**STATEMENT OF DONALD N. FURMAN, IBERDROLA RENEWABLES**

**COMMITTEE ON ENERGY AND NATURAL RESOURCES**

**UNITED STATES SENATE**

**JUNE 17, 2008**

**[Introduction]{.underline}**

Mr. Chairman and members of the Committee, thank you for the opportunity
to appear before you today and thank you for holding this important
hearing. My name is Donald N. Furman. I am Senior Vice President of
Business Development, Transmission and Policy for Iberdrola Renewables,
an energy company that, among other things, is engaged in the
development and operation of wind and solar electric generating
facilities. Iberdrola Renewables is the leading generator of wind energy
worldwide and is the second largest wind energy generator in the United
States. Assuming that Congress acts to further extend renewable energy
tax credits, Iberdrola Renewables plans to invest at least \$8 billion
between now and 2010 in wind and solar energy projects located in the
United States. I am also appearing here today on behalf of the American
Wind Energy Association where I serve on the Board of Directors and as
Chairman of the Transmission Committee.[^1] In a prior job, I ran the
transmission business for a large, multistate utility in the West. As a
result, I have had the opportunity to view transmission issues from the
perspective of both a transmission developer/operator and a transmission
customer.

The purpose of my testimony is to discuss the essential link between a
robust, properly functioning electric grid and the ability of emerging
renewable energy technologies, such as wind, solar, and geothermal, to
meet a substantial portion of the nation's demand for electricity.

According to a report released last month by the Department of
Energy[^2], wind power on its own could supply twenty percent of all the
electricity consumed in the United States by 2030.[^3] The benefits
would be enormous:

-   Electric sector greenhouse gas emissions would be reduced by 25
    percent;

-   The amount of natural gas required to generate electricity would be
    cut by 50 percent and United States gas consumption would be 11
    percent lower overall -- helping to limit our reliance on energy
    imports and reducing consumer energy costs;

-   Because water is not required to operate wind farms, water
    consumption would be reduced by 4 trillion gallons;

-   Approximately 500,000 new jobs would be created; and

-   Local tax revenues would rise by more than \$1.5 billion.[^4]

The Department of Energy report analyzed the barriers that must be
addressed to reach the twenty percent target and concluded that two
distinct, but related, transmission barriers are critical. The first is
transmission infrastructure. Many of the best sites for the development
of renewable energy facilities are located in remote areas, some
distance from population centers where most electricity is consumed or
in places that the existing transmission grid does not reach. Without
sufficient levels of transmission capacity many good wind and other
renewable energy sites will not be developed. I would note that there
are a number of potential wind, solar and other renewable energy
projects in most of the states represented by members of this Committee,
including New Mexico, North Dakota, South Dakota, Oregon, Washington,
Colorado, Montana, Idaho and Wyoming, which are not being developed
today because of transmission constraints.

The second key barrier is power system operation with high levels of
variable resources, such as wind, given our current system of balkanized
electricity grids. The Department of Energy report concluded that twenty
percent wind is feasible if each of the three electric grids -- the
Eastern Interconnect, the Western Interconnect and Texas -- operate more
like single large power pools instead of the current system of 140
independent balancing areas. This would also improve the efficiency and
reliability of the system.

Before discussing the policy options for addressing these transmission
barriers, I would like to emphasize that the lack of a long-term stable
policy structure has hampered the environment for investments in new
renewable energy facilities and the transmission to connect them to the
grid. With the renewable energy production tax credit ("PTC") [^5]
currently scheduled to expire on December 31, 2008 and the current
uncertain legislative environment, projects representing thousands of
megawatts of renewable energy expected to be installed next year are now
in question. The PTC, since its enactment, has expired on three separate
occasions and has never been extended for longer than a three year
period. The stop-start nature of the PTC has impeded development of a
domestic manufacturing base and has raised significantly the capital
cost of a wind power project.[^6] It is important for Congress to extend
the PTC as soon as possible for as long as possible. Congress should
also consider more stable long-term policies, including the adoption of
a national renewable portfolio standard ("RPS"). We applaud Chairman
Bingaman's leadership on this issue and hope that Congress will adopt
RPS legislation soon.

**[Background]{.underline}**

As a nation, we are facing a potentially serious transmission crisis.
Between the mid-1970's and the late-1990's investments in new electric
transmission capacity dropped from an average of \$5.5 billion per year
to less than \$3 billion per year (adjusted for inflation).[^7] Although
transmission investments have risen in recent years, the United States
faces the prospect of not having sufficient transmission infrastructure
to meet the growing demand for electricity in a carbon-constrained
environment. According to Richard Sergel, the President and CEO of the
North American Electric Reliability Corporation (NERC): "\[T\]he grid
will be threatened unless we build the transmission infrastructure that
is necessary to support renewable resources like wind, that will enable
us to locate new clean coal facilities -- or even gas facilities . . .
It doesn't matter if it's going to be the clean coal plant or the
nuclear plant or the wind project or the solar project. The common
denominator is that they are going to require transmission to move it
from where it is toward the load centers."[^8]

The lack of sufficient transmission capacity not only challenges the
ability of utilities to keep the lights on, it also increases the price
of electricity. Transmission congestion limits the ability of utilities
to access cheaper sources of generation that may be located some
distance away. Congestion also limits fuel diversity. If there is not
sufficient transmission capacity to access electricity generated at
remote locations, utilities will be forced to rely increasingly on
natural gas-fired electric generation facilities which are easier to
site closer to load centers. There are legitimate concerns that a
dramatic rise in the reliance on natural gas for electric generation
will further increase U.S. demand for energy imports and will increase
the pressure on gas prices.[^9]

Although the level of investment that will be required for new
transmission facilities is substantial, the costs of doing nothing are
far greater, both in terms of reliability and overall electricity
prices. Transmission typically makes up less than ten percent of the
delivered cost of electricity.[^10] New transmission capacity typically
enables a utility to access lower cost generation -- which makes up a
much larger portion of consumer electric costs[^11] \-- and thereby the
transmission more than pays for itself. The Midwest Independent System
Operator ("MISO") recently examined the costs and benefits of developing
16,000 megawatts of wind energy on the MISO system and 5,000 miles of
new 765 kv transmission lines to enable the transmission of wind energy
generated in North and South Dakota to the New York City area. Even
though the generation and transmission costs would amount to
approximately \$13 billion, the study determined that, on a net basis,
consumers would save approximately \$600 million per year because the
new transmission would enable utilities to acquire lower cost
electricity.[^12]

In the 1950's this country united to create the national interstate
highway system in order to address an increasingly antiquated
transportation system. I believe that a similar effort for interstate
transmission highways would bring substantial benefits, prevent
blackouts, and enable the nation to reduce its greenhouse gas emissions
and promote energy security through the use of domestic renewable
resources.

**[Transmission and Renewable Energy]{.underline}**

As the attached map demonstrates, the United States is blessed with
substantial wind resources. However, it also identifies the challenge
\-- significant transmission investments will be required to access
these remote resources. According to the Department of Energy, an
investment of \$60 billion in new transmission capacity is needed
between now and 2030 to enable wind power to supply twenty percent of
our electricity[^13]. This would amount to approximately \$3 billion per
year, a modest addition to the \$8 billion that has been spent in recent
years on transmission infrastructure.[^14] This is a small price to pay
given the plethora of benefits that would result from reaching the
twenty percent target. Congress, federal and state regulators and
industry all need to work toward this goal.

The U.S. electric grid was not originally designed to be operated on a
large integrated basis. Instead, the grid was initially built primarily
to enable individual utilities to meet customer needs with locally
generated electricity. There was not much need to accommodate
transactions spanning several state borders or across regions.
Regulatory oversight was set up accordingly, at the state level, with
limited authority provided to the Federal Energy Regulatory Commission
("FERC").

The two main barriers to transmission development are cost allocation
and siting of transmission lines. Cost allocation is a challenge because
of the incentive to free ride. Many states, utilities, and end users
across a wide region and over a long time period benefit from interstate
transmission, and it is not in any of their interests to pay for
something that benefits so many others. With jurisdiction largely at the
state level, where state public utility commissions ("PUCs") generally
permit cost recovery of only those costs that provide direct benefits to
that state's ratepayers, it is difficult to gain approval for the
recovery of costs associated with interstate transmission. The situation
with siting is similar. State siting approvals are based on
demonstrations of need where "need" is defined as impacts within the
state. Interstate lines that benefit a region and the nation can be
prevented from being built by individual states. States may also fail to
consider regional needs when approving the location of specific
transmission lines.

Moreover, utilities have little regulatory incentive to build
transmission facilities of the appropriate size. A 765 kv backbone
transmission facility can transmit much more electricity more
efficiently than a 345 kv line which might be of sufficient size for a
utility to serve its traditional customers. State regulators are
unlikely to permit utilities to recover the costs of these larger lines
which provide broader benefits.

FERC has limited jurisdiction and has been given little encouragement by
Congress to address regional and national objectives. The Commission has
no authority over utility decisions to build transmission or, generally,
over a utility's ability to recover transmission investments. Even in
areas where most transmission has been placed into FERC-jurisdictional
Regional Transmission Organizations ("RTOs"), utility members of RTOs
can change their membership status to avoid assignment of costs.
Moreover, FERC has been too deferential to state wishes on cost
allocation.

The Energy Policy Act of 2005 did provide FERC with limited siting
authority.[^15] However, given the tremendous controversy surrounding
the Commission's siting authority and the limited areas where FERC is
authorized to approve a transmission line, there is considerable
uncertainty whether this authority will yield significant new
transmission investments.

There are some innovative state-based solutions that should be
commended. Several states, including Texas, Minnesota, California and
Colorado are pro-actively planning to access renewable energy. In
addition, the Western Governors Association has initiated a four-phase
regional transmission development and cost-allocation strategy with the
intention of unlocking the region's vast supplies of wind, solar,
geothermal, biomass and wave power. The Midwest Governors Association
has also initiated a wide ranging process to promote regional
transmission for renewable energy. While these state-based efforts will
help, there are limitations to what they can accomplish. There is a
significant national interest in the proper development of the
transmission grid to access renewable energy resources that only
Congress can adequately address.

**[Integrating Variable Resources]{.underline}**

In addition to ensuring that there is sufficient transmission capacity
to access our country's enormous renewable energy resources, it is
equally important that the electric grid functions effectively. Wind,
solar and certain other resources generate power on a variable basis.
For instance, wind power fluctuates depending on the wind speed where
the wind project is located. Electric systems need to accommodate this
variability just as they accommodate constantly changing levels of
consumer demand. This is easier to do in regions served by RTOs because
generation and demand is balanced over a broad geographic region.[^16]
Wind generation tends to be less variable the broader the region -- the
wind may die-down in one area and pick up in another at the same time.
The breadth of RTO regions also provides greater access to conventional
sources of electric generation that can ramp up and ramp down to address
the variability of wind and certain other renewable resources.

I recognize that some regions have put RTO development on hold and it is
unlikely that new RTOs will be established in those regions any time
soon. In the absence of RTOs, utilities need to work together to achieve
some of the same benefits of reliability, efficiency, and integration of
non-dispatchable resources. These actions should include the
consolidation of balancing areas and the sharing of generation across
balancing areas to address variability issues.

**[Transmission Policies Required to Promote Renewable Energy
Development]{.underline}**

It is essential that Congress and the Federal government act to help
promote a more robust and effectively functioning electric grid, if we
are going to reap the full benefits associated with the nation's
renewable energy resources. As I have discussed, the current regulatory
structure is not well-suited to the challenges of the future. Unless
Congress makes it easier for utilities and other entities to build the
transmission necessary to access our renewable resources, consumers, the
economy and the environment will suffer. It is imperative that Congress
remove these barriers to help meet our national goals of reducing
greenhouse gas emissions, enhancing our national energy security,
providing consumers with reasonably-priced electricity and growing the
economy. More specifically, Congress should ensure that:

-   There are sufficient incentives to encourage investments in the
    transmission facilities necessary to fully develop our renewable
    resources;

-   The costs of new transmission facilities are fairly allocated to
    take into account regional and national benefits, including the
    development of renewable electric generation;

-   Utilities are able to recover the costs of reasonable transmission
    investments;

-   States cannot unfairly inhibit the development of transmission that
    will provide multi-state benefits;

-   U.S. power marketing agencies, the Department of Energy, and FERC
    are encouraged to promote regional transmission infrastructure and
    system operations in support of renewable energy development; and

-   Legislation regulating greenhouse gas emissions recognizes the
    contributions transmission can make to reducing emissions in the
    electric generation sector.

I want to commend Senator Reid for his leadership in introducing S.
2076, the Clean Renewable Energy and Economic Development Act.[^17] This
legislation would establish national renewable energy zones, encourage
regional cost allocation for transmission built to serve renewable
generation, enable utilities building transmission in renewable energy
zones to recover their costs from ratepayers, and fund Federal utility
construction of transmission in renewable energy zones if private
entities fail to make their own investments. The Reid bill also would
require the Bonneville Power Administration ("BPA") and the Western Area
Power Administration ("WAPA") to use their transmission systems to aid
in the integration of wind and solar power. These are all remedies that
would prove extremely helpful.

Senator Reid's legislation wisely recognizes that the Federal utilities
can play an important role in promoting the development of renewable
energy. BPA and WAPA, in particular, are two of the largest transmission
owners in the Western United States. Both serve regions with substantial
wind and solar resources. Both are able to build transmission without
some of the barriers faced by utilities subject to state regulation. In
particular, through its Open Season process, BPA is helping utilities in
the Pacific Northwest access renewable energy and other remotely located
electric generation by engaging in a program designed to build
additional transmission capacity. We encourage Congress to provide
similar authority to WAPA, to help promote the development of renewable
resources in North Dakota, South Dakota, Colorado and other states
served by WAPA.

Mr. Chairman, this concludes my prepared presentation. I am happy to
respond to any questions you and members of the Committee may have.

ATTACHMENT A

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[^1]: Iberdrola Renewables is also represented on the Board of Directors
    of the Solar Energy Industries Association, which shares many of the
    same transmission-related concerns as the American Wind Energy
    Association.

[^2]: "20 Percent Wind Energy by 2030 -- Increasing Wind Energy's
    Contribution to U.S. Electric Supply" ("20 Percent Wind Energy
    Report"), U.S. Department of Energy (May, 2008).

[^3]: In addition, there are over 6,800 gigawatts of solar energy
    resources that could, potentially, be tapped in seven southwestern
    states alone. "Analysis of Concentrating Solar Power Plant Siting
    Opportunities: Discussion Paper for WGA Central Station Solar
    Working Group", M. Mahos, National Renewable Energy Laboratory,
    July, 2005 at page 2.

[^4]: Id. at pages 12-18.

[^5]: 26 U.S.C. §45. The PTC is currently available for the production
    of electricity from wind, geothermal, biomass, small irrigation,
    landfill gas, trash combustion facilities and certain type of
    hydropower facilities. Solar power facilities are eligible for an
    investment tax credit, in lieu of the PTC, which is also scheduled
    to expire on December 31, 2008. 26 U.S.C. §48.

[^6]: "Using the Federal Production Tax Credit to Build a Durable Market
    for Wind Power in the United States", Ryan Wiser, Mark Bolinger, and
    Galen Barbose, Lawrence Berkeley National Laboratory (November,
    2007) at page 9.

[^7]: "20 Percent Wind Energy Report" at page 94.

[^8]: Statement of Richard Sergel, President and CEO of the North
    American Electric Reliability Corporation, American Wind Energy
    Association Press Conference (March 19, 2008).

[^9]: "20 Percent Wind Energy Report at pages 12-17.

[^10]: Energy Information Administration Annual Energy Outlook (2005).

[^11]: Ibid.

[^12]: "20 Percent Wind Energy Report" at page 96.

[^13]: Id. at page 98.

[^14]: Id. at 94.

[^15]: Section 1221 of the Energy Policy Act of 2005 authorizes FERC to
    consider the approval of a transmission line proposed to be located
    in a National Interest Electric Transmission Corridor as designated
    by the Department of Energy if state regulators fail to approve the
    line.

[^16]: "Facilitating Wind Development: The Importance of Electric
    Industry Structure", B. Kirby and M. Milligan, National Renewable
    Energy Laboratory (May, 2008).

[^17]: Congressmen Jay Inslee and Earl Blumenauer have introduced a
    similar bill -- H.R. 4059, "The Rural Clean Energy Superhighways
    Act".