance of a properly regulated market, 
and we heard it from Southern Company last week as well, the 
importance of proper regulation. So is that what you are 
talking about is regulation, or are you talking about a free 
market where anything goes?
    Mr. Scherman. There is no such thing as a free market where 
anything goes.
    Mr. McNerney. Clearly.
    Mr. Scherman. These markets are heavily regulated. What we 
are trying to do is to get the market rules to simulate 
competitive outcomes because many of us believe competitive 
outcomes are in the best solution of the consumer. But the FERC 
and the State commissions have to always understand--have to 
always be vigilant to make sure that the markets are properly 
regulated. But you can regulate in a way that is designed to 
produce and simulate competitive outcomes, and that is what I 
advocate.
    Mr. McNerney. So do you think that this legislation gets us 
in that direction, or----
    Mr. Scherman. I think it is a very important step, yes, 
sir, I do.
    Mr. McNerney. OK. Mr. Weisgall?
    Mr. Weisgall. Well, let me take a crack at that from--give 
you a concrete example. In Idaho, a developer came to our 
utility on a competitive solicitation process, with a 150 
megawatt wind project. They didn't win. Next couple of years, 
they disaggregated the project into several below-80-megawatt 
projects and turned it into a PURPA project, where our utility 
had no choice but to buy that power at an above-market price. 
There was a competitive process. They lost, so they used the 
hammer of PURPA's mandatory purchase obligation. What your--one 
aspect of your discussion draft is designed to enhance that 
competitive process, and in that case where there would be an 
open competitive process, that kind of result would not happen. 
Now, that is not necessarily Enron-like, but that, to go to the 
chairman's earlier question, is sticking our customers with 
higher costs, because the project had originally been rejected 
so it was simply disaggregated into smaller ones to make sure 
that it could fit into a PURPA mandate.
    Mr. McNerney. Well, I am sure there are plenty of examples 
like that----
    Mr. Weisgall. Yes.
    Mr. McNerney [continuing]. To go around.
    Ms. Kelly?
    Ms. Kelly. Thank you very much for recognizing me. I feel 
that since FERC is not on this panel, perhaps somebody needs to 
speak up for the interests of the other side. I would just note 
that what they are trying to do is protect consumers in these 
electric markets. And if you look at the orders that have come 
out, if you look at the entities who are being chastised, you 
look at the behavior in which they engaged, I think there--a 
case could be made that it is really important to have a strong 
enforcement at the FERC because consumers are otherwise going 
to be taken to the cleaners. The part we worry about is how 
much else is going on that has not been caught, especially in 
these centralized markets with their very complex rules.
    We feel like it would, frankly, be more useful to get the 
Commission, or for this Congress themselves, to take a more 
holistic look at whether these markets are being systematically 
manipulated, and whether these are just kind of the icebergs 
that show above the surface. We are quite concerned about the 
operation of financial players in these markets. We have been 
for some time. Thank you.
    Mr. McNerney. Well, I mean that kind of makes the point. It 
is--we need a strong regulatory arm, but it needs to be fair. 
So what my concern is that this Section 212 goes a little too 
far in neutering the FERC's investigatory ability.
    Mr. Scherman. I don't think it neuters it at all. I mean it 
simply levels the playing field to provide constitutional due 
process. And it is easy to say don't do this when your members 
are not subject to the very regulations that are violating due 
process. Ms. Kelly's members are not subject to these rules, 
they are not subject to this enforcement process.
    Mr. McNerney. Thank you, Mr. Chairman.
    Ms. Kelly. Not true.
    Mr. Scherman. Well, it is true, Sue. Other than NERC, what 
are you subject to?
    Ms. Kelly. I--there actually was one enforcement proceeding 
against one of my members in ISO New England.
    Mr. Scherman. One?
    Ms. Kelly. Yes.
    Mr. Scherman. OK. Well, sorry, one.
    Ms. Kelly. Generally speaking, we don't engage in behavior 
that would require that.
    Mr. Scherman. OK. Of course not. I am sorry.
    Mr. McNerney. Mr. Shelk, what do you see as some of the 
dominant trends--you said you see profound changes, what are 
some of the dominant trends, and how would this legislation 
harm or enhance those trends?
    Mr. Shelk. Well, we are all confronting a number of things, 
regardless of business model, whether it is Ms. Kelly's members 
in public power, ours in merchant generation, and others at the 
table, everybody is up against what has been unhitching, if you 
will, of demand from economic growth, which is generally a good 
thing, so we don't need as much electricity as we used to, 
but--so it is flat demand at a time when most revenues are 
volumetric, is an issue. We obviously have a changing fuel mix, 
legislative requirements in California and elsewhere for 
renewables, all the environmental regulations, the technology. 
So it is safe to say while we are sitting here in 2015, in 5 or 
10 years from now, it is going to be a dramatically different 
electricity system. It is just hard to predict exactly how 
different it is going to be. If grid storage comes on and the 
way it might, if different technologies come about, it is going 
to be very, very different. So that is why we have to be 
careful. I think what the draft tries to do, instead of being 
prescriptive and writing in the statute for all time, like 
happened in '78 and other times, things that would be hard to 
change later, you are giving general direction to the 
Commission on a range of issues. Like Ms. Kelly, some we like, 
some we don't. Our list might be a little bit different, but I 
think the intent of it is very, very good, which is to set out 
the goals, set out what you want to have the ultimate result 
be, and then let the experts at the Commission work through 
this on a bipartisan basis. So I think it would be overall 
helpful----
    Mr. McNerney. Um-hum.
    Mr. Shelk [continuing]. To deal with the change you asked 
about.
    Mr. McNerney. Thank you.
    Mr. Whitfield. Gentleman's time has expired.
    At this time, recognize the gentleman from Illinois, Mr. 
Shimkus, for 7 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. It is great to have 
you--this is a great hearing, and I love the back-and-forth and 
the trying to address it, but it is hard to argue against 
legitimate due process and equity and fairness, regardless of 
the players. I mean--so I--Morgan is great to have on the 
committee because he has a good legal mind. And sometimes we 
back lawyers. They are good to have around when you need them, 
and when you have smart ones, they are great to listen to. So--
and I missed his performance yesterday, so I guess I got the 
tail end of it in this one.
    I am going to get back to a simpler aspect. I talked about 
it before the hearing to some of you. So I put up--what I--got 
a--that is why I took a picture of it while it was--and we got 
it up there, and you can't see it but this is--I am in the MISO 
area, so--and this happened--I found out this has happened a 
couple of times after we have done some due diligence, and so 
it is the auction clearing price debate. We have just had an 
auction. We have a lot of zones in the MISO region. Most of the 
zones cleared at $3.40--well, there is $3.29, $3.48, in that 
range, except for one zone which happens to be Illinois, that 
is why I know about it, and it cleared at $150; a 300 percent 
increase. And in doing due diligence and visiting with FERC--
this has happened before, I think it happened in the Cleveland 
area a couple of years ago. So I have a couple of questions. 
Obviously, I am trying to understand this. I mean it is a 300 
percent increase. That is--that gets your attention. It has got 
the attention of my individual consumers, it has got the 
attention of the business interests, the manufacturers who are 
going to be using power. And so the first question is--and MISO 
decided to have--do an annual auction versus some regions do 3 
years. And I want to ask Ms. Kelly and Mr. Shelk first, do you 
think that one model is better than the other? MISO--in 
essence, MISO bet that they would have better auction results 
by doing it yearly. And, at least in my region, they really got 
bit this time somehow. So can you, you know, kind of understand 
how I laid out the question?
    Ms. Kelly. Yes, I think I can. It requires me to go a 
little bit in the weeds though, so I apologize in advance. This 
particular market in MISO was what is known as a residual 
market, in other words, you do not have to obtain your capacity 
from that market, as you do in the eastern RTOs. As a result, 
the time horizon is shorter; it is just a year ahead.
    Mr. Shimkus. But that is a MISO decision though.
    Ms. Kelly. Yes.
    Mr. Shimkus. I mean they could have gone--they could have a 
3-year----
    Ms. Kelly. They could, but----
    Mr. Shimkus. OK.
    Ms. Kelly [continuing]. Because most capacity is procured 
outside that market, it makes less sense to go out in a longer 
term than it would in a mandatory market, as in the east.
    The other thing to note here is one of the reasons that 
that result happened is because of the size of the zone that 
the price was formed in. What happened was Dynegy bought a lot 
of assets in that region the year before, and as a result, I 
think they controlled over 60 percent of the generation in that 
zone. At one point, MISO had talked about lumping 2 zones 
together to mitigate that and make them less of a, you know, 
generation--what we call a pivotal supplier in that zone. That 
was discussed in the stakeholder process, but in the end that 
did not happen. One of the complaints that I have read about 
this alleges that one--a Dynegy employee was actually vice 
chair of the relevant committee in the stakeholder process that 
made, you know, that made that recommendation. And this gets to 
the point I made in my testimony about threatening to leave 
because the generation in the southern part of Illinois, Dynegy 
has in the past made noises that they might take that over to 
PJM. So that is one of--I think one of the reasons why that is 
what this complaint alleges, let me just say, that that is one 
of the reasons why that change was not made and they were left 
as the dominant supplier in the zone. And sure enough, the next 
auction, the price spiked.
    So, you know, that is one of the things that gives us as 
consumers very strong concerns about how these market rules are 
set, how the zones are set, and how arbitrary and, you know, 
volatile the prices can be from auction to auction.
    Mr. Shimkus. John?
    Mr. Shelk. The question you asked is a good one about the 
market design. We have generally favored the multiyear approach 
in PJM and New England, and the reason is simply that you then 
get the forward price signal much earlier. So I think the 
Cleveland example you gave is a very good one. When the price 
went up in that--what is called the ATSI zone in the Cleveland 
area a few years ago, then the next auction, many, many 
developers came in, in fact, you are seeing development around 
there not only because the price went up for that one year, but 
because of the Utica shale gas. So there is a gas basis 
differential, and these new gas plants can go in there.
    In terms of the conduct of this auction, I think it is 
important to point out that MISO does this rigorously in terms 
of overseeing the auction. There is an independent market 
monitor. The rules are strict about what can and can't be 
offered. Ms. Kelly mentioned Dynegy. They offered all the 
megawatts in that they have. And as you know, what separates 
Illinois from the rest of MISO from southern Illinois is the 
competitive generators there are only dependent on the revenue 
from that auction in the energy market. The other point--the 
other States, as Ms. Kelly indicated, are outside of it. So if 
you actually look at the southern Illinois price compared to 
the northern Illinois price, they are about the same, because 
that is the only source of revenue to signal new investment. 
And I would imagine if we had this conversation a year from 
now, particularly if MISO has a longer lead time, you will see 
people come on to invest in southern Illinois as they did in 
Cleveland, and they are doing in New England, when the price 
went up in New England last----
    Mr. Shimkus. Well, that is what we hope, and that is kind 
of the expectation of people who are saying that--market signal 
and people are moving, and obviously people--short-term there 
will be some harm.
    I guess the other concern I have, and there--I have so much 
issues that I could talk about, but--is that--and which I am 
not going to, so, Chairman, don't worry about it, is that there 
is a different world now environmentally, and generation-wise 
and--than that--than the Cleveland example. So bringing on and 
planning, your only large megawatt is going to be natural gas. 
You can't--how do you bring--you can't bring it on. The 
environmental regs are too stringent for us to bring on new 
southern Illinois coal generation. And then I--on the--and the 
other thing is I am really having this debate about re-
regulated markets, just because I am not sure with this 
environmental pressure that we can keep major base load 
generation alive in a lot of parts of our country.
    Mr. Shelk. Well, just a brief comment. If you look to the 
east from Illinois, you have a good example of what if go 
completely back to the old model, what the risk is there, 
because there you have a plant in southern Illinois where the 
consumers are being paid--stuck for billions of dollars over 
the multiyear life of the project. And I just read yesterday it 
is operating at a 10 percent capacity factor----
    Mr. Shimkus. Yes. Yes.
    Mr. Shelk [continuing]. Yet consumers are going to pay for 
that. Same thing happened in Ms. Castor's State in Florida, the 
nuclear plant closed down. They are now going to be stuck with 
the costs of the closure of the nuclear plants. So there is 
always that balance between----
    Mr. Shimkus. Um-hum.
    Mr. Shelk [continuing]. Who is going to bear what risk, and 
how do you compensate them, and----
    Mr. Shimkus. Yes.
    Mr. Shelk [continuing]. You are right, it is a conversation 
we are going to have to continue to have.
    Mr. Whitfield. I understand in about 5 minutes or so we are 
going to have a series of like 11 or 12 votes on the floor, so 
I am going to recognize Mr. Pallone for 5 minutes. And we are 
going to go as fast as we can.
    Mr. Pallone. I will try to be--to use less of that if I 
can. I just have one question for Braith Kelly. In nearly all 
the testimony today, I see a few common themes. First, that 
there are problems with the electricity markets. Clearly, there 
is a disagreement as to what the problems are and what the 
solutions should be. Second, there is a disconnect between the 
State and Federal rules on electricity, even taking into 
account the general concept that wholesale markets are 
regulated by FERC and retailed by the States. There is a 
blurring of those lines that needs resolution, and the States 
are still responsible for guaranteeing service to their 
residents, and also for implementing a number of State and 
Federal environmental policies that are affected by these 
wholesale markets. And I am not here to take sides on how we 
resolve this, but clearly, we are in a transitional phase, and 
I am concerned that many of these unresolved issues could have 
a negative effect on consumers, public health, and the 
environment. For instance, I know the courts have ruled against 
New Jersey and Maryland in their efforts to ensure reliability 
through bilateral contracts, and that leaves us with a problem 
with regard to the responsibility of States.
    So, Mr. Kelly, I know your company is dealing with the 
result of this lack of clarity, so could you describe how the 
current situation affects project developers and States, 
particularly with regard to my home State?
    Mr. Kelly. It was one of the examples I used earlier. The 
cost of capital on that project is almost 30 percent higher. 
That all has to come from somewhere. It puts us in a position 
where we were under contract for that project, it was a much 
lower cost, we had what was called a CFD, a contract for 
differences. We bit in a competitive process with over a dozen 
other developers for a contract. That competitive process 
resulted in three projects being selected. Those three projects 
went forward, and had to go through what was the--screen to 
determine if they were economic. Two projects passed through, 
one did not, proving that the system worked. That project was 
not economic, it was not allowed to participate. Unfortunately, 
there is a great deal of confusion as to where the State's 
right to--under the Federal Power Act, to manage their 
generation collides with the--with FERC and its authority. The 
rules are very, very clear. The rules were created about these 
contracts. There was very little doubt in our mind that we 
would get through that process. Unfortunately, some--you know, 
there was litigation, findings by two courts, that these, what 
were called subsidies were not constitutional. That is going to 
have far-reaching implications. There are some cities being 
considered in Illinois in--for the nuclear fleet there. There 
are some cities being considered in Ohio to keep First Energy 
and AEP's fleet. These are all subsidies, but these are the 
States making the judgment. Whether or not there is a--you 
know, that collision--where those courts--I mean it is going to 
be very, very difficult for the States to implement the Clean 
Power Plan without this tool, without the ability to support 
generation.
    Mr. Pallone. All right.
    Mr. Shelk. Mr. Pallone, if I could just provide the--to 
balance out the point of view. I think it is important to point 
out that this happened in New Jersey, as you know, and in 
Maryland, and the proof in the difference in the models is in 
the numbers from the results. The developers said they needed 
these contracts or the projects would not go forward. The 
process Mr. Kelly described occurred in your State. The prices 
that would have been locked in for 15 and 20 years were north 
of 50 to 75 percent higher than the market clearing price for 
that same generation. They said they would not go forward 
without this contract for differences, yet when the courts 
struck it down, they went ahead and did it anyway. And Mr. 
Kelly refers to the lower cost of capital, well, that is 
because there is a different risk-reward calculation. The 
reason why their capital costs would be lower, and I question 
whether they would pass that on or not, is because everybody in 
New Jersey, all of your ratepayers under that program, would 
have been stuck paying for those plans at those inflated costs 
for 20 years, when I turned out not only were there--was there 
other generation available at less cost, the very same plants 
that said they needed the subsidy in Maryland and New Jersey 
went ahead without it. And the last point is it was eight 
Federal judges, two district courts and six Courts of Appeal, 
unanimously found, importantly, in the narrow context of these 
programs, not all subsidies, not renewable portfolio standards, 
but the narrow context of these contracts for differences, 
eight Federal judges said it was unconstitutional and preempted 
by the Federal Power Act.
    Mr. Pallone. All right, thank you.
    Mr. Whitfield. At this time, recognize the gentleman--where 
did he go? Is he gone?
    Voice. Yes.
    Mr. Whitfield. OK. I recognize Mr. Tonko from New York for 
5 minutes.
    Mr. Tonko. Thank you, Mr. Chair.
    Mr. Kelly, you have pointed out several potential problems 
with the language in the discussion draft amending the Federal 
Power Act. You also noted the need to update and modernize our 
grid system. As you know, there are many changes occurring in 
the electricity sector. In your view, does FERC have adequate 
tools to manage that grid evolution and modernization?
    Mr. Kelly. They do. They--my opinion is they need to 
utilize those tools and undertake to move forward. I think they 
need to empower the States to move forward, and make it clear 
what the States can and cannot do, and then stand by that 
rather than, throughout the process that we dealt with that we 
were told FERC has spoken by virtue of its silence----
    Mr. Tonko. Um-hum.
    Mr. Kelly [continuing]. Which is approval of what was going 
on in New Jersey and Maryland, and then ultimately there was a 
complete reversal when we got to the courts and their opinion. 
We need clarity. When you make investments that are above $1 
billion in infrastructure that is critical to reliability, the 
constantly changing rules throughout. We started with--our 
projects and then our fee with a State reliability exemption. 
That was taken away from FERC. The States have the authority to 
do it. It was turned into a MOPR, minimum offer price rule, 
one, then MOPR two, to create more barriers for the State--from 
the States doing what they are--have traditionally been 
empowered to do.
    Mr. Tonko. So are there other changes beyond that that the 
Federal Power Act should consider that would better facilitate 
FERC's and the States' management of the changes in this 
sector?
    Mr. Kelly. I think what we are seeing here is some of the 
States' current authority being, you know, transitioned or 
given to FERC. It is concerning, but if that is the decision, 
if that is the direction that we need to go then that--at least 
it is a decision----
    Mr. Tonko. Um-hum.
    Mr. Kelly [continuing]. And I think FERC lacked the 
authority that--or the jurisdiction, let me say, that resulted 
in our cases.
    Mr. Tonko. I get the sense that Ms. Kelly wants to comment. 
We have hosted her in our district, so it is good to see you.
    Ms. Kelly. Thank you so much. I would just simply add to 
that that we as public power utilities are also concerned about 
the ability to comply with the Clean Power Plan and to make the 
changes to our portfolios that we think we may be required to 
do in some States because of these Federal market rules. We 
share some of the concerns of CPV, and we actually are involved 
in the Supreme Court case regarding New Jersey and Maryland. 
Thank you.
    Mr. Tonko. Mr. Cook--thank you. And, Mr. Cook, would you 
have any comments in regard to the modernization or evolution 
of the grid and FERC?
    Mr. Cook. Well, certainly, the promotion of advanced 
technologies and the encouragement that you have in the draft 
discussion to direct FERC to consider and identify how advanced 
technologies might support the grid I think is good direction 
to FERC. In addition, I think one of the things FERC needs to 
look at, particularly for companies like ours who would like to 
expand out of one ISO and into another, and we offer a 
standardized product for consumers that can be utilized in 
grids, and that the markets are similar in other ISOs. I mean 
as we transition from PJM to New York and New England, or the 
mid-continent ISO, the rules for the kinds of services we 
provide can be vastly different, and that means in some cases 
we can't participate in the market, or in some cases we have to 
redesign our technology in order to participate in those 
different markets.
    I know there is a lot of discussion about how utility grids 
are different, but in most cases, I think you could buy a 
toaster, it works anywhere within the U.S. The grid is 
surprisingly identical across our country.
    Mr. Tonko. You know, you talk about this technology, and 
obviously storage is part of the enhancement that would enable 
us to have a stronger outcome. So do you see--do you anticipate 
that other States or markets will follow suit with some of the 
policies that we have seen that have advanced technology and 
expansion of distributed generation?
    Mr. Cook. Yes, absolutely, and I think and I hope that 
other jurisdictions will follow the kinds of things PJM has 
done to encourage customer-sided storage facilities to be able 
to participate in their markets and provide valuable grid 
services. I think storage has huge opportunities for growth, 
huge opportunities for cost declines, and when combined--and I 
think one of the key components is combined to find the 
different resources and values that storage can provide. So a 
customer that is utilizing their storage for back-up power, so 
they have power when the grid goes down, shouldn't be 
prohibited from also utilizing that facility to provide 
valuable grid services when there is no technological or other 
prohibition on that. There shouldn't be regulatory barriers 
that prohibit that kind of participation.
    Mr. Tonko. OK. Well, I thank you, Mr. Chair.
    Mr. Whitfield. At this time, recognize the gentlelady from 
Florida, Ms. Castor, for 5 minutes.
    Ms. Castor. Thank you. I am going to follow up on that 
because I think the innovative cost saving development of 
storage capacity, as you said, has a very bright future, and I 
want America to be the leader in the world in the development 
of that technology. So I was concerned that you testified that 
changes to PURPA in the discussion draft would harm--complicate 
the future economic growth of this technology and be a 
significant barrier to entry in a State or region without a 
well-functioning market, or at least some competition. And many 
States, including my home State of Florida isn't--doesn't have 
a competitive regional wholesale market, and small power 
producers don't have access. So would you provide us with 
additional--is it as easy as striking this language, does it 
need to be changed, could you go over what your specific 
recommendation is here?
    Mr. Cook. And thank you. In my opinion, I don't think the 
language is needed. I think you could strike it in its 
entirety. I don't see a dysfunction in FERC Order 688 which 
separates and says if there is an open market, large generators 
are assumed to have access--nondiscriminatory access to that 
market and, therefore, don't need any of the PURPA protections.
    Ms. Castor. And then if the language is included, do you 
agree that it would harm the economic vitality of this 
emerging----
    Mr. Cook. The----
    Ms. Castor [continuing]. Technology?
    Mr. Cook. Yes, absolutely, because it changes the 
presumption which is, on the other side, to say big stuff has 
open access and can utilize its wherewithal in those markets. 
Small stuff does not.
    Ms. Castor. Um-hum.
    Mr. Cook. And what the language would do is say small stuff 
does. And I think it is a factual matter in having dealt with 
development of solar projects for over a dozen years, many of 
which were in the 50 kilowatt to 200 kilowatt range, there are 
a myriad of barriers that we face and, you know, the simple 
contracting mechanism that is simple for utilities, not simple 
when you are dealing with a commercial customer that is not 
used this kind of arcane language. So the PURPA protections for 
the smaller generation I think needs to continue, but it is not 
absolute. As FERC balanced in its order, it said it is a 
rebuttable presumption. So if, indeed, you do have a big system 
that is serving a small municipal system, perhaps they do have 
open access and can go directly into the market, and that can 
be presented to FERC as a rebuttable presumption.
    Ms. Castor. OK.
    Mr. Cook. So I think that is the proper balance.
    Ms. Castor. Thank you very much.
    Mr. Shelk, I think you gave the committee some wise advice. 
You said don't pass a law that will be outdated in the next few 
years. The energy market is changing and there are new 
requirements, and it appears that the old traditional electric 
utility model does not match the challenges of the modern 
world. And there has been so much resistance from some 
utilities, and they have a mission to provide the best return 
for their shareholders, but--and that is largely based on 
kilowatt hour use. What can we do in this discussion draft to 
begin to provide greater incentives to electric utilities to 
invest in greater efficiency and renewables, with the 
understanding we have to maintain the grid?
    Mr. Shelk. A lot of it is, frankly, outside of what a legal 
instrument like a statute could do, because what is happening 
in every State, you know, until recently you had--and we still 
do have these different business models, and we have been clear 
as an organization we have got all--like I said, 95 percent of 
our member assets in the RTOs. So in regions like yours that 
don't have open markets, frankly, that is not where an 
independent power producer can or would go. But what is really 
changing for all of us, because the common denominator of just 
about everybody I think on the panel, except for Mr. Cook, is 
we are all on the central station power plant business, as we 
have been since the advent of electricity for the most part. 
And what is happening now is the technology is there to empower 
consumers----
    Ms. Castor. Um-hum.
    Mr. Shelk [continuing]. Regardless of the laws of the 
State. So you have, as you know in Florida and elsewhere, 
initiatives on all these different distributed resources, 
energy storage, energy management, and so it is really the 
technology that is driving it, less than the legal side.
    The challenge, however, is unlike just about anything else 
I can think of, you know, we don't deliver electricity to this 
room or our homes in separately packaged units. And as someone 
said earlier, it is all part of this interconnected machine, 
essentially, and the challenge now is as these distributed 
resources and storage come about, the whole thing has to work 
together. And we have this Federal-State jurisdictional divide, 
and while we might disagree on how to resolve it, I think that 
is one of the things that is going to have to happen, because 
the Federal Government will continue to have a role through 
FERC, you all have a role, of course, the States do, but I 
don't--can't imagine any one particular law. Really, 
technology, as often is the case, is ahead of the law, but to 
the extent you can encourage more competition, I think then we 
are going to get the innovation and put the risk of the 
innovation on those who are bringing it to market, rather than 
on your consumers.
    Ms. Castor. Thank you very much.
    Mr. Whitfield. Mr. Weisgall, you tried to get attention.
    Mr. Weisgall. Ten seconds. Just to clarify from your 
earlier questions, Congresswoman: Number one, the PURPA 
proposals that we have would specifically not apply to States 
that lacked competitive markets--would, therefore, not apply to 
Florida; number two, I am not aware of any energy storage QF. 
Clearly, energy storage is the Holy Grail for renewable energy, 
we all know that, and certainly anything we would propose, 
especially as a company that has put billions into wind and 
solar, this is something we want to encourage. So the last 
thing we would want to do would be to discourage energy storage 
through any PURPA amendments. But it is kind of apples and 
oranges. As Mr. Cook himself said, energy storage is not really 
a generation asset, and we are really looking at generation 
assets. I just wanted to clarify those two points.
    Mr. Whitfield. Well, thank you very much. And I want to 
thank the panel of witnesses, and we will need to get together 
again soon to continue our discussion, but we do look forward 
to working with all of you, and we are going to need your 
advice and counsel as we move forward trying to develop a piece 
of legislation.
    And with that, we will keep the record open for 10 days. 
And thank you very much, and see you soon.
    And with that, we will adjourn the hearing.
    [Whereupon, at 11:45 a.m., the subcommittee was adjourned.]

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