**Testimony of Mr. T. Boone Pickens before the Senate Energy and Natural
Resources Committee**

*Hearing to examine the challenges and regional solutions to developing
transmission for renewable electricity resources.*

Tuesday, June 17, 2008

10:00 AM

366 Senate Dirksen Building

Chairman Bingaman, Senator Domenici, and members of the Committee, thank
you for holding this hearing today. Our country is in a crisis caused by
imported oil, and any serious solution to help us escape from this trap
will require action by the Congress to promote private investment in our
electric transmission system.

We must develop and promote every available domestic energy resource to
solve this crisis, and the lynchpin to addressing our escalating
dependence on foreign oil is a willingness and determination to invest
in and streamline our electric transmission system. Private enterprise
will invest money, and will build new transmission infrastructure
cheaply and efficiently, if Congress adopts clear, predictable policies.

And Senators, ladies and gentlemen, simply stated, our main energy
problem begins and ends with imported oil. Seventy percent of the oil we
use is imported. With current oil prices, we are getting close to
exporting \$700 billion a year overseas because of our addiction to
imported oil. That's nearly four times the cost of the Iraqi war. We
purchase it from a few friends and a lot of enemies. We are paying for
the war against ourselves and we have got to stop it, some way, somehow.

And the price of oil will go up further. Over the next 10 years, you're
looking at exporting \$10 trillion out of this country. It will be the
greatest transfer of wealth from one country to other parts of the world
in the history of mankind. It is a clear and growing threat to our
national security, and our national economy. It has to be stopped. We
are on the verge of losing our Super Power status. It's time to quit the
blame game, and look for solutions and leadership to solve the problem.

For decades, every presidential candidate has talked about making us
energy independent. That hasn't happened, of course, and the hole we've
dug for ourselves just keeps getting deeper. In 1945 we were exporting
oil to our allies. In the 1960s we were importing about 10 percent of
our oil. By the 1980s it was 40 percent. In 1991 during the Gulf War, it
was 54 percent. Now it's about 70 percent.

The world produces 85 million barrels of oil a day, or more than 30
billion barrels of oil a year. We haven't replaced that amount of
consumption on an annualized basis since 1985. World oil production, I
believe, has peaked, and the world's current oil fields are declining at
the rate of 8 percent a year. The simple truth is we're never going
above 85 million barrels of oil production.

The U.S. consumes 25 percent of the world's oil, with only 5 percent of
the world's population. And what's going to happen when you're dealing
with a supply capped at 85 million barrels and increasing demand as the
Chinese, Indians, and rest of the underdeveloped countries around the
world continue to use more and more oil?

I have a plan to fix this problem. I've stress tested it with government
and business leaders across the U.S. in recent months. No one has found
any major flaws in it. That said, if there's a better plan out there,
it's time to hear it. The time for action is now.

Worldwide 70 percent of the 85 million barrels a day is used for
transportation. To replace foreign oil, we need a major energy source
that works for transportation. The domestic energy resources we have are
oil, coal, natural gas, wind, solar, bio-fuels, hydroelectric and
nuclear.

Natural gas and bio-fuels are the only fuels on the list that work to
replace foreign oil for transportation. It's my belief that bio-fuels,
while helpful, will not be the total solution.

So we have domestic natural gas as the replacement for foreign oil.
Natural gas is clean, abundant, affordable and, again, domestic.

Natural gas is the second largest energy resource in the country. When
you look at the piechart of power generation in the United States, you
have 50 percent coal, 22 percent natural gas, 20 percent nuclear and 8
percent hydro and renewables.

If we take the natural gas we're using for electrical generation and
move it to transportation, we can replace 38 percent of our foreign oil
imports. And that, sports fans, is a real number.

Using natural gas for transportation is not a new idea. While there are
only 150,000 vehicles running on natural gas in the U.S., there are
nearly 8 million automobiles worldwide and that number is growing
rapidly. We're getting beat by the French in nuclear power, and by the
world in natural gas vehicles. We should be leaders, not laggards.

I know that we can do this because we've done it before. President
Eisenhower led us to build an extraordinary interstate highway system.
President Kennedy took us to the moon. And President Reagan led us to
win the cold war.

If you could lower your foreign oil imports by 38 percent, you are
reducing the amount of money you're exporting by 38 percent. Reduce
\$700 billion in foreign oil purchases by 38 percent and you'll see an
annual savings of nearly \$300 billion every year. \$300 billion more
would be staying inside our country instead of going to other countries
overseas.

Nothing can reduce your imports better than this and you work with
energy supplies right here.

But if we use all of that natural gas for transportation, how do we
displace it from the nation's electrical grid?

The Sweetwater, Texas, wind complex is the model. If you take the total
Sweetwater complex it will soon be producing 2,000 megawatts. The Shell
Oil Company and TXU are getting ready to do another project just north
of Sweetwater, and that's 3,000 megawatts. My company, Mesa Power, just
put under contract with GE the largest single turbine order that has
ever been given. The first phase of the Mesa Pampa Wind Project will be
capable of generating 1,000 megawatts of electricity, enough for 300,000
average U.S. homes. When we complete the entire project, it will have
the capacity to generate some 4000 megawatts and will have cost close to
\$10 billion.

We have the best wind in the world. It's time we got serious about using
it.

The US wind corridor runs from Sweetwater to Pampa and Goodland, to
Kansas, and Hastings, Nebraska and right up the line to Canada. The
Department of Energy in April of this year showed that we could develop
20 percent of our electricity generation from wind using wind resources
in the heartland of the United States.

![](media/image1.png){width="6.500694444444444in"
height="5.022916666666666in"}

Now, if you take wind power and use it to replace natural gas for
electricity generation, you can release the natural gas to
transportation. One million cubic feet (MCF) of natural gas equals 8
gallons of gasoline. At \$4 dollars a gallon for gasoline, that means an
MCF of natural gas is worth \$32 dollars. ***And natural gas is selling
today around \$10 dollars an MCF.***

We don't buy all of our oil from our enemies. We do have some friends --
Canada and a few others. But most of the money that the world pays for
oil goes into the hands of countries that are not our reliable allies.
And some of that money is used right back against us in the war on
terror. And so, we are funding the people who are trying to wreak havoc
on this country.

The good news is we can use alternatives to address this problem. I am
100 percent for all alternatives. It is clear that renewable energy
sources are an essential national security strategy. But in order for
renewables to replace a meaningful amount of our imported oil, we need a
national electricity transmission system to carry this electricity, be
it wind, solar, biomass or other alternatives.

I have always believed that an idea has to be simple to be worth
investing in. That is why I am building the world's largest wind farm.
There is good wind in the area where I live in Roberts County in the
Texas Panhandle, and I have the ability to transmit the electricity to
markets in Texas that will pay for it. Good wind and transmission are
the keys to my project.

I think that most of the witnesses here today have said that those two
elements are key to every wind project. That is because, as can be seen
from the Department of Energy wind resource map above, the large, flat,
open areas with adequate wind are usually located a long way from where
electricity is needed. Since we can't do much about where nature has put
the wind, we have to do something about transmission to move the
electricity to market.

Unfortunately, the large, flat, open areas with adequate wind do not
already have transmission service because there has been no reason to
provide transmission service to those areas, so we are looking at a need
for green field transmission projects. The Department of Energy map
below has identified the scale of transmission projects that will be
required to move electricity generated from our wind resource heartland
to the load centers that need it.

![](media/image2.wmf){width="6.501388888888889in"
height="4.929861111111111in"}

Greenfield transmission projects all face the same obstacles\--siting,
use of federal lands, permitting, equitable allocation and recovery of
costs, equitable allocation of capacity, and availability of financing.
Senator Reid's bill, S. 2076, which would provide for the identification
of National Renewable Energy Zones, will definitely help move the
process forward, but I would like to explain to this Committee what I
see as the issues through the eyes of a wind project developer who has
had to deal with each of these issues.

There is a sequencing problem that is circular---transmission won't be
built unless there is generation capacity to be carried, and generation
won't be built unless there is transmission. Furthermore, long distance
transmission is only economic if it is built to high capacity, which
means that there must be a large amount of generation capacity in one
place.

I happened to be lucky with my project, because I was already planning a
water project that required a pipeline running in the same direction
that I needed transmission for my wind project. The water project
pipeline right of way eliminated the siting and permitting issues, but I
still have to face the financing, and cost recovery issues.

As you may know, Texas has taken a leadership role in encouraging the
development of wind generation. The Texas Legislature has adopted a
renewable portfolio standard, which has encouraged development of wind
projects in Texas, and has directed the Texas Public Utility Commission
to identify competitive renewable energy zones (CREZ)---areas that are
well suited to development of renewable energy production, and to adopt
policies that will make transmission available to those zones.

However, the Texas CREZ process began in 2005, and is expected to be
completed in 2013. I am eighty years old, and I don't have time to wait
for the process to be completed, and neither does this country. I am
building my own transmission line, which will ultimately travel 250
miles in Texas from the top of the Panhandle to near the Dallas/Fort
Worth area, and I will have to pay for this transmission line myself.
Not very many wind developers are in a position to do this.

I expect to sell my power in the Texas ERCOT market where prices are set
by competition among power generators. As a result, I will not be able
to simply increase the price of my power to cover transmission; instead,
my profits will be reduced by my transmission line costs. This is a
penalty that I am willing to pay in order to get my electricity to
market first, but it is not a burden that most developers can bear. It
requires scale and financial capacity. That is how I came to build the
world's largest wind farm. It is the only way to pay for the
transmission capacity as a private line, and it is only feasible within
Texas. If you want to do it on a national scale, where the transmission
line distances will be much longer, and utility regulations are
different, Congress must act.

As I said earlier, I believe that the United States has the opportunity
to build renewable electricity capacity to serve a substantial part of
our needs for energy. By doing so, we will increase our energy security,
improve our environment, revitalize the heartland of the United States,
reduce the demand for natural gas to be used as fuel for generation,
reduce the production of greenhouse gases, and reduce the demand for
water to be used in thermal generation.

In order to secure these benefits, the issues that I identified above
must be addressed. Let me take a moment to explain each of them.

***Siting Authority.*** As a land owner myself, I understand concerns
that landowners have about having their property taken for public use.
Quite properly, our Constitution provides protection for landowners from
arbitrary takings. However, for more than 150 years, we have recognized
that private companies transporting the common necessities of life,
food, water, fuel and electricity, to cities and towns are serving the
public interest because life in the cities would not be possible without
those necessities. As a result, private companies, such as Mesa Power,
have been permitted to use the power of eminent domain, subject to
oversight by public authorities and the courts, to obtain rights of way
for transportation corridors.

This system worked well for many years, but the large distances between
the best sites for renewable power and the places where that power is
needed have presented new challenges. The state public authorities that
oversee the use of eminent domain by private companies are required to
consider the benefits of the project to the citizens of their states.
They often have indicated that they do not have the authority to
consider the benefits to citizens of the United States who are not
residents of their states in deciding whether a particular transmission
line should be permitted to be located through the power of eminent
domain.

No project sponsor likes to use eminent domain powers. It is slow,
cumbersome, expensive and unpredictable. Negotiated easements that
result in a landowner willingly permitting the use of the land are very
desirable. However, a transmission line with a gap in it, no matter how
small, is useless. Any single landowner along a transmission route can
prevent the entire project from being constructed, no matter how
important the transmission project, unless the transmission provider has
the power of eminent domain.

Where state utility commissions are limited by state law to considering
benefits to citizens of their state, eminent domain power may not be
available to transmission developers wishing to cross the state without
providing transmission service to local generators or local electricity
users. This problem was recognized in the Energy Policy Act of 2005
(EPAct 2005), but the provisions of that act, which added Section 216 of
the Federal Power Act, need to be extended. Section 216 currently
requires that the Secretary of the Department of Energy conduct a study
and issue a report designating corridors as a National Interest Electric
Transmission Corridors every three years. After the designation, a
transmission service provider can seek siting approval from a state
commission, and if the approval is not received within one year, the
provider can then seek siting approval from the Federal Energy
Regulatory Commission (FERC). This introduces a potential delay of over
four years before the FERC transmission approval process can even begin.
In addition, there is not agreement that the language of Section 216
authorizes a finding by the Secretary of Energy that transmission is
"constrained" if there is a proposed project, but no available
transmission at all. Congress needs to address these issues by amending
Section 216 to direct the Secretary to make designations of National
Interest Electric Transmission Corridors, outside the three year cycle
provided by Section 216, upon request from a transmission service
provider who can show that a renewable project developer has requested
service and a load serving entity is willing to contract to purchase
power from the renewable project developer. Congress also needs to
provide the FERC exclusive jurisdiction to site new transmission for a
renewable energy project in the specific case where a developer has
contracted to build, and a load has contracted to buy the energy from, a
new renewable energy resource.

***Federal Lands.*** Most long transmission lines in the west will cross
federal lands. Again, while EPAct 2005 recognized the issue, and
provided a process to address the issue, the process for approval should
be streamlined. Either designation of a national interest electric
transmission corridor by the Secretary of Energy or specific siting
approval by the FERC should be sufficient to grant approval by the
United States for use of any federal lands crossed by the proposed
transmission line. (EPAct 2005 excluded lands included within the
National Park System, the National Wildlife Refuge System, the National
Wild and Scenic Rivers System, the National Trails System, the National
Wilderness Preservation System, or a National Monument from its scope,
and that exclusion should be continued.). Any affected federal agency
could appear in the FERC proceeding to present any concerns regarding
the use of federal lands included in the proposed route for the
transmission line.

***Federal Permitting.*** Every transmission line involves multiple
approvals from the United States and its agencies and departments. While
it is possible with enough time and patience to gather the necessary
permits, it introduces unnecessary delays into the process. Again, EPAct
2005 addressed the issue, but the process can be further streamlined.
While EPAct 2005 did authorize the DOE to take the lead in coordinating
federal permitting, and required other agencies and departments to enter
into a memorandum of understanding with DOE regarding permitting
projects, I believe that DOE should be authorized to issue the required
permits directly after the transmission service provider meets the
requirements for those permits in the judgment of DOE.

***Equitable Cost Allocation and Recovery.*** As I said earlier, a
transmission line with a gap in it is worthless. Put another way, there
is no useful way to build a transmission line in phases. It either is or
it isn't. As a result, the costs are all incurred at once before it is
available for use. Generation, on the other hand, can be built over
time, and may have to be built as wind turbines become available. That
means that the first wind turbines on a transmission line may not be
able to bear the entire cost of the transmission line until more of the
transmission line capacity is in use.

In Texas, we have concluded that transmission service to renewable
energy production areas is socially desirable, and our legislature has
directed our public utility commission to develop a plan, the CREZ plan
that I mentioned earlier, to pay for extending transmission lines to
serve areas where renewable resources are available to generate
electricity. The cost of those lines will be paid by the ratepayers
throughout ERCOT, because all of them benefit. In Texas, we have a very
large market for electricity, the ERCOT market, so that several billion
dollars of costs can be spread across the entire market without creating
a problem for electric rates. In much of the rest of the country that is
not true. It is a particular problem where many interconnected systems
would benefit from new long distance transmission to serve renewable
generation projects, but one utility or group of rate payers is expected
to bear the entire cost.

Once again, Congress addressed the issue in EPAct 2005, but the FERC
needs to be directed to spread the costs more widely, across multiple
states if necessary, to reflect the benefits that are gained from the
transmission project in terms of congestion relief, and other benefits.
I propose that the FERC should be directed to allocate the costs of a
new transmission line constructed under a special renewable resource
NIETC designation that the FERC has sited to all load that benefits from
the access to the energy transmitted over the line.

***Equitable Allocation of Capacity.*** If I put several billion dollars
at risk, which I expect to do with my project, it does not strike me as
fair that someone else can show up after everything is built, and all of
the risks have been taken, and ask for and receive the right to use the
transmission line that I paid for and force me to curtail transmission
of my own electricity to permit them to use the transmission line. If
you are going to encourage people to take entrepreneurial risk, you
cannot expect them to do so if they can receive the same benefits by
sitting back and waiting for someone else to take all the risk. Open
access is fine for transmission lines that have already been in service
for many years and their costs recovered, but there must be a process
that encourages renewable generation developers to put up risk capital
in return for preferred access rights to transmission capacity.

***Financial Incentives.*** I think that I may be unique both in being
willing to take the risks that I am taking in developing my wind
project, and in having the capital to do so. Most of the other wind
developers, even the other developers who are willing to develop on
utility scale, are not willing to take the sorts of risks that I am
facing. I would not be willing to do it if I was not a believer that
Congress will do the right thing in the end. Wind and other renewable
energy projects need production tax credits. For projects like the one
that I am building, we need predictable policies regarding the credits
for the long period that it takes to get everything put together. My
project, even with the favorable regulatory climate for wind in Texas,
will take seven or eight years to complete. If we decide to build more
generation capacity to supply other parts of the country, it may even
take longer from start to finish. We need to know, when we start, what
economic incentives will be in place when we get to the finish line.
Otherwise, developers have to use very conservative assumptions about
project economics, and many projects just won't get built. We also need
targeted incentives for transmission lines, such as the loan guarantee
program for rural renewable transmission lines that was proposed by the
Senate in its version of the Farm Bill. Long distance transmission
projects for renewable energy should qualify for an investment tax
credit as well. When climate change legislation is considered again, if
a cap and trade program is the mechanism, renewable energy projects
should receive an allocation of credits based upon production. Those
credits can be sold to help underwrite the cost of transmission lines to
serve remote projects.

If we do these things, our country will benefit. We will see reduced
demand for imported oil, cleaner air, a reduction in the price of
natural gas, savings in demand for water to cool thermal generation,
revitalization of the rural heartland in the central United States, and
natural gas used for higher, better purposes than electricity
generation.

We can fix these problems over time if we move a meaningful amount of
our power needs to alternatives. There are no enemies, no competitors,
nothing in domestic alternatives.

I have a mission ladies and gentlemen. That mission is to try to explain
what I've just explained here. And no matter how many times I explain it
nobody argues with me about it. Which is interesting because I wish
somebody would jump up and say you're wrong and let me show you where
you're wrong. And nobody does that. Everybody says, well, that sounds
like a good idea.

So, I don't know whether it's a good idea or whether they don't
understand.

Again, thank you Mr. Chairman for holding this hearing today. If we
don't solve the energy problems we are facing, the hole we are in will
continue to grow and swallow more and more of our scarce resources and
will overwhelm us as a nation.

I am happy to answer any questions you may have.