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97–417 PDF 2015

DISCUSSION DRAFT ON ACCOUNTABILITY AND 

DEPARTMENT OF ENERGY PERSPECTIVES ON 

TITLE IV: ENERGY EFFICIENCY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY AND POWER 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

JUNE 3 & 4, 2015 

Serial No. 114–50 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

LARRY BUCSHON, Indiana 

BILL FLORES, Texas 

SUSAN W. BROOKS, Indiana 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

CHRIS COLLINS, New York 

KEVIN CRAMER, North Dakota 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

G.K. BUTTERFIELD, North Carolina 

DORIS O. MATSUI, California 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

PETER WELCH, Vermont 

BEN RAY LUJA ́ N, New Mexico 

PAUL TONKO, New York 

JOHN A. YARMUTH, Kentucky 

YVETTE D. CLARKE, New York 

DAVID LOEBSACK, Iowa 

KURT SCHRADER, Oregon 

JOSEPH P. KENNEDY, III, Massachusetts 

TONY CA ́ RDENAS, California 

SUBCOMMITTEE ON ENERGY AND POWER

ED WHITFIELD, Kentucky 

Chairman 

PETE OLSON, Texas 

Vice Chairman 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

ROBERT E. LATTA, Ohio 

GREGG HARPER, Vice Chairman 

DAVID B. MCKINLEY, West Virginia 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

BILL FLORES, Texas 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

BOBBY L. RUSH, Illinois 

Ranking Member 

JERRY MCNERNEY, California 

PAUL TONKO, New York 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

DAVID LOEBSACK, Iowa 

FRANK PALLONE, JR., New Jersey (ex 

officio) 

(II) 

(III) 

C O N T E N T S 

JUNE 3, 2015 

Page 

Hon. Ed Whitfield, a Representative in Congress from the Commonwealth 

of Kentucky, opening statement ......................................................................... 1 

Prepared statement .......................................................................................... 2 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 4 

Prepared statement .......................................................................................... 5 

Hon. Bobby L. Rush, a Representative in Congress from the State of Illinois, 

opening statement ................................................................................................ 6 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

prepared statement .............................................................................................. 78 

WITNESSES

Kathleen Hogan, Deputy Assistant Secretary for Energy Efficiency, Office 

of Energy Efficiency and Renewable Energy, Department of Energy ............. 7 

Prepared statement .......................................................................................... 10 

Additional information for the record ............................................................. 58 

Additional information for the record ............................................................. 69 

Additional information for the record ............................................................. 72 

J. Arnold Quinn, Director, Office of Energy Policy and Innovation, Federal 

Energy Regulatory Commission .......................................................................... 23 

Prepared statement .......................................................................................... 25 

Larry R. Parkinson, Director, Office of Enforcement, Federal Energy Regulatory Commission ............................................................................................... 34 

Prepared statement .......................................................................................... 37 

SUBMITTED MATERIAL

Discussion draft, Title IV: Energy Efficiency and Accountability, Subtitle A— 

Energy Efficiency, submitted by Mr. Whitfield 1

Discussion draft, Title IV: Energy Efficiency and Accountability, Subtitle B— 

Accountability, submitted by Mr. Whitfield ....................................................... 80 

JUNE 4, 2015 

WITNESSES

Susan N. Kelly, President and Chief Executive Officer, American Public 

Power Association ................................................................................................ 90 

Prepared statement 2

1The information has been retained in committee files and also is available at http:// 

docs.house.gov/meetings/IF/IF03/20150603/103551/BILLS-114pih-SubtitleAEnergyEfficiency.pdf. 2Ms. Kelly’s statement has been retained in committee files and also is available at http:// 

docs.house.gov/meetings/IF/IF03/20150603/103551/HHRG-114-IF03-Wstate-KellyS20150603.pdf. 

Page

IV 

John E. Shelk, President and Chief Executive Officer, Electric Power Supply 

Association ............................................................................................................ 92 

Prepared statement .......................................................................................... 94 

Peter Galbraith Kelly, Jr., Senior Vice President, External Affairs, Competitive Power Ventures ............................................................................................. 111 

Prepared statement .......................................................................................... 113 

Chrisopher Cook, President and General Counsel, Solar Grid Storage LLC ..... 122 

Prepared statement .......................................................................................... 124 

Jonathan M. Weisgall, Vice President, Legislative and Regulatory Affairs, 

Berkshire Hathaway Energy ............................................................................... 134 

Prepared statement 3

William S. Scherman, Partner, Gibson, Dunn & Crutcher LLP .......................... 135 

Prepared statement 4

3Mr. Weisgall’s statement has been retained in committee files and also 

is available at http://docs.house.gov/meetings/IF/IF03/20150603/103551/ 

HHRG-114-IF03-Wstate-WeisgallJ-20150603.pdf. 4Mr. Scherman’s statement has been retained in committee files and also 

is available at http://docs.house.gov/meetings/IF/IF03/20150603/103551/ 

HHRG-114-IF03-Wstate-SchermanW-20150603.pdf. 

(1) 

DISCUSSION DRAFT ON ACCOUNTABILITY 

AND DEPARTMENT OF ENERGY PERSPECTIVES ON TITLE IV: ENERGY EFFICIENCY— 

DAY 1 

WEDNESDAY, JUNE 3, 2015 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ENERGY AND POWER, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 2:45 p.m., in room 

2322, Rayburn House Office Building, Hon. Ed Whitfield (chairman 

of the subcommittee) presiding. 

Members present: Representatives Whitfield, Olson, Shimkus, 

Pitts, Latta, McKinley, Kinzinger, Griffith, Johnson, Ellmers, Flores, Mullin, Hudson, Rush, McNerney, Tonko, Green, Castor, 

Welch, and Pallone (ex officio). 

Staff present: Nick Abraham, Legislative Associate, Energy and 

Power; Will Batson, Legislative Clerk; Leighton Brown, Press Assistant; Patrick Currier, Counsel, Energy and Power; Tom 

Hassenboehler, Chief Counsel, Energy and Power; A.T. Johnston, 

Senior Policy Adviser; Dan Schneider, Press Secretary; Caitlin 

Haberman, Democratic Professional Staff Member; Rick Kessler, 

Democratic Senior Advisor and Staff Director, Energy and Environment; John Marshall, Democratic Policy Coordinator; and Tim Robinson, Democratic Chief Counsel. 

Mr. WHITFIELD. I would like to call the hearing to order, and I 

want to apologize, initially, to our wonderful panel of witnesses 

that because of these votes which were unexpected, we were delayed. So, I do apologize to you all, but we do thank you for being 

with us. Today we are having a continued hearing on our discussion draft on accountability in the Department of Energy, and 

today we are going to be focused on perspectives on Title IV, the 

energy efficiency provisions. I would like to recognize myself for 5 

minutes for an opening statement. 

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

We begin with our draft provisions on accountability, especially 

as it relates to the Nation’s electricity system. The 2005 energy bill 

expanded FERC enforcement authority over electricity markets, 

and we have now had 10 years of experience with the implementation of those provisions. Many have raised concerns about the acVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
2 

tion of FERC’s Office of Enforcement, particularly regarding fairness, consistency, transparency, and due process. Some have even 

questioned whether FERC enforcement actions are counterproductive and actually impede the proper functioning of electricity 

markets. 

The discussion draft would establish, as many of you know, an 

Office of Compliance Assistance at FERC to address these concerns. In addition, FERC order 2000 advanced the formation of 

RTOs and independent system operators. That is now 15 years old. 

This provision sought to promote efficiency in the wholesale electricity markets and to ensure that electricity consumers pay the 

lowest possible rate for reliable service. However, much has 

changed since this order first came out, and many market participants are calling for reforms ranging from price formation, to governance and transparency, as well as generation performance assurance. 

FERC has yet to develop effective reforms to ensure fair, transparent, and well-functioning competitive markets. They have done 

a good job at that, or at least trying to. This discussion draft seeks 

to fill the void with several proposed criteria intended to improve 

the wholesale electricity markets. 

Finally, PURPA was enacted to promote electric conservation efficiency and equitable pricing of wholesale electric energy. Like so 

many other 1970s-era energy policies still in place, many of 

PURPA’s provisions are also a little bit out of date. In particular, 

Section 210 incentivized cogeneration and small power production 

by conferring certain advantages on qualifying facilities, but increasingly competitive wholesale electricity markets have made it 

inefficient and uneconomic for electric utilities to comply. 

Reforms to this section were made in the 2005 energy bill, but 

several market participants and public utility commissioners have 

raised concerns that Section 210 still has adverse effects. The discussion draft will include measures to address those shortcomings 

as well. 

With regard to energy efficiency, we held a hearing in April on 

nongovernmental perspectives, so today we are focusing on the Department of Energy’s point of view. Now I might say that manufacturers have worked closely with the Department of Energy in trying to obtain additional efficiency in a lot of appliances and a lot 

of other products. But that hearing in April really pointed out that 

price increases, because of these efficiency mandates and very 

small efficiency accomplishments or advantages was really hurting 

the consumer, and the manufacturers were really expressing great 

concern about that. 

So, obviously, we all want more efficiency, but we don’t want the 

consumers to be hurt unjustly for very minute and small efficiency 

advantages. So that is something that we look forward to talking 

to you all about, as well as further considering. 

So, I look forward to your testimony and the opportunity to ask 

questions. 

[The prepared statement of Mr. Whitfield follows:] 

3 

PREPARED STATEMENT OF HON. ED WHITFIELD

This afternoon we continue work on our bipartisan energy bill. I believe that we 

are finding areas of agreement on ways to improve the Nation’s energy policy. 

Today, we look at accountability and energy efficiency, and I welcome our Government witnesses before us today and our non-Government witnesses who we will 

hear from tomorrow. 

We begin with our draft provisions on accountability, especially as it relates to 

the Nation’s electricity system. The 2005 energy bill expanded FERC enforcement 

authority over electricity markets, and we now have 10 years of experience with the 

implementation of these provisions. Many have raised concerns about the actions of 

FERC’s Office of Enforcement, particularly regarding fairness, consistency, transparency, and due process. Some have even questioned whether FERC enforcement 

actions are counterproductive and actually impede the proper functioning of electricity markets. The discussion draft would establish an Office of Compliance Assistance at FERC to address these concerns, and also includes provisions to improve 

transparency in FERC investigations. 

In addition, FERC Order No. 2000, which advanced the formation of Regional 

Transmission Organizations and Independent System Operators, is now 15 years 

old. This provision sought ‘‘to promote efficiency in wholesale electricity markets 

and to ensure that electricity consumers pay the lowest price possible for reliable 

service.’’ However, much has changed since this order first came out, and many 

market participants are calling for reforms ranging from price formation to governance and transparency to generation performance assurance. Nonetheless, FERC 

has yet to develop effective reforms to ensure fair, transparent, and well-functioning 

competitive markets. The discussion draft seeks to fill the void with several proposed criteria intended to improve for wholesale electricity markets. 

Finally, the Public Utility Regulatory Policies Act of 1978 (PURPA) was enacted 

to promote electric conservation, efficiency and equitable pricing of wholesale electric energy. Like so many other 1970s-era energy policies still in place, many of 

PURPA’s provisions are out of date. In particular, section 210 incentivized cogeneration and small power production by conferring certain advantages on qualifying facilities, but increasingly competitive wholesale electricity markets have made it inefficient and uneconomic for electric utilities to comply. Reforms to this section were 

made in the 2005 energy bill, but several market participants and State public utility commissions have raised concerns that section 210 still has adverse effects such 

as impairing the development of cost-effective, competitive, renewable energy and 

forcing ratepayers to pay for unneeded generation or energy that is well above market price. The discussion draft includes measures to address these shortcomings. 

With regard to energy efficiency provisions in the energy bill, we held a hearing 

in April on nongovernmental perspectives, so today we focus on the Department of 

Energy’s point of view. Many of these provisions deal with ways the Federal Government can reduce its energy consumption, such as helping to expand the use of energy savings performance contracts for Federal facilities. There are also requirements for DOE to look into potential energy savings at Federal data centers and 

through the use of thermal insulation, as well as other ideas to reduce Federal energy expenditures. It also eliminates the potentially costly and unrealistic requirement from the 2007 energy bill that Federal buildings use no fossil fuel generated 

energy by 2030. 

The draft bill also contains measures affecting the private sector, including increased legal certainty for the Energy Star program, the inclusion of Smart Grid capability on Energy Guide labels, and voluntary verification programs for several appliances. It also clarifies DOE’s role in setting model building codes. Finally, it suspends a proposed residential furnace efficiency standard, probably the most controversial of the dozens of such appliance standards promulgated in recent years, 

until the agency gathers more evidence on whether it is technically feasible and economically justified. 

I look forward to a constructive discussion of these and related topics as we make 

progress on our energy bill. 

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

statement. 

4 

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

Mr. PALLONE. Thank you, Chairman Whitfield. I understand that 

this hearing is the last of its kind on the majority’s Architecture 

of Abundance discussion draft legislation. As we begin wrapping up 

these legislative hearings, I want to commend you and Chairman 

Upton. Regardless of whether I agree or disagree with all the policies put forth, the chairman and majority staff deserve credit for 

putting forward these many proposals and for working with us to 

put together these legislative hearings. 

We continue to want to work with you to try to construct energy 

legislation that can garner support from a majority of each of our 

caucuses. While I believe it is possible to get there, it is important 

to note that we have a long way to go. I have already voiced my 

opposition to the efficiency draft, because I believe that in its current form it would actually result in a net increase in energy consumption. But I am glad we finally get to hear DOE’s views on the 

language today. 

The accountability title that is the primary topic before both today’s and tomorrow’s panels includes proposals that range from the 

relatively innocuous to the absolutely disastrous. In particular, I 

am strongly opposed to the section regarding FERC investigations, 

which, to me, defies all logic by casting market manipulation, big 

banks, and hedge funds as victims while handcuffing FERC investigators tasked with protecting energy ratepayers. The provision 

asks us to believe that JPMorgan Chase, which agreed to a $410 

million settlement in 2013 is really a victim rather than the California ratepayers who were defrauded. It wants us to be concerned 

about just and reasonable treatment for FERC enforcement order 

subjects like Barclays Bank and the Powhatan Energy Fund rather 

than preventing market manipulation to ensure just and reasonable rates for consumers of electricity, a regulated commodity. 

I don’t understand the majority’s rationale, but I do know that 

its enactment would undermine confidence in the fairness of energy 

markets and ultimately the ability of those markets to function at 

all. It is clear from the inclusion of a market reform section in the 

draft that the majority already has concerns with the functioning 

of the regional electricity markets. What is not clear is exactly 

what problems the language is attempting to solve or whether it 

would solve them. 

Nonetheless, I look forward to hearing from our expert witnesses 

with extremely divergent views of electricity markets. This is a 

complex but critical issue that should be the subject of multiple 

oversight hearings and vigorous debate. 

Another matter that the committee should examine more closely 

before legislating is implementation of PURPA, Section 210, which 

laid the early groundwork for wholesale electricity competition and 

the growth of renewable energy. Ten years ago, this committee and 

Congress significantly reformed the law to essentially say that if 

FERC found that fair and robust competition existed in a given region, then utilities within that region no longer had to sign mandatory power purchase agreements with qualifying facilities, and that 

reform seems to have worked. Perhaps there are tweaks to be 

5 

made, and I am willing to address demonstrated problems. However, the discussion draft goes way too far by essentially deeming 

competition to exist even where it doesn’t, completely flipping the 

burden of proof and undoing the simple, fair, and elegant agreement we enacted in EPACT 2005. 

In closing, I hope that we will take the time to try to work 

through these issues and not rush to meet some arbitrary deadline. 

While nothing is ever guaranteed, I think it is possible that working together, we can move from the architectural phase to the construction of broadly bipartisan energy legislation that could be enacted before the end of this Congress. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Pallone follows:] 

PREPARED STATEMENT OF HON. FRANK PALLONE, JR. 

Thank you Chairman Whitfield and Ranking Member Rush for holding this hearing, which I understand to be the last of its kind on the Majority’s Architecture of 

Abundance discussion draft legislation. 

As we begin wrapping up these legislative hearings, I want to commend Chairman Whitfield and Chairman Upton. Regardless of whether I agree or disagree with 

all of the policies put forth, the chairmen and majority staff deserve credit for putting forward these many proposals and for working with us to put together these 

legislative hearings. We continue to want to work with you to try to construct energy legislation that can garner support from a majority of each of our caucuses. 

While I believe it is possible to get there, it’s important to note that we clearly 

have a long way to go. I have already voiced my opposition to the efficiency draft 

because I believe that, in its current form, it would actually result in a net increase 

in energy consumption, but I’m glad we’ll finally get to hear DOE’s views on the 

language today. 

The ‘‘accountability’’ title that is the primary topic before both today’s and tomorrow’s panels includes proposals that range from the relatively innocuous to the absolutely disastrous. 

In particular, I am strongly opposed to the section regarding FERC investigations 

which to me defies all logic by casting market-manipulating big banks and hedge 

funds as victims, while handcuffing FERC investigators tasked with protecting energy ratepayers. The provision asks us to believe that JP Morgan Chase —which agreed to a $410 

million settlement in 2013— is really a victim, rather than the California ratepayers 

who were defrauded. It wants us to be concerned about ‘‘just and reasonable’’ treatment for FERC enforcement order subjects like Barclays Bank and the Powhatan 

Energy Fund, rather than preventing market manipulation to ensure ‘‘just and reasonable’’ rates for consumers of electricity, a regulated commodity. I don’t understand the Majority’s rationale, but I do know that its enactment would undermine 

confidence in the fairness of energy markets and, ultimately, the ability of those 

markets to function at all. 

It’s clear from the inclusion of a ‘‘Market Reforms’’ section in the draft that the 

majority already has concerns with the functioning of the regional electricity markets. What’s not clear is exactly what problems the language is attempting to solve 

or whether it would solve them. Nonetheless, I look forward to hearing from our expert witnesses with extremely divergent views of electricity markets. This is a complex but critical issue that should be the subject of multiple oversight hearings and 

vigorous debate. 

Another matter that the committee should examine more closely before legislating 

is implementation of PURPA Section 210, which laid the early groundwork for 

wholesale electricity competition and the growth of renewable energy. Ten years 

ago, this committee and Congress significantly reformed the law to essentially say 

that if FERC found that fair and robust competition existed in a given region, then 

utilities within that region no longer had to sign mandatory power purchase agreements with qualifying facilities. That reform seems to have worked. Perhaps there 

are tweaks to be made and I am willing to address demonstrated problems. However, the discussion draft goes way too far by essentially deeming competition to 

exist even where it doesn’t, completely flipping the burden of proof and undoing the 

simple, fair and elegant agreement we enacted in EPACT 05. 

In closing, I hope that we will take the time to try to work through these issues 

and not rush to some meet some arbitrary deadline. While nothing is ever guaranVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
6 

teed, I think it is possible that, working together, we can move from the architectural phase to the construction of broadly bipartisan energy legislation that could 

be enacted before the end of this Congress. Thank you. 

Mr. PALLONE. Would you like me to yield to you? I yield to the 

gentleman from California, Mr. McNerney. 

Mr. MCNERNEY. Thank you. And I just want to say a few things 

about the accountability section. I appreciate the thought that went 

into it, but there are some things that seem counterintuitive. For 

example, Section 4221 seems to be counter to what Republicans 

might want in terms of reducing regulatory burden, so I am kind 

of wondering what brought that about. 

And on the section of 4212, California went through Enron ma- nipulations in the year 2000, and we went about $9 billion in debt. 

Undoing the constraints that were put into place following that episode are mysterious to me why we would want to move forward in 

that direction. 4221, it would be good to have some clear understanding of what that section is trying to accomplish because it is 

not clear from what we have seen so far. 

So with that, I am just asking the chairman to consider working 

with us on improving these so that we have something we both can 

support. I yield back. 

Mr. WHITFIELD. The gentleman yields back. Is there anyone on 

our side of the aisle that wants to make a comment? If not, at this 

point, I would like to recognize Mr. Rush for his 5-minute opening 

statement. 

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

Mr. RUSH. Thank you, Mr. Chairman, for holding the hearing 

today. This hearing, as has been stated before, is on energy efficiency standards and FERC accountability. I commend you for allowing members the opportunity to hear from DOE on the energy 

efficiency title of the discussion draft following the April 30 hearing 

when we also heard from energy stakeholders. In particular today, 

Mr. Chairman, I am looking forward to engaging Deputy Assistant 

Secretary Hogan on the pending final DOE rule updating efficiency 

standards for nonweatherized gas furnaces and mobile home furnaces. This is an issue that has gotten a lot of attention, and we 

have heard competing arguments on how this rule would impact 

low-income families and renters. 

Mr. Chairman, I am pleased in hearing from the agency itself on 

the rationale behind promoting this rule as well as the impact it 

expects this rule to have on consumers and on the environment. 

Mr. Chairman, I am also looking forward to engaging FERC on the 

accountability title of the discussion draft and getting feedback on 

how these provisions, as currently drafted, would impact the agency’s work. Specifically, I am interested in getting more insight from 

the agency regarding Section 4211, which would create a new Office of Compliance Assistance with 10 full-time employees and a 

Commission-appointed Director, but does not include any additional funding. 

The responsibilities that this new office will be tasked with, including making recommendations regarding consumer protections, 

market integrity, and consistent compliance of rules and orders 

7 

seems comparable to the Office of Public Participation that was 

previously authorized under Section 319 of the Federal Power Act. 

Similarly, that office, too, was never funded and duties from that 

office have since been dispersed throughout other offices within the 

agency. 

Mr. Chairman, we need to make sure that this new unfunded office mandated in Section 4211 will not have the unintended consequence of unnecessarily pulling staff from their current duties to 

perform tasks that are duplicative in nature. 

I also have serious concerns over Section 4212 and what impact 

this legislation would have any investigatory process. Section 4212 

takes the unprecedented step of applying the Brady rule of disclosing any evidence favorable to an investigative phase among 

FERC enforcement effort rather than the adjudication or trial 

phase of a case. I am also concerned that Section 4212, which-imposes an extremely burdensome requirement that all communications between the FERC staff be carried out in writing and made 

part of the record, which would negatively affect the agency’s enforcement efforts. 

Mr. Chairman, this section would take the unprecedented and 

particularly harmful step of giving subjects who are being investigated equal weight to the Commission’s own staff with regard to 

communicating directly with Commissioners during an investigation. 

So Mr. Chairman, the accountability title we have before us 

would make significant changes on how the Commission conducts 

its business, and I look forward to hearing from agency officials on 

how their work would be impacted. With that, I yield back. 

Mr. WHITFIELD. The gentleman yields back, and thank you very 

much for those statements. At this time I would like to introduce 

our panel of witnesses, and I am just going to introduce you as I 

introduce you to make your statement. 

So the first one is Dr. Kathleen Hogan, who is a Deputy Assistant Secretary for Energy Efficiency at the Department of Energy. 

And we appreciate your being with us. Sorry again for the delay, 

and you are recognized for 5 minutes for your opening statement. 

STATEMENTS OF KATHLEEN HOGAN, DEPUTY ASSISTANT SECRETARY FOR ENERGY EFFICIENCY, OFFICE OF ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY; J. ARNOLD QUINN, DIRECTOR, OFFICE OF ENERGY 

POLICY AND INNOVATION, FEDERAL ENERGY REGULATORY 

COMMISSION; AND LARRY R. PARKINSON, DIRECTOR, OFFICE OF ENFORCEMENT, FEDERAL ENERGY REGULATORY 

COMMISSION 

STATEMENT OF KATHLEEN HOGAN 

Ms. HOGAN. Terrific. And good afternoon, Chairman Upton, 

Ranking Member Pallone, Chairman Whitfield, Ranking Member 

Rush, and members of the subcommittee. Thank you for the opportunity to testify today on behalf of the Department of Energy’s Office of Energy Efficiency and Renewable Energy, also known as 

EERE. As Deputy Assistant Secretary for Energy Efficiency at 

EERE, I oversee DOE’s energy efficiency portfolio across buildings, 

8 

advanced manufacturing, Federal energy management, weatherization, and intergovernmental programs. These efforts develop and 

help provide businesses, consumers, government agencies, with innovative, cost-effective, energy saving solutions to improve their energy efficiency, from high efficiency products, to new ways of designing homes and buildings, to new ways of improving the energy 

intensity and competitiveness of American manufacturers. 

Energy efficiency is a large low-cost and underutilized U.S. energy resource. Increased energy efficiency offers savings on energy 

bills, opportunities for more jobs, and improved industrial competitiveness, and lower air pollution. So, indeed, I am pleased to be 

here today and look forward to working with Congress and this 

committee in particular on how we can better use energy efficiency 

to help address our Nation’s energy challenges. 

I have been asked to testify today on the energy efficiency provisions contained within Title IV, Energy Efficiency, currently before 

the committee. While the administration is still reviewing this bill, 

we support the ongoing bipartisan efforts to promote energy efficiency and look forward to continuing to work with the committee 

and the range of bill sponsors. 

The administration strongly supports the goal of improving energy efficiency, and is making real progress in helping cut energy 

waste, save money, and improve energy productivity. For example, 

the Department is on track to set energy efficiency standards 

under existing authority, which will help save billions of dollars in 

coming years. We are making important progress helping States 

understand the energy savings achieved through building codes 

and realize the benefits that building codes offer, and we are engaged with hundreds of organizations of all kinds showing how to 

cut energy costs by 20 percent or more. In addition, the recent release of the executive order 13693 will advance the energy efficiency and sustainability of the Federal Government, the Nation’s 

largest consumer of energy, and the Federal Government is halfway to meeting a $4 billion performance contracting goal by 2016. 

The Department does have a number of concerns with the proposed language in Title IV that we believe undermines the Department’s efforts to help cut energy waste, including its ability to effectively set product efficiency standards and the ability to help 

keep model energy codes up to date and help States understand 

and benefit from building codes. 

However, I do want to reiterate my appreciation for ongoing bipartisan efforts to promote energy efficiency, including this year’s 

passage of the Energy Efficiency Improvement Act, and look forward to continuing to work with the committee. Generally the efficiency title addresses many important aspects of energy efficiency, 

including but not limited to, Federal use of energy savings performance contracts and utility energy savings contracts, energy efficiency for commercial and residential buildings, which, as we all 

know, consume more than 40 percent of the Nation’s total energy 

and more than 73 percent of its electrical energy, and represent opportunities for significant savings, as well as appliance energy efficiency standards, which do have the opportunity to provide an estimated $1.8 trillion in savings through 2030. 

9 

So EERE’s program offices are implementing strategies similar 

to the activities highlighted in the legislation before the committee 

today, and I am proud to report that with Congress’ support, EERE 

is making headway in helping reducing U.S. reliance on oil, saving 

American families and businesses money, and reducing pollution. 

So, again, I thank you for the opportunity to speak today and 

will look forward to answering any questions. 

[The prepared statement of Ms. Hogan follows:] 

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Mr. WHITFIELD. Thank you, Dr. Hogan. And our next witness is 

J. Arnold Quinn, who is the director, Office of Energy Policy and 

Innovation at the Federal Energy Regulatory Commission. Thank 

you very much for joining us, and you are recognized for 5 minutes. 

STATEMENT OF J. ARNOLD QUINN 

Mr. QUINN. Good afternoon, Chairman Whitfield, Ranking Member Rush, and members of the subcommittee. Thank you for the opportunity to appear before you today. My name is J. Arnold Quinn. 

I am the director of the Office of Energy Policy and Innovation at 

the Federal Energy Regulatory Commission. I am here today as a 

Commission staff witness, and my remarks do not necessarily represent the point of view of the Commission or any individual Commissioner. My testimony will focus on those parts of the discussion 

draft that require reporting and planning to improve the wholesale 

electricity markets, Section 4221, and establish an Office of Compliance Assistance, Section 4211. 

The Commission is in the process of exploring many of the issues 

identified in the criteria articulated in Section 4211 of the discussion draft. Further Commission action on these or other criteria articulated in Section 4221 prior to the enactment of the Act may diminish the need for and the benefit of congressional direction for 

the RTOs and ISOs to address these issues. The process Section 

4221 requires is somewhat similar to the process the Commission 

has used to develop new market rules as system needs evolve. Such 

a process allows each ISO and RTO and its stakeholders to describe whether and how current market rules address an identified 

concern or system need in a manner reflective of regional differences. If Congress directs the Commission to take action beyond 

what the Commission is currently pursuing, it would be useful to 

clarify that Section 4221 of the discussion draft would require a 

process that is consistent with the Commission’s existing processes 

under Sections 205 and 206 of the Federal Power Act. 

Further, the Commission prefers to focus on services and performance quality that the electric power system needs and establish market rules that ensure the cost effective provision of those 

services at the required level of performance. While the Commission recognizes the need to encourage an adequate supply of resources that provide operational characteristics that are responsive 

to system needs, some criteria in Section 4221 may impair the competitive actions of these markets to the ultimate detriment of consumers or may cause unnecessary conflicts between Federal and 

State regulatory efforts. 

In light of the Commission’s mission and existing practices, it appears that an Office of Compliance Assistance could create duplicative proceedings for consumers and regulatory entities. An office of 

compliance assistance within the Commission that is meant to be 

independent of the rest of the Commission staff, could undermine 

the current coordination amongst Commission program offices and 

impede the Commission’s ability to fulfill its mission. 

Finally, although Commission staff currently endeavors to provide timely guidance in response to requests for compliance matters, the information gathering and analysis necessary to provide 

24 

the compliance guidance makes doing so in real time challenging 

in virtually all circumstances. 

The Commission is always looking for ways to improve efficiency, 

transparency, and competitiveness of the markets its regulates, but 

it is important to recognize the duplication of effort and the potential unintended consequences that could result from this proposed 

legislation. Thank you for inviting me to testify today on the discussion draft. I look forward to working with you in the future on 

these issues, and I am happy to answer any questions you may 

have. 

[The prepared statement of Mr. Quinn follows:] 

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Mr. WHITFIELD. Thanks very much, Mr. Quinn. And our next 

witness is Mr. Larry Parkinson, who is the director, Office of Enforcement, at the Federal Energy Regulatory Commission. Thanks 

for being with us, and you are recognized for 5 minutes. 

STATEMENT OF LARRY R. PARKINSON 

Mr. PARKINSON. Thank you, Mr. Chairman, and Ranking Member Rush, and members of the subcommittee. My name is Larry 

Parkinson, Director of the Office of Enforcement at FERC. As with 

Mr. Quinn, I have to have the disclaimer that my comments don’t 

necessarily reflect the views of individual Commissioners or the 

Commission itself. 

I have submitted a longer statement for the record, but I wanted 

to take a couple minutes just to give a little bit of an overview of 

the enforcement program. Congress, 10 years ago in EPACT 2005, 

I think, gave FERC a very strong direction when it came to enforcement. Much of the provisions relating to enforcement stemmed 

from the abuses by Enron, in particular. And I think the message 

was we expect FERC to have a strong enforcement program. We 

expect you to ensure the integrity of the markets. We expect you 

to catch bad actors, particularly those who manipulate the markets, and we expect you to protect energy consumers. 

And Congress gave FERC very important enforcement tools, including significantly increased penalties; and FERC took that direction seriously. It quickly adopted an anti-manipulation rule. It built 

up its enforcement capabilities. Much of that credit is due to the 

current chairman, Norman Bay, who headed the Office of Enforcement previously. 

We now have a very strong, capable, multidisciplinary group of 

professionals who are in charge of our enforcement program and 

carry it out. And I would say that we have achieved notable results. We are still relatively new. It is only a 10-year-old program 

since we got the new authorities, but in those 10 years, we have 

returned almost $1 billion to consumers and ratepayers and to the 

U.S. Treasury from malfeasance by market actors. We are committed to fairness and professionalism, and we are committed to 

ensuring the confidence in the markets. 

It is important to point out that we have a bipartisan Commission that owns and directs the enforcement program. The Office of 

Enforcement is not some standalone enforcement entity out there 

doing its thing without any oversight from the Commission. And 

there has been, over the last 10 years, remarkable consensus 

amongst that commission of virtually all of our enforcement matters, whether it is approving settlements that we have reached in 

the enforcement program, or issuing orders to show cause or other 

orders, have been virtually all unanimous. So we have had a couple 

of instances where an individual Commissioner has dissented on 

one piece or another, but virtually everything has been unanimous. 

I would point out, and we will get to this probably in questions, 

but it is a little ironic that a couple of the provisions at least in 

the draft are designed in part to seal off the enforcement staff, or 

at least to erect barriers between the enforcement staff and the 

Commission. And I think in that respect, they are particularly puzVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
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zling if one of the goals is to make sure that the enforcement program has proper oversight by the Commission. 

I would point out that some, a couple of characters, a couple of 

individuals, have caricatured our enforcement program as a bit of 

an outlier in the Federal enforcement process. I will say I have 

been in the Federal enforcement world for almost 30 years. I have 

worked at a number of different places under both Republicans and 

Democratic administrations. I will say that when I came to FERC 

5 years ago, I was a little bit surprised because we are an outlier. 

We are an outlier in the sense that we give an enormous amount 

of process to investigative subjects during the investigative phase. 

I still am surprised at how much process FERC gives during that 

phase of the process. And I would point out that process produces 

delay, and too much delay can be detrimental, not only to the investigative subjects, but certainly to the public and market participants. 

One key to understanding the enforcement process is there are 

two phases, and it is not unique to FERC. It us the same in every 

Federal enforcement process. And that is there is the investigative 

phase, which is the fact-finding phase, and there is an adjudicative 

phase. And there has been, by some, an attempt—not by this committee—but by some in the community to conflate those two components. And part of the language that we are looking at today tries 

to engraft trial-type processes onto the investigative phase, and I 

think it is important to keep in mind those two processes are different. 

A Federal investigation is a fact-finding process. It is not civil 

litigation. It is not ordinary civil litigation, and the attempt to 

engraft civil litigation process on a fact-finding process, I think 

would be highly detrimental to that process. 

I have described in some detail in the testimony our concerns 

about the four specific provisions. I will just mention them briefly. 

We do have a Brady policy that works. It was voluntarily introduced. On the transcript issue, witnesses to get access to their 

transcripts, but in rare occasions access is delayed to protect the 

integrity of an investigation. And the other two provisions, restricting communications, which I think really would restrict communications, those provisions, between the enforcement staff and the 

Commission and other offices in the building, would seriously impede not only investigative process itself, but the Commission’s 

ability to manage its own enforcement process. 

So in closing, I would urge the subcommittee to, before it adopts 

provisions like the ones that are drafted, to look at other Federal 

enforcement programs. I think some of these are unprecedented. 

They don’t exist in other agencies. I think when Congress gave us 

new authorities in 2005, the intent was to give FERC enforcement 

the same sorts of tools and abilities that other Federal enforcement 

agencies have. We have used those, I think, responsibly and professionally, but I think some of the amendments, if adopted, would 

undermine that authority. 

We welcome constructive critique of our enforcement program. I 

think we are known for that, and we analyze how we are doing our 

business on a regular basis, and we look forward to any suggesVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
36 

tions from the committee. Thank you for the opportunity to participate, and I look forward to your questions. 

[The prepared statement of Mr. Parkinson follows:] 

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Mr. WHITFIELD. Mr. Parkinson, thank you very much for that 

statement. And I recognize myself for 5 minutes of questions. 

I think on both sides of the aisle, while we frequently have different philosophies, political philosophies, and differ on a lot of 

these issues, I think all of us agree that this regular order process 

of bringing legislation, forming legislation, coming up with a final 

product, is the way to go. And when we have these hearings, and 

we have had a lot, we hear from the administration and we ask 

questions, and that is how we try to narrow this focus down and 

try to come up with the best product that we can, recognizing that 

you are not going to necessarily agree with everything that we are 

doing, and we don’t necessarily agree with what we are doing 

sometimes with each other. But we come out with a final product, 

and that is what our goal is today. 

So, Dr. Hogan, when the Energy Policy and Conservation Act 

was first passed in 1978 in the Carter administration, one of the 

missions and the intent was certainly to develop minimum efficiency levels for certain appliances as measured in kilowatt hours. 

Would you agree that that was one of the original intents of the 

original Act in 1978? 

Ms. HOGAN. I think it is to set minimum standards to, you know, 

look for efficient, to help set thresholds for efficiency so that people 

can save money through better efficiency products. That is right. 

Mr. WHITFIELD. Save money as well save the use of energy, use 

less energy? 

Ms. HOGAN. That is right. 

Mr. WHITFIELD. And as I noted in my opening statement, that 

hearing we had with the private sector, not only the hearing but 

also letters, calls, there is more and more concern being generated 

by these manufacturers who worked closely with the Department 

of Energy in coming up with better efficiency standards that the 

additional efficiency being generated is very small, and the cost is 

going up. And some people may take offense at this question, but 

I am going to ask it because it is of concern to us. 

It seems to some of us that DOE is using the Energy Policy Conservation Act to further the President’s climate goals, an objective 

wholly outside the statutory purpose and requirements of EPCA. 

And so, this would lead me to believe that the DOE’s aggressive 

efficiency push is to benefit the President’s negotiating position in 

Paris this year, rather than what may be in the best interests of 

American consumers and manufacturers. 

So I would ask you, I mean, that is a feeling that some of us 

have. That is statements we have heard from various manufacturing and consumer groups. I would ask you, do you feel like you 

are going beyond the original intent and purpose of the Energy Policy Conservation Act? 

Ms. HOGAN. I certainly appreciate you asking that question, if 

that is what you are hearing and that is what you may feel. You 

know, there is very clear language in the authorities that have 

been given to us by Congress, and that is for us to set standards 

that are technically feasible and economically justified. And that is 

being done on an economics basis. We also are asked to, once we 

set standards, to go back every 6 years typically and look to see 

51 

if those standards are appropriate for being updated, a so-called 6- 

year look-back provision. 

That is, indeed, what we are doing at the Department of Energy, 

is proceeding under the good direction that we have been given by 

Congress to set these standards in a way that makes sense on a 

cost-benefit basis for how we can help businesses and consumers to 

continue to save energy and save money. 

Mr. WHITFIELD. Yes, save energy and save money, but when it 

escalates the cost of the product, that is not helping the consumers. 

And, you know, I asked the staff to prepare a list of regulated residential products that you all are involved in right now: Clothes 

dryers, close washers, central air-conditioners, heat pumps, ceiling 

fans, battery chargers, dehumidifiers, heating equipment, dishwashers, kitchen ranges, ovens, microwaves, pool heaters, refrigerators, and it goes on and on; and then we get into the commercial 

and industrial side, and it is even a longer list. And so, you know, 

we are just trying to bring a more balanced approach to some of 

this, recognizing that you have your responsibility, but it is more 

than—I mean, we all like to say, OK, we want to be more efficient, 

less energy, and save consumers money. 

But at the same time, if it costs them so much going in, and it 

makes the products not work as well, maybe short-lived, then I am 

not sure that it is accomplishing the purpose that was intended. So 

we are going to continue to discuss about this because we don’t 

have a final product yet, but I just wanted to get that out there, 

and my time is now expired. So, Mr. Rush, I recognize you for 5 

minutes. 

Mr. RUSH. Thank you, Mr. Chairman. Deputy Assistant Secretary Hogan, one of the more contentious provisions included in 

the discussion draft is Section 4124, which would prohibit the Department from promulgating a final rule amending efficiency 

standards for nonweatherized gas furnaces and mobile home furnaces. And we have had several meetings in my office on both sides 

of this issue, and I want to hear directly from the Department on 

this issue for the record. 

And let me begin by asking a question. First of all, Mr. Chairman, I am not offended, but I am kind of really startled by your 

question, but I am going to move on beyond it. I don’t think the 

President would stoop to the level that he would use a Federal 

agency to buttress some kind of advantage at a conference in Paris, 

or in any other place in the world in the fall or the winter or any 

other time. I think the President has a sense of responsibility, and 

he is sworn to his office and duties just as we all are. I am not offended. I am just somewhat taken aback a little bit by that statement. 

Madam Assistant Secretary, in the previous energy efficiency 

hearing we heard several, as I mentioned before, conflicting comments in this room on low-income consumers. And I want you to 

speak on the record about the rationale behind this rule, and its 

expected impact on the lower-income communities, and if you will 

give us an overall expectation environmentally in terms of the impact of this rule? 

Ms. HOGAN. So we do have a rulemaking that is underway for 

gas furnaces. At the top level, this rule, as proposed, and let me 

52 

stress that this is a proposed rule, would offer net benefits on the 

order of $16 billion in the coming years, so significant benefits. 

When we do do our rulemakings—again, it is a proposed rule—we 

do look closely at low-income communities and senior households, 

so we do look at the impacts on the full set of households that are 

out there. Certainly, but I guess the other thing I do want to continue to emphasize is that this is a proposed rule. I think it is also 

a rule where we are trying to be and are being as open and as 

transparent and working with as many stakeholders as possible so 

that we can get all of the best information that we can and to hear 

their concerns before we would move forward to finalize this rule. 

We have had multiple public meetings. We have extended the 

comment period. It remains open as we sit here today, and even 

after the comment period closes, industry and others can come in 

and engage with the Department to share data and issues, and we 

are open to all of that information. I know we have also been up 

on the Hill briefing various staffs, including yours. We are happy 

to continue this conversation, and I think we can find a way, the 

right place, for this rule to land. 

Mr. RUSH. Do you foresee the possibility that as a result of your 

actions, that your costs for furnaces and heaters, that that would 

be prohibitive to the poor in this Nation? Do you foresee that as 

being a likelihood or even a distinct possibility in the future? 

Ms. HOGAN. So like with any product, we see a range of costs, 

depending on the characteristics of a household. Certainly those 

people that are in the colder climates that have homes that have 

less insulation, for example, would be the type of households that 

would benefit the greatest from a furnace standard. 

So we see that there can be really great benefit from this rule 

for some low-income homeowners that would be in certain situations. I guess the other thing I should just point out, because some 

people sometimes don’t understand this, is when we do a rulemaking, it really affects the purchase of a new furnace. There is 

a lot of furnaces that would be in place that will be in place for 

quite a while because the real thing you will do for them if there 

is an issue, is you will repair them. There is a lot of repair opportunities for furnaces that are in today’s homes, and the standard 

really applies at the point when you are totally replacing that furnace. I also think when you look at the low-income population, you 

will see a fair amount of use of radiators and boilers and other 

technologies that this rule will not apply to. 

Mr. WHITFIELD. The gentleman’s time is expired. At this time, I 

recognize the gentleman from Texas, Mr. Olson, for 5 minutes. 

Mr. OLSON. Thank you, Mr. Chairman, and welcome to Dr. 

Hogan, Mr. Quinn, and Mr. Parkinson. My first question will be for 

you, Dr. Hogan. In a prior hearing of this subcommittee, we heard 

concerns about how DOE sets appliance standards for efficiencies. 

The chairman brought up examples like water heaters and furnaces. I want to talk about how DOE considers the economics of 

these improvements. Obviously, there are some parts of the country 

where local situations dominate. For example, spending a few thousand dollars in New England makes a lot of sense on a furnace because they have two seasons of cold, cold, and one season of colder. 

53 

In Houston, Texas, we have one season, hot and humid, with three 

seasons of 95 degrees and 95 percent humidity. 

So clearly, some sort of furnace doesn’t matter too much to me, 

but an efficient air-conditioner means a heck of a lot in Houston, 

Texas. So could you please discuss how you consider regional differences when you look at these new standards? Do you consider 

them? 

Ms. HOGAN. So we do look at a variety of options when we set 

standards for things like furnaces and air-conditioners. Actually, if 

you look at air-conditioner standards in place in this country right 

now, you will see that we do have regional standards. Those regional standards are in place because industry came to us with a 

consensus recommendation that that is the approach that we 

should take. So certainly we have been able to consider that in the 

past and are certainly open to that conversation. 

Mr. OLSON. Great, because it is not a problem for air-conditioners. Obviously heaters, for instance, and just as well because, 

again, in Houston we use ours probably five times a year. My kids 

love to kick on the gas fireplace and keep warm with that. So 

please make sure you commit to making sure you take regional differences into account with these new standards, making sure that 

one size doesn’t fit all because in Houston, Texas, it is much different than Boston, Massachusetts. 

Ms. HOGAN. We certainly understand the climate differences 

across the country. We do. 

Mr. OLSON. OK. Take this into account, please, ma’am. Thank 

you. 

Next question is for you Mr. Parkinson. You said a worth that 

makes Texans shudder: Enron. Houston still remembers local and 

national crisis caused by Enron’s collapse. There is no place for bad 

actors in the energy market. However, I know there are plenty of 

good actors out there working through a very complex system. I appreciate, therefore, in the draft, discussion draft the concept behind 

an Office of Compliance assistance to help companies navigate 

through the FERC process. Can you tell me what resources are 

currently available today for companies to stay on the right side of 

the law, and do you believe that these resources are convenient and 

located inside FERC conveniently? What is out there, sir? 

Mr. PARKINSON. I do think they are sufficient, and Mr. Quinn 

may want to weigh in as well. We do have multiple avenues for 

folks to come in and receive guidance from FERC. On the market 

side, in particular, there is an opportunity for actors in the markets 

to come, and if they are wondering about whether a particular activity is lawful or not, they can request a no-action letter. There is 

a process by which any market participant can seek a no-action letter. Very few people do it in the enforcement world. And I am not 

sure why they don’t do it, but I will say that that opportunity is 

there. We freely communicate in the enforcement side with counsel, 

and with our investigative subjects about what we think. There is 

very little mystery about what we have concluded and what we 

think the law is. 

The Commission tries to set forth in detail its rationale for what 

it considers market manipulation. There are dozens of settlement 

orders out there where the Commission has tried to set forth that 

54 

guidance, as well as in Order 670 itself. So the Commission does 

make a significant effort to educate. An example last week, the 

Commission issued an 89-page order in one of our market manipulation cases which laid out in great detail not only facts, but its 

legal conclusions and what it believed the standard should be. That 

is pretty unusual in the Federal Government to have a Commission 

put that kind of time and effort and try to lay out that sort of guidance in that kind of detail. 

Mr. OLSON. Mr. Quinn, final comments? I am over my time, so 

make it quick please. 

Mr. QUINN. I would just add that there is other informal methods 

for getting guidance. There is a compliance help line. There are 

also formal ways to do that through a request for declaratory order. 

Mr. OLSON. Thank you. Yield back. 

Mr. WHITFIELD. At this time I recognize the gentleman from 

California, Mr. McNerney, for 5 minutes. 

Mr. MCNERNEY. Thank you, Mr. Chairman. And I appreciate the 

effort that is going into this bipartisan bill. Dr. Hogan, how much 

do you think the Clean Power Plan’s goals could be met by energy 

efficiency improvements alone? 

Ms. HOGAN. As you know, the administration supports sort of an 

all-of-the-above strategy, and clearly, energy efficiency is part of 

that all-of-the-above approach. There is a substantial amount of energy efficiency that is available in all parts of the country, but I 

am not sure I want to go too much farther than that other than 

there is energy efficiency available as a low-cost resource in all 

parts of this country. 

Mr. MCNERNEY. And that wouldn’t affect the grid’s reliability? 

Ms. HOGAN. It should help the grid’s reliability. 

Mr. MCNERNEY. Thank you. Mr. Quinn, on Section 4211, how 

much regulatory burden do you think that that section would add 

to energy producers in this country? 

Mr. QUINN. I think our primary concern is simply that most of 

what Section 4211 requires is already being done by Commission 

staff with a secondary concern that to the extent that you had a 

separate independent office doing that, there is the potential that 

the guidance presented in the recommendations for improvement 

would become inconsistent with other guidance from Commission 

staff. 

Mr. MCNERNEY. OK. Mr. Parkinson, do you believe this regulation would make the States more vulnerable to market manipulation like was experienced in California in the year 2000? 

Mr. PARKINSON. With respect to the four amendments that are 

in the draft, yes. 

Mr. MCNERNEY. Thank you. Mr. Parkinson, what are the implications of the phrase ‘‘helpful and potentially helpful’’ in Section 

4212? 

Mr. PARKINSON. That is really a pretty dramatic rewrite of what 

people refer to as the Brady doctrine, even in a criminal context, 

which is where it really applies. Brady does not apply legally, at 

least constitutionally, in a civil context like we are under, even 

though we voluntarily adopted it as a Commission in 2009. But it 

really, under that standard, essentially what it would end up being 

is an open file discovery policy. If you say you are entitled to inforVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
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mation and possession of FERC that is helpful or potentially helpful to the defense, I don’t know what wouldn’t be, whether it is inculpatory, exculpatory or anything even neutral. 

If I am defending an investigated subject, of course everything 

that the Government has is helpful to me, or potentially helpful, 

even if it is—maybe especially if it is inculpatory, I would like to 

know that because it is helpful to me in preparing my defense. I 

think that that language, in particular, is our biggest concern 

about that part of the proposed 4212. 

Mr. MCNERNEY. So you feel it would be an advantage to eliminate that terminology? 

Mr. PARKINSON. Absolutely. 

Mr. WHITFIELD. Would you tell us what that terminology is 

again? 

Mr. MCNERNEY. Helpful or potentially helpful in Section 4212(1). 

Next question, in Section 4212(4), would that section compromise 

the attorney client privilege or affect impartial fact-finding conducted by FERC? 

Mr. PARKINSON. It certainly could. I don’t think there is any 

question it would impede the ability of the enforcement staff to regularly communicate with the Commission and with others in the 

agency. It simply is unworkable to restrict the enforcement staff 

from those communications unless we ignore the fact that the Commission itself owns and manages its enforcement program. I mean, 

it does wear two hats in this world. It is responsible for having a 

strong enforcement program, and it is also responsible at later 

stages in particular cases to be adjudicators. 

But much of the discussion around this has been focused only on 

the adjudication phase. I don’t know how a Commission effectively 

oversees an enforcement program if the enforcement staff isn’t able 

to regularly communicate with them without having to put it in 

writing or without having to give the investigative subject the opportunity to address the Commission in the same way. We are 

counsel to the Commission, and our investigators are lawyers, and 

we give legal advice to the Commission on an ongoing basis. 

Mr. MCNERNEY. Thank you, Mr. Chairman. 

Mr. WHITFIELD. At this time I recognize the gentleman from Illinois, Mr. Shimkus, for 5 minutes. 

Mr. SHIMKUS. I just got back, Mr. Chairman, so I will yield to 

the next member. 

Mr. WHITFIELD. OK. Mr. McKinley of Virginia for 5 minutes—I 

mean, from West Virginia. 

Mr. GRIFFITH. Mr. Chairman, some of us in Virginia never acknowledged that they lawfully were transferred. 

Mr. WHITFIELD. Well, Mr. McKinley is such an easygoing guy. I 

knew it wouldn’t bother him. 

Mr. MCKINLEY. Just like this all the time. The question that I 

was wrestling with a little bit on the efficiency issue has to do with 

a little bit deeper from an engineering perspective, and that is on 

indoor air quality and the impact that has on energy efficiency, and 

I am just curious as to how you have taken that into consideration, 

because as we know, we can be, we can have the best equipment 

available, but if we are not using it properly, we are going to defeat 

the purpose. And we know that—that was one of our practices in 

56 

architecture engineering, what we did was we went into schools, 

and we found out schools all over America that we were called into 

are not operating their equipment. They may have new equipment, 

but they are not operating it properly. So we can spend all this 

money to put all this new equipment in, but if it isn’t operating, 

so where are we going within energy efficiency within FERC or 

with the DOE? 

Ms. HOGAN. Certainly we pay attention to indoor air quality at 

the Department of Energy as we think through energy efficient 

homes and buildings. We have got a program now that we are 

working on with builders across the country, called Zero Energy 

Ready Homes, which is really a way of saying energy efficiency 

first, and then rolling in renewable energy as it makes sense. And 

that is a high-performance home specification that builders are 

building to that gives a lot of thought to indoor air quality issues, 

water management, home design, sort of the whole package. 

Mr. MCKINLEY. And in conjunction with that, that is where some 

people are saying, and I am just taking into consideration from the 

professional engineering position, is that the tighter we make our 

buildings and more efficient, or effective with this wrap and the 

closed windows and we don’t get in fresh air, it is its no wonder 

that we are having more indoor air quality problems, that people 

are having asthma and other health-related issues as a result of 

this. 

I am not convinced yet that we have the answer. We know the 

EPA, in and of itself, has said that indoor air quality is probably 

90 times worse than the outdoor air quality, and they relate it to 

the levels of formaldehyde that we have in our indoor air because 

of our carpet, our furniture, our clothing, all giving off these gases; 

and we are not circulating the air the way we are supposed to. So 

we may have the best equipment, but if we are not handling it 

right, what are we doing? 

Is anyone willing to acknowledge that perhaps some of the health 

risks that we have—you have heard the rattle off. I have heard it 

from across the aisle—all the asthma attacks, the early health 

risks, sick days, are all caused by coal. Well, I want to submit to 

you that perhaps it is a lot caused by indoor air quality when we 

are not operating our homes in the most efficient way. How can 

you respond to that? Would you agree that indoor air quality is a 

problem? 

Ms. HOGAN. I certainly agree that indoor air quality is something 

that we need to pay close attention to. 

Mr. MCKINLEY. Is it a problem? 

Ms. HOGAN. We work with EPA on indoor air quality issues. 

Mr. MCKINLEY. Do you think—I am sorry. 

Ms. HOGAN. Absolutely it is an issue that—— 

Mr. MCKINLEY. OK. I just wanted to hear you say that it is a 

problem, because I haven’t been able to get anyone else to acknowledge that it is a problem. So thank you for stepping up. OK. Thank 

you. 

So where do we go from that? 

Ms. HOGAN. We continue to work on it. I think one of the other 

ways that we are working on it, we are a participant in the 

57 

ASHRAE committees that are looking at, you know, standards 

around airtightness for homes and—— 

Mr. MCKINLEY. And school classrooms. We know that school systems, public buildings, Federal buildings, they will close dampers 

so they will shut off so that fresh air—they are not bringing fresh 

air into it, so that they don’t have the air turnover. We know a 

classroom should have two to four air turnovers per hour, and they 

are not getting it. Little Johnny is sitting there sneezing next to 

Nancy, and they are dealing with the same air all day long, and 

then they wonder why does little Johnny get sick. 

Ms. HOGAN. That is right. And there is a lot of effort being put 

on ongoing continuous commissioning of buildings so that you can 

keep the buildings and their equipment in sort of top notch operating, you know, performance, and that is another effort that the 

Department of Energy is continuing to work on for really buildings 

of all types. 

Mr. MCKINLEY. Well, I am just saying that I know the frame— 

we are running out of time, but I just hope as we develop this final 

draft and as we work down through it is that we take into consideration into indoor air quality because—and thank you for acknowledging that it is a problem and that—see how we can work 

that into it because having the best equipment doesn’t always solve 

the problem. And having the most efficient doesn’t solve the problem if people aren’t operating the building properly. 

Thank you. I yield back my time. 

Mr. WHITFIELD. Chair now recognizes the gentleman from New 

York, Mr. Tonko, for 5 minutes. 

Mr. TONKO. Thank you, Mr. Chair. 

Dr. Hogan, Section 4115 of the Energy Efficiency Discussion 

Draft repeals a provision of the Energy Conservation and Production Act that sets out an aggressive set of energy efficiency goals 

for Federal buildings. I don’t support repealing this provision, and 

I believe the Federal Government should be a leader in demonstrating what can be achieved with new technologies and building design. 

The administration has a number of executive orders that address energy efficiency goals for the Federal Government. 

Would you please talk a bit about these and what the administration believes are achievable efforts for Federal buildings. 

Ms. HOGAN. Sure. So, you know, we have a very recent executive 

order as of March of this year that came from the White House 

that outlines a set of extended and/or new goals across much of the 

Federal facilities, fleets, and so that includes things like reducing 

our greenhouse gas emissions by 40 percent by 2025 relative to a 

2008 baseline. It includes continuing to improve the efficiency of 

our Federal facilities by 2 1⁄2 percent per year through 2025, though 

that 2 1⁄2 percent per year does not just have to be energy efficiency, it can be through the use of on-site renewables. It also includes continued goals for saving water, as an example, and continued growth in the amount of our electricity use that we would get 

from renewable energy sources growing to about 30 percent by 

2025 relative to where we are right now, which is a little under 10 

percent. 

58 

So these are what we believe to be aggressive but achievable 

goals, and if you actually cost it out from the savings that we think 

we can deliver to the taxpayer as we would meet these goals, we 

estimate about $18 billion in savings from working to achieve these 

goals. 

Mr. TONKO. Thank you. Thank you. 

And the Department has been working on a number of important 

standards to improve the energy efficiency of various products. 

Now, the effort to develop a standard for residential non-weatherized gas furnaces is one of those. 

I have seen the projected savings for consumers for this rule, and 

it is very impressive. Since these furnaces are in place for about 

20 years, it is important so have an aggressive standard. 

This discussion draft sets this rulemaking back, I believe, by a 

considerable period, further delaying progress on efficiency. I am 

also not convinced this study will do anything to resolve the potential problems the rule’s critics have noted, primarily, that some 

low-income homeowners might not be able to afford the installation 

of these furnaces, or that all homes and buildings cannot accommodate these furnaces. I believe the experience has been that installation costs drop and new installation methods develop as familiarity 

with new products and their installation goes forward. In fact, this 

usually results in the cost estimates for these rules being high relative to actual experience. 

My understanding is the furnaces the rule is recommending are 

already on the market and account for between 40 and 50 percent 

of new sales. Would you agree with that? 

Ms. HOGAN. I certainly know that the products are on the market. They represent a fair amount of new sales. I would have to go 

back and confirm those specific numbers, and would be happy to 

do that. 

[The information follows:] 

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

to be at or above the proposed level. 

Mr. TONKO. OK. And also would you happen to know the projected consumer savings for this rule? 

Ms. HOGAN. We think the net present value of savings for the rule is $18 billion. 

Mr. TONKO. Thank you. And DOE’s proposed rule takes a different view from that of the rule’s critics with respect to the cost 

effectiveness of this standard. 

Do you believe the rule meets the statutory requirement that the 

standard be, quote, ‘‘economically justified’’? 

Ms. HOGAN. The proposed rule clearly meets that requirement, 

absolutely. 

Mr. TONKO. And I also note that the statutory requirement—that 

the statutory requirement is that a new standard achieve the maximum improvement in energy or water efficiency. 

Does the rule meet those given requirements? 

Ms. HOGAN. Yes. We believe that this rule is within our statutory 

responsibilities. 

59 

Mr. TONKO. OK. Well, I thank you, Dr. Hogan. I think this rule 

offers tremendous benefits to consumers. 

With that I yield back, Mr. Chairman. 

Mr. WHITFIELD. Chair recognizes the gentleman from Illinois, 

Mr. Shimkus, for 5 minutes. 

Mr. SHIMKUS. Thank you, Mr. Chairman, and thank you for letting me defer to—and welcome. This is a great committee. We love 

talking public policy and these relationships. 

Ms. Hogan, I hope that in this debate about efficiency, I have 

kind of—I am from rural Illinois, 33 counties, small communities. 

I understand efficiency, and I have accepted some of the arguments 

that there is return on investment, but I think, you know, Mr. 

McKinley—and there are some points about new technology that 

ends up being more costly. Get a new furnace, you have to get new 

filters. You don’t get these little ones anymore, you get the—you 

don’t get the $12 filters, you get the $60 filters. A service call is 

not 100 bucks, it is 250 bucks. Are some of those costs to middleincome, lower-income folks taken into consideration? 

Ms. HOGAN. When we do our work, our analysis, we look at all 

the installation, O&M costs, associated with a change to a higher 

efficiency unit, absolutely—— 

Mr. SHIMKUS. Because I am personally starting to have a debate 

just in my own house about how much savings I have versus the 

actual cost, because you got to have those technicians out all the 

time. You know, spring and fall, and, I mean, I just think there 

is—I hope we are because I am not sure how people, middle to 

lower income, can afford high efficiency, and the maintenance requires you keep them running at the standard, I think Mr. McKinley was raising, to get that return on investment. Because most 

people—those old furnaces, they would work. They would work 20 

years. Not efficient, but they weren’t high tech. If a belt broke, you 

replaced the belt. Right? So I just want to highlight that. 

The other thing is, Mr. Quinn, did we meet recently? I met with 

FERC on a recent auction. Were you part of that meeting? 

Mr. QUINN. I was not part of that meeting. 

Mr. SHIMKUS. OK. I couldn’t remember. I am trying to ask my 

staff. 

So this is also timely, and just the auction issue, I am in the 

MISO area. So we had an interesting auction. I found out that 

those auctions happen every now and then throughout the country. 

So these questions kind of deal with that a little bit. 

In the committee’s legislation, you make a statement that some 

of it is unnecessary because did youalready have a lot of pending 

documents to address several of the wholesale electricity market 

criteria that the committee highlights in its draft market reform 

legislation, including price formulation in energy markets, fuel assurance, and performance assurance in capacity markets. 

Do you have any idea when these pending docket decisions will 

be made? 

Mr. QUINN. Congressman, I can’t say when the Commission will 

take action. Just simply—— 

Mr. SHIMKUS. No. That is fine. Just getting it on the record. 

Since you can’t provide additional details on timing at that moment, will you commit to following up for the record to provide inVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
60 

formation regarding the expected timeline for the Commission action on these initiatives? 

Mr. QUINN. Congressman, staff has limitations on—legal limitations on saying when the Commission will take action, partly just 

by matter of law. Second, because it is a five-member Commission, 

you have got to get—— 

Mr. SHIMKUS. Yes. So here is our problem. The dilemma is we 

believe in markets, we believe in competition, but sometimes they 

go awry and we have a hard time understanding how that happens. I mean, in my briefing, I think the formula per laid out probably was right, but the answers—when you have, in essence, a 300 

percent increase, which I think it was in the MISO region, to the 

average person, there is a concern that somethingis not right with 

the form—somethingis not right with the process. If—so we— 

maybe a lot of members, Republicans specifically believe in markets, we believe in competition, but—and what our concern is that 

if we don’t get some warm and fuzzies from the FERC, that there 

may be a call to legislate in the areas of electricity markets in the 

absence of concrete and timely action by the Commission, we may 

not have any other choice. So maybe that is a message you can 

take back to the Commissioners, and you can respond if there is 

anything else you want to add to that. 

Mr. QUINN. The only thing I would add is simply that the 

amount of work that the Commission staff has done on a number 

of efforts, including price formation, fuel assurance, has brought together a large number of stakeholders, offered a large number of 

perspectives on what are really complex issues, allowing the Commission to pursue those activities as they currently are now, understanding the need for timely action would allows us to get the benefit of what that stakeholder community has provided. 

Mr. SHIMKUS. Thank you. 

Thank you, Mr. Chairman. 

Mr. WHITFIELD. At this time, the Chair would like to recognize 

the gentleman from Vermont. And I want to a apologize. I had two 

Democratic orders. In one of them you were before Mr. Tonko, and 

the other you were behind, but you are recognized for in 5 minutes 

and 15 seconds. 

Mr. WELCH. I am happy to get my time. Thank you. 

A couple of things. One, I am so grateful to DOE and FERC and 

all of the advocacy organizations that have worked so hard for so 

long on focusing attention on energy efficiency. And there is two 

things I think we need in order to ultimately be really successful. 

One is we need bipartisanship on the jurisdictional committee, and 

we have got that. It is tremendous. 

And, number two, we need to have cooperation and communication between the advocacy community, the regulatory agencies, 

DOE, and FERC, and the private sector who are in the real world 

dealing with some of Mr. Shimkus’ concerns, because if we have a 

standard that has the maximum efficiency but nobody can afford 

it, it is not going to save money and it is not going to save on energy. 

So I appreciate this sort of cooperation that recognizes that all 

of us have to be involved in some give and take, taking into account the real world where home builders are out there banging 

61 

nails, where the energy efficiency folks are looking at policy and 

seeing best practices, and where the legislature has a responsibility 

to try to find that common ground. 

But so, Dr. Hogan, I just want to ask you a couple of things. We 

have got a great bill here. And there is a few things that have to 

be wrinkled out. Mr. McKinley and I have some provisions in there 

that are being debated, and our colleagues, Ms. Blackburn and Mr. 

Schrader, have an alternative offer on that, and we want to try to 

work that out. But I want to just ask you a couple of questions 

about that because that has to do with the DOE rule. 

Under current practices, when new building codes are being developed, does DOE consider the cost effectiveness of the codes that 

it proposes? And, if so, can you describe what that analysis looks 

like, because there has been some debate on if a 10-year simple 

payback period analysis would be more effective. You know, it is 

simple and straightforward, or if a life cycle cost analysis provides 

also, in some cases, a more complete picture of the cost and benefits of these codes on homeowners? 

Ms. HOGAN. Well, thank you for the opportunity to address that 

question. 

DOE does do assessments of measures to take to an independent 

code body for their consideration as part of updating the national 

model energy code. And in doing that work, we do do a life cycle 

approach, life cycle cost effectiveness approach, because we do believe that is a better representation of the cost of more efficient 

measures that aligns with the way most people buy homes these 

days. Most people are taking out mortgages. 

Mr. WELCH. Can you also do 10-year analysis too on the payback? 

Ms. HOGAN. We can do any analysis that we are asked to do. I 

think we do believe that a life cycle approach is one that tells sort 

of the best story aligned with the way most people buy their 

homes. But we certainly can do multiple approaches. 

Mr. WELCH. OK. Well, that makes sense. 

Another thing, DOE does provide right now robust technical assistance to States and model code development bodies upon their 

request in the development and adoption of building energy codes. 

What would be the impact if we were to restrict this technical assistance to only providing those bodies that have requested it with 

information on proposals with a payback of 10 years or less using 

simple payback only, and not also providing with the life cycle 

analysis that they could consider and accept or reject? 

Ms. HOGAN. Well, we haven’t looked in great detail in terms of 

what specifically would change if we were limited to a 10-year simple payback. We don’t think it would be as helpful to the States 

in terms of understanding what the measures are, and what the 

savings are that they could then deliver to home buyers in their 

State. We do think having, you know, as you can tell, we think 

doing a life cycle approach is really a better approach, but also just 

having the opportunity to do multiple approaches so people can actually figure out truly what works for them would be much better. 

Mr. WELCH. OK. And just my last quick question, the draft text 

includes a provision to repeal Section 433 of the 2007 Energy Independence and Security Act. Mr. McKinley and I are working on an 

62 

alternative proposal to reform it rather than repeal that provision. 

Our proposal would replace Section 433 with an extension of energy efficiency improvement targets in Federal buildings and require Federal mortgage agencies to include energy efficiency as a 

factor in determining value. 

What is the DOE view of repealing Section 433? And what do 

you think about the McKinley Welch approach as an alternative? 

Ms. HOGAN. So we think it is great when the Federal Government has sort of a full tool kit of things to help guide its investments. We think Section 433 provides an aspect of that, particularly focused on what we can be doing in major renovations of our 

buildings. That is in a gap currently in sort of the Federal tool kit. 

DOE’s been making some important progress in, you know, moving 

forward on 433. But it is really that gap that we think is the important part. 

So the extent there are, you know, direction from Congress on 

how we can continue to have a full tool kit, you know, that is the 

type of thing we would be happy to work with Congress on to find 

something that is workable there. 

Mr. WELCH. Thank you. 

Ms. HOGAN. And we are certainly excited about some of the 

things going on in the SAVE Act. 

Mr. WELCH. Well, good. I thank all the panel members, and I 

yield back. 

Mr. WHITFIELD. At this time the Chair recognizes the gentleman 

from Ohio, Mr. Latta, for 5 minutes. 

Mr. LATTA. Well, thank you very much, Mr. Chairman. And to 

our panel, thanks very much for being with us today. 

If I could, Dr. Hogan, Representative Welch, who was just speaking, and I have also introduced legislation that would ensure customers are protected when products are disqualified under the Energy Star program by requiring the EPA to make a determination 

as to whether consumer compensation is required. This language is 

supported by many outside groups, including the Alliance to Save 

Energy, the American Council for Energy Efficiency Economy, and 

the National Association of Manufacturers. 

Let me ask, do you agree that consumers benefit from a strong 

Energy Star program? 

Ms. HOGAN. Yes. As you may know, the Department of Energy 

is a partner with EPA in the Energy Star program, and we are 

very supportive of efforts that would help maintain the integrity 

and the credibility of the Energy Star program, absolutely. 

Mr. LATTA. And, again, because the reason I ask is that, you 

know, we don’t want to have manufacturers out there fearing that 

if they get caught up in lawsuits certain times and with warranty 

issues and things that there are implied warranties that all of a 

sudden, you know, they just start saying, you know, we are just 

going to start dropping the Energy Star program from their lines, 

and I think you—you are absolutely right that Energy Star is 

something that we have to maintain, and that is why we are very 

much for it in the legislation. 

If I could ask another question, that is, you know, for over 60 

years air-conditioning, heat pump, furnace, boiler, and water heating manufacturers relied on voluntary independent certification 

63 

programs that determine efficiency compliance with both the Department of Energy and the Energy Star program. These industry 

led voluntary certification programs continue to be the gold star for 

market surveillance and for ensuring product compliance. And, 

again, I have introduced bipartisan Voluntary Verification Program 

Act which would require the Federal Government to recognize voluntary industry verification programs to demonstrate energy efficiency standards. 

And would you comment on your willingness to work with us to 

make sure that we can get this enacted into law? 

Ms. HOGAN. Yes. We are very supportive of industry led voluntary verification programs. You know, we see that that can play 

a very important role in that verification space, and we would be 

very happy to work with you to make sure that something can be 

constructed that can do that—do that well. 

Mr. LATTA. I appreciate that. Also during our April 30 energy efficiency hearing, we received testimony from one appliance manufacturer who stated that the legislative approach taken in the committee’s discussion draft regarding the voluntary independent 

verification programs conserves DOE resources, reduces taxpayer 

costs, and provides clarity for a manufacturer bringing products to 

market. 

Would you agree with that statement? 

Ms. HOGAN. We would agree that a well-constructed, you know, 

industry led verification program can absolutely do those things. 

Mr. LATTA. OK. Let me just follow up. When you say a ‘‘well-constructed,’’ how would you define well-constructed? 

Ms. HOGAN. Well, just one that works well with the Federal Government in terms of sharing information back and forth so that we 

sort of know what is going on there and can—and can leverage and 

benefit from that information. 

Mr. LATTA. And right now do you think that there is that good 

back and forth from the industry to the Federal Government on 

that between the industry? 

Ms. HOGAN. So we have a model program that we do work with 

with AHAM, and we have been in conversation with the heating 

and cooling and, you know, industry as well about how to structure 

such an effort through—through, you know, a fairly lengthy conversation. 

Mr. LATTA. OK. In that conversation that you were having, what 

is the feedback you are getting from the industry side? 

Ms. HOGAN. So we are talking with them. We are also talking 

with people on the Senate, really, who are also constructing similar 

legislation, and we think we are really close in getting to some 

good language. 

Mr. LATTA. Mr. Chairman, I yield back the balance of my time. 

Mr. WHITFIELD. Gentleman yields back. 

At this time, the Chair recognizes the gentlewoman from Florida, 

Ms. Castor, for 5 minutes. 

Ms. CASTOR. Thank you, Mr. Chairman, and thank you to our 

panelists today. 

I have to say like the ranking member, Chairman Whitfield’s 

comments got my attention at the beginning of the hearing. I know 

he is a zealous advocate for his district, and, Mr. Chairman, if you 

64 

believe that we need to broaden the authorities of FERC and the 

Department of Energy to more directly address carbon pollution, 

and to reduce carbon pollution and make it more explicit as part 

of their missions, I would be willing to work with you on that. 

Mr. WHITFIELD. Thank you. 

Ms. CASTOR. But you mentioned the—at the outset the Energy 

Policy and Conservation Act which is the bedrock—one of the bedrock components of energy laws in America, and I do believe it was 

signed into law by President Ford and not President Carter. So the 

history of energy efficiency has always been bipartisan because 

that—the goals of that law were to increase production and supply, 

energy supply, to reduce demand. We have done a good job on 

those things. You look around America now, and we have robust 

energy supplies, and we are going to be a net exporter. We have 

done this while being able to reduce demand. And Mr. Olson left, 

but I can talk about a hot and humid climate as well, and we rely 

on air-conditioning, and we need to make sure that we have both, 

we have a robust supply, but that it is cost efficient for all of our 

neighbors. The law also said: America, you have the tools to address an energy crisis, and then importantly it said: Let’s unleash 

American innovation through energy efficiency and conservation. 

Look what has happened in our fuel economy standards for cars, 

and now we are setting goals for trucks. This has been an enormous success for Americans, for consumers, for the auto industry. 

It has put a lot of money back into the pockets of my neighbors at 

an important time. 

Also the businesses that have been created across our great Nation in conservation and lighting, building, building on a lot of the 

bipartisan efforts here with Mr. Welch, Mr. McKinley, Mr. 

Kinzinger. I have been focused on benchmarking buildings across 

the country so that we can measure this and hold folks accountable. 

This—while climate change and carbon pollution may not be the 

overriding goal of our energy efficiency agency, it does dovetail 

nicely with their mission while lowering costs for consumers, addressing the impacts of climate. I know there has been discussion 

about cost and do these energy efficient appliances, do they—are 

they really cost efficient? And I think when you look at the decades 

gone by you, the overwhelming answer is yes. This has been incredible to create jobs, lower energy bills for so many of our neighbors. And now it is even more important now that we understand 

the impacts of the changing climate. 

And when you talk about costs, if we do not do some things to 

become more efficient and reduce carbon pollution, the costs are 

going to be enormous. They are going to be astronomical. Already 

increases in property insurance, flood insurance; we are having to 

make investments in water supply due to droughts and sea level 

rise. We are anticipating more intense lightening storms. Tampais 

known as the lightening capital of the world, and I am not just 

talking about the Stanley Cup finals that begin tonight. But think 

about that. If electrical storms begin and they are more intense, 

the risk that we put our businesses and neighbors at. 

I think part of the problem, Mr. Chairman, is the old traditional 

electric utility model on selling as much energy as we possibly can 

65 

simply doesn’t fit the modern challenges we have today. We have 

got to build in additional incentives to become more efficient. And 

based upon the evidence of the past that it helps create jobs, it 

helps lower costs for our neighbors, we can do this. 

So I don’t have any questions today. Thank you for letting me 

go on on that, Mr. Chairman. You inspired me to make some comments, and I look forward to working with you on this draft. 

Mr. WHITFIELD. Well, I am glad I got you excited there, Ms. Castor. 

At this time I would like—inspired. Maybe I should say inspired. 

This hasn’t really been a good afternoon for me, truthfully. 

At this time I would like to recognize the gentleman from Virginia, Mr. Griffith. 

Mr. GRIFFITH. Well, I got inspired too. I have got to tell you, Mr. 

Parkinson, I am really curious. What is the worst-case scenario offense that you all would investigate? 

Mr. PARKINSON. Worst case offense? Manipulating the energy 

markets. 

Mr. GRIFFITH. OK. And I was a little surprised in regard to the 

Brady information, and you said what would be helpful, inculpatory information would be helpful. Yes, it is helpful. If you are trying to defend somebody who is being accused of doing something 

improper, having all the information is helpful. And you said, well, 

this would be you like an open file policy. Well, I always found in 

my years of lawyering that the really good prosecutors, and I don’t 

know how you all did it wherever you were, but the really good 

prosecutors, unless it was a serial murderer, child sex offender, 

something really heinous, they gave you the open file because it 

helps you reach a settlement. 

And so I don’t understand the resistance. I am having a real 

hard time sitting here listening to you talk about how there is— 

sometimes this is our problem, giving people information so that 

you can reach a settlement is a problem. That is not a problem. 

That is the way you want to get a lot of these cases resolved. It 

would make you all more efficient. You could get on to bigger problems. It is the people that you are not talking to. And then you 

seem to have a problem with giving a witness their own statement. 

How in the world is that not just regular course of order? I mean, 

maybe it is just a Southern thing or a small town thing, but I think 

if I make a statement to you, I ought to have a copy of my statement. 

Now, if you want a court order that says I can’t talk to anybody 

else, that is fine. But I am going to remember most of my statement to the ability that if I am going to go out and try to collaborate or get our stories straight, I am going to do that without a 

written transcript of my statement, but if I want to be able to show 

my lawyer what is going on, or maybe get advice from a second 

lawyer, that seems to me to be reasonable. Can you answer any of 

these questions for me? And I got more. 

Mr. PARKINSON. Yes. Sure. I would love to, Congressman. Let me 

start with the first one about this is not a hide-the-ball kind of 

process. 

Mr. GRIFFITH. Because that is what you made it sound like. 

66 

Mr. PARKINSON. If I made it sound that way, then I misspoke or 

was misinterpreted. 

We are talking about a pretty narrow issue about Brady, which 

is what the amendment does. We have a process at FERC and 

FERC enforcement where we lay out in extraordinary detail for the 

subjects of our investigations everything we have concluded, both 

factually and legally. We lay it out often in preliminary findings 

letters. They go on for dozens and dozens of pages, unlike any 

other Federal agency that I am aware of. This is—we have regular 

communications with counsel throughout the investigation. We— 

and during the—near the end stages of the investigation we lay out 

our preliminary findings. They have an opportunity to submit with 

no limitation on length. Whatever they want to submit. There is 

two other additional opportunities to do that. 

Mr. GRIFFITH. But I guess my problem is your testimony earlier 

was you were opposed to some of the language that does just what 

you are saying you do. Why would you be opposed to something if 

you agree with me that it is the right thing to do and the fair thing 

to do, why would you be opposed to it? 

Mr. PARKINSON. There is a significant difference between laying 

out everything we have concluded and laying out during the course 

of an investigation, which is what this is talking about. This is not 

the adjudication phase. This is not the phase where we brought 

charges and there is a process in place. 

Mr. GRIFFITH. Well, let me go there because I am—I could probably go on for an hour. I am troubled about so many things. So let 

me get this straight. You all have a process—I mean, I think the 

bill ought to be expanded, Mr. Chairman. You all have a process 

by which the Commissioners are involved in the investigation, because you then establish an attorney/client relationship with the 

Commissioners, and then, those same Commissioners are judging 

the case. 

Now, let me give you an analogy that I think is fairly close. You 

got a building official who is investigating somebody who may not 

have followed the building code in building a building. And they go 

talk to the judge in advance and say, how do you think we ought 

to investigate? How do you think we ought to lay out our case on 

this? And then you expect that the defendant, or the person who 

is accused, whatever terminology you use, thinks they are getting 

a fair hearing when they walk in front of the judge who has an attorney/client relationship with the person who is prosecuting them? 

How does that work? How is that fair? How is that due process? 

And I am running out of time, but you said a couple times that, 

you know, that some of these things could be burdensome. Yes. 

Due process is burdensome. Liberty is hard to hold on to. And having the Government not take your property, your money, without 

a fair hearing is burdensome. But it is the American way. And so 

next time you start talking about how these requirements might be 

burdensome, you might want to think about in the real world, people hearing that think that you have got some kind of cloak-anddagger operation going on that is not a due process or fair system. 

And I am out of time. So I yield back. 

Mr. RUSH. Gentleman yields to me a few seconds? 

Mr. WHITFIELD. Sure. 

67 

Mr. RUSH. I want to yield—you don’t want to respond to that— 

Mr.—— 

Mr. PARKINSON. Sure. It would take a while. I mean, burden— 

we recognize that there are burdens. I am not complaining about 

burdens. We believe deeply in due process. I think the example— 

there is nothing unique. I think one thing that is really critical to 

understand is thereis nothing unique about FERC, and the notion 

that the Commission—in particular on the Commission, the Commission wears two hats. You can’t—unless you are going to separate the Commission, which, again, is a bipartisan Commission, 

there are five members. 

Unless you are going to say the Commission has no role in enforcing—in administering its own enforcement program, you can’t 

isolate the Commission from the investigative and from the enforcement process. You can’t. I guess you could legislate that, but 

it would be—it would be different than every other Commission 

process in the Federal Government. 

Mr. WHITFIELD. Well, you know, Mr. Parkinson, I think—— 

Mr. PARKINSON. And just one other point if I might—— 

Mr. WHITFIELD. Yes, and I think what would also be helpful in 

4212, which is what we are discussing, that we have an opportunity to sit down with you and some others and Mr. Griffith and 

just go in more detail. 

Mr. PARKINSON. I would be delighted to do that. 

I just wanted to make one more point if I could, Mr. Chairman, 

and that is—and that is ultimately everything the Commission 

does is reviewable by the Federal courts. If there is a trial within 

FERC, that can be appealed to the DC Circuit or Court of Appeals. 

If the Commission orders—issues an order assessing a penalty as 

it did last week in one of our manipulation cases, we go straight 

to district court, and then we are in a Federal court process and— 

and the ultimate—ultimate say belongs in the Federal court. So it 

is not an adjudication that is unreviewable. 

Mr. WHITFIELD. Well, like I said, we look forward to having further discussions with you about it. Because 4212 was the subject 

of this, and there are some language in here that seems pretty judicial normal process to us, due process, and so we will discuss that 

more with you and others. 

At this time I would like to recognize the gentleman from Texas, 

Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

Secretary Hogan, in 2007 Congress passed the Energy Independence and Security Act. EISA in 2007 was the last energy package 

this body has passed. In that legislation there is a provision 

under—and it has already been mentioned—Section 433 that required the reduction of fossil fuel-based energy consumption. Section 433 required Federal buildings to eliminate 100 percent of fossil fuel consumption by 2030. In October of 2010, the Department 

of Energy issued a notice of proposed rulemaking to begin the rule 

propagation process. 

What is the current status of that rulemaking? 

Ms. HOGAN. The most recent action on that rulemaking that is 

public is that we put out a supplemental notice of proposed rulemaking in the fall and took comment on that. And in that suppleVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
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mental notice, what we proposed was any number of ways to provide the Federal agencies with increased flexibility in terms—in— 

in how to meet the requirements of Section 433. 

Mr. GREEN. OK. There had been considerable debate on regarding the length of time that DOE took to begin the rulemaking. 

What issues has DOE faced while attempting to draft this rule? 

Ms. HOGAN. I think we are looking to provide, you know, good 

flexibilities to the Federal agencies as they would, you know, be required to meet the fossil fuel requirements as—that which, you 

know, get increasingly more stringent as you walk through time. 

You know, this is a provision that looks at major renovations as 

well as our buildings, sort of newly constructed buildings, but we 

do see it playing a really major role with our major renovations. 

So really being thoughtful about the types of flexibilities that we 

could offer up to the Federal agencies has been sort of the big subject of solving that we needed to do. 

Mr. GREEN. This last March, the White House issued an executive order entitled Planning for Federal Sustainability in the Next 

Decade. The executive order requires about 2025 no less than 30 

percent of the electricity energy consumed is attributable to renewable energy. 

Does DOE consider the executive order an admission at the administration that 100 percent by 2030 of no fossil fuel is not attainable? 

Ms. HOGAN. No. We view these as complementary tools, and that 

the executive order which would go through 2025 is a management 

framework for the Federal agencies through 2025 of ambitious but 

achievable goals. 

Mr. GREEN. I think the reason 433 is part of the package is 

that—I think all of us would hope that we would not need fossil 

fuel by 2030, but, you know, that includes natural gas also, and 

typically that is going to be the fuel of the future. We can do wind 

power, and in Texas we are doing a lot of wind. I wish we could 

do solar. We could use some help from our legislature sometime to 

do what we have done with wind, but I just don’t think that by 

2030, 100 percent without, you know, fossil fuels is possible. 

I would like to discuss natural gas furnaces. In 2007 the DOE 

made the first attempt to—in more than 20 years to increase efficiency standards for indoor furnaces. And I think it is safe to say 

there has been some disagreement over the proposed rulemaking 

standard setting. 

Where does the DOE rulemaking process stand today? 

Ms. HOGAN. Again, we have a proposed rule out right now for 

comment. The comment period remains open. We were asked to extend it. We have extended it. And we are actively looking to get as 

many comments as we can so that we can really look at each and 

every one of those comments seriously and then take the next steps 

with—— 

Mr. GREEN. Do you know if there is any groups that DOE hasn’t 

talked to about the—regarding the proposed rule? I think that 

might be a smaller group than who you have talked to. 

Ms. HOGAN. No, we have certainly talked with a lot of stakeholders around the furnace rule, and at many levels of the agency. 

69 

Mr. GREEN. Do you have any possible effective date for the new 

gas furnace rule? 

Ms. HOGAN. You know, typically a rule is effective within 3 years 

of it going final. Maybe this one is longer. But we will get back to 

you with that timing. I mean, we are proceeding with our rulemaking process. Once we complete the public comment process, 

take the time that we need to take to go through all the comments 

that will come in, and then put together a final rulemaking. 

[The information follows:] 

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

2021. 

Mr. GREEN. Thank you. 

Mr. Chairman, I know I am out of time, but I appreciate this section of our energy bill on efficiency, and I am glad we are reworking some of the things may not—it may be have been an earlier 

law that may not be really practical in 2015. Thank you. 

Mr. WHITFIELD. Well, thank you. Yes, we have a long way to go, 

but I think we are making progress, and these types of hearings 

certainly help. 

At this time I recognize the gentleman from Illinois, Mr. 

Kinzinger, for 5 minutes. 

Mr. KINZINGER. Well, thank you, Mr. Chairman. And to our witnesses, thank you for being here. We appreciate it. 

First to Assistant Secretary Hogan, we have heard from our 

manufacturing communities that when it comes to developing new 

efficiency standards they prefer a consensus-driven approach that 

includes input from Government, from stakeholders, and NGOs as 

a preferred approach to developing efficiency standards more than 

a formal notice and comment method. 

Will DOE commit to a more consensus-driven approach as it 

moves forward with new standards? 

Ms. HOGAN. We also really do like the engagement that we can 

get through what we call negotiated rulemakings. This is something that the agency has taken on in the last several years where 

we have stood up a Federal advisory committee, a FACA, and then 

through that, we can participate in a negotiated rulemaking process. That is a little bit different than a consensus—some of the consensus agreements that have been brought to us in the past where 

DOE isn’t actually a party to the conversation, but the stakeholders get together, come to consensus, and then bring it to us. 

Certainly this is one where we can be at the table bringing all 

of our analytical abilities to the table and having very robust conversations around what can really work for everybody. We are 

quite excited that over the last several years, we have been able 

to participate in nine rulemakings through such a process, and four 

of them have been brought to completion, and we really are committed to using this tool wherever it makes sense. 

Mr. KINZINGER. You know, obviously, I think the more we can 

strive to consensus. So several of DOE’s recent final standards 

have been challenged in the courts by manufacturers. 

Does this suggest a flaw in the current rule development process? 

70 

Ms. HOGAN. We certainly, you know, are being challenged in the 

courts. We do not think that suggests a flaw in the current rulemaking process. We do, again, to your earlier question, we do believe that a negotiated rulemaking process does help in getting a 

lot of information on the table. But I also think that the traditional 

process really can work. Because we are also working hard to run 

the traditional process in as open and as transparent a way as possible, putting really good information on the table, holding public 

meetings, walking people through our analysis assumptions, and 

also—— 

Mr. KINZINGER. All right. Well, let me—I have been lucky enough 

to work with Congressman Welch to have some sections included 

in the discussion draft in relation to ESPCs and—in order to clarify 

their authority. And the committee has been very supportive of 

these efforts so far, which I appreciate. 

In relation to the current use of ESPCs and UESCs, do you have 

any idea what percentage of the Federal energy intensity reduction 

goals is a result of their use? 

Ms. HOGAN. So the Federal Government has a long history of improving Federal energy intensity, and let me just say that performance contracting has played a really important role. You know, currently, we have got a $4 billion challenge for investment that the 

Federal agencies are working toward. We have got $2 billion of 

that $4 billion in place, and will continue for that next $2 billion. 

And as you can imagine, that is an important amount of money to 

be bringing into the Federal Government through third-party financing and not having to look to appropriations. 

Mr. KINZINGER. OK. And we have been told that the 

administrationis currently trying to use a ESPC for data center 

consolidation. 

Could you update us on the status of that? 

Ms. HOGAN. Just—so the Department of Energy is—you know, 

does have a goal as part of this performance contracting challenge. 

The Department of Energy has done a number of projects. It is considering this data center project as one of its projects, and I don’t 

know sort of the latest, but we should have some information on 

that soon. 

Mr. KINZINGER. OK. And then, Mr. Quinn, just very briefly, wind 

power and other renewable resources get a very generous Federal 

credit of about $23 per megawatt hour. It is very generous, and so 

generous that wind generators bid into the market at zero sometimes or they often bid in at a negative price. That is, the taxpayers pay them so much that they the market to take their electricity. The discussion draft requires FERC to consider how such 

market distorting incentives impact wholesale markets. 

So just quickly, how often does wind power bid at or below zero 

in the PJM market, and what effect does this have on other generators in the market? 

Mr. QUINN. Congressman, I don’t have data on how often that 

happens. We would be happy to take the question for the record. 

With regard to how that affects the rest of the market, various 

markets have taken steps to automate the process so that the 

prices are clear and reflective of wind doing that, and that when 

prices get low, that wind can be curtailed or other generations can 

71 

be curtailed based on price rather than some manual process, and 

those things ensure reliability. 

Mr. KINZINGER. OK. Thanks, Mr. Chairman. I yield back. 

Mr. WHITFIELD. At this time I recognize the gentleman from 

Ohio, Mr. Johnson, for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate the time 

and thank the panel for being with us today. 

Dr. Hogan, continuing with you, a few questions here, we have 

heard complaints from various constituencies who have interpreted 

the Section 433 fossil fuel ban as limiting, and ultimately prohibiting, the adoption of highly efficient technologies using natural gas 

in Federal facilities such as combined heat and power, fuel cells, 

and waste heat recovery systems. Based on the express statutory 

language of Section 433, would you agree with this interpretation? 

Ms. HOGAN. I spoke a little earlier to some of the flexibilities that 

we think we have been able to provide the Federal agencies as they 

would respond to Section 433 once there would be a final rule. And 

we have figured out how to allow the Federal agencies to take advantage of things like combined heat and power as the fossil fuel 

rule would be in effect. So we do think we have been able to do 

a good job in terms of finding a good balance for this section that 

allows agencies to take advantage of these technologies. 

Mr. JOHNSON. OK. Well, a follow-on. Does the Department of Energy measure the cost implications to homeowners of increasingly 

stringent model building energy codes? And, if so, what are those 

costs? 

Ms. HOGAN. Yes. The Department of Energy participates in the 

code process in a number of ways. One is we will take proposals 

to the code body that is responsible for updating the code approximately every 3 years, and we certainly do cost-effective analyses on 

the measures that we think are ripe to be considered as part of an 

update cycle. And then the code body votes. So it is sort of hard 

to speak holistically about those costs. Each measure is a little bit 

different. Certainly we look to things that are life cycle cost effective, and we think that that is a great metric to use because it is 

very well-aligned with taking a mortgage out on a home because 

then you can see that the total cost of ownership leaves the homeowner in a cash flow positive—— 

Mr. JOHNSON. Can you take a question for the record, then, and 

get us that information on what some of those costs would be in 

that analysis? 

Ms. HOGAN. In the recent code cycle? 

Mr. JOHNSON. Sure. 

Ms. HOGAN. Sure. 

[The information follows:] 

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74 

Mr. JOHNSON. OK. Thank you. 

You know, we are coming out of the worst economic downturn 

since the Great Depression. Housing is just barely coming back and 

families are still living on strict monthly budgets. Don’t you think 

that any energy mandates that are imposed on homeowners should 

be cost effective? I mean, it seems to me a 10-year payback seems 

completely reasonable. What are your thoughts? 

Ms. HOGAN. You know, I think we are in the area where we 

think multiple ways to look at cost effectiveness makes sense because people make decisions a little bit differently. And we certainly—— 

Mr. JOHNSON. People at home make decisions with their checkbook around the dining room table. That is how they make decisions. 

Ms. HOGAN. Absolutely. But I think also when you think through 

that most homes are financed these days through mortgages that 

a life cycle approach also makes sense in that context, and particularly when you align it with the other cost that go with—— 

Mr. JOHNSON. Wait a minute. Hold on. You just lost me there for 

a second. We are talking about the monthly budget. The energy efficiency of their home doesn’t affect their mortgage payment. We 

are talking about the monthly out-of-pocket expenses as it relates 

to some of these energy mandates. So help explain. You lost me for 

a second. 

Ms. HOGAN. So what a life cycle analysis helps you do is understand so what is cost effective sort of over the lifetime of a measure, and then you can put that on a monthly cash flow bases also 

with the mortgage that goes with the home. Because as you are 

saying, the home may cost a little bit more up front, but if—and 

so that gets rolled into your monthly mortgage. But if your energy 

bill is then lower on a monthly basis and then the homeowner is 

better off on a monthly basis from a cash flow perspective, then 

truly that is what leaves them in a good place from their pocketbook. 

Mr. JOHNSON. No, homeownership is something that most Americans aspire to. And the cost of that mortgage in the early years of 

a new family, that is what—that is what makes the difference. 

That is what determines whether or not many people can get a 

mortgage and own a home or not. So I am—I am not sure—I understand the life cycle perspective, and I understand why that 

would be—that might be meaningful to people inside the Washington Beltway, but for the people that are writing the check and 

trying to get into their new homes, I am not sure that that is an 

argument that sells. 

Ms. HOGAN. Well, we would be happy to talk with you about that 

further. I mean, the—you know, reducing their energy bills is also 

an important part of people’s sort of monthly budgets as well, and 

I think the benefits that you get there really do help these families. 

Mr. JOHNSON. Mr. Chairman, I yield back. 

Mr. WHITFIELD. At this time I recognize the gentleman from 

Texas, Mr. Flores, for 5 minutes. 

Mr. FLORES. Thank you, Mr. Chairman. 

Dr. Hogan, there were three quotes that I wrote down from your 

testimony and your answering of some earlier questions. 

75 

The first one was that you standards are technically feasible, 

and, number two, that they are economically justified. The second 

thing you said is that the DOE is open to the rulemaking process. 

And the third is just a more detailed example, said the gas furnace 

net benefits are about $16 billion. 

Look, we all believe in efficiency. We believe in saving energy. 

We believe in saving money. But we are getting to the point of diminishing returns. And so if you look at the average house, it has 

been estimated that the recent standards that have been proposed 

by DOE raise the cost of a house by $7,000. So let’s say you have 

a house that started at $50,000 and then you overlay your standards onto it that raise the cost to $57,000. Who does that hurt the 

worst? Who are the typical buyers for that $50,000, now $57,000 

home? Well, it is lower-income America. And so if the average payback is like forever. I mean, you talk about the life cycle of a house, 

most people don’t stay in a house 17 years, which is the life cycle— 

or the payback periods of many of the new rules that you proposed. 

In some cases there is no payback. 

And so the policies that the DOE has adopted, although they 

seem altruistic, are hardest on low-income and lower-middle-income Americans. So what winds up happening when we price those 

people out of a house, or let’s say they are even in a multifamily 

unit. If they are in a condo, they can’t buy the condo. Or if they 

are in an apartment they can’t afford the rents because the rents 

have gone up because the developer had to pay more for it. So who 

gets hurt? And what happens when that—because they are hurt. 

They wind up in a low-efficiency, dumpy apartment or a home that 

is low efficiency and nobody has been helped. Everybody has been 

hurt. 

You know, you talk about the furnace situation. I mean, some of 

the furnace standards today are set up in such a way where you 

cannot retrofit an older house with some of the newer technology 

furnaces. And it seems like even though I have heard the word 

‘‘flexibility’’ a lot from your testimony, it seems like DOE does seem 

to be very rigid and not really looking at the real world impact on 

real families about what is happening. 

Now, you could do this to me all day long. It doesn’t hurt me. 

I have converted most of my home to LED. I produce about 50 percent of my annual power for solar-generated electricity. I have got 

high-efficiency everything, and I have swapped it out continuously. 

So it doesn’t hurt me, but it hurts the people that, you know, we 

think the Government is trying to protect. 

And the contracting community, the manufacturing community, 

is telling me that DOE has been—is not listening to those arguments. So tell me that you are listening to those arguments, number one; and, number two, what are you doing about it? 

Ms. HOGAN. So let me clearly say to you that we do listen to 

those arguments. We make sure that our work takes in what is 

going on in the low-income communities. And, again, you sort of 

raised two issues here, one around the building codes and the cost 

of a new home, and you have raised issues around the furnaces. So, 

I mean, let me repeat that our—— 

Mr. FLORES. The furnace is more of a detailed example, but keep 

going. 

76 

Ms. HOGAN. Yes. That the furnaces is—you know, it is an open 

comment period that we have right now, and we want all and every 

comment that we can get so that we can make this rule be the best 

that it can be for all the households—— 

Mr. FLORES. So let’s dig into that for a minute. So, you know, we 

have just told you what folks are telling me. So what would your 

change be to your rules to deal with that comment? 

Ms. HOGAN. You know, we do have to make data-based decisions. 

What we ask for as we go out for public comment is—first we 

present our analysis. We present it for households across the country. We present it with a special analysis looking at low-income 

and elderly households. 

Mr. FLORES. Do you look at what happens when you price them 

out of the market and you have kept them in a low-efficiency environment? 

Ms. HOGAN. Let’s sort of separate the furnaces. So what do we 

do around building codes again? The Federal—DOE does not make 

the national building codes for the country. We take proposals that 

we have analyzed to an independent code body, and then the independent code body, you know, runs a process by which they come 

up with the next updated—— 

Mr. FLORES. But I think you know that—I think you candidly 

know if we peel the layers back from this, that DOE is really pushing these code bodies to adopt your recommendations. It is not just 

these are recommendations anymore, it is, ‘‘We want you to do 

this.’’ You know, ‘‘We are strongly advocating that you do this.’’ 

Ms. HOGAN. We are a stakeholder in a many-party process. And 

we believe what our role is, and what we are committed to do is 

to take good data-driven analysis to that process so people can 

have that conversation. So that is what we are doing. 

Mr. FLORES. Well, I have run out of time. I hope that is what 

is really happening. I am just not hearing the same thing that— 

from the real world that I am hearing from you. So I hope that we 

can have a better discussion later. 

I yield back. 

Mr. WHITFIELD. At this time I recognize the gentlelady from 

North Carolina, Ms. Ellmers, for 5 minutes. 

Mrs. ELLMERS. Thank you, Mr. Chairman. And thank you to our 

panel for being here today. 

I do want to take a moment, Mr. Chairman, to start off and 

thank you and the committee staff for working with me and my colleague, Jerry McNerney, on the promotion and implementation of 

grid innovation technologies, especially the inclusion of the smart 

grid capable appliances on energy guide labels. I believe we need 

to promote energy efficiency, but in a transparent way, and with 

industry and stakeholder input. Energy efficient technology should 

benefit consumers and be affordable to working American families, 

very much like the conversation we were having just a moment 

ago. 

So with that, Mr. Chairman, I will go ahead and ask my questions. 

Dr. Hogan, I have two questions for you, and in the interest of 

time I am going to try to—I have an example I want to give you 

first. You know, the DOE’s process rule requires DOE to use qualiVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
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tative and quantitative methods that are, quote, ‘‘fully accessible to 

the public’’ and that—and that produce results that can be, quote, 

‘‘explained and reproduced.’’ DOE is not using third party validated 

models for information, thus the only way to effectively validate the 

models is by allowing full access by the stakeholders. DOE has violated this requirement by relying on the analysis determined 

through models that are not fully accessible to stakeholders. 

And as an example, I will just use this. In the automatic commercial ice maker ruling of January 2015, DOE relied upon a 

model developed in the mid-1990s that had few minor updates. But 

the DOE, Navigant, claimed was fully protected by copyright. DOE 

refused to allow stakeholders access to the model to run their own 

data analysis or validations, only allowing the submission of the 

data to DOE’s consultants. 

Why is the DOE not following its own process rule and what can 

be done to ensure the agency adheres to its own process rule? 

Ms. HOGAN. Certainly we do strive to be as transparent and open 

as possible. At the same time, one of the things we also have to 

do is protect proprietary information that business does give us as 

part of the rulemaking process. You know, one of the things that 

we do do so that we can have access to the best information that 

we can is organizations like Navigant under contract to DOE, they 

go out and they do do interviews with manufacturers, and manufacturers provide information that can be very important to their 

own, you know, business objectives, and that type information, of 

course, is then held in a way that we cannot—I mean, it is business sensitive. So we do have to protect—— 

Mrs. ELLMERS. Right. 

Ms. HOGAN [continuing]. Their proprietary information. 

Mrs. ELLMERS. So, but along that line, do you see a way forward 

that we can actually ensure that this process is moving—I mean, 

that—that we are ensuring that the agency is adhering to this? I 

mean, is there something that you see that we can do that can 

change this? 

Ms. HOGAN. We are happy to continue that conversation with 

you because, again, we want to be as transparent and open as we 

can and sharing of the data that we get so people can see what our 

assumptions are and help us make these rules be the best. 

Mrs. ELLMERS. Good. I would appreciate that, and our office, we 

will work with you and committee on this then. My last question 

is, by comparing the Department’s current life cycle costs, which 

we have had this discussion, cost analysis, issued by the proposed 

rule for the life cost analysis DOE issued in the 2011 direct final 

rule, some disturbing inconsistencies become evident. For example, 

I will use this example: The Department maintains that the cost 

of buying and installing a noncondensing furnace increased by approximately 25 percent between 2011 and 2014, even though these 

are mature products that have been on the market for decades. 

Meanwhile, the Department asserted that the more technically sophisticated condensing furnaces increased by only 9 percent during 

the same period. 

Based on these questionable numbers, the cost differential between the current standard furnace and the proposed standard furnace has dropped by nearly 30 percent between the two 

78 

1The discussion draft of Title IV: Energy Efficiency and Accountability, Subtitle A—Energy 

Efficiency has been retained in committee files and also is available at http://docs.house.gov/ 

meetings/IF/IF03/20150603/103551/ BILLS-114pih-SubtitleA- EnergyEfficiency.pdf. 

rulemakings. If the Department used the 2011 cost estimates, in its 

current analysis, wouldn’t that undermine the economic case for 

the proposed energy efficiency standard? It is a word problem apparently. I apologize for the numbers. But I guess the point is, is 

are we moving in the right place so that we are making sure that 

these products are cost efficient for the consumers, but at the same 

time, the effectiveness is there. 

Ms. HOGAN. Certainly that is what we are really striving to do; 

and, again, I would point to the furnace rulemaking as one of the 

places where we are trying to be absolutely as transparent and as 

engaged with stakeholders as we can be. Again, we have held multiple public meetings so that we can go through the details of the 

DOE analysis, you know, as much as stakeholders want to so that 

they can understand what we have done. And we have had multiple meetings, multiple stakeholder engagement, extended the 

public comment period. And, again, we want to get as much good 

data from people as possible so that we can make this be a very 

good rule for people. 

Mrs. ELLMERS. I would like to continue to work with you on that 

as well then. Thank you, Mr. Chairman. I yield back. 

Mr. WHITFIELD. Well, thank you. And we appreciate you three 

witnesses being here with us today. We have a lot of work to do; 

and as you can tell from the questions on both sides, there are a 

lot of concerns about the impact of these regulations in the pocketbooks of many people in America. I mean, I just think 50 years ago, 

no one would have imagined that there was an agency of the Federal Government here in Washington, DC, making all these decisions about all of this litany of appliances and what can be used 

and what cannot be used. It is really kind of amazing, but we 

thank you very much, and we are going to recess the hearing until 

10:15 in the morning, at which time we will reconvene for the second panel. So we look forward to working with you all, and thank 

you for being here. 

[Whereupon, at 4:48 p.m., the subcommittee recessed, to reconvene at 10:15 a.m., Thursday, June 4, 2015.] 

[Material submitted for inclusion in the record follows:]1

PREPARED STATEMENT OF HON. FRED UPTON

Today’s hearing continues what is shaping up to be a banner week for our Architecture of Abundance efforts. Much of our draft bipartisan energy bill is related to 

the American energy renaissance, and several of its titles seek to create policies that 

allow the Nation to realize the full economic and geopolitical potential of our growing energy abundance. In Southwest Michigan and all across America, folks are better off because of our good energy fortune. But our draft bill is not only about new 

energy sources, it also addresses accountability and improved operation of existing 

energy markets as well as increases in energy efficiency. That is the subject of this 

two-day hearing. 

In particular, we have carefully reviewed FERC’s role in energy markets and see 

some areas where changes would be beneficial. For example, we have learned from 

experience that the provisions in the 2005 energy bill expanding FERC’s enforcement authority, as well as FERC’s order establishing regional transmission organizations, have created a number of unintended consequences for electricity markets 

and have not kept up with some of the changes in the industry. Our discussion draft 

79 

seeks to address these issues while maintaining FERC’s enforcement and oversight 

role. The Public Utility Regulatory Policies Act of 1978 is also in need of updates 

to better reflect current electricity markets, technologies, and resources, and our targeted provisions seek to do just that. 

On the subject of energy efficiency, our discussion draft begins with America’s 

largest energy user—the Federal Government. And there is room for improvement, 

ranging from greater use of energy savings performance contracts to improved energy efficiency at Federal data centers, and several other ideas contained in our discussion draft. 

We also seek improvements in energy efficiency programs affecting manufacturers 

and consumers. This includes changes to the Energy Star Program and the Energy 

Guide labels, and important clarifications to the Federal role in establishing voluntary State and local building energy codes. 

I look forward to a constructive and bipartisan discussion of these issues so that 

the accountability and energy efficiency provisions strengthen our energy bill and 

provide benefits for energy producers and consumers. Our plan embraces our newfound energy abundance, and we will continue to advance this vision. 

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DISCUSSION DRAFT ON ACCOUNTABILITY 

AND DEPARTMENT OF ENERGY PERSPECTIVES ON TITLE IV: ENERGY EFFICIENCY— 

DAY 2 

THURSDAY, JUNE 4, 2015 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ENERGY AND POWER, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:17 a.m., in room 

2322 of the Rayburn House Office Building, Hon. Ed Whitfield 

(chairman of the subcommittee) presiding. 

Members present: Representatives Whitfield, Shimkus, Latta, 

Griffith, Johnson, Long, Rush, McNerney, Tonko, Castor, Sarbanes, 

Welch, and Pallone (ex officio). 

Staff present: Nick Abraham, Legislative Associate, Energy and 

Power; Will Batson, Legislative Clerk; Leighton Brown, Press Assistant; Allison Busbee, Policy Coordinator, Energy and Power; Patrick Currier, Counsel, Energy and Power; Tom Hassenboehler, 

Chief Counsel, Energy and Power; A.T. Johnston, Senior Policy Advisor; Brandon Mooney, Professional Staff Member, Energy and 

Power; Dan Schneider, Press Secretary; Caitlin Haberman, Democratic Professional Staff Member; Rick Kessler, Democratic Senior 

Advisor and Staff Director, Energy and Environment; and John 

Marshall, Democratic Policy Coordinator. 

Mr. WHITFIELD. I would like to call to order our recessed hearing 

from yesterday and continue with our panel of witnesses. And we 

appreciate very much this second panel joining us as we continue 

our discussion on our discussion draft relating to energy. And we 

have a great panel of witnesses today. I am going to call on each 

one of you for 5 minutes to discuss the draft and your perceptions 

and thoughts about it, and then we will open it up for questions. 

And I am just going to introduce you as I recognize you for the 

5-minute opening statement. So our first witness is Ms. Sue Kelly, 

who is the President and CEO of American Public Power Association. Ms. Kelly, thanks for being with us, and you are recognized 

for 5 minutes. And I would just ask all of you just make sure the 

microphone is turned on. And, of course, when the red light goes 

on, that means your time is up. So, Ms. Kelly, you are recognized 

for 5 minutes. 

90 

STATEMENTS OF SUSAN N. KELLY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN PUBLIC POWER ASSOCIATION; JOHN E. SHELK, PRESIDENT AND CHIEF EXECUTIVE 

OFFICER, ELECTRIC POWER SUPPLY ASSOCIATION; PETER 

GALBRAITH KELLY, JR., SENIOR VICE PRESIDENT, EXTERNAL AFFAIRS, COMPETITIVE POWER VENTURES; CHRISTOPHER COOK, PRESIDENT AND GENERAL COUNSEL, SOLAR 

GRID STORAGE LLC; JONATHAN M. WEISGALL, VICE PRESIDENT, LEGISLATIVE AND REGULATORY AFFAIRS, BERKSHIRE HATHAWAY ENERGY; AND WILLIAM S. SCHERMAN, 

PARTNER, GIBSON, DUNN & CRUTCHER LLP 

STATEMENT OF SUSAN N. KELLY 

Ms. KELLY. Good morning, Chairman Whitfield, Ranking Member Rush, although you are not here yet, and other members of the 

subcommittee. Thank you for inviting me to testify. APPA commends your hard work putting together the first comprehensive energy package since 2005. We stand ready to work with you to improve America’s access to affordable, reliable, and environmentally 

responsible electric power. 

Today, I am going to discuss APPA’s views on Title IV, Subtitle 

B, of your discussion draft. I will address the subtitle sections in 

the order they appear. 

APPA certainly supports increased compliance by regulated energy subject to FERC’s regulations, but APPA is not convinced that 

proposed Section 4211 is the best way to do this. It might make 

more sense for FERC to review its current procedures and policies, 

and revamp them as needed to make sure that regulated entities 

get meaningful and timely guidance. I do note that it would be 

easier for market participants to comply with FERC-approved tariffs if the applicable market rules were simpler and clearer, and I 

will speak to that issue later. 

Moving to Section 4212, APPA believes that unless there are 

compelling reasons for Congress to step in, FERC should set the 

procedures for its own investigations. The public has to rely on the 

Commission’s enforcement staff to protect its interests as electric 

consumers in these investigations. This is because third parties 

have no right to participate in these cases at all. If Congress, does 

subject—or give the subjects of FERC investigations additional protections, Congress must make sure that these new protections do 

not adversely impact enforcement staffs’ ability to protect the public from market manipulation. 

Turning to proposed Section 4221, APPA very much appreciates 

the interest the subcommittee has shown in the problems with 

wholesale electricity markets. In my written testimony, I provide 

detailed comments on the provisions of that section. Some of them 

would be helpful, in our view, but others would not. APPA has 

been concerned over the past 10 years about the restructured 

wholesale electric markets that regional transmission organizations 

and independent system operators, which we call RTOs, operate. 

Public power utilities must deal with RTOs and their markets because they are located inside the boundaries of their RTO’s footprints. They are often geographically and electrically embedded in 

the transmission systems of larger investor-owned utilities that deVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
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1Ms. Kelly’s prepared statement has been retained in committee files and also is available 

at http://docs.house.gov/meetings/IF/IF03/20150603/103551/HHRG-114-IF03-Wstate-KellyS20150603.pdf. 

cided to participate in that RTO. So while our participation in 

these RTOs and their markets may, in theory, be voluntary, in fact, 

they are not because of the interconnected nature of the grid. 

These APPA members deal with the day-to-day complexity and 

costs of operating in these markets. They must participate as best 

they can in time-consuming and resource-intensive RTO stakeholder processes. These processes in most regions are heavily 

skewed towards the interest of large transmission and generator 

asset owners, and the governance processes of some of the RTOs 

is less than transparent. So many public power utilities’ only choice 

is to work with Congress and with FERC to seek needed reforms. 

Many of the wholesale electric markets that FERC has authorized are not, in fact, markets as you or I would normally think of 

that term. They are highly complex administrative constructs with 

a maze of complicated rules. APPA’s concerns about RTO-operated 

markets include extensive and frequent rule changes, volatile pricing, which can sometimes rise to very high levels with very little 

warning, and limited data transparency. The most troublesome 

RTO markets are the mandatory capacity markets that three eastern RTOs, ISO New England, PJM, and the New York ISO, operate. These administrative constructs account for a substantial 

share of total electric bills that consumers and businesses in those 

regions have to pay, but they haven’t shown that they can support 

a reliable and diverse supply of power, or incent the building of 

new generation resources where they are most needed. Consumers 

have paid billions of dollars in charges for these markets, but don’t 

see corresponding benefits. 

APPA has recommended that FERC phase-out these eastern capacity markets over time. They should be replaced with voluntary 

residual capacity markets that better support State and local resource decisions and policies. But short of that, APPA proposes the 

following steps. First, RTOs that have not yet implemented a mandatory capacity market should not do so without the unanimous 

support of all the States in that region. And second, RTOs that already have a mandatory capacity market should not keep utilities 

and States from meeting their own capacity obligations through resources that they build, owned, control, or contractor for. 

Finally, APPA supports the goals of Section 4231, dealing with 

purpose mandatory purchase obligations, but we can’t support that 

section in its current form. As drafted, the section would preclude 

public power utilities from getting any relief from their obligations 

to purchase power from QFs under the provision. This could leave 

them at a competitive disadvantage compared to neighboring utilities that do qualify for that relief. 

So again, thank you for the opportunity to appear today, and I 

am happy to answer any questions. Thank you.1

Mr. WHITFIELD. Thank you, Ms. Kelly. 

And our next witness is John Shelk, who is the President and 

CEO of the Electric Power Supply Association. Mr. Shelk, thanks 

for being with us, and you are recognized for 5 minutes. 

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STATEMENT OF JOHN E. SHELK 

Mr. SHELK. Well, thank you, Mr. Chairman, Ranking Member 

Rush, and the other members of the subcommittee. I appreciate the 

invitation to participate in the hearing today. 

EPSA is the national trade association for leading competitive 

wholesale suppliers. EPSA members together have over 200,000 

megawatts; fuel-diverse megawatts, essential to reliability. Over 95 

percent of these assets are in the Independent System Operator 

and Regional Transmission Organization territories that are the 

subject of the discussion draft. Reliability in these and other markets requires generation from a network of power plants, operating 

simultaneously with base load, mid-merit and peaking capabilities, 

deploying a range of fuels and technologies, because electricity demand fluctuates during the day and seasonally. 

As you all know, and as your hearings have demonstrated, the 

electric sector is in the early stages of what will likely be a 

multiyear, even multidecade, series of profound changes, fundamentally altering the way electricity is generated and consumed. 

Well designed and properly regulated competitive wholesale markets, in our views, remain the best model to manage these many 

changes because markets, properly regulated, are inherently more 

flexible, adaptable, and place more risks on investors than consumers. 

EPSA appreciates the inclusion in the discussion draft of energy 

price formation principles in Section 4421 of the draft for required 

wholesale power market improvements. Importantly, it is important to point out that EPSA is joined in urging FERC to act on this 

issue by the Edison Electric Institute, the Nuclear Energy Institute, the Natural Gas Supply Association, and American’s Natural 

Gas Alliance, in a joint letter to the Commission back on March the 

9th of this year. 

Energy price formation refers to how these ISOs and RTOs determine the granular locational marginal prices for electric energy 

sold in their markets. For most power plants, energy sales are the 

prime resource of revenue. As Sue indicated, LMPs, associated revenues, and other aspects of these markets are tightly bounded by 

FERC-approved market designs, tariff rules, and grid operator actions. Absent accurate prices in these markets, energy markets will 

send distorted information about when, where, and how to invest 

efficiently to meet future electricity infrastructure needs. There are 

unique characteristics of electricity that make it a challenge to arrive at prices truly reflective of total costs of providing reliable 

service, and we can discuss those later if you wish. 

Importantly, through this issue, the grid operators, independent 

of generators, ultimately determine the dispatch of specific power 

plants in their regions. This generally works well to produce competitive pricing outcomes, as documented through regular quarterly 

and annual data-driven, state-of-the-market assessments from the 

independent market monitors in each of these regions. However, 

when the grid operator takes out-of-market actions, the effect is to 

call on plants out of merit order, and others have to stand by in 

reserve, or do not run at all, even if they would otherwise be operated on a purely least cost basis. These out-of-market plants, when 

they are called in that manner, are paid what is called uplift, not 

93 

the market price. Uplift, like an elevated body temperature, can be 

a sign of potentially unhealthy conditions, which is why the provisions of the discussion draft are so important. 

To its credit, the Federal Energy Regulatory Commission has 

been working on these issues since 2013, including 3 daylong technical conferences, preceded by 4 detailed staff reports, from September through December of 2014. Earlier this year, FERC posed 

a series of thoughtful questions for public comment, on which numerous submissions from a variety of points of view have been received, and we think that docket now stands as compelling evidence that action needs to occur. 

While we assume that FERC is presently considering its options 

for next steps, we and the others in our group cannot overstate the 

importance of public FERC follow-up in the next several months. 

Decisions as to whether to retire, replace, or repower large 

amounts of existing megawatts throughout each of the RTOs will 

be made this year, impacting reliability for decades. Competitive 

suppliers have proven that they will respond with timely investments in these markets, without preferential stamping of the contracts, when accurate price signals show the need and the results 

from recent capacity auctions demonstrate that that is the case. 

So we commend you for including this provision in the draft. We 

think it is important to draw attention to the issue. And we think, 

frankly, FERC hopefully will act prior to the enactment of legislation because, again, decisions are being made now, and investment 

signals are distorted, and the ISO RTO Council, which is the group 

of all of them, just last week put out a report based on a thirdparty assessment of investor sentiment, and this issue of out-ofmarket actions that the subcommittee draft would address is one 

of the impediments to investment noted in that report. So we appreciate the inclusion of the language that you have put in the 

draft. 

Thank you. 

[The prepared statement of Mr. Shelk follows:] 

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Mr. WHITFIELD. Thank you, Mr. Shelk. 

Our next witness is Mr. Peter Kelly, who is Senior Vice President, External Affairs, for the Competitive Power Ventures, Inc. 

Thanks for joining us, and you are recognized for 5 minutes. 

STATEMENT OF PETER GALBRAITH KELLY, JR. 

Mr. KELLY. Mr. Chairman, members of the committee, thank you 

for the time and the opportunity to address these what are very 

critical issues to us and to ratepayers. 

We are developers of power plants. We develop natural gas-fired 

and wind generation all across North America. We, in that process 

of development, identify a need, expend tens of millions of dollars 

in development, and then seek to commercialize those projects. 

This is over the course of 2 to 3 years. In some cases, projects have 

taken as long as 11 years to fully permit and go to commercialization. 

When we get to the point of commercialization, there are two 

paths; either merchant in the market where, depending on the 

market you are working in, you have either a 1-month to 6-month, 

or a 3-year price commitment, 1-year guarantee—that you know 

your price for 1 year. Makes it, at times, extraordinarily difficult 

to finance a project efficiently. 

Under a contracting model, you have a commitment of 10, 15, or 

as many as 20 years. That commitment allows you to finance a 

project at anywhere from 22 to 30 percent lower cost of capital; all 

inuring to the benefit ultimately of ratepayers. 

There have been recent challenges to State contracting, and—on 

a—three plants in the mid-Atlantic. We expect continued activity 

in this litigation throughout New England, as New England moves 

on in complying with the Clean Power Plan. There has been raised 

concern that these projects that are under contract cause—you 

know, could be referred to as market manipulation, impacting the 

market rates for all of the other generators. There are protections 

in place that are crystal clear in all of these eastern markets. 

There is mitigation or a minimum offer price rule where, if the 

project is determined to be economic or not economic. If it is not 

economic, do you not pass the mitigation, you cannot enter the 

market. If you do, clear mitigation. You are economic, you are determined to be needed by the market, and your contract at that 

point is valid. And that was the theory we were operating under. 

As we move on with development across North America, there is 

an enormous need for new infrastructure. We have an aging fleet 

of generation, we have a Clean Power Plan that is going to make 

significant changes, and we have an abundant supply of natural 

gas that has had a fundamental change in the energy markets. 

And we are looking at States such as Ohio and Illinois and Connecticut and New York that are all seeking to retain generation, 

such as nuclear power in one instance, some coal, and natural gas 

and renewables. Whether they have the ability to do that or not 

will be predicated—dictated by the authority in the—what we see 

as a change in the authority, moving States’ current authority to 

FERC and to the RTOs, to take on and undertake what is ultimately historical province of the States. The criteria in some cases 

as they are listed under 4221(b), many of those are within the 

112 

province of what the States have traditionally done, and I am not 

convinced that the transfer of that authority will serve, ultimately, 

the goals. 

[The prepared statement of Mr. Kelly follows:] 

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Mr. WHITFIELD. All right, thank you, Mr. Kelly, very much. 

And our next witness is Mr. Christopher Cook, who is President 

and General Counsel, Solar Grid Storage Company. Thanks for 

being with us, Mr. Cook, and you are recognized for 5 minutes. 

STATEMENT OF CHRISTOPHER COOK 

Mr. COOK. Thank you, Mr. Chairman, Ranking Member Rush, 

fellow members of the committee. Thank you for the opportunity 

for us to testify here before the committee today on the discussion 

draft. 

I am president and also cofounder of Solar Grid Storage. It is a 

new company. Quite small in the energy business. We provide a financed battery storage solution to commercial, solar, and wind installations, and we developed a product we call the power factor, 

which provides back-up power to those customers with a collocated 

solar or wind system at their site during grid outages. 

In addition, and key to our business proposition, was FERC’s 

issuance of Order 755, which opened ancillary services markets to 

new and fast responding technologies like ours. 

Solar project developers are our key customers. We are focused 

on providing a finance battery solution to this market segment, as 

it is the fastest growing market segment in the energy business. 

As I reference in my written testimony, not only is the industry 

growing rapidly, solar costs are declining. So pardon the pun, it has 

a very bright future. 

We are—we currently operate four systems in the PJM ISO totaling 1.1 megawatts. So we are a very small company, but we are 

innovators in the energy space; a space where it is very difficult to 

innovate. 

I would like to focus my comments on the discussion draft, Section 4221, particularly Section B, and 4231. We see for our business many valuable provisions in Subsection B. First though, I 

would point out that the title of the section discusses properly evaluating generating assets. As a storage asset, we are not either generation, we are also load, and it is difficult often for the utility industry and the ISOs to classify us. They try to put us in one category or the other. Storage is not generation. We can only take into 

our storage facilities in equivalent amounts of kilowatt hours what 

we put out. If we are storing solar energy, all we do is delay in 

time when that solar energy goes to the grid or to the customer. 

The—excuse me. In Subpart B, the operational characteristics of 

generation of electric energy during emergency and severe weather 

conditions. That is principally one of the things that we offer to our 

customers. For typical commercial customers who install a solar 

system, when the grid goes down, that solar system no longer functions. When they add storage to that solar installation, that installation can function throughout the grid outage in combination with 

the onsite solar. It is very valuable. We are seeing very strong interest in the areas of the country where they have suffered natural 

and other disasters that have taken down the power grid. 

One of the key sections in Subsection 4 directs FERC to promote 

advanced grid technologies. We are certainly one of the most advanced grid technologies. We dispatch our systems into the PJM 

ISO every 2 seconds. We monitor our systems on a continuous 

123 

basis. We are an incredible, fast-responding technology based on 

traditional grid resources. 

In Section 5, and this is one of the keys for us, having FERC address regulatory barriers to entry. As a small company, and I 

would reflect the testimony of my co-panelist from APPA, it is very 

difficult for us to participate in these work groups and the other 

kinds of arcane procedures that both FERC and ISOs have implemented. We simply do not have the staff or the resources to adequately participate. So that—I mean, goes on as a continuous regulatory barrier to entry of our technologies. 

Turning to Section 4231, the changes to PURPA. We would not 

support those changes. We feel that FERC had the appropriate balance in its Order 688, distinguishing between large generation systems above 20 megawatts that had open access to the grid, and 

those below 20 megawatts that did—on a rebuttable basis, did not 

have nondiscriminatory access to the grid. We feel that FERC 

struck the proper balance there, allowing a rebuttable presumption 

such that if there was an open access transmission tower for those 

small generators, the entity that was suggesting the small generation did not have open access could go to FERC and rebut that presumption. They have the resources. They have fast superior resources in the small generators in almost all cases, and are able 

to support that. In addition, the breakpoint of 20 megawatts is a 

good one. Typically, above 20 megawatts, those systems are all 

interconnecting at the transmission grid. Much more expensive 

projects, much more complex projects. Below 20 megawatts includes, under some of the FERC orders, systems down to the residential size. And can you imagine a residential customer who is installing solar on their house and perhaps a battery, with the potential opportunity to earn revenues from those systems in those grid 

markets, having to present their case at FERC that they are entitled to those PURPA qualifications? 

Thank you. 

[The prepared statement of Mr. Cook follows:] 

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Mr. WHITFIELD. Thank you, Mr. Cook. 

Our next witness is Mr. Jonathan Weisgall, who is the Vice 

President, Legislative and Regulatory Affairs, for Berkshire Hathaway Energy. 

Mr. WEISGALL. Thank you, Mr. Chairman. 

Mr. WHITFIELD. Thanks very much for being with us. You are 

recognized for 5 minutes. 

STATEMENT OF JONATHAN M. WEISGALL 

Mr. WEISGALL. I appreciate it. Thank you, members of the subcommittee. 

At Berkshire Hathaway Energy, we own three regulated utilities 

that serve 5.3 million customers in 11 States. Like Mr. Cook and 

Ms. Kelly, I do want—I also want to address Section 4231 of your 

discussion draft on PURPA, the Public Utility Regulatory Policies 

Act of 1978. 

PURPA mandates utilities to buy renewable energy from QFs, 

qualifying facilities. That law today is imposing significant and unnecessary costs on utility customers. For example, it requires a 

utility to buy electricity from a QF regardless of whether the utility 

needs that power. PURPA contracts are not subject to the same resource planning and cost scrutinies of the utility decisions, and 

they can cause operating inefficiencies and reliability issues because the host utility has no control over where they are sited or 

integrated into its system. 

Let me give you a specific example. The long-range plan for our 

PacifiCorp utility, approved by our State regulators, shows no need 

for additional generation until 2028. However, over the next 10 

years, PacifiCorp must purchase 39 million megawatt hours under 

its PURPA obligations, at an average price of $66 per megawatt 

hour, although the average market price today is $38; 43 percent 

lower. That means that our customers must pay $1.1 billion above 

market prices for PURPA-mandated power that they don’t even 

need. And this is not an isolated example. Many other utilities are 

facing similar dilemmas. 

Now, Congress amended PURPA in 2005 to relieve a utility of its 

mandatory purchase obligation if it can show that the QF can compete to sell its power, in other words, has access to a competitive 

market run by an RTO or an ISO. That is actually why many of 

you have not been hearing about this issue from your constituents 

because your local utilities belong to one of these competitive markets; PJM, ISO New England, New—you know, New York ISO, 

MISO, and the like. But PURPA and FERC’s overly restrictive implementing regulations have not kept pace with market changes in 

our industry. Today, new energy in balanced markets, competitive 

resource solicitations, and FERC’s interconnection rules for smaller 

facilities have effectively removed any remaining barriers for new 

entrants, including QFs, to supply energy to markets where the 

host utility is an organized market or not. PURPA needs to be 

modernized to recognize these changes. 

My written testimony details the technical suggestions that we 

and the Edison Electric Institute have for modernizing PURPA. 

The first is to expand the definition of comparable markets that are 

eligible for termination of the mandatory purchase obligation to inVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00138 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
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1Mr. Weisgall’s prepared statement has been retained in committee files and also is available 

at http://docs.house.gov/meetings/IF/IF03/20150603/103551/HHRG-114-IF03-WstateWeisgallJ-20150603.pdf. 

clude voluntary, auction-based energy imbalanced markets, and 

other subhourly markets. The second is to eliminate the presumption in FERC Order 688 that QFs under 20 megawatts lack nondiscriminatory access to markets, provided that the QF is eligible 

for service under FERC-approved tariffs and interconnection rules, 

and can participate in utility competitive solicitations. The third is 

to terminate the mandatory purchase obligation upon a State regulatory agency determination, if certain conditions are met. And the 

fourth is to prevent larger QF projects from being divided into 

smaller ones to essentially gain the so-called FERC 1-mile rule. 

Now, some say PURPA should be repealed outright. We don’t believe that is the right approach. Our proposals are not about removing the mandatory purchase obligation where competition does 

not exist. Not all utilities operate in States where there is an organized market. Not all State regulators require competitive bidding 

when a utility is looking to secure new or replacement power. In 

those States, PURPA still serves a useful purpose, and our proposals would not change that. Others have asked that if PURPA 

was passed to promote renewable energy, aren’t these suggestions 

designed to inhibit renewable energy. My answer is an unqualified 

no. After 37 years since PURPA was passed, renewable energy is 

flourishing, and our company is among its strongest proponents. 

Indeed, not including our original geothermal assets, we have invested nearly $18 billion in the last decade alone in wind and solar 

projects in 10 different States. But these projects have been driven 

by policies other than PURPA. They have been driven by State renewable portfolio standard mandates, Federal tax incentives, technological improvements, and stricter EPA air regulations. Are 

these changes designed to inhibit expensive and gained renewable 

energy? Yes. But regardless of your views on renewable energy, everyone should be in favor of fair market rules, as well as getting 

customers low-cost electricity, not high-cost electricity caused by 

what is now outdated legislation. 

Thank you for the opportunity to share our views. Look forward 

to any questions you may have.1

Mr. WHITFIELD. Thank you very much. 

And our next witness is Mr. William Scherman, who is a Partner 

at Gibson, Dunn & Crutcher. Thanks for being with us, and you 

are recognized for 5 minutes. 

STATEMENT OF WILLIAM S. SCHERMAN 

Mr. SCHERMAN. Thank you, Mr. Chairman, and Ranking Member 

Rush. I appreciate being here. I have to say at the outset, these 

are my own views and not the views of any of my clients. 

Let me start by saying there must be meaningful and structural 

due process reform of the FERC enforcement process, both substantively and procedurally today. Entities subject to the FERC enforcement process do not receive due process of law. It is not only 

important that they receive due process of law, but without it, the 

very competitive markets that this committee is trying to promote 

in other sections of the bill will be harmed, as people and market 

136 

participants continue to flee from markets, and liquidity is decreased and price discovery becomes nonexistent. It is simple fairness to require FERC to give people exculpatory or potentially exculpatory information. It is simple fairness to allow access to transcripts. It is simple fairness to allow subjects of investigation comparable access to the adjudicator, the FERC Commissioners who 

decide their case. 

What you heard yesterday was none of these reforms are needed 

because, at the end of the day, many participants have the right 

to go to Federal court to seek review of FERC enforcement matters. 

If only that were true. What occurs today is that, in those instances 

where you have to go through a FERC administrative process, the 

Federal rules of evidence do not apply, the Federal rules of civil 

procedure do not apply, and when the case gets to the Court of Appeals, the record that the FERC has developed under flawed procedures is given deference. And even when you can get the Federal 

District Court under de novo review, the FERC today, in two pending cases, is doing everything possible to restrict having the ability 

to have a full trial in Federal court, with the full rights of discovery, and the full rights to have meaningful opportunity to test 

FERC’s cases. That is the process that FERC is trying to tell you 

is occurring—is not occurring today, and why we badly need procedural reforms. 

I also strongly support the section of the bill that would require 

FERC to address the existing RTO and ISO markets. There is 

strong evidence to suggest that the existing ISO and RTO markets 

are no longer producing competitive results. There is strong evidence to suggest that they are no longer balancing supply and demand. It has not been since the Federal Power Act was first enacted, and the just and reasonable standard was adopted, that the 

Congress has helped to define what constitutes just and reasonable 

markets, even though these markets have become, as Ms. Kelly 

said, incredibly complicated and very much complicated to participate in. It is time the Congress help define what constitutes just 

and reasonable markets in this current market environment. 

What you heard yesterday in response to a question from Mr. 

Shimkus was that the FERC is working on these matters. Mr. 

Shelk talked about that this morning. The FERC has been working 

hard on these matters, but without the Congress spurring the 

FERC to act, either through legislation or through a letter from the 

committee asking them to act by a date certain, many of us are 

concerned that the FERC is hopelessly deadlocked and cannot 

achieve a consensus on these important initiatives. That section of 

the bill might very well spur action, and I support it completely. 

I agree with the PURPA reforms that have been put in the bill. 

I won’t spend a lot of time on that, but I want to talk about three 

parts of the investigation process in a little bit more detail in the 

few minutes I have left. 

Yesterday, you heard that there is a difference between the adjudicative phase and the investigatory phase of FERC investigations. 

That is an illusion. It does not exist. How do we know that? Because in April of 2013, the FERC ruled that a show cause order is 

not part of an adjudication; it is part of the investigatory process. 

That is a FERC order. The reason why FERC wants to give you 

137 

1Mr. Scherman’s statement has been retained in committee files and also is available at 

http://docs.house.gov/meetings/IF/IF03/20150603/103551/HHRG-114-IF03-WstateSchermanW-20150603.pdf. 

this illusion that there is an adjudication at FERC is because they 

understand and have admitted, in the law review article that was 

cited in their testimony, that in the investigation stage at FERC, 

witnesses and subjects of investigations do not receive due process. 

That is in the law review article that they cited to you yesterday. 

So in order to get around this admission, they have to try to convince the Congress that there is a real adjudication phase at 

FERC. There isn’t. It is not an adjudication phase when a witness 

gets—a subject gets no rights of discovery, gets no ability to test 

the other side’s case, gets no access to the decision-maker. That is 

not an adjudicatory process. 

You heard yesterday that the Brady reforms in the bill are not 

necessary, and they would be unparalleled. That is shocking. The 

language in the bill comes straight out of district court cases on 

Brady, and if, in fact—and, in fact, those cases have been cited to 

the Commission in a number of key cases. That is absolutely not 

true. But there is a simple fix. Take out the word helpful that Mr. 

Parkinson objected to yesterday, and put the word favorable in. In 

two places, delete the word favorable, put the word—delete the 

word helpful, put the word favorable in. There is no possible way 

at that point that they could object to that. 

Finally, the staff has now admitted—the FERC enforcement staff 

has now admitted to this committee that they have violated their 

own regulations and the Administrative Procedures Act at least 12 

times in denying access of a witness to their transcripts. That is 

now on the record in this committee. So if there any doubt that 

these reforms are needed, I would suggest look at the record. 

Thank you.1

Mr. WHITFIELD. Thank you very much, Mr. Scherman. And 

thank all of you for your time. 

I will recognize myself for 5 minutes of questions. 

And I would like initially to just focus on 4231, relating to socalled PURPA reform. Ms. Kelly, you had indicated that you felt 

like there should be some reform perhaps, but our language you 

did not particularly agree with. Would you explain more detail 

what you would recommend? 

Ms. KELLY. The situation is this. The way the provisions that you 

have drafted are written is—applies to, in effect, to State-regulated 

facilities, or FERC-regulated utilities. My members are units of 

State and local government, and by and large are regulated at the 

local level by their governing boards. So the way the language is 

written, and this may well have been an oversight, was just in a 

way that—— 

Mr. WHITFIELD. You are left out. 

Ms. KELLY [continuing]. We don’t qualify. 

Mr. WHITFIELD. You are left out. 

Ms. KELLY. Yes, we are left out. Thank you. 

Mr. WHITFIELD. OK. 

Ms. KELLY. That is the long and the short of it. 

Mr. WHITFIELD. OK. What is that? OK. And, Mr. Weisgall, now, 

you had mentioned that you are paying something like $68 a megaVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00141 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
138 

watt for power, and the actual cost is $30-some, and parts of your 

operation, I guess, was in California or Portland, or—— 

Mr. WEISGALL. Northwest, yes. Um-hum. 

Mr. WHITFIELD. Yes. Now, is that a result of the calculation of 

the avoided cost, or what—is—— 

Mr. WEISGALL. Yes. I mean the avoided cost calculations are 

made by State regulatory agencies. PURPA contracts have lengthy 

duration. So we are looking at contracts with fixed price costs for 

a long period of time. Markets fluctuate, that is why we prefer the 

competitive process in the market, but when you are stuck with a 

PURPA contract, historically, those have tended to be way above 

market. Now, that is not a congressional problem; that is more a 

result of State regulatory agencies in that avoided cost proceeding. 

And figuring out avoided cost is really a full employment job for 

lawyers, and has been for many, many years under PURPA. It has 

been very complicated, but the tendency has been way above market cost. 

Mr. WHITFIELD. Yes. So, Ms. Kelly is avoiding costs and the issue 

from your perspective, or—your—go ahead. 

Ms. KELLY. It is less of an issue for us, the actual calculation 

that was referred to, because in the case of State-regulated utilities, they are developed by the State PUC—— 

Mr. WHITFIELD. Um-hum. 

Ms. KELLY [continuing]. And they can be very administratively 

determined. 

Mr. WHITFIELD. Um-hum. 

Ms. KELLY. At the local level, you know, we have a better read 

on what our potential options are, so we have a little more leeway 

in setting avoided costs. 

Mr. WHITFIELD. Um-hum. 

Ms. KELLY. So it is not—that part is not as big a problem for us 

as the fact that we may be—in effect, it is a put at a certain price, 

and we have to take it—— 

Mr. WHITFIELD. Right. 

Ms. KELLY [continuing]. Whether we need the power or not. 

Mr. WHITFIELD. In 1978, when PURPA was adopted, I don’t 

think that many people thought the investor-owned utilities would 

also be qualifying facilities, at least initially. What percent of qualifying facilities today would you say are owned by investor-owned 

utilities? Do any of you have any idea on that at all? 

Mr. SHELK. I would think it is pretty low to almost nonexistent, 

given the size. If I could just add the issue—as I indicated earlier, 

95 percent of our member assets are in the RTOs, so this is not 

an issue for our members, but I can see it is an issue for the independent power producers outside of the RTOs—— 

Mr. WHITFIELD. Um-hum. 

Mr. SHELK [continuing]. And the reason is, notwithstanding what 

Mr. Weisgall said from their perspective, and I would urge you to 

talk to them, if you don’t at least address what it means to have 

a competitive solicitation, I think the bill has the right directional 

idea. I was very much involved in the compromise negotiation in 

2005. The issue, however, is just because a State has a competitive 

solicitation on the books doesn’t mean it is a fair one. So you may 

want to think about at least expanding what type of competitive soVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00142 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
139 

licitation you think would qualify, because right now, the utilities, 

like Berkshire Hathaway, outside the RTOs, they get to run the solicitation, they get to put their own projects up, and miraculously, 

they pick themselves, you know, well over, you know, 95 percent 

of the time. So I think you would want to be clear that—in the 

draft what type of competitive solicitation—— 

Mr. WHITFIELD. Yes. 

Mr. SHELK [continuing]. With a third-party—— 

Mr. WHITFIELD. Yes. 

Mr. SHELK [continuing]. Evaluator would qualify for the exemption. 

Mr. WHITFIELD. Yes. 

Mr. SHELK. Otherwise you risk—— 

Mr. WHITFIELD. Yes. 

Mr. SHELK [continuing]. Reducing competition—— 

Mr. WHITFIELD. Yes. 

Mr. SHELK [continuing]. In those regions. 

Mr. WHITFIELD. And would one of you make just some brief comments on the transparency issue at the RTOs relating to price? I 

think you and Ms. Kelly had indicated that was an issue from your 

perspective. 

Ms. KELLY. Yes, that is an issue, and thank you for the question. 

I think one of the things that strikes us with some regularity is the 

volatility in the prices. For example, in capacity auctions, prices 

can vary very substantially from auction to auction, both up and 

down. It is unclear why that happens. The data that goes into 

those prices is closely held. We have talked about increased transparency of bids and offers in the past. A lot of other people have 

opposed that, so that has not yet happened. We—actually, it was 

considered in the stakeholder process back in 2008, 2009, at our request, but shockingly, by the time it got done with the stakeholder 

process, the consensus was that that wasn’t required. 

Mr. WHITFIELD. Um-hum. 

Ms. KELLY. So there have been issues with that in the past. 

Mr. WHITFIELD. And I would at some point like to discuss in 

more detail the phasing-out of capacity markets in the east, and I 

think you made reference to that as well. 

Ms. KELLY. I would be happy to do that. 

Mr. WHITFIELD. OK. 

Ms. KELLY. I would note that that is a longer-run prescription. 

These markets are very complex, and they do operate on a 3-year 

forward basis. 

Mr. WHITFIELD. Yes. 

Ms. KELLY. So we are not saying that that is something that, you 

know, can be done in a flash cut. We understand it is—— 

Mr. WHITFIELD. Yes. 

Ms. KELLY [continuing]. A complicated—— 

Mr. WHITFIELD. Mr. Scherman, do you want to make a comment? 

Mr. SCHERMAN. Yes. I just think it is important for the committee to understand that when a competitive solicitation is run by 

a utility, if that utility would like an affiliate to participate, the 

FERC has very stringent rules called the Edgar Allegheny Rules. 

I won’t bore the committee with the details. 

Mr. WHITFIELD. The Edgar Allegheny Rules? 

140 

Mr. SCHERMAN. They are based on two cases. Everything has to 

have a name, Mr. Chairman. 

Mr. WHITFIELD. Yes. 

Mr. SCHERMAN. There is an Edgar case and an Allegheny case, 

and so it has become known as the Edgar Allegheny Rules. 

Mr. WHITFIELD. Right. 

Mr. SCHERMAN. They are very prescriptive as to how the evaluation has to be done by an independent evaluator, what has to go 

into competitive solicitation, and how that record has to be developed before a utility can pick an affiliate. Those rules are very robust, so it is not as easy as the utility just picks its affiliate. 

Mr. WHITFIELD. Yes. 

Mr. WEISGALL. And, therefore, Berkshire Hathaway Energy 

sometimes loses. 

Mr. WHITFIELD. OK. I want to just—— 

Mr. SHELK. But they only apply in the FERC context, they don’t 

apply at the State level when the decisions are made to select 

which projects—— 

Mr. WHITFIELD. Yes. Yes. 

Mr. SHELK [continuing]. So it is sort of comparing apples and oranges. 

Mr. WHITFIELD. Do you know if Exelon and the Exelon Nelson 

case in Texas appealed that Fifth Circuit Court of Appeals ruling? 

Mr. SCHERMAN. I do, and I believe they were not successful. 

Mr. WHITFIELD. OK, thanks. 

At this time, recognize the gentleman from Illinois, Mr. Rush, for 

5 minutes. 

Mr. RUSH. Thank you, Mr. Chairman. 

Mr. Kelly, in your written testimony you argue that Section 4221 

as currently drafted may result in an unintended consequence of 

putting FERC and the RTOs into an unnecessary and potentially 

divisive debate, and result in States having to rely increasingly on 

the volatile short-term markets. 

My question to you is what recommendations, if you have any, 

that you would suggest to this committee to put improving the language in Section 4221, or do you believe this entire section is of no 

use and may even be counterproductive? 

Mr. KELLY. No, there are certain sections—certain parts of the 

section that I think have value, but I think we look at traditional 

function and role of the States and their public service commissions 

and legislature in determining, you know, such as I believe it is 

2(a), operational characteristics, the generation of electric energy 

on a continuous basis. That is a State—ultimately a State issue. 

Whether or not the State is going to site, for instance, dual fuel 

generation for us in the natural gas generation, they request or require at times that you have oil available so that you can run for 

a minimum period of time. The ISOs and RTOs have rules as well, 

and there are some payment structures in place that ultimately 

you—force you to have that ability, or penalize you if you don’t. 

Mr. SHELK. Mr. Rush—— 

Mr. RUSH. Yes. 

Mr. SHELK [continuing]. If I could just add briefly—— 

Mr. RUSH. Yes. 

141 

Mr. SHELK [continuing]. We don’t view the section or read the 

section the same way Mr. Kelly does. It is not changing what is a 

bedrock principle of the Federal Power Act, which is that the Federal Government, through FERC, has jurisdiction over the sales of 

electric energy, interstate commerce, and transmission. That has 

not changed at all. What the section says is to the extent FERC 

does things, and FERC does important things, we may disagree 

about how they do them but the wholesale markets that FERC administers for energy and capacity are what supply the power in Illinois and other States in the committee where the RTOs exist. And 

so FERC does decide the market rules. Sue and I may disagree on 

how they do it, but FERC is the agency that decides how wholesale 

markets operate. That has been upheld by the courts. So I think 

the section, at least the way we read it, is directing the Commission to consider a range of issues; some we like, some we don’t, but 

I think it is a pretty good balanced list directed at FERC. It would 

not upset the Federal-State balance. 

Mr. RUSH. Are there any other witnesses who might want to 

weigh-in on this? 

Ms. KELLY. Yes. 

Mr. RUSH. Ms. Kelly? 

Ms. KELLY. First of all, I would note that the way the section is 

set up, and I noted this in my written testimony, is it directs each 

RTO to develop in consultation with the stakeholders. So at the 

very get-go you are sending it off to the stakeholder process. And 

that is an endless frustration loop for my members for the last 10 

years because those processes, especially in the RTOs where the 

market, you know, problems are the most acute for them, the large 

generation and transmission asset owners have a—hold a great 

amount of sway, for the reasons in my testimony. So that right 

there is a problem. 

Some of the provisions of the things that they are supposed to 

consider, I think, are very salutary. Others I think are less salutary. But to me, the immediate problem is it goes off to the stakeholder process and, you know, that is something you all probably 

need to look at more carefully. Thank you. 

Mr. RUSH. Mr.—— 

Mr. SCHERMAN. I think the simplest way to fix that problem is 

to make it clear that when the Commission is exercising the authority in the section, that it is being done pursuant to Federal 

Power Act, Section 206. And, therefore, when the RTOs and ISOs 

have to respond, they have to make a filing under the Federal 

Power Act to comply with those specific criteria. And at that point, 

there will be no doubt that it is wholesale only and not trying to 

affect the retail market. 

The second point is absolutely what Ms. Kelly—is absolutely 

true, the current stakeholder and governance process of the RTOs 

is so cumbersome and so complex that it leads to least cost, least 

common denominator decision-making that is frustrating innovation and stifling competition. The Congress really does need to address that if the FERC can’t. 

Mr. RUSH. Mr. Cook? 

Mr. COOK. Thank you. I think the concept behind Section 4221 

is good, particularly the things that direct FERC and the ISOs to 

142 

look at advanced grid technologies, and to look at the kinds of regulatory barriers that exist in incorporating those technologies into 

the grid. Our technology is a customer-sided technology, and it 

really makes some of the ISO leaders’ heads spin that customersided technology—— 

Mr. RUSH. Um-hum. 

Mr. COOK [continuing]. Could provide transmission grid services, 

but yet, in fact, we do that. We dispatch our systems as a virtual 

power plant. 

Mr. RUSH. Um-hum. 

Mr. COOK. I would agree, however, with my fellow panelist, Ms. 

Kelly, that the stakeholder process is extremely cumbersome for 

small companies like ours. Being able to dedicate the kinds of resources that are necessary to them for daylong meetings that occur 

every other week, that could go on for 6 to 18 months, is virtually 

impossible. So our voice does not share the same weight as the 

voice of the traditional transmission owners, the big utilities that 

are involved in those processes. 

Mr. RUSH. Um-hum. I want to thank you. Mr. Cook, I have a few 

more minutes, and in your testimony, you state that you believe 

that FERC struck a proper balance in Order 688. With this presumption, the larger generators had open access to transmission 

markets, but also a rebuttable presumption that smaller systems 

do not. What changes do you think are necessary in the discussion 

draft in order to maintain the balance of FERC Order 688, and to 

maintain the rebuttable presumptions regarding access to open 

transmission markets? 

Mr. COOK. Well, the simple response would be no changes are 

necessary. I believe that that is the proper balance. The new language in Section 4231 would change that presumption, and says 

specifically that generators of any size are presumed to have open 

access. I don’t believe that is factually correct. The small generators typically have barriers. If you are a 100 kilowatt generator, for 

example, in many ISOs you can’t participate in any of their markets simply because of your size. They arbitrarily set the threshold 

of participation at 1 megawatt. So there are numerous different 

barriers that small generators face. 

I believe that what FERC did was to say, well, if you have access 

to an open access market, there is a presumption for the big generators that you don’t have—need any of those protections. But 

there is a different presumption than on the small generator side, 

you do need those. It is a rebuttable presumption, so it is not guaranteed that you are going to get those protections. In addition, I 

think on the avoided cost question, the issue of the proper setting 

of avoided cost is done by the utilities and the State regulators. 

The small generators that avail themselves of that avoided cost 

typically, again, do not have the same representation in those proceedings. So if there is an error in the avoided cost calculation, I 

think it is incumbent upon the participants in that proceeding to 

properly set that so the avoided cost is truly reflective of a utility’s 

cost, and there isn’t an overpayment of the small generators. 

Mr. RUSH. Thank you, Mr. Chairman—— 

Mr. WHITFIELD. Yes. 

Mr. RUSH [continuing]. For your generosity. 

143 

Mr. WHITFIELD. Yes. Well, you know, these issues are so simple 

and not very complicated, that we don’t need a lot of time to talk 

about them. 

Ms. KELLY. Might I just say one thing to your—— 

Mr. RUSH. Yes, please. 

Ms. KELLY [continuing]. Question, Congressman Rush? I would 

just note that there are also small utilities in addition to small generators, and for some of them, the 20 megawatt cutoff is a lot bigger than they are. So—and I actually, back in private law practice, 

had an—a rural electric co-op client who was asked, in effect, to 

purchase the output of a small generator, much larger than it was, 

or to wheel that out when that was, you know, bigger than its entire system. So you need to be—— 

Mr. WHITFIELD. Yes. 

Ms. KELLY [continuing]. Sensitive to it on both sides. 

Mr. WHITFIELD. Yes. 

At this time, recognize the gentleman from Virginia, Mr. Griffith, 

who understands all of this completely, for 5 minutes. 

Mr. GRIFFITH. Well, thank you, Mr. Chairman. And, you know, 

I am just a simple country, small town lawyer. But listening to Mr. 

Parkinson’s testimony yesterday, I came away clearly, from his initial testimony, he backed away from it a little bit, in fairness, but 

came away from it initially believing that our system does not 

allow due process, and that it is not fair to those people who are 

being accused of having manipulated electric rates or—et cetera. 

Mr. Scherman, I gathered from your testimony that I might have 

had the right sense. 

Mr. SCHERMAN. Yes, sir, I fully agree. I have great—and let me 

just state, none of this is personal. Mr. Parkinson is a fine fellow, 

Chairman Bay is a fine fellow, but the due process people receive 

at FERC today is in name only. The FERC is doing everything possible to frustrate constitutional due process requirements. And all 

you have to look at, Mr. Griffith, is the disproportionality between—in the most—in the current pending cases, between what 

the FERC is alleging as the market harm and the size of the penalties. And if I could just enter a couple of those into the record. 

Mr. GRIFFITH. Please do. 

Mr. SCHERMAN. In the current Maxim Power case, the FERC has 

alleged a $5 million civil penalty with zero unjust enrichment, zero 

disgorgement of alleged unjust profits. In the current, Powhatan 

case, the disproportionality between the alleged disgorgement and 

civil penalty is 634 percent. In the current BP case pending before 

the Commission, the disproportionality between the civil penalty 

that is being sought and the alleged unjust enrichment is 3,500 

percent. In the Barclays case, the disproportionality between the 

alleged unjust enrichment and the civil penalty is 1,300 percent. In 

the Lincoln case, the disproportionality is 1,300 percent. 

So if you just look at whether the proportionality between the alleged unjust enrichment, the alleged amount that they shouldn’t 

have earned, and the civil penalties, it is clear there is no proportionality in the way the FERC is administering the enforcement 

process. 

Mr. GRIFFITH. Well, and I appreciate that testimony. I was 

struck with just the basic principles of due process that have 

144 

evolved over the years in the Anglo-American system when, you 

know, I heard things like, you know, we don’t really want third 

parties to have to worry about Brady, in other words, information 

that might say the person or the accused didn’t do what they have 

been accused of. Well, a third party shouldn’t be burdened with 

that. That bothered me. And then the whopper of all, and the defense was, well, other people do it. I don’t accept that for my children, and I am not going to accept it from the Federal Government, 

of which I am a representative of the people, was, well, you can’t 

really talk about settlement with the Commissioners because they 

are part of the prosecution team, because we have an attorney-client privilege with them and we don’t want that to be violated in 

any way. Say what? There is an attorney-client privilege between 

the trier of fact and the investigators who bring the case? That just 

struck me as abhorrent to the American legal system. Do you agree 

or disagree, and what are your comments? 

Mr. SCHERMAN. I fully agree. The Commission is applying the 

wrong Brady standard. It is clear from the testimony that they are 

applying the post-trial Brady standard, not the pre-trial Brady 

standard. 

Other regulatory agencies, including the CFTC, rejected as part 

of their process the post-trial Brady standard over 20 years ago. 

This is not a new concept. 

On the settlement process, it is like—it is the classic case of trying to negotiate for a car. You negotiate with the enforcement staff, 

only to be told, oh, I have to go talk to my manager. Well, we know 

what happens every time you go talk to your manager. And in a 

recent case where I asked directly to negotiate with the Commissioners on the settlement, and I said I would be more than happy 

to have the enforcement staff in the room at the time, I was told 

it was against policy to talk directly to the Commissioners, even 

though I said I would be happy to have the enforcement staff in 

the room at the time. 

Mr. GRIFFITH. Sure. And I can understand that while they might 

want to have ex parte communications with the Commissioners, 

but if they are part of the prosecution team, it does seem kind of 

strange. 

Do you think we would be better off allowing the Commissioners 

to continue to have the settlement power, but just move any disputes directly to the district court where you can have a legitimate 

due process-filled trial? 

Mr. SCHERMAN. I think that would be a very good suggestion, if 

the Commission itself would recognize the words de novo review in 

the statute mean a trial. What is happening in the Lincoln case 

and the Barclays case now is the Commission is taking the absurd 

position that the words de novo review does not lead to a full trial, 

does not lead to discovery, does not lead to the right to confront 

witnesses. They are taking the position that a de novo review is essentially no different than a court review, where the Commission 

gets deference on the record that they have built in a flawed process. 

Mr. GRIFFITH. Yes. 

145 

Mr. SCHERMAN. So if the Congress would clarify and confirm the 

existing language means what it means, and it should apply to the 

Gas Act, the Power Act, the NGPA, that would help a lot. 

Mr. GRIFFITH. Well, and even a simple small town lawyer knows 

that de novo means you get a new one. That is what novo means, 

new. And that if—that was their defense yesterday, in part, was 

that, well, you can always go to the district court. I would think 

that would be a big fix if you could actually get a new hearing with 

all of the discovery rights that you get in—— 

Mr. SCHERMAN. Absolutely. 

Mr. GRIFFITH [continuing]. The normal court system. 

Mr. SCHERMAN. The Power Act supposedly provides for that, but 

apparently, the Commission doesn’t agree with that. 

Mr. GRIFFITH. Well, I appreciate it. 

My time is up. I yield back. Thank you, Mr. Chairman, for this 

important hearing. 

Mr. WHITFIELD. You know, I had about 7 minutes. Mr. Rush had 

7 minutes. Do you want to take another couple of minutes, and 

then we will give everybody 7 minutes, because this is a complicated issue and we want to give everybody an opportunity. So if 

you want to go for another minute and a half. 

Mr. GRIFFITH. Well, and I will say that I was a little concerned 

that the Commissioners are part of the prosecution team, as we 

have previously discussed. And do you think that that is a new development, or is that something that has been evolving over the 

years? 

Mr. SCHERMAN. It is both. It is certainly something that is not 

a new development, but it has evolved over the years in a much 

greater sense. And part of the problem is, when I was general 

counsel of FERC, the enforcement process reported to the general 

counsel. There was a layer between the enforcement process and 

how that was administered on a day-to-day basis, and the Commission. What you heard in Mr. Parkinson’s testimony was that there 

is free regular communication between the investigators, the prosecutors, and the ultimate decision-makers. And that because—and 

just human nature would suggest that that cannot be a fair adjudication. It has nothing to do with the integrity of the Commissioners personally, but if you are told for 5 years that somebody is 

guilty of fraud, if you are told for 5 years that somebody has manipulated the market, if you are told for 5 years that somebody has 

unjustly enriched themselves at the detriment of consumers, and 

then all of a sudden at the very last part you get—you then have 

to sit where only 1 party has had access to you, where only 1 party 

knows what you are thinking, where only 1 party has had a free 

exchange, that is a problem. It—may I give you an analogy? 

Mr. GRIFFITH. Sure, because I agree with you completely. 

Mr. SCHERMAN. May I have 1 minute to give an analogy, Mr. 

Chairman? 

Mr. WHITFIELD. You have 30 seconds. 

Mr. SCHERMAN. OK. Suppose there is an FBI agent who investigates a case for a number of years. That agent is also a lawyer, 

as many of them are. That FBI agent then decides I am going to 

go be a lawyer and goes clerking for a Federal judge. And suppose 

that same lawyer that—who is now a clerk ends up—the judge that 

146 

he is working for ends up being the person who hears the case that 

he was investigating, and he gives him advice for a couple of years 

about what the cases he is investigating. And then he supposes 

after a couple of years of clerking, he wants to go be a prosecutor. 

So he is assigned as a prosecutor, and lo and behold, he gets the 

case that he investigated, and then he advised the judge on how 

to decide the case, and then he is the prosecutor. 

Mr. GRIFFITH. Well, I think—— 

Mr. SCHERMAN. That is the FERC process. 

Mr. GRIFFITH. And I think any time you have an attorney-client 

privilege with somebody, they ought to be disqualified. It creates 

interference. 

Mr. WHITFIELD. OK. Recognize at this time Mr. McNerney for 

5—7 minutes. 

Mr. MCNERNEY. Seven second? Thank you, Mr. Chairman. Mr. 

Chairman, I just want to let you know I appreciate your devotion 

to fair play because that is what makes America great. 

Where I am coming from is a point of skittishness after being 

manipulated in California, having Enron take $9 billion and leaving us with a lot of problems. 

So what I ask is, Do you feel it makes sense for us to try and 

persuade FERC to improve their behavior, or do you think it makes 

sense for us to enact new legislation to force the issue? 

Mr. SCHERMAN. I would certainly prefer the latter, but if there 

is some way to do the former, that would be great, but there is no 

evidence to suggest that would work. 

And let me just say about Enron. I understand the California energy crisis is still a hangover, if you will, over how we all think 

about this. What caused the California energy crisis, which harmed 

consumers, no doubt, was a myriad of factors. One of the most important one is what this committee is trying to do in other parts 

of the bill, which is to get efficient market design. One of the key 

problems in California was that it was an inefficient market. The 

market design was badly flawed. One of the key ways to prevent 

those kind of crises from recurring again is to make sure the RTO 

markets, the California ISO, is operating in an efficient way. That 

is an important reform that, along with the ex partes, would ensure that those kinds of problems don’t happen again. 

Mr. MCNERNEY. Well, I have heard this morning that—from Mr. 

Shelk, about the importance of a properly regulated market, and 

we heard it from Southern Company last week as well, the importance of proper regulation. So is that what you are talking about 

is regulation, or are you talking about a free market where anything goes? 

Mr. SCHERMAN. There is no such thing as a free market where 

anything goes. 

Mr. MCNERNEY. Clearly. 

Mr. SCHERMAN. These markets are heavily regulated. What we 

are trying to do is to get the market rules to simulate competitive 

outcomes because many of us believe competitive outcomes are in 

the best solution of the consumer. But the FERC and the State 

commissions have to always understand—have to always be vigilant to make sure that the markets are properly regulated. But you 

147 

can regulate in a way that is designed to produce and simulate 

competitive outcomes, and that is what I advocate. 

Mr. MCNERNEY. So do you think that this legislation gets us in 

that direction, or—— 

Mr. SCHERMAN. I think it is a very important step, yes, sir, I do. 

Mr. MCNERNEY. OK. Mr. Weisgall? 

Mr. WEISGALL. Well, let me take a crack at that from—give you 

a concrete example. In Idaho, a developer came to our utility on a 

competitive solicitation process, with a 150 megawatt wind project. 

They didn’t win. Next couple of years, they disaggregated the 

project into several below-80-megawatt projects and turned it into 

a PURPA project, where our utility had no choice but to buy that 

power at an above-market price. There was a competitive process. 

They lost, so they used the hammer of PURPA’s mandatory purchase obligation. What your—one aspect of your discussion draft is 

designed to enhance that competitive process, and in that case 

where there would be an open competitive process, that kind of result would not happen. Now, that is not necessarily Enron-like, but 

that, to go to the chairman’s earlier question, is sticking our customers with higher costs, because the project had originally been 

rejected so it was simply disaggregated into smaller ones to make 

sure that it could fit into a PURPA mandate. 

Mr. MCNERNEY. Well, I am sure there are plenty of examples 

like that—— 

Mr. WEISGALL. Yes. 

Mr. MCNERNEY [continuing]. To go around. 

Ms. Kelly? 

Ms. KELLY. Thank you very much for recognizing me. I feel that 

since FERC is not on this panel, perhaps somebody needs to speak 

up for the interests of the other side. I would just note that what 

they are trying to do is protect consumers in these electric markets. 

And if you look at the orders that have come out, if you look at 

the entities who are being chastised, you look at the behavior in 

which they engaged, I think there—a case could be made that it 

is really important to have a strong enforcement at the FERC because consumers are otherwise going to be taken to the cleaners. 

The part we worry about is how much else is going on that has not 

been caught, especially in these centralized markets with their very 

complex rules. 

We feel like it would, frankly, be more useful to get the Commission, or for this Congress themselves, to take a more holistic look 

at whether these markets are being systematically manipulated, 

and whether these are just kind of the icebergs that show above 

the surface. We are quite concerned about the operation of financial 

players in these markets. We have been for some time. Thank you. 

Mr. MCNERNEY. Well, I mean that kind of makes the point. It 

is—we need a strong regulatory arm, but it needs to be fair. So 

what my concern is that this Section 212 goes a little too far in 

neutering the FERC’s investigatory ability. 

Mr. SCHERMAN. I don’t think it neuters it at all. I mean it simply 

levels the playing field to provide constitutional due process. And 

it is easy to say don’t do this when your members are not subject 

to the very regulations that are violating due process. Ms. Kelly’s 

148 

members are not subject to these rules, they are not subject to this 

enforcement process. 

Mr. MCNERNEY. Thank you, Mr. Chairman. 

Ms. KELLY. Not true. 

Mr. SCHERMAN. Well, it is true, Sue. Other than NERC, what are 

you subject to? 

Ms. KELLY. I—there actually was one enforcement proceeding 

against one of my members in ISO New England. 

Mr. SCHERMAN. One? 

Ms. KELLY. Yes. 

Mr. SCHERMAN. OK. Well, sorry, one. 

Ms. KELLY. Generally speaking, we don’t engage in behavior that 

would require that. 

Mr. SCHERMAN. OK. Of course not. I am sorry. 

Mr. MCNERNEY. Mr. Shelk, what do you see as some of the dominant trends—you said you see profound changes, what are some of 

the dominant trends, and how would this legislation harm or enhance those trends? 

Mr. SHELK. Well, we are all confronting a number of things, regardless of business model, whether it is Ms. Kelly’s members in 

public power, ours in merchant generation, and others at the table, 

everybody is up against what has been unhitching, if you will, of 

demand from economic growth, which is generally a good thing, so 

we don’t need as much electricity as we used to, but—so it is flat 

demand at a time when most revenues are volumetric, is an issue. 

We obviously have a changing fuel mix, legislative requirements in 

California and elsewhere for renewables, all the environmental regulations, the technology. So it is safe to say while we are sitting 

here in 2015, in 5 or 10 years from now, it is going to be a dramatically different electricity system. It is just hard to predict exactly 

how different it is going to be. If grid storage comes on and the way 

it might, if different technologies come about, it is going to be very, 

very different. So that is why we have to be careful. I think what 

the draft tries to do, instead of being prescriptive and writing in 

the statute for all time, like happened in ’78 and other times, 

things that would be hard to change later, you are giving general 

direction to the Commission on a range of issues. Like Ms. Kelly, 

some we like, some we don’t. Our list might be a little bit different, 

but I think the intent of it is very, very good, which is to set out 

the goals, set out what you want to have the ultimate result be, 

and then let the experts at the Commission work through this on 

a bipartisan basis. So I think it would be overall helpful—— 

Mr. MCNERNEY. Um-hum. 

Mr. SHELK [continuing]. To deal with the change you asked 

about. 

Mr. MCNERNEY. Thank you. 

Mr. WHITFIELD. Gentleman’s time has expired. 

At this time, recognize the gentleman from Illinois, Mr. Shimkus, 

for 7 minutes. 

Mr. SHIMKUS. Thank you, Mr. Chairman. It is great to have 

you—this is a great hearing, and I love the back-and-forth and the 

trying to address it, but it is hard to argue against legitimate due 

process and equity and fairness, regardless of the players. I mean— 

so I—Morgan is great to have on the committee because he has a 

149 

good legal mind. And sometimes we back lawyers. They are good 

to have around when you need them, and when you have smart 

ones, they are great to listen to. So—and I missed his performance 

yesterday, so I guess I got the tail end of it in this one. 

I am going to get back to a simpler aspect. I talked about it before the hearing to some of you. So I put up—what I—got a—that 

is why I took a picture of it while it was—and we got it up there, 

and you can’t see it but this is—I am in the MISO area, so—and 

this happened—I found out this has happened a couple of times 

after we have done some due diligence, and so it is the auction 

clearing price debate. We have just had an auction. We have a lot 

of zones in the MISO region. Most of the zones cleared at $3.40— 

well, there is $3.29, $3.48, in that range, except for one zone which 

happens to be Illinois, that is why I know about it, and it cleared 

at $150; a 300 percent increase. And in doing due diligence and visiting with FERC—this has happened before, I think it happened in 

the Cleveland area a couple of years ago. So I have a couple of 

questions. Obviously, I am trying to understand this. I mean it is 

a 300 percent increase. That is—that gets your attention. It has got 

the attention of my individual consumers, it has got the attention 

of the business interests, the manufacturers who are going to be 

using power. And so the first question is—and MISO decided to 

have—do an annual auction versus some regions do 3 years. And 

I want to ask Ms. Kelly and Mr. Shelk first, do you think that one 

model is better than the other? MISO—in essence, MISO bet that 

they would have better auction results by doing it yearly. And, at 

least in my region, they really got bit this time somehow. So can 

you, you know, kind of understand how I laid out the question? 

Ms. KELLY. Yes, I think I can. It requires me to go a little bit 

in the weeds though, so I apologize in advance. This particular 

market in MISO was what is known as a residual market, in other 

words, you do not have to obtain your capacity from that market, 

as you do in the eastern RTOs. As a result, the time horizon is 

shorter; it is just a year ahead. 

Mr. SHIMKUS. But that is a MISO decision though. 

Ms. KELLY. Yes. 

Mr. SHIMKUS. I mean they could have gone—they could have a 

3-year—— 

Ms. KELLY. They could, but—— 

Mr. SHIMKUS. OK. 

Ms. KELLY [continuing]. Because most capacity is procured outside that market, it makes less sense to go out in a longer term 

than it would in a mandatory market, as in the east. 

The other thing to note here is one of the reasons that that result 

happened is because of the size of the zone that the price was 

formed in. What happened was Dynegy bought a lot of assets in 

that region the year before, and as a result, I think they controlled 

over 60 percent of the generation in that zone. At one point, MISO 

had talked about lumping 2 zones together to mitigate that and 

make them less of a, you know, generation—what we call a pivotal 

supplier in that zone. That was discussed in the stakeholder process, but in the end that did not happen. One of the complaints that 

I have read about this alleges that one—a Dynegy employee was 

actually vice chair of the relevant committee in the stakeholder 

150 

process that made, you know, that made that recommendation. 

And this gets to the point I made in my testimony about threatening to leave because the generation in the southern part of Illinois, Dynegy has in the past made noises that they might take that 

over to PJM. So that is one of—I think one of the reasons why that 

is what this complaint alleges, let me just say, that that is one of 

the reasons why that change was not made and they were left as 

the dominant supplier in the zone. And sure enough, the next auction, the price spiked. 

So, you know, that is one of the things that gives us as consumers very strong concerns about how these market rules are set, 

how the zones are set, and how arbitrary and, you know, volatile 

the prices can be from auction to auction. 

Mr. SHIMKUS. John? 

Mr. SHELK. The question you asked is a good one about the market design. We have generally favored the multiyear approach in 

PJM and New England, and the reason is simply that you then get 

the forward price signal much earlier. So I think the Cleveland example you gave is a very good one. When the price went up in 

that—what is called the ATSI zone in the Cleveland area a few 

years ago, then the next auction, many, many developers came in, 

in fact, you are seeing development around there not only because 

the price went up for that one year, but because of the Utica shale 

gas. So there is a gas basis differential, and these new gas plants 

can go in there. 

In terms of the conduct of this auction, I think it is important 

to point out that MISO does this rigorously in terms of overseeing 

the auction. There is an independent market monitor. The rules 

are strict about what can and can’t be offered. Ms. Kelly mentioned 

Dynegy. They offered all the megawatts in that they have. And as 

you know, what separates Illinois from the rest of MISO from 

southern Illinois is the competitive generators there are only dependent on the revenue from that auction in the energy market. 

The other point—the other States, as Ms. Kelly indicated, are outside of it. So if you actually look at the southern Illinois price compared to the northern Illinois price, they are about the same, because that is the only source of revenue to signal new investment. 

And I would imagine if we had this conversation a year from now, 

particularly if MISO has a longer lead time, you will see people 

come on to invest in southern Illinois as they did in Cleveland, and 

they are doing in New England, when the price went up in New 

England last—— 

Mr. SHIMKUS. Well, that is what we hope, and that is kind of the 

expectation of people who are saying that—market signal and people are moving, and obviously people—short-term there will be 

some harm. 

I guess the other concern I have, and there—I have so much 

issues that I could talk about, but—is that—and which I am not 

going to, so, Chairman, don’t worry about it, is that there is a different world now environmentally, and generation-wise and—than 

that—than the Cleveland example. So bringing on and planning, 

your only large megawatt is going to be natural gas. You can’t— 

how do you bring—you can’t bring it on. The environmental regs 

are too stringent for us to bring on new southern Illinois coal genVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00154 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
151 

eration. And then I—on the—and the other thing is I am really 

having this debate about re-regulated markets, just because I am 

not sure with this environmental pressure that we can keep major 

base load generation alive in a lot of parts of our country. 

Mr. SHELK. Well, just a brief comment. If you look to the east 

from Illinois, you have a good example of what if go completely 

back to the old model, what the risk is there, because there you 

have a plant in southern Illinois where the consumers are being 

paid—stuck for billions of dollars over the multiyear life of the 

project. And I just read yesterday it is operating at a 10 percent 

capacity factor—— 

Mr. SHIMKUS. Yes. Yes. 

Mr. SHELK [continuing]. Yet consumers are going to pay for that. 

Same thing happened in Ms. Castor’s State in Florida, the nuclear 

plant closed down. They are now going to be stuck with the costs 

of the closure of the nuclear plants. So there is always that balance 

between—— 

Mr. SHIMKUS. Um-hum. 

Mr. SHELK [continuing]. Who is going to bear what risk, and how 

do you compensate them, and—— 

Mr. SHIMKUS. Yes. 

Mr. SHELK [continuing]. You are right, it is a conversation we are 

going to have to continue to have. 

Mr. WHITFIELD. I understand in about 5 minutes or so we are 

going to have a series of like 11 or 12 votes on the floor, so I am 

going to recognize Mr. Pallone for 5 minutes. And we are going to 

go as fast as we can. 

Mr. PALLONE. I will try to be—to use less of that if I can. I just 

have one question for Braith Kelly. In nearly all the testimony 

today, I see a few common themes. First, that there are problems 

with the electricity markets. Clearly, there is a disagreement as to 

what the problems are and what the solutions should be. Second, 

there is a disconnect between the State and Federal rules on electricity, even taking into account the general concept that wholesale 

markets are regulated by FERC and retailed by the States. There 

is a blurring of those lines that needs resolution, and the States 

are still responsible for guaranteeing service to their residents, and 

also for implementing a number of State and Federal environmental policies that are affected by these wholesale markets. And 

I am not here to take sides on how we resolve this, but clearly, we 

are in a transitional phase, and I am concerned that many of these 

unresolved issues could have a negative effect on consumers, public 

health, and the environment. For instance, I know the courts have 

ruled against New Jersey and Maryland in their efforts to ensure 

reliability through bilateral contracts, and that leaves us with a 

problem with regard to the responsibility of States. 

So, Mr. Kelly, I know your company is dealing with the result 

of this lack of clarity, so could you describe how the current situation affects project developers and States, particularly with regard 

to my home State? 

Mr. KELLY. It was one of the examples I used earlier. The cost 

of capital on that project is almost 30 percent higher. That all has 

to come from somewhere. It puts us in a position where we were 

under contract for that project, it was a much lower cost, we had 

152 

what was called a CFD, a contract for differences. We bit in a competitive process with over a dozen other developers for a contract. 

That competitive process resulted in three projects being selected. 

Those three projects went forward, and had to go through what 

was the—screen to determine if they were economic. Two projects 

passed through, one did not, proving that the system worked. That 

project was not economic, it was not allowed to participate. Unfortunately, there is a great deal of confusion as to where the State’s 

right to—under the Federal Power Act, to manage their generation 

collides with the—with FERC and its authority. The rules are very, 

very clear. The rules were created about these contracts. There was 

very little doubt in our mind that we would get through that process. Unfortunately, some—you know, there was litigation, findings 

by two courts, that these, what were called subsidies were not constitutional. That is going to have far-reaching implications. There 

are some cities being considered in Illinois in—for the nuclear fleet 

there. There are some cities being considered in Ohio to keep First 

Energy and AEP’s fleet. These are all subsidies, but these are the 

States making the judgment. Whether or not there is a—you know, 

that collision—where those courts—I mean it is going to be very, 

very difficult for the States to implement the Clean Power Plan 

without this tool, without the ability to support generation. 

Mr. PALLONE. All right. 

Mr. SHELK. Mr. Pallone, if I could just provide the—to balance 

out the point of view. I think it is important to point out that this 

happened in New Jersey, as you know, and in Maryland, and the 

proof in the difference in the models is in the numbers from the 

results. The developers said they needed these contracts or the 

projects would not go forward. The process Mr. Kelly described occurred in your State. The prices that would have been locked in for 

15 and 20 years were north of 50 to 75 percent higher than the 

market clearing price for that same generation. They said they 

would not go forward without this contract for differences, yet 

when the courts struck it down, they went ahead and did it anyway. And Mr. Kelly refers to the lower cost of capital, well, that 

is because there is a different risk-reward calculation. The reason 

why their capital costs would be lower, and I question whether 

they would pass that on or not, is because everybody in New Jersey, all of your ratepayers under that program, would have been 

stuck paying for those plans at those inflated costs for 20 years, 

when I turned out not only were there—was there other generation 

available at less cost, the very same plants that said they needed 

the subsidy in Maryland and New Jersey went ahead without it. 

And the last point is it was eight Federal judges, two district courts 

and six Courts of Appeal, unanimously found, importantly, in the 

narrow context of these programs, not all subsidies, not renewable 

portfolio standards, but the narrow context of these contracts for 

differences, eight Federal judges said it was unconstitutional and 

preempted by the Federal Power Act. 

Mr. PALLONE. All right, thank you. 

Mr. WHITFIELD. At this time, recognize the gentleman—where 

did he go? Is he gone? 

VOICE. Yes. 

153 

Mr. WHITFIELD. OK. I recognize Mr. Tonko from New York for 

5 minutes. 

Mr. TONKO. Thank you, Mr. Chair. 

Mr. Kelly, you have pointed out several potential problems with 

the language in the discussion draft amending the Federal Power 

Act. You also noted the need to update and modernize our grid system. As you know, there are many changes occurring in the electricity sector. In your view, does FERC have adequate tools to manage that grid evolution and modernization? 

Mr. KELLY. They do. They—my opinion is they need to utilize 

those tools and undertake to move forward. I think they need to 

empower the States to move forward, and make it clear what the 

States can and cannot do, and then stand by that rather than, 

throughout the process that we dealt with that we were told FERC 

has spoken by virtue of its silence—— 

Mr. TONKO. Um-hum. 

Mr. KELLY [continuing]. Which is approval of what was going on 

in New Jersey and Maryland, and then ultimately there was a 

complete reversal when we got to the courts and their opinion. We 

need clarity. When you make investments that are above $1 billion 

in infrastructure that is critical to reliability, the constantly changing rules throughout. We started with—our projects and then our 

fee with a State reliability exemption. That was taken away from 

FERC. The States have the authority to do it. It was turned into 

a MOPR, minimum offer price rule, one, then MOPR two, to create 

more barriers for the State—from the States doing what they are— 

have traditionally been empowered to do. 

Mr. TONKO. So are there other changes beyond that that the Federal Power Act should consider that would better facilitate FERC’s 

and the States’ management of the changes in this sector? 

Mr. KELLY. I think what we are seeing here is some of the 

States’ current authority being, you know, transitioned or given to 

FERC. It is concerning, but if that is the decision, if that is the direction that we need to go then that—at least it is a decision—— 

Mr. TONKO. Um-hum. 

Mr. KELLY [continuing]. And I think FERC lacked the authority 

that—or the jurisdiction, let me say, that resulted in our cases. 

Mr. TONKO. I get the sense that Ms. Kelly wants to comment. We 

have hosted her in our district, so it is good to see you. 

Ms. KELLY. Thank you so much. I would just simply add to that 

that we as public power utilities are also concerned about the ability to comply with the Clean Power Plan and to make the changes 

to our portfolios that we think we may be required to do in some 

States because of these Federal market rules. We share some of the 

concerns of CPV, and we actually are involved in the Supreme 

Court case regarding New Jersey and Maryland. Thank you. 

Mr. TONKO. Mr. Cook—thank you. And, Mr. Cook, would you 

have any comments in regard to the modernization or evolution of 

the grid and FERC? 

Mr. COOK. Well, certainly, the promotion of advanced technologies and the encouragement that you have in the draft discussion to direct FERC to consider and identify how advanced technologies might support the grid I think is good direction to FERC. 

In addition, I think one of the things FERC needs to look at, parVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00157 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
154 

ticularly for companies like ours who would like to expand out of 

one ISO and into another, and we offer a standardized product for 

consumers that can be utilized in grids, and that the markets are 

similar in other ISOs. I mean as we transition from PJM to New 

York and New England, or the mid-continent ISO, the rules for the 

kinds of services we provide can be vastly different, and that 

means in some cases we can’t participate in the market, or in some 

cases we have to redesign our technology in order to participate in 

those different markets. 

I know there is a lot of discussion about how utility grids are different, but in most cases, I think you could buy a toaster, it works 

anywhere within the U.S. The grid is surprisingly identical across 

our country. 

Mr. TONKO. You know, you talk about this technology, and obviously storage is part of the enhancement that would enable us to 

have a stronger outcome. So do you see—do you anticipate that 

other States or markets will follow suit with some of the policies 

that we have seen that have advanced technology and expansion of 

distributed generation? 

Mr. COOK. Yes, absolutely, and I think and I hope that other jurisdictions will follow the kinds of things PJM has done to encourage customer-sided storage facilities to be able to participate in 

their markets and provide valuable grid services. I think storage 

has huge opportunities for growth, huge opportunities for cost declines, and when combined—and I think one of the key components 

is combined to find the different resources and values that storage 

can provide. So a customer that is utilizing their storage for backup power, so they have power when the grid goes down, shouldn’t 

be prohibited from also utilizing that facility to provide valuable 

grid services when there is no technological or other prohibition on 

that. There shouldn’t be regulatory barriers that prohibit that kind 

of participation. 

Mr. TONKO. OK. Well, I thank you, Mr. Chair. 

Mr. WHITFIELD. At this time, recognize the gentlelady from Florida, Ms. Castor, for 5 minutes. 

Ms. CASTOR. Thank you. I am going to follow up on that because 

I think the innovative cost saving development of storage capacity, 

as you said, has a very bright future, and I want America to be the 

leader in the world in the development of that technology. So I was 

concerned that you testified that changes to PURPA in the discussion draft would harm—complicate the future economic growth of 

this technology and be a significant barrier to entry in a State or 

region without a well-functioning market, or at least some competition. And many States, including my home State of Florida isn’t— 

doesn’t have a competitive regional wholesale market, and small 

power producers don’t have access. So would you provide us with 

additional—is it as easy as striking this language, does it need to 

be changed, could you go over what your specific recommendation 

is here? 

Mr. COOK. And thank you. In my opinion, I don’t think the language is needed. I think you could strike it in its entirety. I don’t 

see a dysfunction in FERC Order 688 which separates and says if 

there is an open market, large generators are assumed to have acVerDate Mar 15 2010 14:38 Nov 06, 2015 Jkt 037690 PO 00000 Frm 00158 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X50ACCOUNTABILITYASKOK110515\114X50ACCOUNTABILITY
155 

cess—nondiscriminatory access to that market and, therefore, don’t 

need any of the PURPA protections. 

Ms. CASTOR. And then if the language is included, do you agree 

that it would harm the economic vitality of this emerging—— 

Mr. COOK. The—— 

Ms. CASTOR [continuing]. Technology? 

Mr. COOK. Yes, absolutely, because it changes the presumption 

which is, on the other side, to say big stuff has open access and 

can utilize its wherewithal in those markets. Small stuff does not. 

Ms. CASTOR. Um-hum. 

Mr. COOK. And what the language would do is say small stuff 

does. And I think it is a factual matter in having dealt with development of solar projects for over a dozen years, many of which 

were in the 50 kilowatt to 200 kilowatt range, there are a myriad 

of barriers that we face and, you know, the simple contracting 

mechanism that is simple for utilities, not simple when you are 

dealing with a commercial customer that is not used this kind of 

arcane language. So the PURPA protections for the smaller generation I think needs to continue, but it is not absolute. As FERC balanced in its order, it said it is a rebuttable presumption. So if, indeed, you do have a big system that is serving a small municipal 

system, perhaps they do have open access and can go directly into 

the market, and that can be presented to FERC as a rebuttable 

presumption. 

Ms. CASTOR. OK. 

Mr. COOK. So I think that is the proper balance. 

Ms. CASTOR. Thank you very much. 

Mr. Shelk, I think you gave the committee some wise advice. You 

said don’t pass a law that will be outdated in the next few years. 

The energy market is changing and there are new requirements, 

and it appears that the old traditional electric utility model does 

not match the challenges of the modern world. And there has been 

so much resistance from some utilities, and they have a mission to 

provide the best return for their shareholders, but—and that is 

largely based on kilowatt hour use. What can we do in this discussion draft to begin to provide greater incentives to electric utilities 

to invest in greater efficiency and renewables, with the understanding we have to maintain the grid? 

Mr. SHELK. A lot of it is, frankly, outside of what a legal instrument like a statute could do, because what is happening in every 

State, you know, until recently you had—and we still do have these 

different business models, and we have been clear as an organization we have got all—like I said, 95 percent of our member assets 

in the RTOs. So in regions like yours that don’t have open markets, 

frankly, that is not where an independent power producer can or 

would go. But what is really changing for all of us, because the 

common denominator of just about everybody I think on the panel, 

except for Mr. Cook, is we are all on the central station power 

plant business, as we have been since the advent of electricity for 

the most part. And what is happening now is the technology is 

there to empower consumers—— 

Ms. CASTOR. Um-hum. 

Mr. SHELK [continuing]. Regardless of the laws of the State. So 

you have, as you know in Florida and elsewhere, initiatives on all 

156 

these different distributed resources, energy storage, energy management, and so it is really the technology that is driving it, less 

than the legal side. 

The challenge, however, is unlike just about anything else I can 

think of, you know, we don’t deliver electricity to this room or our 

homes in separately packaged units. And as someone said earlier, 

it is all part of this interconnected machine, essentially, and the 

challenge now is as these distributed resources and storage come 

about, the whole thing has to work together. And we have this Federal-State jurisdictional divide, and while we might disagree on 

how to resolve it, I think that is one of the things that is going to 

have to happen, because the Federal Government will continue to 

have a role through FERC, you all have a role, of course, the States 

do, but I don’t—can’t imagine any one particular law. Really, technology, as often is the case, is ahead of the law, but to the extent 

you can encourage more competition, I think then we are going to 

get the innovation and put the risk of the innovation on those who 

are bringing it to market, rather than on your consumers. 

Ms. CASTOR. Thank you very much. 

Mr. WHITFIELD. Mr. Weisgall, you tried to get attention. 

Mr. WEISGALL. Ten seconds. Just to clarify from your earlier 

questions, Congresswoman: Number one, the PURPA proposals 

that we have would specifically not apply to States that lacked 

competitive markets—would, therefore, not apply to Florida; number two, I am not aware of any energy storage QF. Clearly, energy 

storage is the Holy Grail for renewable energy, we all know that, 

and certainly anything we would propose, especially as a company 

that has put billions into wind and solar, this is something we 

want to encourage. So the last thing we would want to do would 

be to discourage energy storage through any PURPA amendments. 

But it is kind of apples and oranges. As Mr. Cook himself said, energy storage is not really a generation asset, and we are really 

looking at generation assets. I just wanted to clarify those two 

points. 

Mr. WHITFIELD. Well, thank you very much. And I want to thank 

the panel of witnesses, and we will need to get together again soon 

to continue our discussion, but we do look forward to working with 

all of you, and we are going to need your advice and counsel as we 

move forward trying to develop a piece of legislation. 

And with that, we will keep the record open for 10 days. And 

thank you very much, and see you soon. 

And with that, we will adjourn the hearing. 

[Whereupon, at 11:45 a.m., the subcommittee was adjourned.] 

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