[Senate Hearing 115-522]
[From the U.S. Government Publishing Office]
S. Hrg. 115-522
POLICY ISSUES FACING INTERSTATE DELIVERY NETWORKS FOR NATURAL GAS AND
ELECTRICITY
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HEARING
BEFORE THE
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
JULY 12, 2018
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the
Committee on Energy and Natural Resources
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
30-982 WASHINGTON : 2019
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming MARIA CANTWELL, Washington
JAMES E. RISCH, Idaho RON WYDEN, Oregon
MIKE LEE, Utah BERNARD SANDERS, Vermont
JEFF FLAKE, Arizona DEBBIE STABENOW, Michigan
STEVE DAINES, Montana JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado MARTIN HEINRICH, New Mexico
LAMAR ALEXANDER, Tennessee MAZIE K. HIRONO, Hawaii
JOHN HOEVEN, North Dakota ANGUS S. KING, JR., Maine
BILL CASSIDY, Louisiana TAMMY DUCKWORTH, Illinois
ROB PORTMAN, Ohio CATHERINE CORTEZ MASTO, Nevada
SHELLEY MOORE CAPITO, West Virginia TINA SMITH, Minnesota
Brian Hughes, Staff Director
Patrick J. McCormick III, Chief Counsel
Kellie Donnelly, Deputy Chief Counsel
Robert Ivanauskas, FERC Detailee
Mary Louise Wagner, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
Spencer Gray, Democratic Professional Staff Member
C O N T E N T S
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OPENING STATEMENTS
Page
Murkowski, Hon. Lisa, Chairman and a U.S. Senator from Alaska.... 1
King, Jr., Hon. Angus S., a U.S. Senator from Maine.............. 2
WITNESSES
Moffatt, J. Curtis, Vice President and General Counsel, Kinder
Morgan, Inc.................................................... 4
Murchie, James J., CEO and Co-Founder, Energy Income Partners,
LLC............................................................ 39
Hoecker, Hon. James J., Executive Director and Counsel, WIRES,
and Senior Counsel, Husch Blackwell LLP........................ 49
Kelliher, Hon. Joseph T., Executive Vice President-Federal
Regulatory Affairs, NextEra Energy, Inc........................ 142
ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED
Hoecker, Hon. James J.:
Opening Statement............................................ 49
Written Testimony............................................ 51
Responses to Questions for the Record........................ 266
Kelliher, Hon. Joseph T.:
Opening Statement............................................ 142
Written Testimony............................................ 144
Responses to Questions for the Record........................ 277
King, Jr., Hon. Angus S.:
Opening Statement............................................ 2
Moffatt, J. Curtis:
Opening Statement............................................ 4
Written Testimony............................................ 6
Responses to Questions for the Record........................ 179
Murchie, James J.:
Opening Statement............................................ 39
Written Testimony............................................ 41
Responses to Questions for the Record........................ 250
Murkowski, Hon. Lisa:
Opening Statement............................................ 1
The Wilderness Society:
Letter for the Record........................................ 287
POLICY ISSUES FACING INTERSTATE
DELIVERY NETWORKS FOR NATURAL GAS
AND ELECTRICITY
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THURSDAY, JULY 12, 2018
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The Committee met, pursuant to notice, at 10:03 a.m. in
Room SD-366, Dirksen Senate Office Building, Hon. Lisa
Murkowski, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. LISA MURKOWSKI,
U.S. SENATOR FROM ALASKA
The Chairman. Good morning, everyone. The Committee will
come to order.
It was just one month ago today that we conducted an
oversight hearing on the Federal Energy Regulatory Commission,
the FERC. We had all five Commissioners here; it was good to
see them. I don't know, maybe we jinxed the whole thing.
[Laughter.]
I think we recognize, clearly, the value of the FERC. They
are the key deliberative body under our oversight. They have
regulatory responsibility of our nation's crucial midstream,
interstate delivery systems that move energy from where it is
produced to where it is needed.
Last month's hearing prompted follow-up questions about
natural gas transportation and electric transmission, energy
systems that are squarely within the core of FERC's
jurisdiction. Today we will have an opportunity to dive more
deeply into these issues, which really have a very significant
impact on our nation's capacity to deliver energy.
After we began planning for this hearing, we learned there
was going to be another vacancy on the Commission. While that
news did not prompt today's hearing, it certainly underscores
the need for us to remain focused on the FERC in general and on
natural gas transportation and electric transmission, in
particular, our lifelines for affordable, clean, diverse, and
secure energy.
Today's hearing is also the latest in a series that we have
held over the last two years to highlight the significance and
outline the benefits of interstate energy delivery
infrastructure for our nation. Those benefits include energy
affordability and security along with job creation and economic
development.
As I see it, there are three common threads that run
through the entire record that we have compiled over the past
couple years. First, that the nation needs more robust energy
delivery infrastructure. Second, thus far, private capital and
a skilled workforce have been available to expand and upgrade
today's energy delivery system assets, but I underscore thus
far. And the third thread is that energy delivery networks face
genuine challenges that threaten to impede progress and thwart
delivery system improvements that are otherwise within our
reach.
Regulatory uncertainty brought on by delay or, even worse,
deadlock at the FERC, is increasingly of concern. What's more,
the denial of necessary state approvals for projects on
political grounds, or the failure of other federal agencies to
meet FERC-established schedules, are problems that have to be
addressed.
Our witnesses today include two former FERC Chairmen, one
Republican and one Democrat, both of whom remain active leaders
in the energy sector, and we thank you for that.
We are also joined by a leading and very successful energy
investor and an experienced practitioner now serving as the
General Counsel of the company that, according to his
testimony, ``owns or operates . . . natural gas pipelines
constituting the largest natural gas network in North
America.''
My main takeaway from their written testimony is that now
more than ever the United States needs balanced, merits-based
energy regulation that is predictable and prompt. For our
country to reap the benefits of the natural gas revolution and
renewable power technologies and to keep our power supply
reliable and secure, we must have dependable, financially
sustainable, and expanding interstate delivery networks.
Our witnesses can offer informed, bipartisan, and practical
observations for building on successes and avoiding regulatory
pitfalls. As members consider their testimony, I would hope
that they will also ask how our Committee can encourage and
assist FERC to move its work along thoughtfully but promptly
and maintain a balanced non-partisan approach to energy law and
regulation.
I will introduce each of the panelists after Senator King
provides opening remarks on behalf of--well I don't know if
they are on behalf of Senator Cantwell, but we welcome you as
you are helping lead this Committee this morning.
Senator King.
STATEMENT OF HON. ANGUS S. KING, JR.,
U.S. SENATOR FROM MAINE
Senator King. Thank you, Madam Chair.
I am delighted to be with you and to participate in another
of an important series of hearings on the issue of energy
infrastructure.
As a former Governor of Maine, this is an issue that I have
been thinking of, thinking about, and concentrating on for
about 30 years. I have seen significant changes in the energy
picture in New England and, in some cases, additional
infrastructure constraints, which I'm sure we will talk about
today, because New England is at the end of the pipe,
literally. Then we have to be thinking about how energy enters
our region.
I have often thought in terms of Maine that it reminds me
of the story Golda Meir used to tell that Moses tramped around
the Middle East for 40 years and settled in the only place
without oil.
[Laughter.]
In Maine, we are in a similar situation unless we can
discover how to make energy out of granite.
In any case, we do have significant problems in New
England, principally because of constraints in the wintertime.
During a cold snap which occurred this past winter, early in
January, the price of natural gas in New England went up by a
factor of ten. That has profound impacts on our consumers and
on our industry. It is something that we have to continue to
talk about.
We need to talk about electrical line capacity as well as
pipeline capacity, but I think we also need to talk more
broadly about alternative solutions.
I have a friend in Maine who says there is rarely a silver
bullet but there is often silver buckshot, which means a
multiplicity of solutions added together will create a solution
to the problem.
One of the areas that I am particularly interested in is
the role that storage and distributed energy and demand
response can play in creating a grid that is more balanced.
One of the concerns I have had in dealing with these issues
for a number of years is that the grid is like a church that is
built for the service on Easter Sunday morning but has
substantial excess capacity the rest of the time. How can we
utilize the grid more efficiently?
I think we are headed in a place where we will with
electric vehicles, storage, and demand response. We can more
efficiently utilize the grid without the necessity of
necessarily investing in new infrastructure, again, to handle
peak periods which can be dealt with in alternative ways.
So those are some of the things that I am thinking about. I
enter this hearing in an unaccustomed mode of not having my
mind made up. I am genuinely seeking your input, suggestions,
and thoughts, and I look forward to your testimony.
I also want to commend the Chair for holding this series of
hearings, because I think it is very important. We have to
think about not only today and tomorrow, but we also have to
think about the day after tomorrow. This involves economic
considerations, energy considerations, and technological
considerations. I look forward to you all helping us sort out
some of those issues.
Thank you, Madam Chair.
The Chairman. Thank you, Senator King.
We will begin with testimony from each of our witnesses.
Again, we thank you for being here this morning.
I would ask that you try to keep your statements to about
five minutes. Your full written statements, of course, will be
incorporated as part of the record. We appreciate that you all
submitted your testimony in advance, on time. I always like to
reward good behavior. Thank you for helping us be more prepared
for this particular hearing with your statements.
We will lead off the panel this morning with Mr. J. Curtis
Moffatt, who is the Vice President and General Counsel for
Kinder Morgan. We welcome you.
Mr. James Murchie will be following him. He is the
President, Founder and CEO for Energy Income Partners, LLC.
Welcome.
The Honorable James Hoecker, Hecker----
Mr. Hoecker. Hecker.
The Chairman. Hecker. I knew what it was, and I looked at
it and I still said Hoecker. Hecker. He is the Executive
Director and Counsel at WIRES, and he is the Senior Counsel at
Husch Blackwell LLP. He is also a former FERC Chairman. He was
appointed by President Clinton several years ago. We welcome
you back.
And an individual who is well known to the Committee here,
Joseph Kelliher, who is the Executive Vice President for
Federal Regulatory Affairs at NextEra Energy. He, also, is a
former FERC Chairman, appointed by President George W. Bush. So
we welcome you back to the Committee.
We thank you all again for being here.
Mr. Moffatt, if you would like to lead the panel off this
morning, thank you.
STATEMENT OF J. CURTIS MOFFATT, VICE PRESIDENT AND GENERAL
COUNSEL, KINDER MORGAN, INC.
Mr. Moffatt. Good morning, Chairman Murkowski, Senator King
and members of the Committee. I am Curt Moffatt and serve as
the Vice President and General Counsel of Kinder Morgan. Thank
you for the opportunity to testify. And as you mentioned, our
written testimony has been submitted for the record.
Kinder Morgan owns or operates approximately 70,000 miles
of natural gas pipelines, constituting one of the largest
natural gas networks in North America. Our pipelines transport
or store approximately 40 percent of all natural gas consumed
in the United States every day. Our gathering and transmission
assets connect the major consumer markets to every important
natural gas resource play in the United States.
I joined Kinder Morgan in 2014. I began my legal career as
an Advisor to the first Chairman of the Federal Energy
Regulatory Commission, and he was also the last Chairman of the
Federal Power Commission. During this period, President Carter
proposed and Congress enacted the legislation to create DOE and
the National Energy Act which included the Natural Gas Policy
Act of 1978. Assisting in the implementation of that
legislation and its development laid the groundwork for the
competitive natural gas markets that we enjoy today.
Chair Murkowski, Kinder Morgan's take-home message for the
Committee has three parts.
The first is natural gas is essential to the U.S. economy
for its industrial base, its residential, its commercial uses
and to a certain extent, generating electricity. Pipelines are
also a practical means to transport and distribute natural gas.
It's the only practical means. And the current federal legal
framework of the Natural Gas Act is essential to ensure that we
can construct the necessary pipelines. The history of the
continued Congressional recognition of the importance of
natural gas development in the United States is instructive to
the Committee's current inquiry.
First, the Natural Gas Act in 1938. Congress specifically
recognized the contribution that natural gas could make to the
nation's well-being. It also recognized that the locations
where natural gas is produced, frequently, are long distances
from where consumers live and work; that the only means of
transporting natural gas to those consumers is through pipe,
pressurized pipelines that cross several states; and that a
comprehensive federal regulatory framework is needed to ensure
that the pipelines could be constructed and gas delivered in
both interstate and foreign commerce. The basic components to
that framework are certificates of public means and necessity,
federal eminent domain and comprehensive economic regulation.
The second is in 1978. The Congress enacted the Natural Gas
Policy Act in the face of natural gas shortages in the
interstate market that led to the deregulation of the price of
natural gas and the integration of the transportation storage
services utilizing both intrastate and interstate
transportation systems.
The third component is the Energy Policy Act of 2005.
Congress affirmed FERC's preeminent regulation of LNG
facilities and introduced a concept of a pre-filing process. In
addition, the Act established FERC as the lead agency for
coordinating all federal agencies involved in permitting of
interstate pipelines and complying with NEPA by requiring that
all federal agencies cooperate with the Commission and comply
with deadlines set by the Commission.
Over the 80 years since passage of the Natural Gas Act, the
Federal Energy Regulatory Commission and Federal Power
Commission, I believe and we believe, has consistently
implemented the requests of Congress as embodying those
statutes which with judicial approval. Today the Commission
balances the objectives that are required under the Natural Gas
Act through the 1999 policy statement.
Kinder Morgan believes an on balanced policy statement has
served the nation well. It reflects a process that can balance
all of the regulatory and legal requirements required of the
act of NEPA, and the Federal Energy Regulatory Commission, with
the changes made in 2005, has the authority to guide the other
agencies.
At bottom, what we recommend is vigilant oversight by the
Congress and by the relevant Committees of the work of the
Federal Energy Regulatory Commission and also the other federal
and state agencies that must consider and grant permits to make
sure they're working together and benefiting the interstate
commerce and the ability to build the infrastructure needed to
move natural gas from production to market.
Thank you.
[The prepared statement of Mr. Moffatt follows:]
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The Chairman. Thank you, Mr. Moffatt.
Mr. Murchie, welcome.
STATEMENT OF JAMES J. MURCHIE, CEO AND CO-FOUNDER, ENERGY
INCOME PARTNERS, LLC
Mr. Murchie. Thank you, Madam Chair, Senator King, members
of the Committee. My name is Jim Murchie. I am a Co-Founder and
CEO of Energy Income Partners. We call it EIP for short. I'm
joined here today by my colleague, Sam Brothwell, who is
sitting behind me.
Founded in 2003, EIP is a registered investment advisor
that oversees about $6 billion of client assets. Our clients
invest primarily through mutual funds and separately managed
accounts and are primarily individual investors seeking income
and inflation protection.
EIP invests this capital in equity securities of publicly
traded energy infrastructure companies located primarily in the
U.S. with some investments in Canada and some nominal
investments overseas. EIP invests in companies that operate
natural gas and petroleum pipelines and related storage and
terminals, regulated power generation, transmission and
distribution, as well as developers and operators of renewable
energy selling power on long-term contracts. Our investment
strategy seeks stable cash flows being generated by regulated
assets with modest growth.
EIP is unusual in that as a specialist in the energy income
investing, it invests in both hydrocarbon infrastructure and
electric power infrastructure. In the age of specialization and
institutional asset allocation by asset category, specialist
investment managers in the energy infrastructure space are
either midstream investors, you know, hydrocarbons which today
really means they're MLP investors or separately they're
electric utility investors.
Because the energy system itself does not follow these tidy
asset allocation categories, I think EIP has a unique
perspective on how these different areas interact.
Our original fund which started in 2003 has generated
double digit compounded annual returns that exceed the returns
of the S&P 500 and most other relevant indices. The returns
have been up of roughly a six-percent yield with a balance from
appreciation of the underlying share prices.
I'd like to highlight the two main points that were in our
written testimony that we submitted earlier in the week.
The first is that our success as investors is a direct
result of selecting the best management teams that operate
under regulatory regimes that are demanding but fair,
consistent and predictable. Investors and regulated businesses
do well when all the stakeholders involved with these assets do
well, and we have found that means safe, reliable energy at a
low cost to the consumers with the least impact on the
environment. By contrast, companies that give short shrift to
issues of worker and public safety, system reliability and
environmental stewardship also tend to be pro-allocators of
capital, have higher operating costs and usually have, as a
result, poor relationships with their regulators and other
stakeholders and from our perspective, more importantly, they
also tend to have lower shareholder returns. We invest in a
commodity industry where low costs win out. We try to own the
low-cost way of transporting the lowest cost forms of energy.
That's how we win. Our partners in this are the management
teams of the companies we own and the regulatory regimes under
which they operate.
Environmental impact is the second point we made in our
testimony. The U.S. energy infrastructure system has
successfully attracted billions of dollars in capital expanding
the natural gas pipeline system that has resulted in
significant growth in gas-fired power generation which, in
turn, has led to a 40 percent decline in coal-fired power
generation over the last ten years and has facilitated, as
backup power, significant growth in wind and solar generation.
When viewed from this perspective, the construction of new
natural gas pipelines has played a critical role in the U.S.
reducing its CO2 emissions by over 13 percent from their peak
in 2005. The opposition to new natural gas pipeline
construction because increased use of gas will increase
greenhouse gases ignores the benefit of gas-fired generation
versus coal-fired generation, misses the symbiotic relationship
between gas and renewables, threatens to chase away capital and
slow the progress we've enjoyed in generating cleaner energy at
lower costs.
My firm and I appreciate the opportunity to present the
testimony to the Committee today and look forward to the
questions.
Thank you.
[The prepared statement of Mr. Murchie follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Mr. Murchie.
Mr. Hoecker, welcome.
STATEMENT OF HON. JAMES J. HOECKER, EXECUTIVE DIRECTOR AND
COUNSEL, WIRES, AND SENIOR COUNSEL, HUSCH BLACKWELL LLP
Mr. Hoecker. Thank you and good morning, Chairman
Murkowski, Senator King and members of the Committee. I'm Jim
Hoecker. I'm here today on behalf of an organization called
WIRES, that's a trade group that promotes investment in
electric transmission in the U.S. and Canada.
Thank you very much for the opportunity to address the
Committee about these current energy delivery issues that tend
to fall within the jurisdiction of the FERC, an agency of which
I was a member and Chairman three Administrations ago. I remain
an advocate, however, for FERC's pro-market agenda. Moreover, I
support its tradition of bipartisan and predictable regulation
of these capital intensive industries and on that much and
probably much more Joe Kelliher and I probably agree.
Energy policy works best when we work together and achieve
results for consumers. Competition and markets have been the
common threads in FERC's regulation for a generation now.
Now, as I noted in my prepared testimony and as Senator
King mentioned, the means of producing and delivering natural
gas and electricity have changed enormously in the intervening
years. These industries will experience even greater change as
the economy relies more and more heavily on electricity fueled
increasingly by natural gas and renewables. There remain limits
on where and how quickly we can build infrastructure, however,
under current law and regulation which needs to catch up in
some ways to the realities of today's interstate power
marketplace.
WIRES commends the Committee, of course, for focusing on
energy delivery networks today. That focus reinforces my belief
that we are now ready to tackle the hard questions: Are we
building the right facilities? Are we building them in a timely
fashion? Are we responding in a proactive way to the potential
of a more electrified economy and accommodating and
incorporating new technologies? Now finally, are we fostering
efficient development in order to create and add benefits for
consumers?
I can see unequivocally that the private sector stands
ready to make needed investments in the grid of the future, but
challenges remain. Consumers will pay up to $4 billion in
congestion costs annually, and a substantial share of all
transmission facilities are at the end of their useful lives.
In regions of the country and offshore where new clean energy
resources abound, there is limited or non-existent delivery
capability.
Despite several years of work, FERC's Order 1000 has been
unsuccessful in fostering transmission between and among
regional markets. Permitting interstate electric transmission,
moreover, remains a complex, protracted and costly process that
goes on for a decade or more. In addition, we are reminded all
too often of the costs of not hardening and modernizing the
grid and transmission, I think, offers a fuel neutral solution
to achieving grid resilience. Moreover, the transmission grid
must be enabled to carry the vital task of integrating new
distributed resources and technologies into the system for the
benefit of consumers.
During all this, the industry continues an important quest
for predictable and stable returns on its investments that are
made and incentives to meet needed investments in the future.
As we move ahead, WIRES looks forward to working with this
Committee and FERC to build the infrastructure that delivers
the secure, reliable and low-cost energy that we all depend on.
Thank you for listening.
[The prepared statement of Mr. Hoecker follows:]
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The Chairman. Thank you, Mr. Hoecker.
Mr. Kelliher, welcome.
STATEMENT OF HON. JOSEPH T. KELLIHER, EXECUTIVE VICE PRESIDENT-
FEDERAL REGULATORY AFFAIRS, NEXTERA
ENERGY, INC.
Mr. Kelliher. Thank you.
Chairman Murkowski, Senator King, members of the Committee,
thanks for the opportunity to testify today. I'm appearing on
behalf of NextEra Energy which is one of the largest energy
holding companies in the United States. NextEra owns or
operates 47,000 megawatts of electricity in 33 states. We're
the largest electric generator in the country and we have the
most diverse electricity supply of the largest generators. We
also operate a large electricity transmission grid, and we have
gas pipeline businesses that we own and operate. So we have an
interest in both sides of the infrastructure issues that you're
looking at today.
I want to commend you for holding this hearing. The
importance of energy infrastructure is not very well
understood, but strong energy infrastructure is the foundation
for competitive electricity and gas markets and it's necessary
for delivering benefits to customers.
The energy infrastructure investments that have been made
up to this point made it possible for the U.S. electricity
supply to evolve in recent years allowing the deploying of new
technologies and the retirement of uneconomic generation. New
gas pipeline infrastructure enabled the nation to secure the
benefits of the shale gas revolution and strengthening, in my
view, strengthening the energy infrastructure is the real
resilience issue. The resilience associated with onsite fuel is
insignificant by comparison.
Regulatory policy plays an important role in securing the
necessary investment for energy infrastructure and affects the
risk of that investment. Regulatory policy determines how long
it takes to approve and site new facilities. And it's important
that energy--that regulatory policy governing energy
infrastructure development be highly merits-based and non-
political and that there be a reasonable level of regulatory
certainty and that those decisions be fairly predictable and
timely. FERC, in my view, is ideally suited to make those
decisions because of its long-standing commitment to merits-
based decision-making and its status as an independent agency.
Very large-scale investments are needed to maintain and
strengthen our energy infrastructure but there are challenges
that face interstate natural gas pipeline and electric
transmission development. Those challenges are different
confronting those two, both the grid and the pipeline
development. The primary challenge to interstate pipeline
development is the siting process. Siting of pipelines is
governed, as Mr. Moffatt pointed out, it's governed by the
exclusive siting provisions in the Natural Gas Act where FERC
is charged with certificating pipelines it determines are in
the public convenience and necessity. Although FERC has
exclusive jurisdiction to certify pipelines, there usually is a
need for approvals from other federal agencies and state
agencies acting under federally delegated authority such as the
Clean Water Act.
Pipeline siting though, however, has become highly
litigious involving advocacy groups that are dedicated to
blocking infrastructure development. Some states, also, have
been very aggressive in their use of federally-delegated
authority to effectively veto projects.
FERC pipeline certification is governed by the 1999 policy
statement and last December FERC announced that it would review
the policy statement and I support that review. I think after
20 years, it's reasonable to review whether the policies that
are reflected in the policy statement are sound. I do believe
that the descriptive policy statement is sound and no major
reforms are warranted, but I think there's some changes that
FERC could make to how it issues the certificate orders for
individual projects that are warranted and would make those
orders more consistent with the policy statement. Under the
policy statement, FERC determines whether a proposed project is
in the public interest by balancing the project benefits
against adverse impacts and practice this balancing is not very
transparent in the certificate orders.
Applicants do put evidence in the record about project
benefits. Those benefits are typically not discussed in the
certificate orders themselves. And I think there's a need for
FERC to be more transparent in the balancing of benefits and
adverse impacts and in the certificate orders. I think there's
also a need for FERC to clarify whether and how environmental
impacts should be weighed in this balancing and whether
environmental review is governed by NEPA or by the Natural Gas
Act itself.
There are different challenges that face electric grid
development. One challenge in particular is uncertainty about
the level of return on equity that FERC will allow for
investment. In response to abnormal conditions in financial
markets a few years ago, FERC reformed the methodology that it
uses to determine return on equity, or ROE. Those reforms,
however, were challenged in court last year and the DC Circuit
vacated the orders where FERC adopted its new methodology. It's
very important that FERC act in the near future to clarify its
policy toward ROE and remove this regulatory uncertainty which
underpins future grid investment.
There are also challenges around the RTO transition
planning process. There have been some concerns about Order
1000, how well it's working. One area of Order 1000 that has
been a success, and I think we should consider whether that
success should be expanded, is on the competitive development.
FERC 1000 has encouraged competition and development of
regional projects. I think there's been some significant
successes in some regions and perhaps that success should be
reinforced and broadened.
With that, I look forward to answering any questions the
Committee might have and, again, I commend you for holding the
hearing.
Thank you.
[The prepared statement of Mr. Kelliher follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Mr. Kelliher.
And thank each of you, I appreciate all you have
contributed, gentlemen.
I am going to start out with a broader question directed to
all of you and I appreciate that, I think, each of you has
referenced the need for a balanced, fair, and transparent
regulatory approach. I think we all recognize that that
benefits all.
There is a lot of discussion about where we are right now
when it comes to energy policy and our infrastructure. On the
one hand, you have an effort and it is very, very far over to
one side, but it is an effort that would say we have to stop
any and all use of fossil fuels altogether, kind of the ``keep
it in the ground'' approach. On the other hand, you have a
direction, an approach, that says we need to support our
cleaner forms of energy, certainly making sure that energy is
affordable. We have issues, as you have pointed out, Mr.
Kelliher, clearly in the siting of new pipeline and
infrastructure.
What I would like to hear from you is what are the issues
or the inherent dangers, if you will, if we restrict through
our regulatory process here, pipeline development, either
restricting it or slowing it down? I believe it was you, Mr.
Hoecker, that mentioned things like congestion costs. Mr.
Murchie, you recognized the environmental benefits that natural
gas brings to us. Can you speak to the consequences if our
infrastructure is not allowed to keep up with not only the
demand but the desire for affordable and clean and efficient
energy sources? I will just start at this end, and we will go
down the line.
Mr. Murchie. Thank you, Madam Chairman.
First, I'd like to emphasize that we focus a lot on the
generation of electricity. We shouldn't lose sight of the role
of natural gas in basic industries, residential heating and
commercial.
Generation for natural gas is utilized about a third of
natural gas in the United States. Industrial sector uses far
more. Residential is at about 17 percent, 13 percent and
commercial is at 17 percent.
So for years natural gas has served markets other than
electric generation. It has external benefits to electric
generation. When it was not as plentiful and not as low cost as
it is today, we were the backup. We were the future for
intermittent generation from renewable sources.
Clearly, if we make gains on efficiency, that's the fifth
fuel. But natural gas supports renewable development in the
longer term but right now we are achieving significant
reductions in emissions. But we are not here to compete with
other fuels. The economy, economic choices, will make that
result.
Right now, you've got very low cost natural gas. We've
become an enemy to many because of the benefits of our
technology and our capital formation and our production.
Building pipelines does not cause the production. Production
creates the need for the pipelines.
The Chairman. Let me try to keep everybody moving.
Mr. Murchie, I think it was you that said there was a
symbiotic relationship between the natural gas the renewables.
Mr. Murchie. Yeah, so as everybody knows energy demand is
not smooth over the course of the day or the course of the year
and if storage is a cheaper way of bridging that gap, as it is
with natural gas, then storage is part of that. In electricity,
storage is expensive. The cost is coming down, but when you
have wind and solar that generate energy when they feel like
it, you need backup. And you can cycle up natural gas-fired
generation much more easily and, more importantly, safely than
you can a baseload coal plant or a baseload nuclear plant. So
that's the symbiotic relationship.
There's also a cannibalization effect going on. I mean, the
lower costs of natural gas has made it more competitive in the
electric power market, and so the coal plants that have been
shutting down are shutting down because they have become the
high cost way of generating electricity. So the market has
worked.
And in answer to your question, what's the impact if we
don't build more gas pipelines or if we slow the infrastructure
development? You know, again, as an investor in a commodity
business, it always comes down to cost. If the result is an
allocation of capital or use of resources that are less than
optimal, then the costs will simply be higher. The question is
from a policy statement whether those costs are worth it. One
of the, I think everybody here used the word predictable on the
regulatory regime discussion more than once. I did not put them
up to that.
But the other cost here is the cost of financing. I was
talking to one CEO recently who described a discussion with a
staffer, I think in the prior Administration, and they were
looking at pipeline tariffs and couldn't understand why they
were so expensive because it couldn't possibly cost $3.00 or
$4.00 a barrel to move oil 1,500 miles. And he said, well the
cost is the cost of financing the steel in the ground. But 80
percent of the cost is the financing, the debt and equity that
it takes to build that pipeline, not to spin the compressors
and to employ the few people that are in the control rooms.
The Chairman. I am almost a minute and a half over my time
and out of respect to my colleagues I want to be able to turn
to them, but know, Mr. Hoecker and Mr. Kelliher, I am coming
back to you with that same question.
Senator King.
Senator King. Thank you.
Mr. Murchie, I object to the characterization of renewables
as making power when they feel like it.
[Laughter.]
Mr. Murchie. I didn't want to get into a religious
discussion, who was in charge of when the wind blows or when
the sun shines.
Senator King. I don't either.
I think one of the issues that is troubling me is that we
are talking about additional expenditure, and you just pointed
out that we are talking about significant investment in long-
term assets--20-, 30-year, 40-year assets, and significant
capital investment. What worries me is stranded investment.
Mr. Kelliher, you represent a company that has one of the
most diverse energy backgrounds in the country. My question is,
are we in danger of saddling either ratepayers or taxpayers
with significant infrastructure long-term investments that may,
in 10 or 12 years, turn out to be, in fact, stranded because of
new developments in storage, renewables, or integration of
renewables?
I have a secondary question for you about integration of
renewables, but give me your thoughts on that first question.
Mr. Kelliher. Are you referring to pipeline investment or
transmission investment?
Senator King. Both. Either.
Mr. Kelliher. For pipeline investment, there's not really
that risk because their companies are putting themselves out.
They're taking the risk of developing new projects.
Senator King. But are they? The New England pipeline
proposal was that the ratepayers of all of New England would
take that risk.
Mr. Kelliher. That was a unicorn. That was an unusual
proposal where you had a project where the market demand for
that project is not apparent. The New England pipeline system
is adequate for all but 12 days of the year. The reason they
were proposing to flow it through the ISO New England tariff is
there's not market support for a 12-day pipeline.
Senator King. So, generally, you would say that the risk is
being taken by the investors.
Mr. Kelliher. By the pipelines and the shippers, right? The
pipeline has the large investments that they have to make to
build the project, then there's typically shippers who will
sign contracts of some term. It won't be life of the project,
but they'll sign some terms of some reasonable length.
Senator King. But on the electrical transmission side, if
it goes in at the rate base, the ratepayers are taking that
risk.
Mr. Kelliher. It's--yeah, outside the RTO it's typically
built as part of a vertically integrated company. You make a
showing to your state regulator. It's a prudent investment. In
the RTOs it really emerges from the planning process.
Something I tried to speak to in my written testimony was
there's not really a very effective check on the cost of RTO
transmission projects currently. There's not any effective FERC
prudence review process. Order 1000 had sought to encourage
competition in order to police excessive costs in the RTO
transition planning process. Some regions have really embraced
competition like California and there's been some really
impressive cost savings that resulted. Other regions have not
embraced competition.
Senator King. Talk to me a minute about your company's
experience with integrating renewables into a larger facility.
Mr. Kelliher. Sure.
We are the largest wind company in the world, and we're the
largest wind and solar company in North America. We build in
the regions that have the best quality resource. Our wind tends
to be, by and large, in the upper Midwest to Texas, so, the
center of the country. We have very large solar facilities and
we, again, tend to concentrate where the solar resource is
best.
We are seeking development, wind and solar, in the
Northeast. The resource isn't as good and siting is more
challenging.
Senator King. What about the question of integration--the
conventional wisdom for wind years ago was the grid can only
take 10 percent because of the variability.
Mr. Kelliher. Yes.
Senator King. What has been your experience?
Mr. Kelliher. That all of those statements have been proven
false over time.
There used to be a view that somehow if more than 10
percent of the supply of a region came from wind or solar, the
whole grid would collapse. There have been times where the
Southwest Power Pool, the SPP region, has had, I think, up to
60 percent of their power at points come from wind. So, there
used to be a belief there was somehow a natural ceiling of 10
percent, then it was 15 percent, but those ceilings have been
shattered with no threat to reliability.
Senator King. What about the question of the long-term
price of natural gas? I fear that we are making a lot of
investments and a lot of bets based upon what could be an
anomalous period of ultra-low natural gas prices.
I always like people that come to the hearings that I am in
to come away with one bit of useful information. There is an
app called ISO to Go that tells you in five-minute increments
what is going on in the New England grid. What the price is,
but also what is the source of power. At this moment it has
just gone up a percent. Sixty-two percent of the electricity in
New England is coming from natural gas.
My question is, we are building the infrastructure, we are
building the plants, and we are doing it during a period of
what could prove to be anomalously low prices. What kind of
risk is that?
Twenty-five years ago, New England was unduly dependent
upon oil. Now we are 62 percent natural gas. What happens if
natural gas prices return to $6.50, $7.00, $8.00 per billion
cubic feet? Anybody want to talk about that?
Mr. Moffatt.
Mr. Moffatt. Senator, first I think that it's been very
hard to tell how much natural gas we have. When I started in
1977, the Hugoton Field was going to stop producing, and it's
still producing.
When we also----
Senator King. Stable Island----
Mr. Moffatt. Pardon?
Senator King. Stable Island on the other hand is not----
Mr. Moffatt. Stable Island, on the other hand, didn't, but
you have other production now coming from Marcellus and Utica.
Certainly the production coming out of the Permian was not what
was expected.
We built the Rockies Express pipeline to move Western gas
to the East Coast because there was not production. By the time
we completed the pipeline, it turned around and went the other
direction because of Marcellus.
Senator King. I am out of time.
Mr. Moffatt. So, technology is great.
Senator King. You are saying going forward the price of
natural gas is going to be close to what it is?
Mr. Moffatt. Absolutely, absolutely.
Senator King. Okay, we are on the record here.
Mr. Moffatt. Yes, sir.
Senator King. We will all know in a few years.
Thank you. Thank you, Madam Chairman.
The Chairman. Thank you, Senator King.
Senator Barrasso.
Senator Barrasso. Thank you, Madam Chairman.
Mr. Moffatt, just to kind of follow up on a couple things.
In your testimony you highlight issues associated with
permitting the natural gas pipelines between states, the
interstate, and you explain that these pipelines need approval
from both the FERC, the Federal Energy Regulatory Commission,
as well as the states where the pipeline is going to be
located. Well, one of these state approvals is called the Water
Quality Certification Authority. It is delegated to the states
under the Clean Water Act in Section 401. In some cases, in my
opinion at least, I believe states have abused the authority to
block projects for political reasons not really having to do
with water quality at all, but they are using that permit as
basically a stop action form rather than dealing with clean
water itself.
Could you please explain how the Federal Government might
be able to address some of these, what I believe are,
unreasonable actions by certain states to block what is
critical infrastructure for energy for our country?
Mr. Moffatt. Yes, thank you, Senator, for that question.
Mr. Kelliher's company and our company have suffered from
similar situations. We've been trying to get a permit out of
the State of Massachusetts, certainly New York has utilized
that, is well known.
I think that the FERC needs to be more bold in exercising
their lead agency authority, and I believe that we recently had
a DC Circuit case that urged them to do that and they are
stepping up. I suggested in my testimony that the Committee in
its oversight encourage the Committee, encourage the
Commission, to exercise that.
You did in the Congress in 2005, give us additional tools
to go to court where we can go to the DC Circuit for
unnecessary delay. We had to do that on an air permit out of
Nashville, Tennessee, for a project. Then you gave us other
authorities to try to truncate successive state administrative
procedures which we did have to utilize on our Connecticut
expansion project in Massachusetts. There are mixed results.
I think more leadership out of the Executive Branch, from
EPA with clear guidance to the states when implementing their
delegated authorities, is welcome.
I don't think there was anything more incongruous than to
have the Obama Administration put forth the Clean Power plan,
have Gina McCarthy go to New York and say the one thing we have
to do is build more natural gas pipeline infrastructure and
then have the EPA file varied disingenuous, in my view,
comments to the FERC on a NEPA document. The Administration
needs to be in support of the entirety of the process.
To me, guidance from the Executive Department to the
Executive Branch agencies, whether it's Department of Interior,
Commerce, Coast Guard, whoever, should be in sync with the
Administration's policy.
Senator Barrasso. I want to follow up with you, and then I
am going to ask Mr. Kelliher to jump in if he has anything to
add.
Recently the FERC began this review of approving new
natural gas pipelines. During the 20 years that the current
process has been in place, the pipeline industry, I believe,
has undergone significant expansion, with thousands of jobs,
billions of dollars of investment. I think we need to continue
to build more capacity.
In many parts of the country, though, I think, the
pipelines are really needed for heating and power generation
especially during extreme weather conditions. I mean, we saw a
Russian tanker bringing LNG into Boston Harbor. And you talk
about the changes in some of these prices. Well, there was a
complete lack of ability to get the power that was needed at a
time when people were desperate for energy.
What changes can be made to the Commission's certificate
policy statement that are going to enhance the ability of
pipeline companies to build this needed pipeline capacity? Then
I am going to ask Mr. Kelliher if he wants to join in as well.
Mr. Moffatt. Senator, I think the situation in New England
is not as much about the FERC process on infrastructure. It is
really economics.
We tried to develop, and Senator King mentioned it earlier,
the Northeast Direct project. It was a multibillion dollar
project. We needed 1.2 to 1.3 billion cubic feet of contracts
to support the financing that it was going to cost. We were
going to be putting out billions of dollars before we received
a dime in compensation for that investment. We did have
contracts with LDCs for traditional residential, commercial,
industrial load for 450 million cubic feet a day, virtually
half. We needed supply contracts for the supply from the
producer side of it, and then we needed about 450 million cubic
feet from the power generation.
The structural issues with the New England ISO to provide
the economic underpinning for the generators to make the
contract commitments for the pipe are inherent to New England
ISO needs to be worked out.
We had another problem which was over supply coming out of
Marcellus, crashed the price in 2014-15 and suddenly our
suppliers that's had the supply contracts, they didn't have the
credit to back up the project.
So that project died more from economics in the very
competitive market than it did from FERC process. I think that
we would have been able to get through the FERC process if we
had had the financial support.
Senator Barrasso. Mr. Kelliher, do you have anything to
briefly add?
Mr. Kelliher. No, I agree with that. I don't think that the
hurdle there was the FERC process, it was the lack of clear
market support.
Senator Barrasso. Thank you, Madam Chairman.
The Chairman. Thank you, Senator.
Senator Manchin. Thank you, Madam Chairman.
We have an all-star lineup here, and it's good to have you
all here with the expertise you do have.
I come from the State of West Virginia which has an awful
lot of energy and has done the heavy lifting for a long time.
With that being said, people are now surmising that certain
parts of my energy portfolio is not needed.
I would like to get your input on all-in energy policy, and
I know you know the President is moving on the Defense Act. I
am very much in favor of that, and I appreciate very much
looking at the defense of our country and the resiliency of our
grid system. I know other people have a different take on that.
Mr. Hoecker, can you give me your reflections on an all-in
energy policy and the direction the President is going on this?
Mr. Hoecker. Thank you, Senator.
I think that, as Chairman Murkowski asked, we aren't
gravitating toward extremes in terms of energy solutions. This
is an evolution and one I think of as being prudently
engineered by regulators but driven by the marketplace.
I think that the coal still has an enormous role to play as
baseload generation and will for the relatively near future,
foreseeable future, whatever that might mean.
Senator Manchin. Would you put nukes in the same position
too?
Mr. Hoecker. I'm sorry?
Senator Manchin. Would you put nuclear plants in that same
category?
Mr. Hoecker. That's a tougher question, but I think that
the economics there aren't particularly good right now for
nuclear. So there are some serious questions there. Down the
road, I think, we will see natural gas becoming more important
and other forms of fossil energy becoming less important to the
generation mix. Probably renewable energy and other
technologies will increase their participation in the
marketplace.
Senator Manchin. The only thing I would say is that when
you look at it, it is market driven. Everything we know in a
capitalist society is market driven, to an extent, except when
we need it, for the defense of our country.
We have a situation right now. We don't produce one ounce
of the rare earth minerals that we consume tremendously in
every product that we use and in most of our defense products.
Now we are getting caught in the crosshairs. We are figuring
out if we can get back into the game so we are not dependent.
I am afraid the same thing is happening with energy too. I
know when I talk about having an all-in energy policy in West
Virginia, we have been blessed with them all--Marcellus, Utica,
and we've got Rogersville coming on. It has not even been
tapped yet. So we have been blessed. And we still have the
coal, and the best met coal, in the world that everyone is
seeking.
When people start bequeathing that out and you have a
modern coal-fired plant with all of the pollution controls, we
believe that it is imperative for the security of the grid
system to have that backup and consistency for the defense of
our country, as well as for the demand needed.
I think during the polar vortexes and the bomb and all
these weather phenomenons, that if it had not been for the
backup of coal and with gas coming on strong--
I would recommend to all of you, and Mr. Moffatt, you might
want to speak to this. I would give you all a suggestion, being
a former Governor, on how you can get your pipelines permitted
much easier through the states by sharing the revenue. Give me
an MCF mileage on your transmission cost, and I will guarantee
you the floodgates will open. Why they won't do it is just pure
greed. And I say that in the most respectful manner.
[Laughter.]
If you share a little bit of that revenue, these states can
buy into it, they will be the greatest facilitator you have
ever seen. The counties that get it, and all we are talking
about is an MCF mile so every state that it passes through gets
treated fairly. Hopefully you will take that back as a
recommendation, because I have seen it work on grid lines.
Mr. Moffatt. I certainly will take that back, Senator.
We do have initial financing costs that are quite
extraordinary on our projects, and we always stimulate a lot of
tax base wherever we----
Senator Manchin. Yes, but the delay of building these lines
costs you a tremendous amount.
Mr. Moffatt. They do.
Senator Manchin. But you could cut that cost.
I have seen it in a 500-megawatt line that we were putting
in and could not get it done until they start sharing a little
bit, and I will tell you----
Mr. Moffatt. Believe me, we do, in siting our plants,
engage in quite a bit of community support in those towns and
cities and counties that we do impact.
To be honest, in my 40 years I haven't heard the concept of
sharing on an MCF mile basis, but I will certainly take it
back.
Senator Manchin. It makes sense. It makes all the sense in
the world, and we are talking about a fraction, but it is
guaranteed revenue. Forget about who drills the hole, just get
a little bit of the action off of the thing that happens all
the time--transmission.
Mr. Moffatt. Right.
Senator Manchin. And the states can help you through the
permitting process. You are held up in every state right now,
because there is no benefit or gain other than promise of jobs
or taking the product out of their state.
We are a production state. We are trying to keep some of
that product in West Virginia through our storage facility
hubs.
Mr. Moffatt. Right.
Senator Manchin. But with that we want to make sure we
produce the product that the country needs, but I would hope
that you would look at that because I can tell you we would be
very receptive.
Mr. Moffatt. I will.
Senator Manchin. Okay, thank you, sir.
The Chairman. Thank you, Senator Manchin.
Senator Cassidy.
Senator Cassidy. Great testimony, thank you very much.
Three of you commented on the fact that natural gas
generation enables the plummet of renewables, fast acting,
relatively low cost. One of you said, safe, safer than the
alternatives.
Now, let me ask, Mr. Kelliher, you mentioned the experience
you have with renewables. Does the absence of fast acting, we
can bring it up in a second, backup inhibit the deployment of
renewables? And I don't know the answer to this. I am just
asking.
Mr. Kelliher. I'm sorry, does the absence of natural gas
facilities----
Senator Cassidy. I am sorry, if you are going to try and
convert your grid supply to renewables from a baseload of coal
or nuclear, clearly, you have to be able to respond to
increased demand. So if you are going to shut down a coal plant
which is providing baseload to substitute in a renewable and on
that particular day the sun and the wind decide to take a
break, as Mr. Murchie would suggest, do you have in your
algorithm, we have to have the presence of natural gas backup
in order to make this conversion from baseload of coal and
nukes to a renewable centric, more renewable centric, grid?
Mr. Kelliher. First of all, a lot of coal plants in the
competitive markets don't really operate as baseload units,
right? The concept of baseload units meant, it used to mean,
that the really cheap stuff that also happened to be very
inflexible so it would take hours to start, hours to shut down.
It just so happened that that cheap stuff used to be the very
inflexible resource but it didn't really matter if you were
running it all the time.
But now, coal plants are not the cheap stuff anymore. So
they don't operate----
Senator Cassidy. I get that.
But if you are going to deploy large amounts of renewable,
it almost seems that you would, if you have a mandated presence
of that backup in case the sun and wind are not cooperating.
Mr. Kelliher. There's others. There's hydro resources.
There's gas, fast starting gas facilities. There are----
Senator Cassidy. So it sounds like you are answering yes, I
accept that gas and hydro would be fast acting, but you have to
have that backup power.
Mr. Kelliher. Well, there used to be, when we were talking
earlier about there was a notion that whether there was some
natural ceiling to renewables. That's--there used to be
another----
Senator Cassidy. I guess I am not expressing my question
because your answer is not coming back to my question. Does
anybody else comprehend my question?
Mr. Moffatt?
Mr. Moffatt. Yes, yes, sir.
I think if you look at the emergence of natural gas-fired
generation back after PURPA was repealed and the prohibition on
natural gas-fired generation was repealed, it did emerge more
as an intermittent resource as opposed to a baseload resource.
Natural gas-fired generation really did not deploy except in
the State of Texas--they, sort of, moved in symbiotic. So they
were there. They were there as peakers or there to provide that
backup. So it did create a basis for confidence in emerging
wind and in emerging solar. I think that now you have a strong
force of natural gas-fired generation that is there whether
it's going to be operated and deployed on a baseload basis or,
you know, more wind will be built and more solar.
I do think they work together, you know, there are going to
be downtimes for wind and downtimes for solar. Storage may
emerge so that you will depend less on the gas-fired
generation. But I've been in this business since President
Carter, 40 years ago, and we've been working on storage for 40
years. And so, when it will come, it will come, but we need to
be prepared in the interim.
Senator Cassidy. Now let me ask because this is a headline
that's out right now, ``Heat wave sparks major power outages
around Los Angeles.'' Clearly California has been in the
forefront in going away from fossil fuel and nukes toward both
conservation, hydro, and renewables but this does suggest that
they had a lack of generation capacity.
Mr. Moffatt. I believe that one of the problems facing
California right now is that they have relatively low flow of
hydro so that is a restriction on the available resources.
Also, Southern California Gas Distribution Company has a
number of outages on their pipelines so that gas has difficulty
getting in for the gas-fired generation in the base.
So, there are some other externalities that are causing the
situation right now in Los Angeles. They also have Aliso Canyon
storage down. So there's a lot of things working against
Southern California at the moment, but nothing is structural.
Senator Cassidy. I guess, if you will, it shows the concept
that if you have insufficient peak backup you can have problems
but theirs is not necessarily due to policy rather it is due to
a confluence of events.
Mr. Moffatt. I believe that's correct.
Senator Cassidy. Yes, sir.
Mr. Kelliher. And Los Angeles is served by Los Angeles
Department of Water and Power, LADWP. I do not think they have
very high renewables in their electricity----
Senator Cassidy. Got it.
Mr. Kelliher. I'm not positive, but I think they rely less
on renewables than the IOUs, then they----
Senator Cassidy. Got it.
I thank you all very much.
The Chairman. Thank you, Senator Cassidy.
Senator Cantwell.
Senator Cantwell. Thank you, Madam Chair, and I thank the
witnesses and my colleague, Senator King, for being the Ranking
Member today and helping make this hearing go so well.
Yesterday I was quite surprised to see that the President
issued an Executive Order that takes the power to select
administrative law judges (ALJs) from the Office of Personnel
and gives it to the heads of agencies employing them.
I have grave concerns about this across the board, but the
one example I know best is in the area of the Federal Energy
Regulatory Commission and the issues as they relate to the
Power Act.
So, Mr. Kelliher, you were Chair when we amended the
Federal Power Act. You developed FERC's market manipulation
authority.
I can just tell you how many times during that process the
State of Washington and our utilities were going to the
administrative law judge for findings as it related to the
damage that was being done in the Enron crisis. We depended on
those law judges in a very, very specific way.
They hold hearings. They weigh evidence. They find facts.
They make initial decisions on whether the violations occurred,
what penalties are appropriate, and then they send that up to
you, as it related to FERC. Due process requires that they be
fair and independent and insulated from political pressure. Are
you concerned that if we switch this to a process where you
would hire political people that it could create some issues
with due process and legal proceedings?
Mr. Kelliher. You have the advantage of me. I haven't read
the Executive Order. I saw an article on it, but I haven't read
it.
But I can talk about the importance of having independent,
qualified ALJs because when Jim Hoecker and I were at FERC, it
varied from agency to agency. But at the agency, the Chairman
hires, makes the decision on the ALJs. But that's after, my
understanding is, it's after they've gone through some LPM
screening process so they're deemed to be qualified. They meet
some kind of qualification. And then typically the Chief LJ
would present three or four candidates, and you would choose
one.
I thought that process worked very well, but the screening
assured that you had qualified candidates to choose from, and I
think that's extremely important given the matters at FERC that
are entrusted with ALJs.
There's another agency I won't name because I don't want to
embarrass that other agency. They had a very small complement
of ALJs. They had one that seemed to despise the agency and
would always rule against the agency, and they had one that
people would consider would never possibly rule against the
agency. That could be the outcome if ALJs are chosen and
they're not as qualified and not as independent. You could end
up with--and that outcome is not great for a party, right? You
would know from which ALJ got your case what the outcome of
your matter would be. So, it should be independent, qualified
folks that a Chairman chooses from, I think.
Mr. Hoecker. I agree with that completely, Senator.
We have historically, as heads of the agency, hired ALJs
off a list, a civil service list. A lot of them come from other
agencies like the Social Security Administration and they are
hired based on their ability to run cases and an understanding
of the Federal Rules of Civil Procedure and so forth. And
that's really what you need, not a political appointee.
Senator Cantwell. Well, I thank you for that. And I can
tell you, I agree. I don't know if we will have to do
legislation here, but the fact that the President thinks he can
change this by Executive Order and put at jeopardy the notion
that, as you just said, Mr. Kelliher, an agency would then shop
for the employee or the Administrative Law Judge that would
rule for them or against them, what have you, is just very
bothersome. We want people to be selected. These issues are
such critically important matters.
When I think about the cases that came before the
Administrative Law Judges in the Enron case, utilities and
ratepayers really had to understand what was happening to them
with such egregious manipulation. The notion that somebody
could be sitting there who had already been hired by, you know,
a political process that basically said, ``Oh, don't worry
about that,'' is very concerning.
And you want very experienced personnel. You want people
who the Office of Personnel Management have verified to have
the professional experience to do these jobs as well.
So, I thank you. I thank you.
Thank you, Madam Chair.
The Chairman. Thank you, Senator Cantwell.
Senator Daines.
Senator Daines. Chair Murkowski and Ranking Member
Cantwell, thank you very much for holding this hearing today.
This hearing, I think, is most timely as I just lead a
letter to FERC discussing the importance of natural gas
pipelines to our economy and the need to make sure that any
discussions or decisions that come from their ongoing review
not interrupt or slow the process for approving new natural gas
pipelines.
This comes on the heels of a visit I just made last week to
Russia. You know, 30 percent of Europe's energy needs are being
met by Russia, and 50 percent of Germany's energy needs are
being met by Russia.
This gives America an incredible opportunity both from an
economic viewpoint as well as national security and positive
geopolitical consequences for the United States to supply more
natural gas to Europe. The world will be a much, much better
and safer place if it reduces its dependence on the Middle East
and Russia for its energy needs.
We are currently faced with the need to replace a
Commissioner at FERC, and I hope we can do that expeditiously.
It is critical for our energy independence as a state and a
nation to have a Commission that is able to approve and move
quickly on our nation's priorities. I look forward to working
with my colleagues and the Chairman on this important issue.
As I stated many times before this Committee, the energy
sector is one of the pillars of Montana's economy. With
Colstrip, with hydro facilities, Montana is a net energy
exporter. That means, we need to have the ability to transmit,
ship and pipe our energy to and through other states.
Unfortunately, we have seen instances where one state can
interrupt and shut down projects that are necessary to other
states. For example, in Montana, this has become a big issue
with the State of Washington blocking coal from the Crow Tribe
and they cannot get coal to our allies in Japan and Asia
Pacific. We see the same issue with states blocking pipelines
that would deliver affordable, clean, natural gas to heat homes
in the cold New England winters. We have seen repeatedly the
abuse of Section 401 of the Clean Water Act to stop sensible
projects like the Millennium Bulk Terminal and natural gas
pipelines and Congress needs to take action on this.
Mr. Kelliher, as a former Chairman of FERC, as someone who
has spent decades working on these issues, would you agree that
we need to tailor Section 401 of the Clean Water Act to focus
on protecting water quality rather than allow it to be used as
a political pawn?
Mr. Kelliher. I would agree that when states issue 401
permits that any conditions that are in those permits should be
directly related to water quality matters that shouldn't go
afield of that. The concern is that in some cases states seemed
to have imposed conditions that are totally unrelated to water
quality.
Senator Daines. Yes.
Mr. Kelliher. In one gas pipeline case, it was an attempt
to change the route of the pipeline, something that by federal
law is expressly reserved to FERC.
So to me, the question is well if that happens, what should
the remedy be? What should the recourse be? Should EPA--this
came up a little bit earlier in discussion with Senator
Barrasso.
Senator Daines. Maybe I will focus the question. What are
some actions that Congress could take to refocus Section 401?
Mr. Kelliher. Well, one would be amending 401 but it would
seem to be, almost, it would seem to be arguably an unnecessary
amendment to say well, you're--if a state is given delegated
authority to issue water quality permits that it would seem
unnecessary to say and they shouldn't include conditions that
are completely divorced from water quality permits in those
permits.
But it could be EPA guidance might be sufficient to explain
what are the limits on state water quality permitting
authority. It could be that there's a need for some kind of
appeal say under the Coastal Zone Management Act states can
find that some proposed activity is inconsistent with a state
coastal zone plan, coastal zone management plan. There's
recourse in that you can appeal to the Commerce Department. You
can say the state is actually inconsistent with the statute.
So, there is that appeal, you know, that would be a
possible legislative solution of well, let's allow appeal here.
Could there be a provision to appeal a state 401 permitting
decision to EPA and let EPA rule as to whether the state permit
went too far afield.
Senator Daines. Thank you for the thoughts on that, and it
is very helpful as a former Chairman on FERC.
I have one last question here for Mr. Hoecker. There has
been a lot of discussion on Capitol Hill on the need to invest
in America's infrastructure. I have been a proponent of making
sure that doesn't only mean roads and bridges, very important.
In fact, we had a great hearing yesterday with the Senator from
Maine, the Ranking Member in the National Parks Subcommittee,
regarding an infrastructure bill we are looking at for our
national parks.
So we need to think more broadly what this means. I would
argue that pipelines, terminals, transmission lines and other
energy infrastructure is also a part of the broader
infrastructure discussion in our nation. It is not just capital
or money that we need the most to expand our energy
infrastructure. What we really need is permitting reform,
because a lot of this infrastructure that I am talking about
there is provided within the private sector. We need less
regulations and expedited approvals.
My question is this, Mr. Hoecker. As a former FERC Chairman
and now counsel to WIRES, what do you believe are the three
most important priorities for either Congress or FERC to help
facilitate the development of energy infrastructure?
Mr. Hoecker. Thank you, Senator. That is a great question.
Our focus this morning has been on a lot of natural gas
pipeline issues, but I can guarantee you that it's much tougher
to build an electric transmission line across multiple states
for the very reasons that you mention. I think there are some
modest ways legislatively to begin to remedy that, at least as
far as promoting cooperation between the states or giving FERC
some limited authority in the area of interstate or cross
border, inter-regional types of transmission lines. That is
something that the Commission, the FERC, intended to promote
not on a jurisdictional basis, but on a policy basis in Order
1000. It hasn't materialized.
I think the second recommendation would be for FERC to be
more active in improving that order and promoting and
incentivizing the development of interstate transmission.
The interesting thing, of course, is that we focus on the
difficulties that natural gas pipelines are having along line
pipelines, but FERC is the only agency that has the ability to
determine what's in the public interest. It issues a
certificate. It is the lead agency on NEPA review. It also sets
the rates. And it does not have that breadth of authority for
electric transmission.
The siting for electric transmission resides with the
states, and Congress' effort in 2019 in the Federal Power Act
to remedy that with a federal backstop has failed.
Senator Daines. Thank you.
I am more comfortable talking about pipelines as a chemical
engineer than I am about the law, but I will say that I believe
our founding fathers anticipated this and had enumerated powers
in Article 1, Section 8 on the Commerce Clause that this may be
where this has to be finally decided.
Thank you.
The Chairman. Thank you.
Senator Cortez Masto.
Senator Cortez Masto. Thank you, Madam Chair and Ranking
Member. Thank you for this hearing.
Gentlemen, thank you so much.
I am juggling two hearings today, so I appreciate the
written testimony that you provided ahead of time to enable us
to prepare.
Mr., is it Hoecker?
Mr. Hoecker. Hoecker, yeah.
Senator Cortez Masto. Hoecker and Mr. Kelliher, let me
start with you. In 2009 Congress gave WAPA borrowing authority
for the purpose of constructing, financing, facilitating,
operating, and studying construction of new or upgraded
electric power transmission lines and facilities that have a
terminus within WAPA's region and that deliver electricity from
a renewable resources.
To implement its borrowing authority, WAPA created the
Transmission Infrastructure Program, or TIP. This program has
proved to be beneficial to many communities across the West.
For example, an example of TIP includes WAPA's partnership with
TransWest to build a high voltage transmission line extending
730 miles through Nevada which is near Boulder City over to
South Central Wyoming, providing California, Arizona, and
Nevada with direct access to Wyoming's high capacity wind-
generated and gas-generated electricity. However, TIP has been
proposed for elimination in the President's budget.
I am interested to hear your views on the benefits of this
program and generally how programs like these have helped the
growth of transmission infrastructure in the West.
Mr. Hoecker. Well, the Western has been very instrumental
in helping preserve reliability in Western markets. They owned
Path 15 which brought electricity from Canada into California
at a time of significant need.
They have--both Western and other power marketing agencies
have the ability under law to effectively partner with some
private transmission developers and utilize their authority
under law to site transmission that would otherwise be sighted
solely under state authority.
So, I think it's been important, and particularly important
in the West, although there is an example in the Southeast
where CEPA, in an effort to utilize that authority, was
actually nullified because the project was withdrawn, but I
certainly resonate your remarks. It's something that we
wouldn't want to lose.
Senator Cortez Masto. Thank you.
Mr. Kelliher, do you have any other----
Mr. Kelliher. I think there's also a lot of benefits that
come from those kinds of approaches.
Mr. Hoecker referred to Path 15. Path 15 was a choke point
in California that contributed not just to the California
blackouts, but to the manipulation of California market. It
made the market more vulnerable to manipulation.
And that joint venture between WAPA and the private sector
relieved that bottleneck. And I think that's what inspired
other legislative provisions that were in the '05 Act and
including TIP. So I think it's positive and it's the kind of
thing that has a lot of merit.
Senator Cortez Masto. Thank you. I appreciate your
comments.
Mr. Kelliher, let me continue with you. Nevada is a big
proponent of battery technology, and as you well know, we have
a large battery factory, Tesla, the Gigafactory there in
Nevada. We recently created an Energy Bill of Rights in the
State of Nevada that actually protects home energy generation
and storage. And thanks to the declining costs of better
technology and the growing industry of battery storage,
deployment at a utility scale is accelerating at a rapid pace.
I am curious if you still see barriers, and what barriers
there are, that exist for battery storage deployment and what
we can do to address those barriers.
Mr. Kelliher. NextEra is actually the number one utility
scale storage developer in the country, so thank you for the
question.
[Laughter.]
We think there are some buyers in the RTO markets in part
because storage is a product that is very, it's unique in the
world of FERC. At FERC you have generation and you have
different forms, you have energy, capacity, you have
transmission.
Battery storage actually provides every, well all those
products. So, it cuts across the usual product lines and so
it's something that doesn't fall neatly within the market rules
of the current RTOs.
FERC, knowing that, issued a major storage rule earlier in
the year to promote storage and lower those barriers requiring
the RTOs to come up with platforms, market rule platforms, that
facilitate storage deployment.
But now the question. That's the beginning of something
rather than the end of something. A final rule is normally the
end of something, but now the issue goes to every single region
and it's important that when those regions act to set up those
platforms, those market rule platforms, they actually really be
truly supportive of storage.
But in terms of entry to utilities, we have, we've done a
lot of storage deals with individual utilities outside of RTOs
and think that that's gone well when the utility is interested
and supportive. We've done it with for-profit investor-owned
utilities, as well as other governmental utilities. So we think
the barrier is more in the RTOs, but FERC is acting to lower
it.
Senator Cortez Masto. Okay. Thank you.
Thank you, Madam Chair.
The Chairman. Senator Gardner.
Senator Gardner. Thank you very much, Madam Chair.
Thanks to all of you for being here today.
Mr. Moffatt, there is obviously a very significant and
tremendous natural gas supply in the U.S. Rocky Mountains,
including Utah, Wyoming, and Colorado. Just a few years ago,
the U.S. Geological Survey determined that recoverable natural
gas supplies in the Piceance Basin in Colorado is 40 times
larger than initially thought.
With U.S. market demand for natural gas being largely
satisfied by supply from other natural gas producing regions,
the only way for U.S. Rocky Mountain gas producers to
contribute to U.S. energy dominance is to export that natural
gas to our allies.
In order for natural gas producers in my state to get their
gas to overseas markets, they need FERC to approve a West Coast
LNG export terminal. The fact is our allies are seeking a U.S.
supply of natural gas to hedge against infills from Russia, the
Middle East, from others. In other words, exporting U.S.
natural gas to our overseas allies is a national security
imperative. To be clear, our allies not only want to be able to
import U.S. natural gas, but they are looking to diversify
their natural gas supplies as well within the United States and
that includes having an LNG export terminal, as I mentioned, on
the West Coast.
I am going to ask a series of questions. You can, kind of,
combine the answer if you want. One, what more could FERC be
doing to enable Colorado's gas to get to markets, both
international and domestic? Two, what concerns do you have
about FERC's discharge of its responsibilities with the respect
to pipeline certificates or LNG exports that would be of
interest to the Committee? What do you recommend this Committee
do in our oversight role to help spur the development of
resources in our states including personnel and employee issues
at FERC?
Mr. Moffatt. Thank you, Senator, for the question.
Kinder Morgan, as you may know, has a lot of assets in the
Rocky Mountains, moving in all directions, and we have good
inner connectivity for the Rocky Mountain supply to go to
markets. A lot of the issues for the Rocky Mountain supply is
market. There are supplies from other regions in the country.
So, you know, for example right now we're seeing our
TransColorado pipeline because the Permian restrictions being
utilized, but it was largely empty. And so, market shift, the
infrastructure is there. The market will seek the transport,
and we'll get it out.
We also own and operate Ruby Pipeline which was built to
take natural gas from the Rockies to Jordan Cove.
Senator Gardner. Right.
Mr. Moffatt. We are hopeful that it will finally move in
the second wave of LNG.
I believe that the Commission is doing everything
reasonably well with respect to both the pipelines and for LNG
siting. LNG is interesting because it's a manufacturing
process, so we've got to interact with PHMSA on all of the
authorizations for the safety of the process. Our LNG is using
one type of technology. Jordan Cove has got another. The Gulf
Coast projects have their own technologies. So, it's a
complicated area. But I do honestly believe the agencies are
moving with fair dispatch and are doing pretty well.
I would think the Administration should be encouraged to do
what it's doing in promoting natural gas. I would be remiss if
I didn't say that the tariffs on steel are a problem for anyone
acquiring steel to build infrastructure, including the amount
of steel piping in LNG terminals is significant. Those kinds of
barriers aren't helpful at the moment. I think for those of us
have the Gulf Coast infrastructure, we're momentarily relieved
that China has left imported LNG off of their list of tariffs.
This is a brave new world. That's affecting, I believe,
people signing up, not being sure what's going to happen with
the trading between our countries for Jordan Cove. We are
advocating to resolve those issues as quickly as possible. And
believe me, we have many assets in the West that are now
earning five percent a year on our assets, if we're lucky, that
are basically because there's so much supply and so much
competition. We support you in wanting Jordan Cove to get
built, but I think it's not a matter of infrastructure as much
as it's a matter of markets.
Senator Gardner. Thank you, Mr. Moffatt. I have to go back
to another hearing right now on the tariff matter itself. I
thank you, Madam Chairman and thank the rest of the witnesses
for being here.
Thanks.
The Chairman. Yes, I know that is an important part that
nobody has really addressed this morning, but when you think
about regulatory certainty, that is one thing that everyone is
certainly hopeful. Then you have the volatility that is outside
of that regulatory process, how you factor all that in, the
impacts on investment and what that portends as well.
I said I was going to be coming back to you, Mr. Hoecker
and Mr. Kelliher, with the same question that I had directed to
Mr. Moffatt and Mr. Murchie about the dangers, the concerns, if
we are not looking outward when it comes to adequate
infrastructure. If you would both care to address that. We have
hit on it through responses in other questions, but I want to
give you that opportunity.
Mr. Hoecker. Certainly. I think we anticipate, and I'm
viewing some studies that are coming out of NREL and the
Bradley Group and others, the prospect of an enormous ramp up
in electricity demand over the next quarter century. It's even
predicted that electricity demand may double by 2050.
It's something we need to prepare for and the grid right
now is not sufficiently integrated or strong to carry the
additional generation that will be needed to serve that demand.
What happens if we don't build this? Well, prices go up.
Right now, building the capital across the building
transmission are relatively low and these are financing capital
markets. We don't know where there are some risks that down the
road that it will be more expensive to build the infrastructure
we need. The benefits to consumers are not going to flow. The
job creation benefits that come from building infrastructure
will be delayed.
I think there are lots of reasons to begin to move more
proactively in planning the grid of the future and there are
lots of folks in the industry, in academia, looking at what
that grid should look like and what kinds of resources should
it be able to exploit, both as a matter of natural resources
and technology.
We think that in anticipating a more electrified American
economy and a more integrated North American energy economy,
that the time to act is now and to be more proactive. I hope
that message gets through to FERC as well, which has struggled
over the last seven or eight years to try and turn Order 1000
into a more productive exercise.
The Chairman. Mr. Kelliher?
Mr. Kelliher. It's an interesting question. I'd like to
answer it as a, sort of a counter factual. What would things
look like today if we hadn't made the large investments in
infrastructure going back to say, summer of 2005?
Summer 2005, the price of natural gas was $9.00. Now it's
$3.00, sometimes lower. That didn't just happen. It happened
because the natural gas supply basins changed, that that
production only could have made it to market with really large-
scale investments into new gas pipelines.
If we had static pipeline network and we still saw the
improvements in shale gas technology, prices would not be $3.00
now. They might be $6.00, they might be $7.00. I'm just, sort
of, guessing at numbers. And we probably would have been
thrilled, thinking, not knowing that they could have been
$3.00. We'd have said, wow, the price of natural gas went from
$9.00 to $7.00. That's fantastic because at the time the
expectation was $9.00 would be, sort of been the medium. They
might actually be higher than that.
Now, if gas prices were $7.00 or $6.00, gas is the driver
of electricity prices, wholesale electricity prices. Suddenly a
lot of uneconomic generation that has now retired or is poised
to retire would be economic.
So, we would not have seen the changes in our electricity
supply that have occurred in recent years. Natural gas would
not be the number one source of electricity supply. It would
probably still be coal. We'd have a less flexible fleet.
You know, I think the short answer would be, gas prices
would not be $3.00. Electricity prices would not be where they
are today. Everything would be 25 to 50 percent higher, and the
economy would suffer as a consequence. So, I think, the
infrastructure investments have made all of that possible. It
would not have happened otherwise.
The Chairman. I appreciate that.
Senator King mentioned in his opening statement the
reference that sometimes we build the infrastructure out as if
it is a church awaiting Easter mass and Christmas and that much
of the time you have underutilized capacity there. This is the
big problem that we face.
We are trying to find that right spot for where we are
today, but also anticipating the needs of the future. It is,
kind of, the Goldilocks situation. Is it too big for where we
are today; is it too small, or is it just right?
Very quickly, because my time has expired, but use my
Goldilocks analogy. Are we too big, too small or just about
right for today and then five years from now what do we look
like? This is rapid round.
Mr. Moffatt?
Mr. Moffatt. I think we are about right. I think the market
forces that you see clearing prices and meeting supply needs is
there.
We do----
The Chairman. What about five years?
Mr. Moffatt. Five years from now, I think it's going to be
the same.
The Chairman. Alright.
Mr. Moffatt. I think that the residential, commercial,
industrial uses are not going to change. There may be on the
margin some change in how we generate electricity, but we're
still using electricity.
If we have major efficiency, then yeah, we may become
obsolete. I don't think we'll be obsolete because of
renewables.
The Chairman. Okay.
Mr. Murchie?
Mr. Murchie. Yes, and I generally agree with that, but
Senator King's question before about stranded assets, I think,
is an important one because behind your question is, are the
things we're building today going to be obsolete? Who is going
to pay for that cost? And as Mr. Kelliher said, in the natural
gas world, it's the investors. It would be my clients if we
were to not allocate our capital accordingly.
And so, the issue is we're never going to get this right.
There will be mistakes made and the question is who will pay
the costs and are those costs going to be borne by those people
who are best able to or who are responsible for those costs?
So, if there are regulatory changes that were unanticipated,
then those costs could be borne by people who, through no fault
of their own, are now paying more for electricity and gas. I
think investors are willing to take that risk so long as that,
you know, the reward is commensurate.
And so, we see enormous changes, again, on the electricity
side because Curt's point about most of natural gas being used
for things other than electricity. That doesn't move much.
When you talk about storage on the grid, one of the largest
pieces of storage on the grid in the future will be batteries
between four wheels. That will be part of the storage on the
grid. They will charge at certain times of the day and it will
reduce over the 24-hour cycle of electricity.
If markets are designed properly, the risk will be borne by
those who can best take them and if you make a mistake as an
investor, well, that's the system we're operating under.
The Chairman. Mr. Hoecker, Mr. Kelliher, are we just about
right, right now? Where are we going to be in five years?
Mr. Hoecker. Madam Chair, I think it's especially hard to
make predictions, especially about the future and we are
eternally in that dilemma.
But we, at least on the transmission side and I try to make
the case that transmission is a special case because what it
gives us is the ability to adapt to whether we have gas
generation, more renewable generation, whether nuclear has a
renaissance, the kinds of technologies that are coming along,
storage, demand response and so forth.
The common thread, the tie that binds is the adequacy of
the grid. If we begin to plan five-year increments at a time
without looking down the road at what these long-lived assets
can do for our economy, we're going to miss some opportunities
and apropos of what Joe said earlier, you know, we need to take
reasonable risks, but I think where we're at is a pretty good
spot. The lights are on today and I think they'll be
inexpensive to turn on for a while.
The Chairman. Hopefully they are going to be on tomorrow
too.
So much for my lightning round.
Mr. Kelliher, I've got to give you the final say here.
Mr. Kelliher. I think, in terms of, I'll give you an answer
on the electric side and the pipeline side.
On the pipeline side, I've great confidence that the
investment level will continue to be right really just because
the nature of how projects are developed. Pipelines are for
profit enterprises. They have large scale, either national,
regional networks. They see a market or customer interest and
they really are very aggressive in pursuing it, typically in a
competitive fashion. That dynamic won't change. That will still
be there five years from now, and they're looking for economic
benefits.
On the electric side, the focus on, at least the RTO
transmission planning is on reliability need, not economic
benefit. So, I think, I'm not trying to be qualified, on the
electric side, I think the investment will still be just about
right to satisfy that floor reliability needs. It won't
necessarily be just right to satisfy resiliency which is harder
to quantify and the plant doesn't even really focus on the
economic need. It focuses on the reliability needs. So, I think
it's, it will be adequate for that. Will it be adequate for
those higher purposes or greater level of investment? I'm not
sure.
The Chairman. Thank you.
Senator King.
Senator King. Thank you, Madam Chair.
First, the most profound observation I ever heard about
fossil fuel prices goes back to the '70s or '80s where a
professor at the University of Maine said, ``Fossil fuel prices
in the future will always be the opposite of what you think
today.''
[Laughter.]
Because if you think they are going to be cheap and you act
accordingly, that will increase demand and they'll be
expensive. If you think they are going to be expensive and act
accordingly and conserve, there will be an excess and they will
be cheap. I think that is pretty true, that it has been proven
true over the years.
A couple of points.
One, I think there will be growth in the grid over the
future, but I don't think the growth in the grid necessarily
will be proportional to the growth in electricity demand.
Mr. Hoecker, you talked about how growth in electricity
demand could be 50 percent or 100 percent. I agree with you,
but I think it is going to be in different areas.
Electric cars. Electric cars can come under the grid if
they are charged at night without adding a single wire or a
single pole, and yet, that would add significantly to
electricity demand.
I don't think you necessarily meant to imply that, but I
think we need to separate the grid from electricity demand,
because the grid does have a lot of excess capacity. I hope
that we are headed into a future where we can talk about things
like peak load pricing and time of day pricing to encourage
utilization of electricity when there is excess capacity on the
grid.
Number two, it is funny for those of you watching this
hearing, you can tell people from the states where they
generate, where they make electricity. I mean, where they have
fossil fuel and where they don't, there is a lot of talk about
more exports and those kinds of things.
I need to put on the record as I have in practically every
hearing, I am gravely concerned about an exponential increase
in the export of natural gas and LNG.
This Congress cannot repeal the law of supply and demand.
If we have a significant, and I mean it is proposed, there is
something like 14 LNG terminals pending before FERC. If that
happens, and if we get to the level of exports that people are
now talking about, it will affect prices in the United States.
I think we will be giving away one of our substantial
advantages that we have over the rest of the world that has
been brought about by the shale revolution.
Finally, Mr. Kelliher, the question I wanted to ask you is,
and you put a term into our lexicon that, I think, we should
all think about, the 12 days. You mentioned the 12 days. That
is that peak period when the gas supply into New England was
not adequate. What would you do about the 12 days if you were
head of ISO or czar of New England?
Mr. Kelliher. Thanks.
If I were king of ISO, I would, I mean, I think their
planning has shown that the correct economic solution is more
dual-fueled capacity. So, burn fuel oil on those 12 days. It's
more expensive than natural gas, except it's not during those
12 days. That's what the approach of New York is. New York has,
relies much more heavily on dual-fueled generation than in New
England.
My understanding ISO New England has pointed out that more
dual-fueled capacity actually is the economically correct
approach. But they've also pointed out, it's an approach that's
resisted by the states in the region. They don't want to
license dual-fueled facilities.
So, ISO New England----
Senator King. Dual-fuel and storage, traditional storage
with LNG coming in?
Mr. Kelliher. Yeah, it's, sort of, maybe, the same level of
LNG coming in but more dual-fuel facilities so that during
those 12 days, you're not buying the most expensive gas, you're
burning fuel oil that you already have in hand onsite.
Senator King. Demand response might have a role?
Mr. Kelliher. Sure, yeah, yeah.
I think ISO New England has done a very good job
encouraging demand response and I think they've, I would
commend them for pointing out dual-fuel is the economically
correct approach but that the states oppose it so they're left
with the next best alternative and that's----
Senator King. Well, I know it worked. I know it happened
this winter, because I walked to the shore in my home town of
Brunswick and saw on the horizon the Cousins Island oil plant
emitting, you know, you could see something coming out of it
and I don't think it had run for 10 years, but it was running
in January because of that very issue.
Well, thank you very much. This has been a very informative
hearing.
Mr. Hoecker. Senator, could I interject?
Senator King. Yes, sir.
Mr. Hoecker. I thought your point about EVs, electric
vehicles, is a very good one and I agree completely with you
that----
Senator King. You can always interrupt to say you thought a
point I made was a very good one.
[Laughter.]
Mr. Hoecker. Yes.
Senator King. Perfectly okay.
Mr. Hoecker. Well, I would have interrupted more often
then.
[Laughter.]
I think that it will drive expansion of the distribution
systems and the high voltage systems. We're doing a study this
year that will explain that relationship.
But I don't think it's fair to say that there is excess
capacity on the grid everywhere. I think, it's like saying
there's excess capacity on certain stretches of the interstate
highway system. The fact is that it's an integrated network and
that is its primary benefit. Some places it's very congested
and needs to be upgraded or expanded. In other places, it's
nonexistent. I mean, a lot of the renewable energy that is
locked up in your state and in the Great Plains has no market
because there's no delivery capability.
So I think it has to do with the unique nature of the
integrated network, and I'm glad we're using that word because
is really what we're talking about. That doesn't mean that all
transmission that can be conceived by the mind of man needs to
be built, but it does mean that we need to use it as a lever--
--
Senator King. Sure.
Mr. Hoecker. ----to get to a different energy economy.
Senator King. Thank you.
Thank you very much. I appreciate it.
The Chairman. Senator Cortez Masto, any follow-up?
Senator Cortez Masto. No.
The Chairman. Well, I just will end, since we have two
former Commissioners of the FERC with us today and we know
we're going to have this opening coming up.
I would ask you if you have any words of advice in terms of
characteristics that we might want to be looking for in a
prospective nominee?
Mr. Hoecker. Well, that's a very tough question. I've long
advocated that the members of the Commission should include
some seasoned economists, industry engineers, not just lawyers,
as much as I love lawyers, but I think that those diverse
skills have served the Commission well in the distant past, and
I think that would be a good idea.
I think, basically, you want somebody with a kind of
judicial temperament, someone who doesn't have a particular axe
to grind who can make independent decisions.
The Chairman. More and more it seems that they need to come
with a crystal ball, but Mr. Kelliher, what would you advise
that we look for in terms of characteristics?
Mr. Kelliher. I think they need someone who is comfortable
with criticism.
[Laughter.]
Someone who is not, doesn't, that doesn't scare them, that
prospect doesn't scare them, someone who is independent by
temperament, someone who will follow the record, and someone
who will actually try to work with their colleagues. I think
FERC has a long history of that, but only up to a point.
I mean, it's not supposed to be 5-0 on everything. It's
okay to dissent, but you should try to work out a reasonable
compromise with your colleagues. Four is a scary number,
because four has the tendency to divide evenly sometimes.
Hopefully the Administration will be relatively quick
nominating someone who is independent, willing to take
criticism for the correct decision, and will try to work toward
compromise but dissent when necessary.
When I dissented, I always considered it a personal
failure, because that meant I was right, of course, but I
failed to persuade my colleagues.
[Laughter.]
It was a failure of persuasion, so I was always sad about
dissenting.
Mr. Moffatt. Senator, if I might?
The Chairman. Mr. Moffatt.
Mr. Moffatt. As someone who has $35 billion of regulated
assets, what are we looking for in terms of our regulator?
I think it would benefit, not so much for the economist,
but people who understand capital markets, including how we
raise equity, and how we raise debt.
People who understand some of what we've seen recently with
the Commission's order, the market surprise and market
reaction, and the potential for decisions at the Commission to
make the sector either very costly to finance or one in which
we're having difficulty attracting equity and debt. That's very
problematic. So, I think we have to focus less on a
politician----
The Chairman. You're talking about tax----
Mr. Moffatt. ----and more on people that understand capital
markets informing capital.
The Chairman. Yes.
Mr. Murchie.
Mr. Murchie. Yeah, I didn't put him up to that.
[Laughter.]
So yeah, in considering the answer to that question, I
guess our vote would be someone with a lot of experience,
because if you had a lot of experience, then you've been doing
it long enough to understand that there are capital market
consequences to the optics of decisions.
It's one thing for us to make portfolio decisions based on
knowledge of the companies, the industry, the management teams,
but the movements of capital within our $6 billion portfolio
are minuscule compared to the movements of money in and out of
sectors by individual investors who are getting their
information from the six o'clock news. The optics of how these
decisions are communicated are just as important to those
people and the way they move capital around is the underlying
substance.
The Chairman. Yes, I appreciate that.
We will have an opportunity to be reviewing whomever may be
sent forward, but I appreciate your insight on that.
We are doing a lot of talking right now about nominees at
different levels and different capacities, and I think about
the role of the FERC and the significance of the decisions that
come out of the Commission on our overall, just our overall
national economy, the impact on jobs, the impact on really, our
ability to engage in any level of commerce. And it is so
important that we get these policies right. But in order to
help develop, shape, and advance them, we have to have the men
and the women that are in place.
Senator Hoeven, I have been filibustering waiting for your
arrival.
[Laughter.]
Knowing that it was imminent.
We have had a very good discussion with a great panel here
this morning talking about our infrastructure, whether it is
our pipeline, our electric transmission, just had a little bit
of a discussion about the upcoming vacancy on the FERC and the
need for somebody that has experience, that has some
understanding of the markets overall and who has a strong
backbone and is not afraid of a little criticism.
We are pleased that you were able to make it over from your
other committees to share your issues and concerns with this
panel. I will now turn to you.
Senator Hoeven. Thank you, Madam Chairman, I appreciate it
very much, and I know you are wrapping up. I appreciate the
patience and the diligence of all of our witnesses today.
It is such an important issue and, you know, how do we
bring people together on this whole issue of interstate
transmission whether it is natural gas pipelines, whether it is
oil pipelines, whether it is transmission lines.
We have gotten to the point now where whether you are a fan
of traditional energy or renewable energy, we all have to work
together because we have to get the energy from where it is
produced to where the consumers are.
Then we also have the issue of federalism, state's rights
and then the Federal Government's ability to have the national
infrastructure and really, international infrastructure, that
we need.
I guess I would just like each of the witnesses to give me
their thoughts in terms of the one or two things that we can do
to really get this issue moving in terms of getting that public
support in place so that we can go ahead and build this needed
infrastructure.
Let's start with you, Mr. Moffatt.
Mr. Moffatt. Thank you, Senator.
One area that we haven't touched on today are landowners
that we impact and communities that we impact as we try to
build, particularly linear, infrastructure.
I think that for the interstate pipelines we're working
very hard on making sure we understand what our guidelines are
on landowner rights and how we interact with landowners and
abutting landowners and communities diligently, consistently,
and honestly. In building a linear project we're going to be,
we're going to go through this process for seven years, even in
the best case, from the time we stake the right-of-way until
the time we reclaim it. So we have to build that relationship
with landowners which I believe we do.
Nobody really likes a project in their backyard and with
social media, the noise, I believe, is louder than people
realize. We've had, over the last ten years on our interstate
projects, over 4,000 different land agreements with landowners.
Only 141 have gone to condemnation and compensation. Every one
else has been negotiated. It's over time they gain more
information. We gain more information, but from our standpoint
the process reasonably works, if the regulators want it to work
and, you know, it's a political issue, state and local, but for
the most part I think it works well if we all cooperate and we
do talk.
Now I know with Nebraska you've had some other
circumstances with Keystone XL for a long time. I was
representing TransCanada, so I lived some of those battles
before joining Kinder Morgan. Some of that, that's politics and
other policy issues which I don't know how you resolve given
what you mentioned about federalism and state's rights.
Senator Hoeven. Seven years, realistically that is what it
is now.
Mr. Moffatt. Right.
Senator Hoeven. Do you see that----
Mr. Moffatt. Yeah, because if you want to just stick
around, really quickly, we'll see a market dislocation where
added infrastructure might work. We will then analyze the
engineering and the routing and what the constructability is of
the project, then we go try to find people who are willing to
sign contracts to pay for it, then we have to develop the
resource reports, go through the various procedures at a
commission and under any set of guidelines can be two years--
then it's usually two years of construction and one year of
reclamation of the right-of-way. So it's a seven-year process,
even in the best case and that's with everybody moving
diligently.
Senator Hoeven. That is pretty sobering, isn't it, when you
say it is seven years in the best case for needed energy, to
move energy around the country. Think if somebody's got a
problem today, and they need energy.
Mr. Moffatt. Yes.
Senator Hoeven. You come in and say, best case scenario, we
can maybe get you some transportation and transmission built in
seven years.
Mr. Moffatt. In the intrastate market, we can probably do
it in two years.
Senator Hoeven. Other thoughts on that? This is the issue
and it is a very, very important pressing issue.
Mr. Murchie. So, picking up where Mr. Moffatt left off on,
you know, landowners and why do we have the right of eminent
domain when a gas pipeline gets approved.
From our perspective, perhaps the role of regulators and
government is to fix market failures, market imperfections. And
the three that were, sort of, discussed today were
diversification of energy as a separate goal, obviously, the
cleanliness of it and the provision of reliability in surplus
capacity. You could argue that those three things are market
failures, that the free market would not come up with on its
own.
Everybody always argues that we should have an energy
policy, but it's really because they have an axe to grind on an
export or something like that. But if there is an energy
policy, maybe it should be directed only to those things where
the market fails. Maybe those three issues would go a long way
to getting people to understand that, you know, while their
land is being taken, it's being taken for a greater good, just
like it is with a highway. Perhaps that's where the debate
should focus on where the market failures are because that's
the role of policymakers and regulators.
Senator Hoeven. Sir?
Mr. Hoecker. Senator, you know, to me this is a leadership
issue and not necessarily a knowledge issue.
We have studies coming out yesterday from the Energy
Information Administration on the benefits of HVDC, big HVDC
projects. NREL, the National Renewable Energy Lab, is just
about to release a study on building transmission across major
market seams. We've talked about electrification of the economy
this morning.
But all of these things are a lot of experts talking to
each other. And you point out something that's really quite
important and that is that in order to bring states along, in
order to have a collaborative effort, in order to reassure the
public that what we're talking about when we talk about
infrastructure is not anti-environment, in fact, it's, at least
as far as transmission is concerned, it's the other way around.
That requires setting some goals, talking about what the
grid needs to become, where we need to go and having
policymakers and folks like yourselves but also FERC and the
Secretary of Energy beginning to articulate what the grid of
the future, what the energy market of the future needs to look
like and why we need to invest in it.
Senator Hoeven. Thank you----
I beg the indulgence of the Chair. I apologize for running
over.
Mr. Kelliher. On the gas pipeline side, I think some
actions that could help would be FERC to reaffirm its gas
certificate policy statement they're conducting or review. They
should basically reaffirm that policy, I believe. There might
be a need for, some changes might be appropriate, but basically
reaffirm their certificate policy statement.
One issue on the gas side is the FERC process does take
longer than it used to. The FERC pipeline certificate process
used to routinely take two years, now it takes three years. The
Chairman has identified time limits as being important to him,
so hopefully FERC could get back to more of a two year
timeframe, rather than three.
In terms of other federal agencies, that does result in
some delays in pipeline construction operation. If those
agencies have legitimate resource concerns, like basically,
they don't have enough resources to act in a more timely
manner, there's a model in the FERC hydro side where other
federal agencies can recover the cost of work they've done in
the hydro licensing/relicensing case through FERC. So, if they,
if the reason they're slow is lack of resources, there's a way
that those costs could flow through FERC and be allocated
toward all pipeline licensees.
We talked earlier about how some states are using their
clean water act authority, perhaps improperly, to impose
conditions on related to water quality. We talked about some
ideas where legislatively or through EPA guidance, that could
be checked.
On the electric side, I can't come up with as long of a
list, but the biggest one would be for FERC to clarify its
policy on return on equity so that you know what you're going
to get when you invest in transmission.
And part, the ownership is so different of the electric
grid and the pipeline network. You basically have 20, 30 large
scale, for profit corporations that have large networks on the
pipeline side. On the electric side, you have more than 400
owners, very few of them have even a regional, kind of, scale
system, a third of the grids owned by non-profit entities,
government utilities and cooperatives. So you have hundreds of
hands yanking the levers on really what are large regional
machines. It's hard to see that you'll ever have the siting be
as timely on the electric side as the gas side.
If I told someone who builds electric transmission that we
were crying, but I was crying here today about a three-year
FERC siting process, they would laugh in my face----
[Laughter.]
----and say, I'll take that tomorrow for transmission. And
transmission siting is done not at the federal level, but at
the state and local level. Some states every single local
government sites a transmission line. There's not a state
siting body.
Senator Hoeven. Madam Chairman, it really is a rubix cube,
isn't it?
I mean, we want to find solutions here, but it is
complicated. You bring up real issues that we need to address
the challenges because of the complexity of how we do that.
So, thank you so much.
Again, I really want to thank the Chair for her patience, I
appreciate it.
The Chairman. No, thank you, Senator Hoeven, for the
question and I think it really does hit to so much of what we
are dealing with. We are trying to anticipate what we need to
build to, we need to address the immediacy of the needs today,
sometimes the crisis needs today. There is no real silver
bullet here, to go back to Senator King's analogy, maybe some
silver buckshot out there, but it is complicated.
But to hear just from the FERC regulatory process, we have
gone from an expectation that it is going to be a two year
process to just automatically, it is going to be three. It
seems to me that there are some areas that we can look to very
directly and say, there has to be a better way.
Thank you for shining the light on some of these very, very
important issues. We clearly have a lot of work to do, and we
will be working together.
Thank you, gentlemen, for the time that you have given the
Committee. If members have additional questions that they might
want to submit to you for the record, you should anticipate
those as well.
Thank you very much.
With that, the Committee stands adjourned.
[Whereupon, at 12:03 p.m. the hearing was adjourned.]
APPENDIX MATERIAL SUBMITTED
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