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44–852 PDF 2008

S. HRG. 110–538 

RENEWABLE ELECTRICITY 

HEARING 

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

TO

EXAMINE THE CHALLENGES AND REGIONAL SOLUTIONS TO DEVELOPING TRANSMISSION FOR RENEWABLE ELECTRICITY RESOURCES 

JUNE 17, 2008 

( 

Printed for the use of the 

Committee on Energy and Natural Resources 
(II) 

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

JEFF BINGAMAN, New Mexico, Chairman 

DANIEL K. AKAKA, Hawaii 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

KEN SALAZAR, Colorado 

ROBERT MENENDEZ, New Jersey 

BLANCHE L. LINCOLN, Arkansas 

BERNARD SANDERS, Vermont 

JON TESTER, Montana 

PETE V. DOMENICI, New Mexico 

LARRY E. CRAIG, Idaho 

LISA MURKOWSKI, Alaska 

RICHARD BURR, North Carolina 

JIM DEMINT, South Carolina 

BOB CORKER, Tennessee 

JOHN BARRASSO, Wyoming 

JEFF SESSIONS, Alabama 

GORDON H. SMITH, Oregon 

JIM BUNNING, Kentucky 

MEL MARTINEZ, Florida 

ROBERT M. SIMON, Staff Director 

SAM E. FOWLER, Chief Counsel 

FRANK MACCHIAROLA, Republican Staff Director 

JUDITH K. PENSABENE, Republican Chief Counsel 
(III) 

C O N T E N T S 

STATEMENTS 

Page 

American Public Power Association ....................................................................... 69 

Bingaman, Hon. Jeff, U.S. Senator From New Mexico ........................................ 1 

Domenici, Hon. Pete V., U.S. Senator From New Mexico .................................... 3 

Freeman, Bryce, Wyoming Infrastructure Authority, Cheyenne, WY ................ 18 

Furman, Donald N., Representing American Wind Energy Association ............ 59 

Halvey, Richard, Western Governors’ Association, Denver, CO .......................... 15 

Hanson, Gary, Chairman, South Dakota Public Utilities Commission, Pierre, 

SD .......................................................................................................................... 43

Kaul, Will, Transmission Vice President, Great River Energy, Maple Grove, 

MN ......................................................................................................................... 55 

Kolevar, Kevin M., Assistant Secretary for Electricity Delivery and Energy 

Reliability, Department of Energy ...................................................................... 5 

Pickens, T. Boone, BP Capital, Dallas, TX ............................................................ 9 

Reid, Hon. Harry, U.S. Senator From Nevada ...................................................... 25 

Wright, Stephen J., Administrator, Bonneville Power Administration, Portland, OR ................................................................................................................ 48 

APPENDIX 

Responses to additional questions .......................................................................... 73 

(1) 

RENEWABLE ELECTRICITY 

TUESDAY, JUNE 17, 2008 

U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The committee met, pursuant to notice, at 10 a.m. in room SD– 

366, Dirksen Senate Office Building, Hon. Jeff Bingaman, chairman, presiding. 

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. 

SENATOR FROM NEW MEXICO 

The CHAIRMAN. Ok. Why don’t we go ahead and get started. 

We’re about 2 minutes early. But we’ve got four of us here, so 

that’s a good sign. We do have a couple of panels, so we will get 

started. 

The topic of today’s hearing is renewable electricity generation 

and transmission. The Federal Government has been trying to encourage development of renewable electricity since at least the late 

1970s with the passage of the Public Utility Regulatory Policies 

Act. We’ve also had tax credits for renewables. We funded research 

and development for renewables. 

States have passed aggressive renewable portfolio requirements 

or in other ways have set goals and targets for increasing the 

amount of electricity produced through renewable sources. In spite 

of all this, renewable generation is still only 3 percent of our national electricity supply. Recent studies have indicated that we can 

do much better. 

The Department of Energy recently released a report indicating 

that 20 percent of our electricity could come from wind alone. The 

Western Governors’ Association has adopted a goal of 30,000 

megawatts of clean energy resources by 2015. Project 25 by 25 has 

accepted as a target that 25 percent of all energy should come from 

renewables by 2025. 

All these studies and reports agree that we should extend the renewable energy tax credits, several of them supporting national renewable electricity standard. All of them also agree, however, that 

these actions are not enough and that one of the most important 

barriers to accomplishing these goals is the inadequacy of the existing transmission system. 

I think it’s important that we do all that we can to get transmission built to carry renewable electricity to where it’s most needed. We need to be sure that FERC’s rules for planning, siting, pricing, interconnection and openness of access are what they should 

be. Beyond that renewables do present unique problems. 
2 

Most wind, solar and geothermal resources are located far from 

the areas where the electricity is needed. The Upper Plains states 

are rich with the potential for wind generation. But these states 

are sparsely populated and far from large metropolitan, industrial 

centers. The same is true for solar potential in the Southwest and 

the geothermal resources in the Mountain West. 

Development of transmission lines to carry such resources to load 

centers has to be done across many states and through many jurisdictions. Siting the lines is a serious problem. Often states that are 

not benefiting from either the jobs that come to the states where 

the generation is located or the electricity that is carried to customers in other states. 

This makes it much more difficult for them to face the opposition 

that often accompanies such projects. Cost allocation is also a real 

difficulty. Customers in the states where the plants are built and 

where the transmission is essentially just passing through do not 

want to shoulder the primary burden of paying for the lines that 

are supplying somebody else. 

This hearing we will look at a number of efforts to address these 

vexing problems. Let me, before introducing any witnesses, call on 

Senator Domenici for his opening statement. 

[The prepared statement of Senator Salazar follows:] 

PREPARED STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR FROM COLORADO

Mr. Chairman and Ranking Member Domenici, thank you for holding this hearing 

on the difficult challenges facing development of electric transmission infrastructure 

for renewable energy resources. 

Today’s hearing has a decidedly western theme, and for good reason. The Department of Energy’s official renewable energy resource maps, prepared by experts at 

the National Renewable Energy Laboratory in Golden, Colorado, illustrate the incredible renewable energy potential across the western states. Studying the existing 

electric transmission infrastructure map, one quickly realizes the conundrum renewable electricity project developers face: the best solar and wind energy are in sparsely-populated locations—locations without transmission capacity in place. The reason 

for this is simple enough. Over the past century our electric infrastructure has 

evolved from a ‘‘demand-oriented’’ perspective. That is, the first question when 

siting new generation capacity has been ‘‘where is growing demand located?’’ Yet 

today, renewable project developers are turning that question around and asking 

the supply-oriented question of ‘‘where is the best renewable energy potential located?’’ 

Connecting renewables to the grid can be incredibly difficult. Planning and siting 

transmission is often plagued by jurisdictional disputes and not-in-my-back-yard resistance. Efforts to finance transmission are usually met with apathy if not resistance on the part of local rate-payers, who may not have any incentive to participate. 

I look forward to hearing today’s witnesses describe the various approaches they 

have taken to meet these challenges. 

I believe the Western Governors Association, in partnership with DOE, has shown 

incredible leadership in establishing the Western Renewable Energy Zones. The 

WGA’s resolution to deliver 30,000 megawatts of renewable electric power to the nation by 2015 is both lofty and achievable—but only if we can meet our transmission 

infrastructure goals. The Western Renewable Energy Zones project is a textbook illustration of cooperation between states and the federal government to share and 

organize critical information to achieve a common purpose. While this is a wonderful start, my instincts tell me that there is a clear need for an even deeper level 

of interplay and coordination between local, state, and federal officials when it 

comes to siting the transmission we need. 

I believe each of our witnesses and many members of this committee are driven 

by a common insight that renewable energy will enhance our energy, environmental, and economic security. Displacing future fossil generation capacity with renewables will reduce greenhouse gas emissions, save water, create new jobs, and 

boost local tax revenue in rural areas that so desperately need economic revitalization. The western states are blessed with world-class solar and wind energy poten-
3 

tial, and we must do everything we can to ensure these resources are developed in 

the interests of the environment, local communities, and the nation as a whole. 

I am eager to engage in this discussion and to hear the perspectives of our panel 

on these critical issues. Thank you, Mr. Chairman. 

STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM 

NEW MEXICO 

Senator DOMENICI. Thank you very much, Mr. Chairman. Let me 

say first for the committee’s information and for yours, the distinguished Republican leader has called for a meeting of Republican 

senators who are interested in certain energy issues pending before 

his—for his deliberation. He’s asked us to attend a meeting at 

10:30 in his office. 

I believe everybody that has an interest will go to that meeting. 

I myself will. I assure that I will wait until the last minute. I will 

come back from that meeting as soon as I can. 

In my 36 years in the Senate I’ve worked hard to further the development of alternative energy. We’ve invested literally billions of 

dollars in research and development of renewable technologies like 

wind, biomass, solar and billions more to come, these statements 

so far similar to yours. We have done much of this bipartisan. 

In 2005 I was very proud to help pass some of the largest tax 

credits for renewable energy in history. There’s widespread agreement that they should be continued. Unfortunately the U.S. House 

is now insisting on raising taxes to offset these extenders, with another attempt this afternoon. 

Even though Congress has never had to specifically offset tax 

credits for the renewable industry since the credits were first established in 1992. These tax credits are important enough to be extended without offsets. The Senate has already done this because 

they spurred development in the clean technologies sector and act 

as a stimulus to our economy without any doubt. 

Over the past several weeks I’ve talked at length about my vision 

for our energy future. The good news is that there is widespread, 

bipartisan agreement on how to address energy issues in the long 

term. In the short term we don’t always see eye to eye. But there 

is no question that the United States of America will have to import crude oil for many decades. 

The foremost experts suggest that the bridge from now to that 

future without crude oil is about 40 years, meaning that we will 

be on crude oil of substantial quantities for 40 years. That’s the 

bridge to the future and that’s the short term problem we’ve got 

which we can’t get rid of. It just means we will spend more and 

more of our money overseas for the next 40 years unless we have 

some way to abate that. 

Increased domestic production, however, is just a bridge that will 

sustain us as we develop new technologies. It is important that we 

understand exactly what it will take to make sure we get ready for 

it when it’s available. Particularly when it comes to our infrastructure needs. 

That’s the purpose of today’s hearings. By year 2030, Energy Information Administration projects that a 30-percent increase in the 

U.S. electricity demand as estimated by that assumes significant 

efforts to improve energy efficiency and demand. However, with 
4 

only 6.8 percent growth in total transmission lines since 1996, our 

Nation’s infrastructure development is simply not keeping pace 

with this system’s demands. 

The passage of the Policy Act of 2005 Congress sought to tackle 

this difficult issue. Setting needed transmission lines we directed 

DOE to study the country’s transmission constraints and designate 

transmission corridors in areas of severe congestion. Importantly 

we provide FERC with backstop siting authority to counter NIMBY 

opposition to interstate lines. 

These are significant Federal authorities aimed at insuring adequate transmission. Yet since its enactment and before they had 

even fully been implemented these provisions have been attacked 

by numerous interest groups, some Members of Congress and one 

of our Federal Commissioners. Of all our witnesses here today are 

wrestling with the thorny transmission issues from the planning 

and siting to cost allocation to the integration of intermittent resources. 

I look forward to hearing from our panelists about these efforts. 

Because those engaged in reaching the collaborative processes are 

the ones who see the problems and must have solutions. I thought 

we took a giant step when we were bold enough to say for the first 

time that there would be condemnation authority under certain circumstances as we attempted to bridge stop gaps with power lines 

that were eminent for national security and national transportation 

needs. 

With that I look forward to the witnesses. Thank you for this important hearing. 

The CHAIRMAN. Ok. Thank you very much. We have two panels 

today. 

On our first panel let me just start and indicate Senator Reid 

has asked to address the committee. He has introduced legislation, 

S. 2067, which tries to deal with this issue, and directly confronts 

the cost allocation issue which is a very important part of this 

issue. 

He will be coming and joining this panel in the next few minutes, 

I’m advised, and we will just add him when he comes. Let me call 

the panel forward. 

Kevin Kolevar is the Assistant Secretary for Electricity Delivery 

and Energy Reliability in the Department of Energy. Thank you for 

being here. 

T. Boone Pickens is with BP Capital in Dallas, Texas. Thank you 

for being here. 

Richard Halvey representing the Western Governors’ Association 

from Denver. 

Our other witness is Bryce Freeman with the Wyoming Infrastructure Authority from Cheyenne. 

So thank you all for being here. I think probably given the time 

constraints everybody’s got. Why don’t we just go down the line and 

have each of you summarize the main points you think we need to 

understand. We will include your entire statement in the record. 

Then, if Senator Reid arrives after whoever is testifying completes their testimony, we may allow Senator Reid to go ahead because of his time constraints. But Kevin, why don’t you go right 

ahead and give us the perspective of the Department of Energy. 
5 

STATEMENT OF KEVIN M. KOLEVAR, ASSISTANT SECRETARY 

FOR ELECTRICITY DELIVERY AND ENERGY RELIABILITY, 

DEPARTMENT OF ENERGY 

Mr. KOLEVAR. Thank you, Mr. Chairman, Senator Domenici, 

members of the committee for the opportunity to testify before you 

today on the challenges of building transmission to meet the growing demand of renewable electric generation capacity. 

Decades of reliable electric service have made it easy to take for 

granted the availability of and access to electricity that powers our 

electronics, heats and cools our homes and operates our businesses. 

However, electricity is the backbone of our economy. Without a robust, reliable and affordable supply the operation of commerce, 

transportation, finance, food and water and our national security 

will be threatened. 

As our Nation’s economy continues to grow consumers demand 

for electricity will steadily increase. Even when counting for advances in energy efficiency, as Senator Domenici noted, the Energy 

Information Administration estimates that by the year 2030, U.S. 

electricity consumption will increase by almost 30 percent from the 

2006 level. Although this a positive indicator of a growing economy, 

it means a significant amount of new demand on electricity generation and transmission systems that are already stressed and aging. 

While we as a Nation should place great emphasis on updating 

and upgrading the grid we have today. That alone will not be 

enough. Significant new transmission will be necessary in the 21st 

century, largely because much of the Nation’s future electricity demands will be met by generation sources located in areas that currently lack adequate grid connectivity. This applies in particular to 

wind, solar, nuclear and clean coal with carbon capture and storage. 

This means that if you want to support clean energy, you have 

to support transmission expansion in appropriate areas. Meeting 

our future electricity needs will not occur overnight or with one solution, however. The new demand will only be met through national and regional cooperation on a combination of options such as 

new generation and transmission, advanced technologies, demand 

response programs and improved efficiency. 

But there is good news to report. While the technical hurdles to 

continued, reliable electric service are considerable, they will be 

overcome. This Nation is rapidly surmounting our current technical 

challenges. I expect this will continue. 

The less good news is an even greater obstacle remains. We must 

harmonize the multitude of local, State and Federal regulatory 

rules, such that they complement, not conflict with one another. To 

do this, we must coordinate efforts to meet electricity demands regionally and not just at the State level. 

For that reason the Department strongly supports regional approaches to addressing the challenges of electricity resource planning. The present pattern of siting much generation distant from 

load and often in another State will continue for many years to 

come, so State level planning needs to be followed with regional 

scale planning and coordination. We will all benefit if states in our 

region are able to work in a coordinated way to bring their shared 

views to reality. 
6 

I’m pleased to note that the Department supports a number of 

activities designed to assist states as they think through the electricity choices. Initiatives such as the Mid-Atlantic Distributive Response Resources Initiative and the National Action Plan for Energy Efficiency are two good multi-State examples. The Western 

Governors’ Association’s Western Renewable Energy Zones effort is 

the latest. The Department is tremendously pleased to have the opportunity to support this ground breaking initiative. 

The West has great potential for the development of renewables 

as evidenced by the work the states are doing on their own. But 

the scope of this work has been restricted to renewable energy potential within each State’s boundaries. As we all know, renewable 

resources do not recognize State borders. 

The Western REZ project brings together both policymakers and 

regulators from the Western states to consider as a body the region’s electricity needs and consider whether and how the states 

can cooperate to address these needs. The process provides a 

framework to bolster the growth of renewable energy sources, increase regional electricity planning and work in an open stakeholder process to consider transmission plans for the deliver of 

these resources. 

I can assure you that these multi-State initiatives are not easy. 

No single effort holds the solution for a region’s electricity challenges. Nevertheless, these projects are important examples of how 

regions can respond to the challenge of using new sources of energy 

to meet the Nation’s electricity needs. 

The Department is pleased to be a part of all of these initiatives 

and hopes the Western REZ process in particular will serve as an 

example of how regions can work cooperatively to promote the development of clean and reliable energy sources. The maturation of 

these efforts continue technological advances and increasing market penetration of the broad range of clean energy technologies and 

modernization of the existing electricity transmission and distribution infrastructure are critical components of the President’s vision 

of a cleaner, more secure, energy future. 

I expect the DOE will continue its active support by making 

available both technical and financial resources and by working to 

raise awareness of the project’s importance. This concludes my 

statement, Mr. Chairman. I look forward to your questions. 

[The prepared statement of Mr. Kolevar follows:] 

PREPARED STATEMENT OF KEVIN M. KOLEVAR, ASSISTANT SECRETARY FOR

ELECTRICITY DELIVERY AND ENERGY RELIABILITY, DEPARTMENT OF ENERGY

Mr. Chairman and Members of the Committee, thank you for this opportunity to 

testify before you today on the challenges of building transmission to meet the growing demand of renewable electric generation capacity. 

Decades of reliable electric service have made it easy to take for granted the availability of and access to electricity that powers our electronics, heats and cools our 

homes, and operates our businesses. However, electricity is the backbone of our 

economy, and without a robust, reliable and affordable supply, the operation of commerce, transportation, finance, food and water systems, and our national security 

will be severely threatened. 

OE MISSION

The mission of the Office of Electricity Delivery and Energy Reliability (OE) at 

the Department of Energy (DOE) is to lead national efforts to modernize the electricity delivery system, enhance the security and reliability of America’s energy in-
7 

frastructure, and facilitate recovery from disruptions of energy supply. These functions are vital to DOE’s strategic goal of protecting our national and economic security by promoting a diverse supply and delivery of reliable, affordable, and environmentally responsible energy. 

MEETING OUR FUTURE ELECTRICITY NEEDS

As our Nation’s economy continues to grow, consumers’ demand for more electricity will steadily increase. Even when accounting for advances in energy efficiency, the Energy Information Administration estimates that by the year 2030, 

U.S. electricity consumption will increase by almost 30 percent from the 2006 level. 

Although this is a positive indicator of a growing economy, it means a significant 

amount of new demand on electricity generations and transmission systems that are 

already stressed and aging. 

And while we as a nation should place great emphasis on updating and upgrading 

the grid we have today, that alone will not be enough. Significant new transmission 

will be necessary in the 21st century, largely because much of the Nation’s future 

electricity demands will be met by generation sources located in areas that currently 

lack adequate grid connectivity. This applies to almost every type of generation: 

• Most of the Nation’s best wind and solar resources are located in remote areas 

where existing transmission capacity is either minimal or non-existent; 

• Most new nuclear plants will not be sited in populous areas, and will likely require additional transmission capacity; 

• Clean coal with Carbon Capture and Storage (CCS) will presumably be sited 

near geologic formations suitable for CO2 storage, and may not be near major 

existing transmission facilities. 

This means that if you want to support clean energy, you have to support transmission expansion in appropriate areas. 

So it’s clear that meeting our future electricity needs will not occur overnight or 

with one solution. The new demand will only be met through National and regional 

cooperation on a combination of options, such as new generation and transmission, 

advanced technologies, demand response programs, and improved efficiency. However, while the technical hurdles to continued reliable electric service are considerable, they will be overcome. This Nation is rapidly surmounting our current technical challenges, and I expect this will continue. 

There is another obstacle, however, that does threaten the long-term provision of 

reliable electricity; we must harmonize the multitude of local, state and Federal regulatory rules such that they complement, not conflict with each other. And to do 

this, we must coordinate efforts to meet electricity demands regionally, and not just 

at the state level. Today, the greatest challenge to developing the appropriate network of wires and other facilities to reliably and responsibly generate and deliver 

the electricity to the American public is the difficulty of coordinating state and Federal permitting efforts and authorities. 

DOE SUPPORT FOR REGIONAL ELECTRICITY PLANNING

For that reason, the Department strongly supports regional approaches to addressing the challenges of electricity resource planning. In most parts of the country, wholesale electricity markets have become regional in scale. The present pattern of siting much generation distant from load—and often in another state—will 

continue for many years to come, so state-level planning needs to be followed with 

regional-scale planning and coordination. To begin this process, each state, after 

considering its future electricity objectives, strengths, and needs, must engage with 

its neighbors to consider some basic questions that include: 

• The mix and locations of the region’s generation resources; 

• What transmission facilities are required and where; and, 

• How urban areas should strike an appropriate balance between local generation, energy efficiency programs, and imports via transmission. 

We will all benefit if states in a region are able to work in a coordinated way to 

bring their shared view to reality. I’m pleased to note the Department has a number 

of activities where we are helping states think through electricity choices regionally: 

Initiatives such as the Mid-Atlantic Distributed Resources Initiative (MADRI), and 

the National Action Plan for Energy Efficiency are two good examples. The Western 

Governors Association’s Western Renewable Energy Zones effort (WREZ) is the latest, and the Department is tremendously pleased to have the opportunity to support 

this groundbreaking initiative. 
8 

The WREZ project seeks to provide a framework to tackle the hurdles facing the 

western region as it seeks to bolster the growth of renewable energy sources, increase regional electricity planning, and work in an open stakeholder process to consider transmission plans for the delivery of these resources. 

ORIGINATION OF WGA WREZ PROJECT

The idea for the WREZ project originated at a Western Governors’ Association 

(WGA) meeting in Fort Collins, Colorado in September 2007 to discuss the challenges regarding new demand for renewable energy generation, the transmission 

necessary to deliver this power to consumers, and integration of these clean resources into the electric transmission grid. Out of this meeting came the idea to 

apply the Competitive Renewable Energy Zones (CREZ) concept used in Texas to 

promote the development of wind to the Western Interconnect. A number of Western 

states, including Colorado, Nevada, New Mexico, and California, have already begun 

or completed identification of renewable energy zones within their own state boundaries. 

The West has great potential for the development of renewables as evidenced by 

the work the states are doing on their own. But the scope of this work has been 

restricted to renewable energy potential within each state’s boundaries and, as we 

all know, renewable resources do not recognize state borders. Limiting efforts solely 

to the state level may lead to fractionalization among the states and complicate decisions for a resource planner. The WREZ project applies existing WGA policy and 

facilitates the work being done at the state level to the entire Western Interconnect 

to create a regional market for new generation capacity from wind, solar, geothermal, biomass and hydro technologies. But this is only half the effort; the next 

step is to consider the transmission needed to carry this load to consumer centers. 

The work that the states, through the WGA, will be doing on this project will be 

divided into several phases; 

1) Identification of the renewable energy zones (REZ) using technical resource 

assessments, economic analysis, and stakeholder evaluation and feedback; 

2) Development of conceptual transmission plans and balancing requirements 

for REZs through existing Western Electricity Coordinating Council-sponsored 

transmission planning process; and 

3) Coordinating load serving entity procurement to support development of a 

regional market for renewable energy. 

Finally, later in the process, the WGA project aims to develop interstate cooperation to address permitting and multi-state cost-allocation issues. Phase I began on 

May 29, 2008, in Salt Lake City with the expectation that the initial phase will be 

completed at the end of this year or early 2009. 

STAKEHOLDER INVOLVEMENT

Increasing public attention to new energy infrastructure requires greater stakeholder involvement to address concerns raised by opponents and to ensure a greater 

success in siting new clean energy projects. The WREZ project recognizes this point 

and has created an open and transparent process for including stakeholders of various interests, whether it is renewable generators, load serving entities, wildlife and 

land conservationists, Native American tribes, or local citizens groups concerned 

about their community. 

NON-REZ RENEWABLES

While the WREZ holds tremendous potential for bringing considerable clean energy to the West, not all generation in the region is abundant enough to be located 

in specific, large ‘‘zones.’’ In fact, some of the renewable resources, such as water 

power, geothermal, biopower, and distributed solar (or solar photovoltaics) may not 

be needed to be identified as existing in a ‘‘zone’’, or at least may be able to serve 

nearby load without new transmission. 

Thus, Phase I of the WGA WREZ project will also include identification, particularly with GIS-based maps as appropriate, of non-REZ renewable resources. This 

will include a state-by-state estimate of potential for distributed renewables such as 

roof-top solar photovoltaics. By supplying information on all of the renewable resources that are available to states-not solely those to be used at the bulk power 

level-potential developers and load-serving entities can make their own choices on 

whether to tap remote, distant renewables, or local renewables to meet their customers’ electricity needs. 
9 

DOE SUPPORT FOR CLEAN AND DIVERSIFIED ENERGY

Finally, on the Federal side, the Department continues to invest heavily in the 

research and development of a wide range of advanced clean energy technologies, 

including clean coal technologies with carbon capture and storage, next generation 

nuclear reactors, as well as energy efficiency and related demand side technologies. 

Indeed, the demand-side measures, such as conservation and increased efficiency, 

are often cheaper and can be implemented much faster than supply side resources. 

Maturation of these efforts, advancement of the previously mentioned technologies 

and their increased market penetration, and modernization of the existing electricity 

transmission and distribution infrastructure are critical components of the President’s vision of a cleaner, more secure energy future. 

As we move toward that secure energy future, renewables will play a leading role 

in helping to reach our goal of a clean and diverse fuel mix. The WREZ project is 

one example of how a region is responding to this challenge of using new sources 

of energy to meet the Nation’s electricity needs. The Department is pleased to be 

a part of this initiative and looks forward to continuing its work with the Western 

Governors’ Association and other regional state efforts to promote the development 

of clean and reliable energy sources. 

This concludes my statement, Mr. Chairman. I look forward to answering any 

questions you and your colleagues may have. 

The CHAIRMAN. Thank you very much. 

Mr. Pickens, go right ahead please. 

Senator DOMENICI. Mr. Pickens, before you start, might I just 

thank you for coming from a long distance today to help us with 

this very difficult problem. I know what you’re going to say having 

seen it. I complement you on your boldness in terms of the suggestions you make. 

Thank you, Mr. Chairman. 

STATEMENT OF T. BOONE PICKENS, BP CAPITAL, DALLAS, TX 

Mr. PICKENS. I’m probably am the oldest oil man here today. 

That’s not in my notes. Thank you for having me. 

Our country is in the most perilous time in history in terms of 

imported oil. Any serious way out of our energy crisis is going to 

take a real investment in our transmission system. I believe renewable energy resources are a viable solution to this crisis. 

But any way you use to fix our dependence on foreign oil will depend on our willingness to invest and streamline our transmission 

system. Private enterprise will invest the money and will bill it 

cheaply and efficiently if Congress adopts clear, predictable policies. Senators, ladies and gentlemen, simply stated our main energy problem begins and ends with imported oil. 

In the 1960 we were importing about 10 percent of our oil. In 

1973 we were up to 24 percent. By 1991 was 42 percent. And now 

we’re right on 70 percent. 

We are getting close to exporting now $700 billion a year overseas because of our addiction to foreign oil. More than four times 

the cost of the Iraqi War. They get hard dollars from us and we 

get a product that’s burned and gone in 90 days. 

The price of oil will go up further. In 10 years we will have exported close to $10 trillion out of the country. If we continue on the 

same basis we’re going now. It is the greatest transfer of wealth 

in the history of mankind. Our money is going to a few friends and 

several enemies. 

I have a plan that can stop all this. It has to begin with the expanded use of renewable energy. We have the best wind in the 
10 

world, the United States does. It’s time to get serious about using 

it. 

The lynch pin of my plan is utilizing our abundant, domestic supplies of clean, affordable natural gas and putting it to work in 

transportation. Now more than 70 percent of our oil imports are 

used in transportation. Domestic natural gas is better than imported oil. 

But to make it work we have to release natural gas out of power 

generation. It’s wasted there. Wind energy can fill the void. 

When you look at the pie chart for power generation you have 

50 percent coal, 22 percent natural gas and 20 percent nuclear. 

Hydro and biofuels is miscellaneous. It’s the rest of it. 

In April 2007 the government released a study that showed that 

you could develop 20 percent of your power generation from wind. 

Sweetwater, Texas, a model for wind power. If you take the total 

Sweetwater complex it’s about 2,000 megawatts. 

Let me tell you just a something about Sweetwater, Texas. It is 

rural America. It was a 12,000 population town, went down below 

10,000 and now it’s recovered to above 12,000 because of the wind. 

It’s a booming community. It can be duplicated over and over again 

in real America if you use wind power. 

Shell Oil Company is starting a project just Northwest of Sweetwater, 3,000 megawatts. We’re building the world’s largest wind 

project in Pampa, Texas which is 200 miles North of Sweetwater. 

The Pampa Wind Project will be capable of generating 4,000 

megawatts of electricity, enough to serve 1.2 million U.S. homes. 

There will be 2,500 turbines in that project. 

If you go up through the wind corridor from Sweetwater to 

Pampa to Goodland, Kansas and on up Hastings, Nebraska and on 

to Canada, it is all good for wind, all of it. Fabulous resource for 

this country to have. It’s in the right place too, in the central part 

of the United States. It’s safe. 

With wind power in place you can take the 22 percent of our energy supply from natural gas and move it to transportation. The 22 

percent moved to transportation will replace all, underline all, of 

OPEC imports. This is a real number. Foreign oil imports represent a real threat to our national security and our national economy. 

This is an emergency. We need to consider giving our next President emergency powers to deal with it. I would envision Eisenhower Federal Highway System back in the cold war. I think that’s 

what it’s going to take to do this. 

It’s got to be done quickly. Because of the $700 billion a year 

we’re exporting out of this country. In the meantime Congress 

should bring leadership to the table and help address one of the 

critical shortcomings of wind, energy transportation. 

If private enterprise is going to fund these efforts we need to ensure they are clear, predictable policies regarding siting, permitting, Federal land use, cost recovery, capacity rights in cities. There 

are many benefits to doing this including cleaner air, lower demand 

for water, marketing the natural gas available for feedstock for 

chemical and agriculture uses, making natural gas available for 

use for transportation fuel, contribute to the revitalization of rural 
11 

areas in central United States, take advantage of plentiful renewable resources to provide a secure supply of power. 

Thank you, Mr. Chairman for holding this hearing today. 

[The prepared statement of Mr. Pickens follows:] 

PREPARED STATEMENT OF T. BOONE PICKENS, BP CAPITAL, DALLAS, TX 

Chairman Bingaman, Senator Domenici, and members of the Committee, thank 

you for holding this hearing today. Our country is in a crisis caused by imported 

oil, and any serious solution to help us escape from this trap will require action by 

the Congress to promote private investment in our electric transmission system. 

We must develop and promote every available domestic energy resource to solve 

this crisis, and the lynchpin to addressing our escalating dependence on foreign oil 

is a willingness and determination to invest in and streamline our electric transmission system. Private enterprise will invest money, and will build new transmission infrastructure cheaply and efficiently, if Congress adopts clear, predictable 

policies. 

And Senators, ladies and gentlemen, simply stated, our main energy problem begins and ends with imported oil. Seventy percent of the oil we use is imported. With 

current oil prices, we are getting close to exporting $700 billion a year overseas because of our addiction to imported oil. That’s nearly four times the cost of the Iraqi 

war. We purchase it from a few friends and a lot of enemies. We are paying for the 

war against ourselves and we have got to stop it, some way, somehow. 

And the price of oil will go up further. Over the next 10 years, you’re looking at 

exporting $10 trillion out of this country. It will be the greatest transfer of wealth 

from one country to other parts of the world in the history of mankind. It is a clear 

and growing threat to our national security, and our national economy. It has to 

be stopped. We are on the verge of losing our Super Power status. It’s time to quit 

the blame game, and look for solutions and leadership to solve the problem. 

For decades, every presidential candidate has talked about making us energy 

independent. That hasn’t happened, of course, and the hole we’ve dug for ourselves 

just keeps getting deeper. In 1945 we were exporting oil to our allies. In the 1960s 

we were importing about 10 percent of our oil. By the 1980s it was 40 percent. In 

1991 during the Gulf War, it was 54 percent. Now it’s about 70 percent. 

The world produces 85 million barrels of oil a day, or more than 30 billion barrels 

of oil a year. We haven’t replaced that amount of consumption on an annualized 

basis since 1985. World oil production, I believe, has peaked, and the world’s current 

oil fields are declining at the rate of 8 percent a year. The simple truth is we’re 

never going above 85 million barrels of oil production. 

The U.S. consumes 25 percent of the world’s oil, with only 5 percent of the world’s 

population. And what’s going to happen when you’re dealing with a supply capped 

at 85 million barrels and increasing demand as the Chinese, Indians, and rest of 

the underdeveloped countries around the world continue to use more and more oil? 

I have a plan to fix this problem. I’ve stress tested it with government and business leaders across the U.S. in recent months. No one has found any major flaws 

in it. That said, if there’s a better plan out there, it’s time to hear it. The time for 

action is now. 

Worldwide 70 percent of the 85 million barrels a day is used for transportation. 

To replace foreign oil, we need a major energy source that works for transportation. 

The domestic energy resources we have are oil, coal, natural gas, wind, solar, biofuels, hydroelectric and nuclear. 

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

total solution. 

So we have domestic natural gas as the replacement for foreign oil. Natural gas 

is clean, abundant, affordable and, again, domestic. 

Natural gas is the second largest energy resource in the country. When you look 

at the piechart of power generation in the United States, you have 50 percent coal, 

22 percent natural gas, 20 percent nuclear and 8 percent hydro and renewables. 

If we take the natural gas we’re using for electrical generation and move it to 

transportation, we can replace 38 percent of our foreign oil imports. And that, sports 

fans, is a real number. 

Using natural gas for transportation is not a new idea. While there are only 

150,000 vehicles running on natural gas in the U.S., there are nearly 8 million automobiles worldwide and that number is growing rapidly. We’re getting beat by the 

French in nuclear power, and by the world in natural gas vehicles. We should be 

leaders, not laggards. 
12 

I know that we can do this because we’ve done it before. President Eisenhower 

led us to build an extraordinary interstate highway system. President Kennedy took 

us to the moon. And President Reagan led us to win the cold war. 

If you could lower your foreign oil imports by 38 percent, you are reducing the amount of money you’re exporting by 38 percent. Reduce $700 billion in foreign oil 

purchases by 38 percent and you’ll see an annual savings of nearly $300 billion 

every year. $300 billion more would be staying inside our country instead of going 

to other countries overseas. 

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

But if we use all of that natural gas for transportation, how do we displace it from 

the nation’s electrical grid? 

The Sweetwater, Texas, wind complex is the model. If you take the total Sweetwater complex it will soon be producing 2,000 megawatts. The Shell Oil Company 

and TXU are getting ready to do another project just north of Sweetwater, and 

that’s 3,000 megawatts. My company, Mesa Power, just put under contract with GE 

the largest single turbine order that has ever been given. The first phase of the 

Mesa Pampa Wind Project will be capable of generating 1,000 megawatts of electricity, enough for 300,000 average U.S. homes. When we complete the entire 

project, it will have the capacity to generate some 4000 megawatts and will have 

cost close to $10 billion. 

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

The US wind corridor runs from Sweetwater to Pampa and Goodland, to Kansas, 

and Hastings, Nebraska and right up the line to Canada. The Department of Energy 

in April of this year showed that we could develop 20 percent of our electricity generation from wind using wind resources in the heartland of the United States. 

Now, if you take wind power and use it to replace natural gas for electricity generation, you can release the natural gas to transportation. One million cubic feet 

(MCF) of natural gas equals 8 gallons of gasoline. At $4 dollars a gallon for gasoline, 

that means an MCF of natural gas is worth $32 dollars. And natural gas is selling 

today around $10 dollars an MCF. 

We don’t buy all of our oil from our enemies. We do have some friends—Canada 

and a few others. But most of the money that the world pays for oil goes into the 

hands of countries that are not our reliable allies. And some of that money is used 

right back against us in the war on terror. And so, we are funding the people who 

are trying to wreak havoc on this country. 

The good news is we can use alternatives to address this problem. I am 100 percent for all alternatives. It is clear that renewable energy sources are an essential 

national security strategy. But in order for renewables to replace a meaningful 

amount of our imported oil, we need a national electricity transmission system to 

carry this electricity, be it wind, solar, biomass or other alternatives. 

I have always believed that an idea has to be simple to be worth investing in. 

That is why I am building the world’s largest wind farm. There is good wind in the 

area where I live in Roberts County in the Texas Panhandle, and I have the ability 

to transmit the electricity to markets in Texas that will pay for it. Good wind and 

transmission are the keys to my project. 

I think that most of the witnesses here today have said that those two elements 

are key to every wind project. That is because, as can be seen from the Department 

of Energy wind resource map above, the large, flat, open areas with adequate wind 

are usually located a long way from where electricity is needed. Since we can’t do 

much about where nature has put the wind, we have to do something about transmission to move the electricity to market. 

Unfortunately, the large, flat, open areas with adequate wind do not already have 

transmission service because there has been no reason to provide transmission service to those areas, so we are looking at a need for green field transmission projects. 

The Department of Energy map below has identified the scale of transmission 

projects that will be required to move electricity generated from our wind resource 

heartland to the load centers that need it. 

Greenfield transmission projects all face the same obstacles—siting, use of federal 

lands, permitting, equitable allocation and recovery of costs, equitable allocation of 

capacity, and availability of financing. Senator Reid’s bill, S. 2076, which would provide for the identification of National Renewable Energy Zones, will definitely help 

move the process forward, but I would like to explain to this Committee what I see 

as the issues through the eyes of a wind project developer who has had to deal with 

each of these issues. 

There is a sequencing problem that is circular—transmission won’t be built unless 

there is generation capacity to be carried, and generation won’t be built unless there 

is transmission. Furthermore, long distance transmission is only economic if it is 
13 

built to high capacity, which means that there must be a large amount of generation 

capacity in one place. 

I happened to be lucky with my project, because I was already planning a water 

project that required a pipeline running in the same direction that I needed transmission for my wind project. The water project pipeline right of way eliminated the 

siting and permitting issues, but I still have to face the financing, and cost recovery 

issues. 

As you may know, Texas has taken a leadership role in encouraging the development of wind generation. The Texas Legislature has adopted a renewable portfolio 

standard, which has encouraged development of wind projects in Texas, and has directed the Texas Public Utility Commission to identify competitive renewable energy 

zones (CREZ)—areas that are well suited to development of renewable energy production, and to adopt policies that will make transmission available to those zones. 

However, the Texas CREZ process began in 2005, and is expected to be completed 

in 2013. I am eighty years old, and I don’t have time to wait for the process to be 

completed, and neither does this country. I am building my own transmission line, 

which will ultimately travel 250 miles in Texas from the top of the Panhandle to 

near the Dallas/Fort Worth area, and I will have to pay for this transmission line 

myself. Not very many wind developers are in a position to do this. 

I expect to sell my power in the Texas ERCOT market where prices are set by 

competition among power generators. As a result, I will not be able to simply increase the price of my power to cover transmission; instead, my profits will be reduced by my transmission line costs. This is a penalty that I am willing to pay in 

order to get my electricity to market first, but it is not a burden that most developers can bear. It requires scale and financial capacity. That is how I came to build 

the world’s largest wind farm. It is the only way to pay for the transmission capacity as a private line, and it is only feasible within Texas. If you want to do it on 

a national scale, where the transmission line distances will be much longer, and 

utility regulations are different, Congress must act. 

As I said earlier, I believe that the United States has the opportunity to build 

renewable electricity capacity to serve a substantial part of our needs for energy. 

By doing so, we will increase our energy security, improve our environment, revitalize the heartland of the United States, reduce the demand for natural gas to be 

used as fuel for generation, reduce the production of greenhouse gases, and reduce 

the demand for water to be used in thermal generation. 

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

Siting Authority.—As a land owner myself, I understand concerns that landowners have about having their property taken for public use. Quite properly, our 

Constitution provides protection for landowners from arbitrary takings. However, 

for more than 150 years, we have recognized that private companies transporting 

the common necessities of life, food, water, fuel and electricity, to cities and towns 

are serving the public interest because life in the cities would not be possible without those necessities. As a result, private companies, such as Mesa Power, have 

been permitted to use the power of eminent domain, subject to oversight by public 

authorities and the courts, to obtain rights of way for transportation corridors. 

This system worked well for many years, but the large distances between the best 

sites for renewable power and the places where that power is needed have presented 

new challenges. The state public authorities that oversee the use of eminent domain 

by private companies are required to consider the benefits of the project to the citizens of their states. They often have indicated that they do not have the authority 

to consider the benefits to citizens of the United States who are not residents of 

their states in deciding whether a particular transmission line should be permitted 

to be located through the power of eminent domain. 

No project sponsor likes to use eminent domain powers. It is slow, cumbersome, 

expensive and unpredictable. Negotiated easements that result in a landowner willingly permitting the use of the land are very desirable. However, a transmission line 

with a gap in it, no matter how small, is useless. Any single landowner along a 

transmission route can prevent the entire project from being constructed, no matter 

how important the transmission project, unless the transmission provider has the 

power of eminent domain. 

Where state utility commissions are limited by state law to considering benefits 

to citizens of their state, eminent domain power may not be available to transmission developers wishing to cross the state without providing transmission service 

to local generators or local electricity users. This problem was recognized in the Energy Policy Act of 2005 (EPAct 2005), but the provisions of that act, which added 

Section 216 of the Federal Power Act, need to be extended. Section 216 currently 

requires that the Secretary of the Department of Energy conduct a study and issue 
14 

a report designating corridors as a National Interest Electric Transmission Corridors every three years. After the designation, a transmission service provider can 

seek siting approval from a state commission, and if the approval is not received 

within one year, the provider can then seek siting approval from the Federal Energy 

Regulatory Commission (FERC). This introduces a potential delay of over four years 

before the FERC transmission approval process can even begin. In addition, there 

is not agreement that the language of Section 216 authorizes a finding by the Secretary of Energy that transmission is ‘‘constrained’’ if there is a proposed project, 

but no available transmission at all. Congress needs to address these issues by 

amending Section 216 to direct the Secretary to make designations of National Interest Electric Transmission Corridors, outside the three year cycle provided by Section 216, upon request from a transmission service provider who can show that a 

renewable project developer has requested service and a load serving entity is willing to contract to purchase power from the renewable project developer. Congress 

also needs to provide the FERC exclusive jurisdiction to site new transmission for 

a renewable energy project in the specific case where a developer has contracted to 

build, and a load has contracted to buy the energy from, a new renewable energy 

resource. 

Federal Lands.—Most long transmission lines in the west will cross federal lands. 

Again, while EPAct 2005 recognized the issue, and provided a process to address 

the issue, the process for approval should be streamlined. Either designation of a 

national interest electric transmission corridor by the Secretary of Energy or specific 

siting approval by the FERC should be sufficient to grant approval by the United 

States for use of any federal lands crossed by the proposed transmission line. 

(EPAct 2005 excluded lands included within the National Park System, the National 

Wildlife Refuge System, the National Wild and Scenic Rivers System, the National 

Trails System, the National Wilderness Preservation System, or a National Monument from its scope, and that exclusion should be continued.). Any affected federal 

agency could appear in the FERC proceeding to present any concerns regarding the 

use of federal lands included in the proposed route for the transmission line. 

Federal Permitting.—Every transmission line involves multiple approvals from 

the United States and its agencies and departments. While it is possible with 

enough time and patience to gather the necessary permits, it introduces unnecessary delays into the process. Again, EPAct 2005 addressed the issue, but the process 

can be further streamlined. While EPAct 2005 did authorize the DOE to take the 

lead in coordinating federal permitting, and required other agencies and departments to enter into a memorandum of understanding with DOE regarding permitting projects, I believe that DOE should be authorized to issue the required permits 

directly after the transmission service provider meets the requirements for those 

permits in the judgment of DOE. 

Equitable Cost Allocation and Recovery.—As I said earlier, a transmission line 

with a gap in it is worthless. Put another way, there is no useful way to build a 

transmission line in phases. It either is or it isn’t. As a result, the costs are all incurred at once before it is available for use. Generation, on the other hand, can be 

built over time, and may have to be built as wind turbines become available. That 

means that the first wind turbines on a transmission line may not be able to bear 

the entire cost of the transmission line until more of the transmission line capacity 

is in use. 

In Texas, we have concluded that transmission service to renewable energy production areas is socially desirable, and our legislature has directed our public utility 

commission to develop a plan, the CREZ plan that I mentioned earlier, to pay for 

extending transmission lines to serve areas where renewable resources are available 

to generate electricity. The cost of those lines will be paid by the ratepayers 

throughout ERCOT, because all of them benefit. In Texas, we have a very large 

market for electricity, the ERCOT market, so that several billion dollars of costs can 

be spread across the entire market without creating a problem for electric rates. In 

much of the rest of the country that is not true. It is a particular problem where 

many interconnected systems would benefit from new long distance transmission to 

serve renewable generation projects, but one utility or group of rate payers is expected to bear the entire cost. 

Once again, Congress addressed the issue in EPAct 2005, but the FERC needs 

to be directed to spread the costs more widely, across multiple states if necessary, 

to reflect the benefits that are gained from the transmission project in terms of congestion relief, and other benefits. I propose that the FERC should be directed to allocate the costs of a new transmission line constructed under a special renewable 

resource NIETC designation that the FERC has sited to all load that benefits from 

the access to the energy transmitted over the line. 
15 

Equitable Allocation of Capacity.—If I put several billion dollars at risk, which 

I expect to do with my project, it does not strike me as fair that someone else can 

show up after everything is built, and all of the risks have been taken, and ask for 

and receive the right to use the transmission line that I paid for and force me to 

curtail transmission of my own electricity to permit them to use the transmission 

line. If you are going to encourage people to take entrepreneurial risk, you cannot 

expect them to do so if they can receive the same benefits by sitting back and waiting for someone else to take all the risk. Open access is fine for transmission lines 

that have already been in service for many years and their costs recovered, but 

there must be a process that encourages renewable generation developers to put up 

risk capital in return for preferred access rights to transmission capacity. 

Financial Incentives.—I think that I may be unique both in being willing to take 

the risks that I am taking in developing my wind project, and in having the capital 

to do so. Most of the other wind developers, even the other developers who are willing to develop on utility scale, are not willing to take the sorts of risks that I am 

facing. I would not be willing to do it if I was not a believer that Congress will do 

the right thing in the end. Wind and other renewable energy projects need production tax credits. For projects like the one that I am building, we need predictable 

policies regarding the credits for the long period that it takes to get everything put 

together. My project, even with the favorable regulatory climate for wind in Texas, 

will take seven or eight years to complete. If we decide to build more generation 

capacity to supply other parts of the country, it may even take longer from start 

to finish. We need to know, when we start, what economic incentives will be in place 

when we get to the finish line. Otherwise, developers have to use very conservative 

assumptions about project economics, and many projects just won’t get built. We 

also need targeted incentives for transmission lines, such as the loan guarantee program for rural renewable transmission lines that was proposed by the Senate in its 

version of the Farm Bill. Long distance transmission projects for renewable energy 

should qualify for an investment tax credit as well. When climate change legislation 

is considered again, if a cap and trade program is the mechanism, renewable energy 

projects should receive an allocation of credits based upon production. Those credits 

can be sold to help underwrite the cost of transmission lines to serve remote 

projects. 

If we do these things, our country will benefit. We will see reduced demand for 

imported oil, cleaner air, a reduction in the price of natural gas, savings in demand 

for water to cool thermal generation, revitalization of the rural heartland in the central United States, and natural gas used for higher, better purposes than electricity 

generation. 

We can fix these problems over time if we move a meaningful amount of our 

power needs to alternatives. There are no enemies, no competitors, nothing in domestic alternatives. 

I have a mission ladies and gentlemen. That mission is to try to explain what I’ve 

just explained here. And no matter how many times I explain it nobody argues with 

me about it. Which is interesting because I wish somebody would jump up and say 

you’re wrong and let me show you where you’re wrong. And nobody does that. Everybody says, well, that sounds like a good idea. 

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

Again, thank you Mr. Chairman for holding this hearing today. If we don’t solve 

the energy problems we are facing, the hole we are in will continue to grow and 

swallow more and more of our scarce resources and will overwhelm us as a nation. 

I am happy to answer any questions you may have. 

The CHAIRMAN. Thank you for your statement. Mr. Halvey, go 

right ahead. 

STATEMENT OF RICHARD HALVEY, WESTERN GOVERNORS’ 

ASSOCIATION, DENVER, CO 

Mr. HALVEY. Thank you, Mr. Chairman, Senator Domenici and 

members of the committee. In 2004 the Western Governors resolved to increase the amount of clean energy in the electricity generating portfolios of the Western States. To do that, excuse me, 

they created the Clean and Diversified Energy Advisory Committee. 

In 2006, the Advisory committee provided the Governors with a 

series of recommendations on how best to achieve increased clean 
16 

energy generation including how to expand renewable energy resources. The Advisory committee recommendations made it clear 

that while there are many incentives that can stimulate renewable 

energy growth. Perhaps the most critical obstacle renewable energy 

faces is the availability of transmission. 

In many cases high quality renewable resources are in remote 

areas where transmission does not exist. We all know building new 

transmission can be both a costly and lengthy, if not controversial 

process. For the past 2 years the WGA in collaboration with many 

of the key players from the renewable, regulatory, environmental 

and utility sectors considered how best to address the issue of 

transmission availability to accommodate renewable energy development. 

The idea that generated the most enthusiasm was to identify 

those areas in the western electricity interconnection that have the 

greatest commercial potential for development based on a number 

of factors, the quality of the renewable resource, environmental 

characteristics and the cost of plant construction and transmission 

expansion. Once the areas have been identified it would follow that 

conceptual transmission plans to facilitate the environmentally 

sensitive development of the most cost effective renewable resources be assembled. This led the WGA to its affiliate organization, Western Interstate Energy Board, to put together a proposal 

asking the Department of Energy to provide the funding and technical support for Western renewable energy’s own project to accomplish those tasks. 

The WGA is pleased that the DOE supports this project. We’re 

especially pleased to have the opportunity to work in cooperation 

with the DOE to accomplish the project goals. By identifying the 

most developable renewable resource zones throughout the Western 

Interconnection, load serving entities, transmission providers and 

State regulators will be able to make more informed decisions 

about the costs of renewable power, the optimum transmission 

needed to move renewable power to consumers and which entities 

might have the potential to form partnerships for developing transmission to access renewable energy. 

By promoting a regional perspective we can blunt the potential 

balkanization of renewables markets while respecting each states 

primary jurisdictions siting generation and transmission facilities. 

We can pave the way for interstate collaboration on the permitting 

of multi-State transmission lines and more equitably allocate and 

recover the cost of new transmission. 

We intend to accomplish this through the inclusive stakeholder 

process. Governors from the United States and Mexico, Canadian 

premiers, public utility commissioners and our Federal partners 

have the responsibility of leading the project. All sizes and types 

of utilities, transmission companies, environmental organizations, 

State energy officials and regulators, renewable energy development companies and the Department of Energy and other Federal 

agencies will have the responsibility of recommending to these 

western leaders which areas in the Western Interconnection get to 

be identified as renewable energy zones. 

I should mention that this project will incorporate and regionalize the current renewable energy zone efforts underway in Cali-
17 

fornia, Nevada and Colorado. At the end of this process we’ll have 

a series of maps that clearly show where high quality zones exist 

and a broad based consensus on how they can be effectively developed and connected to the transmission grid. 

The WREZ project had its kick off meeting in Salt Lake on May 

28. We’re planning to complete the mapping and conceptual transmission work over the next 12 to 18 months. Once that is completed we will spend another 12 to 18 months promoting coordinated procurement of renewables and interstate cooperation to facilitate the permitting and construction of transmission lines to the 

favorable zones. 

The project will not have reached its goal until we see the renewable energy facilities and transmission capacity developed. We believe the WREZ will also ultimately serve as a model for any region 

interested in promoting the rapid and responsible expansion of 

clean and diversified energy. The WGA believes this process is critical to increase development of clean and diversified energy and the 

transmission expansion that must accompany such development. 

We look forward to sharing the results of our work with the committee and other interested parties. Thank you for providing me 

with the opportunity to talk with you about the WREZ. I’m happy 

to answer any of the committee’s questions. 

[The prepared statement of Mr. Halvey follows:] 

PREPARED STATEMENT OF RICHARD HALVEY, WESTERN GOVERNORS’ ASSOCIATION, 

DENVER, CO 

Thank you Mr. Chairman and members of the Committee. My name is Richard 

Halvey. I am the Energy Programs Director at the Western Governors’ Association. 

I am also the project manager for the Western Renewable Energy Zones, or WREZ, 

project. 

In 2004 the Western Governors resolved to increase the amount of clean energy 

in the electricity generating portfolios of the Western states. To do that they created 

the Clean and Diversified Energy Advisory Committee. In 2006 the advisory committee provided the governors with a series of recommendations on how best to 

achieve increased clean energy generation, including how to expand renewable energy resources. The advisory committee recommendations made it clear that while 

there are many incentives that can stimulate renewable energy growth, perhaps the 

most critical obstacle renewable energy faces is the availability of transmission. In 

many cases high quality renewable resources are in remote areas where transmission does not exist, and we all know building new transmission can be both a 

costly and lengthy, if not controversial, process. For the past two years the WGA, 

in collaboration with many of the key players from the renewable, regulatory, environmental, and utility sectors, considered how best to address the issue of transmission availability to accommodate renewable energy development. 

The idea that generated the most enthusiasm was to identify those areas in the 

Western Electricity Interconnection that have the greatest commercial potential for 

development based on a number of factors: the quality of the renewable resource, 

environmental characteristics, and the costs of plant construction and transmission 

expansion. Once the areas have been identified, it would follow that conceptual 

transmission plans to facilitate the environmentally sensitive development of the 

most cost-effective renewable resources be assembled. This input led the WGA and 

its affiliate organization, the Western Interstate Energy Board, to put together a 

proposal asking the Department of Energy to provide funding and technical support 

for a Western Renewable Energy Zones project to accomplish those tasks. The WGA 

is pleased that DOE supports the project, and we are especially pleased to have the 

opportunity to work in cooperation with the DOE to accomplish the project goals. 

By identifying the most developable renewable resource zones throughout the 

Western Interconnection, load-serving entities, transmission providers and state regulators will be able to make more informed decisions about the costs of renewable 

power, the optimum transmission needed to move renewable power to consumers, 

and which entities might have the potential to form partnerships for developing 
18 

transmission to access renewable energy. By promoting a regional perspective, we 

can blunt the potential balkanization of renewables markets while respecting each 

state’s primary jurisdiction in siting generation and transmission facilities. We can 

pave the way for interstate collaboration on the permitting of multi-state transmission lines and more equitably allocate and recover the costs of new transmission. 

We intend to accomplish this through an inclusive stakeholder process. Governors 

from the United States and Mexico, Canadian Premiers, public utility commissioners, and our federal partners have the responsibility of leading the project. All 

sizes and types of utilities, transmission companies, environmental organizations, 

state energy officials and regulators, renewable energy development companies, and 

the Department of Energy and other federal agencies will have the responsibility 

of recommending to these Western leaders which areas in the Western Interconnection should be identified as renewable energy zones. I should mention that this 

project will incorporate and regionalize the current renewable energy zone efforts 

underway in California, Nevada, and Colorado. 

At the end of this process we will have a series of maps that clearly show where 

high quality zones exist, and a broad-based consensus on how they can be effectively 

developed and connected to the transmission grid. The WREZ project had its kickoff 

meeting in Salt Lake City on May 28. We are planning to complete the mapping 

and conceptual transmission work over the next 12-18 months, and once that is 

completed, we will spend another 12-18 months promoting coordinated procurement 

of renewables and interstate cooperation to facilitate permitting and the construction of transmission lines to favorable zones. The project will not have reached its 

goal until we see the renewable energy facilities and transmission capacity developed. 

We believe the WREZ will ultimately serve as a model for any region interested 

in promoting the rapid and responsible expansion of clean and diversified energy. 

The WGA believes this process is critical to increased development of clean and diversified energy and the transmission expansion that must accompany such development. We look forward to sharing the results of our work with the Committee and 

other interested parties. Thank you for providing me with the opportunity to talk 

with you about the WREZ project. 

The CHAIRMAN. Thank you very much. 

Mr. Freeman, go right ahead. 

STATEMENT OF BRYCE FREEMAN, WYOMING 

INFRASTRUCTURE AUTHORITY, CHEYENNE, WY 

Mr. FREEMAN. Thank you, Mr. Chairman, Senator Domenici, 

members of the committee. I’m delighted to appear before you 

today on behalf of the Wyoming Infrastructure Authority, particularly in the presence of my Senator, Senator Barrasso from Wyoming. Now the WIA was created in 2004 by the Wyoming legislature at the urging of Governor Dave Fredenthal to diversify and expand the State’s economy through the development of electric 

transmission infrastructure. 

In 2006 the legislature expanded our role to include advanced 

coal technologies. In keeping with the spirit of today’s hearing I’d 

like to highlight some of the challenges that we’re facing in developing transmission infrastructure in the West. Offer a few suggestions that you might consider in helping us overcome those challenges. 

I want to begin by saying that if the market alone was sufficient 

and operating properly there would be no need for me to appear 

here today. But there is uncertainty in this market. Uncertainty 

that you are all aware of based on a number of issues including climate change legislation, fuel diversification requirements and the 

difficulties associated with siting new energy facilities. 

As a member of the WIA Board and as Wyoming’s utility consumer advocate I am concerned about the future availability and 

affordability of energy resources. In today’s uncertain environment 
19 

many traditional generating resources have increasingly limited 

application due to environmental impacts. The reality is that new 

alternative forms of generation are not yet commercially viable. 

That said. No matter what generation resources we use in the future, transmission infrastructure will almost certainly be needed to 

deliver those choices to customers. We should accelerate the construction of those facilities now. 

Through public/private partnerships the WIA has been working 

on transmission projects over the last 4 years that will allow Wyoming’s abundant, low cost energy resources to be delivered to markets where they are needed. Wyoming has one of the highest quality and most prolific wind resources in the lower 48 states. With 

pending carbon legislation, increasingly stringent renewable portfolio standards and growing loads throughout the West there is an 

urgent need to bring this resource to market in the near term. 

A case in point is the Wyoming-Colorado Intertie. It is a project 

that will access up to 900 megawatts of Class six and seven wind 

in Eastern Wyoming and deliver it to Colorado and the Denver 

market. It is only the second project, to the best of my knowledge, 

that will use an open season auction process to allocate capacity on 

the project. 

Now the Trans-West Express Project is designed as a 3,000 mega 

watt direct current line that will originate in South Central Wyoming and terminate at a point just South of Las Vegas, projected 

to be in service in 2015. On this line we are exploring the use of 

an anchor tenant approach to assist in attracting development capital for the line. If approved by the FERC this would be the first 

time that an anchor tenant approach has been used to further 

transmission development that I’m aware of. 

Together with our development partners, Wyoming has enjoyed 

much success over the last 4 years. There have also been many 

challenges along the way. While these challenges are not insurmountable, we would welcome Congressional assistance in a few 

specific areas. 

One of our biggest challenges is convincing load serving utilities 

whose customers would be expected to pay for this new transmission capacity that transmitting intermittent renewable resources over long distances is economically viable. We believe that 

the cost of capital financing for these transmission projects could 

be reduced through the use by State authorities of federally, tax exempt finance. This would provide incentives for developers and investors and could significantly reduce cost to customers. We need 

Federal legislation to put this tool in place. 

Second, we are developing and deploying innovative business 

models in our approach to building transmission and as we do that 

we will certainly be looking to the FERC to be receptive to these 

experimental models. 

Mr. Chairman, thank you for the opportunity to appear here 

today. Our focus remains on utility consumers. We should not forget that at the end of the day they’re the ones that will be expected 

to pay the freight for the policy decisions that we make. These 

transmission investments will almost certainly find their way into 

consumers’ utility bills in the long run. We should be square as 
20 

Governor Fredenthal reminds us with utility consumers about the 

true cost of these investments. 

But there is a cost associated with inaction. It could end up being 

a lot more than the transmission investments that we’re talking 

about. With that, I’d be happy to answer any questions. 

[The prepared statement of Mr. Freeman follows:] 

PREPARED STATEMENT OF BRYCE FREEMAN, WYOMING INFRASTRUCTURE AUTHORITY, 

CHEYENNE, WY 

Good morning Mr. Chairman, Ranking Member, Senator Barrasso from my home 

state of Wyoming, and members of the Committee. My name is Bryce Freeman. I 

am the Administrator for the Wyoming Office of Consumer Advocate and also serve 

on the Board of the Wyoming Infrastructure Authority. In both capacities, I am appointed and serve at the pleasure of the Governor of Wyoming. I am delighted to 

appear before you this morning on behalf of the Wyoming Infrastructure Authority. 

The WIA was created in 2004 to diversify and grow the state’s economy through 

the development of electric transmission infrastructure. If the market alone was sufficient, there would be no need for an entity such as the WIA to exist. However, 

in light of the uncertainty that presently exists in the electric industry, the WIA 

was created by the Wyoming State Legislature to promote transmission and advanced generation development in the state and throughout the region. 

The Legislature provides the WIA with bonding ability and other powers, and the 

WIA participates in planning, financing, constructing, developing, acquiring, maintaining and operating electric transmission facilities and their supporting infrastructure. 

The topics for this hearing are the challenges and possible solutions in developing 

transmission for renewable electricity resources. For the past four years the WIA 

has been in the forefront of these very issues, and I look forward to sharing with 

the Committee some of our transmission projects and cutting-edge business models 

employed to get lines built to facilitate the expansion of renewable resources in the 

West. 

In keeping with the theme of today’s hearing I would like to highlight some of 

the challenges that we are facing in the West regarding transmission development 

and offer some suggestions that you might consider in helping us and other western 

states to overcome those challenges. 

As a consumer advocate I am both personally and professionally concerned about 

the future availability and affordability of energy resources. In today’s uncertain environment many traditional generating resources have limited application due to adverse environmental impacts, but new alternative generation resources are not yet 

commercially viable. But, no matter what the future holds in the way of new generation resources, it is certain that new transmission infrastructure will be needed 

to facilitate those choices. 

Through public/private partnerships the WIA has been working on transmission 

projects over the last four years that will enable Wyoming’s abundant, low-cost resources to be delivered to markets where they are needed. Wyoming has one of the 

highest quality and prolific wind resources in the lower forty-eight states. (See Appendix I). With pending carbon legislation, increasingly stringent renewable portfolio standards, and growing loads throughout the west, there is an urgent need to 

bring this resource to market in the near term. 

BACKGROUND ON THE AUTHORITY

Wyoming has very abundant, diverse energy natural resources, including: wind, 

coal, oil, natural gas and uranium. For many years Wyoming has had an objective 

to add value to the extraction of these resources—particularly wind and coal—by 

generating electricity and shipping the power to growing markets throughout the 

west. 

In 2004, under the leadership of Governor Dave Freudenthal and then-Governor 

Mike Leavitt of Utah, the region completed a year-long planning process to better 

understand the opportunities for producing power in the rocky mountain region and 

shipping that power to western markets. This Rocky Mountain Area Transmission 

Study (RMATS) produced a regional consensus that, if new transmission lines could 

be sited and built, the benefits of accessing Rocky Mountain resources would translate into lower costs for consumers and a more diverse resource mix in the western 

interconnect. The RMATS study also pointed out a number of institutional challenges that at the time were impeding the development of transmission lines. 
21 

In response, the Wyoming Legislature created the Infrastructure Authority in 

2004, charging it with the challenge of furthering the recommendations of the 

RMATS report. At the heart of the WIA’s mission is to diversify and grow the state’s 

economy through the development of electric transmission infrastructure. The Authority may issue revenue bonds to help finance these facilities, including the ability 

to extend up to $1 billion of these bonds to the private sector. 

Since the formation of WIA, six states have created transmission authorities along 

the Wyoming model, including: Colorado, Idaho, Kansas, New Mexico, North Dakota, and South Dakota. We are working closely with most of these states on both 

legislative and project initiatives. 

WIA’S CURRENT TRANSMISSION PROJECTS

The WIA was created as an innovative problem-solving organization and our approach to transmission development reflects our innovative roots. 

Wyoming-Colorado Intertie 

The growing electric markets most proximate to Wyoming in the western interconnect are the city of Denver and the rapidly growing communities along the Front 

Range. In 2005 the WIA entered into a development partnership with TransElect, 

an independent transmission company, and with the Western Area Power Administration (WAPA), to explore the commercial viability of a transmission line from eastern Wyoming to the Denver area. 

We have now completed the feasibility, technical, and corridor studies for a line 

that would be designed as a 345 kV facility from the Colorado substation of Pawnee 

north to the Laramie River Station (LRS) in Wyoming, with a potential segment at 

230 kV from LRS to the Dave Johnston coal plant further north in Wyoming. 

We are now in the middle of a very exciting and possibly precedent-setting process 

by offering capacity in the line to third parties using a FERC-sanctioned open season and auction. The bidding application and credit approval steps have been finalized and the list of qualified bidders has us very optimistic that the auction will 

successfully allocate the capacity. The bidding process began this week; the results 

of the auction are scheduled to be announced on August 4. 

What may make this open season precedent setting is that most of the bidding 

activity is from parties that want capacity in the line to support their development 

of wind power farms in eastern Wyoming. For example, the Wyoming Colorado 

Intertie is a project that will access up to 900 megawatts of class six and seven wind 

in eastern Wyoming and deliver it to the Colorado front-range beginning in 2013. 

It is only the second project I am aware of in the west to employ an open season 

auction as means of committing capacity on the project. 

TransWest Express 

The TransWest Express project is designed as a direct current line originating in 

south central Wyoming, with a route through Utah that terminates at a point just 

south of Las Vegas. As designed, the project would allow 3,000 megawatts of new 

generation to develop in Wyoming and reach markets in the desert southwest, including Las Vegas, Phoenix and southern California. The goal is to bring this line 

into service in 2015. 

The TransWest Express concept was first explored by Arizona Public Service 

(APS), a large load serving entity for the very rapidly growing Phoenix area. APS 

published a promising feasibility study in 2006. 

The WIA entered into a development partnership to further the development of 

this project by joining with APS and with NationalGrid, an independent transmission company. Subsequently the three development parties entered into an interim co-development agreement with PacifiCorp, and work on the project has been 

coordinated with PacifiCorp’s proposed Gateway South project. The two projects 

would likely share common corridor along much of the route, and applications for 

federal permits are pending for both projects. 

Marketing efforts led by NationalGrid to secure commitments to the line from 

load serving entities have not been successful due to a number of factors. As such, 

we are now exploring the use of an anchor tenant approach to subscribe the capacity 

of this line in order to assist in the attraction of development capital. If approved 

by FERC, this would be the first time that the anchor tenant approach has been 

used to further the development of a transmission line. I am optimistic that we will 

successfully realign the project with a new partnership, likely including anchor tenant commitments from large wind developers interested in building wind farms in 

Wyoming and shipping the power to hungry renewable markets in the desert southwest. 
22 

* Project maps have been retained in committee files. 

High Plains Express 

We are also actively engaged in the development of the High Plains Express 

project which is a double circuit 500 kV AC line linking Wyoming, Colorado, New 

Mexico and Arizona. A feasibility study was completed in 2007, and the project 

sponsors are currently working on an agreement to further the development. This 

project is a longer-term opportunity, with a planned in-service date of 2017. The 

sponsors include TransElect, an independent transmission company; six utilities 

(Tri-State G&T, Colorado Springs Utilities, Public Service Company of New Mexico, 

Salt River Project and Xcel Energy); three States with transmission authorities (Colorado, New Mexico and Wyoming) and the WAPA. 

See Appendix II for more details on WIA’s three pending transmission projects, 

including depictions of conceptual routing.* 

Regional Challenges and Solutions 

While the WIA has been focused on the economic development opportunity available to Wyoming, we recognize this is part of a bigger regional picture. The western 

interconnect has a number of features that make it unique, and these regional characteristics and challenges will need tailored solutions. 

The western electric interconnected system is a vast synchronized machine involving eleven states, two Canadian provinces and parts of Baja, Mexico. There are very 

long distances and very significant land holdings controlled by federal agencies and 

Native American tribes. With the exception of California and Alberta, there is no 

regional system operator or transmission organization to manage congestion, build 

transmission, and broadly allocate costs. The west is dominated by vertically integrated utilities serving balkanized service territories, with many functional control 

areas. The largest and highest quality renewable resources are typically not located 

close to the cities where the demand is highest. This is especially true with wind 

resource potential. As this committee clearly recognizes by holding this hearing, 

transmission infrastructure is the critical linchpin to successfully developing and integrating renewable electric generation in the West. 

Together with our development partners, we have enjoyed much success over the 

last four years. We have also encountered many challenges. We don’t see any of 

those challenges as insurmountable but we would welcome your assistance in a few 

specific areas. 

Tax-exempt Bonding by State Authorities 

One of our biggest challenges is convincing the load serving utilities whose customers would pay for the transmission capacity that transmitting intermittent renewable resources over long distances is economically viable. We believe that reducing the cost of capital financing through the State Authorities’ use of tax-exempt 

bonding would provide a significant incentive to developers and investors and lower 

costs to consumers. 

We need federal legislation to put this tool in place. For the past few years, in 

common cause with the other states that have created transmission authorities, we 

have been working with the Senate Finance Committee toward language that would 

in a limited way allow tax-exempt bonds to be used by these authorities. The language, which is included in the tax title to the Senate energy bill that is stalled 

in this Congress, would allow State transmission authorities to utilize—within each 

State’s existing volume cap—tax-exempt industrial development bonds. 

FERC Needs to Allow Experimental Business Models 

The WIA and its partners are deploying innovative business models on our transmission projects. Especially in the West, with some of its characteristics summarized above, I believe we need to stretch beyond the vertically integrated utility 

ownership and control of transmission facilities. The FERC sanctioned process that 

governs transmission service requests is cumbersome at best. The WIA has worked 

to include independent transmission companies in our partnership mix for this very 

reason. We have also embraced innovative development tools, such as open seasons 

and anchor tenant models, to stretch past some of these institutional sticking 

points. We will ultimately be looking to FERC to be receptive to approving these 

experimental models. 

National Interest Corridor Designations 

The Energy Policy Act of 2005 created a back-stop siting protocol that could become a critical tool for facilitating the siting and permitting of transmission lines 

to facilitate renewables. We believe that there is a significantly expanded role to be 
23 

played by the DOE in identifying and designating prospective National Interest 

Electric Transmission corridors. Together with the WGA’s recently announced Western Renewable Energy Zone initiative this would significantly enhance our ability 

to identify and develop low cost, high quality renewable energy resources in the 

west. 

CONCLUSION

In closing Mr. Chairman, let me again thank you and the Committee for the opportunity to appear here today and let me reiterate that my focus remains on utility 

consumers. We should not forget that at the end of the day they are the ones who 

will be expected to pay the freight regarding the policy decisions of federal, state 

and local policy makers. We have an obligation to serve their interests to the best 

of our ability. I believe that the transmission development work that the WIA is engaged in supports that high public interest standard. These investments will eventually find their way into utility bills that customers pay and, as Governor 

Freudenthal reminds us, we should be square with utility consumers about the cost 

of these investments. There are, however, costs associated with inaction. Those costs 

are real and in the long term could prove to be much higher than the costs of the 

transmission investments I have discussed today. With that I would welcome any 

questions you might have. 

APPENDIX I.—WYOMING’S ABUNDANT WIND RESOURCE

• According to NREL, Wyoming has over 2/3 of the Class 7 and over 1/2 of the 

Class 6 ‘‘developable’’ onshore wind in the U.S. In addition, Wyoming has more 

Class 5, 6 and 7 developable wind than all western states combined. • NREL data reflects ‘‘developable’’ Class 5 and higher wind potential for the 

State is in excess of 100,000 MW’s and Class 3 and higher wind potential in 

excess of 500,000 MW’s (see attached spreadsheet). To provide some relativity 

to those numbers, the peak demand for the entire WECC grid is estimated to 

be 175,000 MW’s. • Over the last eighteen (18) months, the WIA has been actively identifying generation projects in support of the six (6) transmission projects in the State. Todate, we have identified over 20,000 MW’s of wind generation projects; nearly 

2,000 MW’s of natural gas-fired projects and 110 MW’s of power relative to a 

planned coal-to-liquids facility. These projects represent possible future power 

which is currently un-dedicated. The capacity factors of the wind projects identified range from 35% to 50% with a weighted average in excess of 43%. 

[Wyoming Wind Map has been retained in committee files.] 

APPENDIX II.—SUMMARY OF WIA’S TRANSMISSION PROJECTS UNDER DEVELOPMENT

1. Wyoming-Colorado Intertie Transmission Project (WCI) 

• New 345 kV AC Transmission line between Wyoming and the Front Range of 

Colorado delivering wind generation in Wyoming to Colorado • Capacity: 900 MW 

• Length: 180 miles 

• In-service Date: 2013 

• Cost: < $300 Million 

• Developers: Trans-Elect; Western Area Power Administration; Wyoming Infrastructure Authority 

• WECC Path Rating Process: Phase I complete; currently in Phase II 

• ROW & Permitting Status: Waiting on the awarding of capacity via Open Season 

• Status: 

—FERC-sanctioned Open Season is underway with a start date of 3/31/2008 

—Project has been entered into the WECC, CCPG regional planning group 

• Business Model, re: Market(s): LSE’s in Colorado 

• Complementary Projects: 

—High Plains Express 

—PSCo’s expansion of their system in N/E Colorado 

• Links: http://www.wyia.org/wci 

2. TransWest Express Transmission Project (TWX) 

• New 500 kV DC line between Wyoming and Las Vegas 

• Capacity: 3,000 MW 

• Length: >800 miles 

• In-service date: 2015 
24 

• Cost: >$2.5 Billion 

• Developers: As of March 2008, the participants were National Grid (lead developer); Arizona Public Service; PacifiCorp; and Wyoming Infrastructure Authority (WIA). Currently, the participants are being redefined. 

• WECC Path Rating Process: Phase I 

• ROW & Permitting Status: Formal application has been filed with the BLM in 

2007; RFP for 3rd party contractor for NEPA compliance has been issued. 

Working; and a common EIS with GWS has been tentatively required by the 

BLM 

• Status: 

—Project is being co-developed with the GWS project to mitigate costs 

—Initial feasibility studies completed; 

—Other utilities are interested in participating including Salt River Project, 

Tucson Electric Power, and Southern California Edison 

—Stakeholder meetings have been held in Utah, Wyoming, Arizona and Nevada 

—Actively involved in the identification of generation developers to support the 

project 

—Project has been entered into the WECC, NTTG regional planning group 

• Business Model, re: Market(s): LSE’s in Arizona, Nevada and Southern California 

• Complementary Projects: see Gateway South project below. Also: 

—Palo Verde—Devers #2—500 kV line (on hold) 

—EOR 9300 Project 

—Palo Verde—North Gila #2—500 kV line 

—Gateway West—2 500kV lines 

—Gateway South 

—Mona-Terminal—2 500 kV lines 

—Populus-Terminal—2 345 kV lines 

• Links: http://www.wyia.org/projects 

3. High Plains Express Transmission Project (HPX) 

• New 500 kV AC transmission lines between Wyoming and Arizona with onramps and off-ramps in Colorado and New Mexico and related facilities 

• Capacity: 3,500 MW 

• Length: 1,280 miles 

• In-service Date: 2017 

• Cost: >$5 Billion 

• Developers: Trans-Elect Development Company; Western Area Power Administration; and Wyoming Infrastructure Authority; Tri-state G&T; Colorado 

Springs Utilities; Public Service Company of New Mexico, Salt River Project; 

and Xcel Energy (Public Service Co of CO); New Mexico Energy, Minerals and 

Natural Resources Department; New Mexico Renewable Energy Transmission 

Authority; and Colorado Clean Energy Development Authority 

• WECC Path Rating Process: Project is scheduled to enter the Phase I process 

in 2009 

• ROW & Permitting Status: Some activity is scheduled to occur in late 2009 

• Status: 

—Feasibility studies continuing 

—Executive committee has been formed to transition the oversight of the development process from the planners 

—Project has been introduced into the WECC, CCPG and SWAT/West Connect 

regional planning groups 

• Business Model, re: Market(s): LSE’s in Colorado, New Mexico and Arizona 

• Complementary Projects: 

—WCI Project 

—Eastern Plains Project 

—New Mexico Wind Collector (Path 48) 

—Sun Zia Project 

• Links: http://www.rmao.com/wtpp/HPX—Studies.html; http://www.tristategt.org/ 

RP/Transmission.cfm; http://www.wyia.org/projects 

The CHAIRMAN. Thank you very much. We’ve been joined by the 

Majority Leader, Senator Reid. Let me just reiterate what I said 

at the beginning of the hearing and that is that Senator Reid is one 

of those who urged us to have this hearing because of the importance of this issue in his view. 
25 

He’s also introduced S. 2067, which tries to confront probably the 

most difficult issue here related to building more transmission. 

That is cost allocation. So Senator Reid, go right ahead with any 

comments you have. 

STATEMENT OF HON. HARRY REID, U.S. SENATOR 

FROM NEVADA 

Senator REID. Mr. Chairman, thank you very much. Members of 

the Committee, I appreciate your allowing me to speak. The Senate 

went in session at 10 o’clock and I had to get started there. I apologize for being late to the hearing. 

I also am happy to be on the panel with these respected witnesses, especially Mr. Pickens. I, without his permission, talked 

about you on the Senate Floor today. I said that the great American entrepreneur T. Boone Pickens knows a lot of things. But one 

is how to make money. If he’s interested in renewable energy, we 

all better start taking a look at it. 

[Laughter.] 

Mr. PICKENS. Thank you. 

Senator REID. I also say to you, Mr. Pickens, that for many years 

one of your biggest cheerleaders has been Michele Lacksalt, who’s 

of course from Nevada and my long time friend. So glad to be on 

the panel with you. 

Mr. PICKENS. Thank you. 

Senator REID. Our Nation has many grave challenges that have 

gone unaddressed for far too long. Chief among them is global 

warming which is closely connected to our growing energy and economic security problems. Fortunately the most abundant form of 

energy in the United States and across Earth, renewable energy, 

the wind, the sun, the heat of the Earth, biomass and water is the 

solution that works best to meet all these challenges. 

It works best to grow our economy in a sustainable way, create 

new jobs and to leave a legacy for our children we can be proud 

of. One we wouldn’t mind having in our own backyards today. 

That’s a better legacy than leaving piles of dangerous waste, dirty 

air, threatened water supplies or dangerously warmer world for 

generations to come. 

Unfortunately the Nation has been fixated on easy answers of 

throwing billions and billions of tons of carbon waste in the atmosphere. We’ve been taking this carbon out of the Earth and putting 

it into the atmosphere for far too long. Fixated on short term profits and not investing enough in renewable energy. 

That’s really unfortunate, because from the moment the Senate 

ratified the United Nations Framework Convention for Climate 

Change in 1992, industry should have been on notice of cost effective, low carbon solutions need to be found and invested in right 

away. But most of the momentum in the utility industry to invest 

in renewable generation has come because of State’s passing renewable portfolio standards. 

Right now 25 States and the District of Columbia have a renewable portfolio standard. Many were created over the objections of 

local utilities. These States understand the potential for new jobs 

and the long term cost advantage of renewable over increasingly 

expensive fossil fuels. 
26 

Just think about this. If 20 percent of the Nation’s power came 

from renewable energy by 2020 which happens to be the same 

standard in Nevada, but for 2015, we would create at least a couple 

hundred thousand new jobs and actually save consumers more 

than $10 billion in lower electricity and natural gas bills. 

Some leaders in the utility industry are slowly waking up to the 

value of investing in energy efficiency and renewables. But some 

persist in thinking that we have the luxury of going backward to 

the old, inefficient fossil fuel use of the past. Mr. Chairman, we 

have on the Senate Floor a piece of legislation that would give tax 

credits for renewables. We’re going to try and get closer on that 

today at 2:15. 

I read into the record a few minutes ago a letter we received yesterday from the major companies in America, major companies, 

hundreds of them. MERCK, Commons Diesel, Coca Cola, hundreds 

of major companies saying please, democrats, republicans, vote for 

this. It’s essential to the survival of our country. 

We don’t have the luxury. We need not go backward. We have 

to get away from persisting and thinking we can go backward to 

the old, inefficient fossil fuel use of the past. 

Rapid investments now in a combination of efficiency, renewable 

energy and a smart and more flexible and reliable electricity grid 

can meet the power demands of this country for the foreseeable future, affordability and cost effectively. Every Senator has heard me 

say this before, but it bears repeating. A 100-mile-square area of 

Nevada, take the Nevada test site. That would be part of our test 

site or really anyplace in the desert southwest. There are well over 

100 square mile areas. There’s nothing on them except sun shining 

every day can meet the entire Nation’s electricity demand, a solar 

PV and the right transmission infrastructure. 

Think about that. One spot in the southwest could supply electricity for all of America. The total solar thermal potential in the 

southwest could generate seven times U.S. current electricity capacity. 

Despite 25 States with a renewable portfolio standard, the Federal Government has been very slow to embrace renewable energy 

instead preferring the older, dirty and more expensive sources. Neither the Federal Government nor the utility industry has invested 

enough to integrate the growing renewable energy asset into the 

grid. overall the sluggish pace of transmission investment by utilities has left us with a brittle and insecure power grid. 

Mr. Chairman, I can remember a dozen years ago, I was in a 

place called Gerlock, Nevada about 90 miles above Reno. I went to 

look at a generating plant powered by the steam that comes out of 

it. You see it coming out of the ground around there. Power plant. 

Geothermal. 

I said to the man, this is nuts. Why is it so small? He said well, 

I’m just using it to take care of the mine up here in Gerlock. He 

said, see that power line over there. You could see it was three 

quarters of a mile away. You could see it. 

He said for me to have a big plant here it would cost me $175 

million to tie onto that power line. Now I don’t know if he was 

right. But that’s what he told me. But that’s a problem we have, 

Mr. President. It’s one of the problems we have. 
27 

Overall the sluggish pace of transmission investment of utilities 

has left us with a brittle and insecure power grid. Even the Department of Defense is concerned about grid security now. Unfortunately nationwide investment in transmission declined for 2 years, 

I’m sorry, for two decades. Let me say that again. Unfortunately 

nationwide investment in transmission declined for over two decades. 

By 1998 companies spent less than half of what they did in 1975. 

At the same time electricity sales doubled. Prices have risen. Consumer demand continues to grow. 

Recently utilities have begun to increase their transmission investment but they’re far, far behind the curve. A new and significant amount of investment must occur. This will not be easy given 

the incredible backlog. It will not be cheap because instead of making gradual improvements over the years industry has waited until 

now. 

The Brattle Group estimates the Nation will need $900 billion for 

distribution and transmission by the year 2030. But that investment must be smart. By smart I don’t mean simply linking existing 

and highly inefficient coal plants by Federal energy corridors. That 

investment and those corridors must accommodate mainly new 

generation from renewables if we’re serious about addressing global 

warming. 

I have, as you’ve indicated Mr. Chairman, introduced legislation 

that tackles several of the obstacles to new investment in renewable electricity transmission. I believe it’s time for the Federal Government to take a much more constructive role, particularly since 

industry has not risen to the challenge. My bill, S. 2076 directs the 

President to identify and designate zones where renewable energy 

resources can generate at least 1,000 megawatts of electricity. It 

would then provide new financing options for building transmission 

lines and connecting remote renewable energy zones to the grid. 

After designation, the Federal power marketing agencies, like the 

Western Area Power Administration, would have a year to identify 

new transmission lines needed to access renewable power in these 

zones. If no private companies invest within 2 years, the Federal 

agencies would each have $10 billion in bonding authority to finance those power lines. These lines would carry mostly clean, renewable energy, particularly if they cross Federal land. 

We need new sources of energy that don’t add more global warming pollution. Renewable energy companies cannot always afford to 

pay up front for new transmission lines and the cost of connecting 

to them as I give in one example. My bill would help change this. 

Renewable project and transmission developers would pay back 

the federally financed lines, a cost over 50 years. But the bill also 

clarifies FERC should let transmission utilities recover prudently 

incurred costs for intrastate, high voltage lines and allow for a systems charge in intrastate trunklines which declines as more renewable projects are added. Existing power market agency customers 

would not be liable for the cost of renewable project interconnection. 

Utility executives like to say that we can’t afford to build transmission lines that carry only or mainly renewable generated electricity. They like to say it just doesn’t pencil out. But if they say 
28 

1 2007. Reuters. ‘‘RPT-Nevada Power Delays Ely Coal Power Plant.’’ December 1. Retrieved 

December 5, 2007 from http://www.reuters.com/article/bondsNews/idUSN3033040220071201 

that, I just don’t think that they really tried very hard to crunch 

those numbers. 

This is particularly relevant when you look at the declining cost 

curve for renewable energy technologies and the rising costs of fossil fuels. Even without a carbon constraint we know that within the 

past year coal has gone up 100 percent. It’s doubled the price. 

Cost is an issue, but it’s not an excuse for inaction. As Senators 

know the utility industry is not noted for its agility or flexibility. 

This is a function of the service it provides. 

Americans want reliable and affordable electricity. But to keep 

the lights on and meet the demand for clean power, America must 

change. This legislation is a serious effort to find solutions to the 

challenges of our energy security and global warming problems. 

The Federal Government has to add its weight in support to help 

convince the pencil pushers of the necessity and the cost effectiveness of investing in renewables. The Federal Government needs to 

be a better partner. 

The West will need 7,500 miles of new transmission lines over 

the next decade to significantly expand renewable energy production. The Western Governors’ Association, the States of Nevada, 

Texas, Oregon, Colorado and California are beginning to consider 

how to connect renewable resources to transmission. This is a responsible action. But their efforts will not be sufficient without 

more constructive Federal involvement. 

Efficiency, renewables and improvements to the grid can more 

than meet the country’s growing electricity demand, but only if 

utilities don’t sit on their hands and under invest allowing a train 

wreck to occur like we saw in the Northeast blackout in 2003 and 

the Western Energy crisis in 2000–2001. 

I would like to ask to include in the record, Mr. President, the 

executive summary of a recent energy foundation study. The study 

uses as an example Nevada, the seventh largest State in the 

Union, area wise, as a case study and contains a solid road map 

for meeting growing demand without using old technology. It emphasizes the need for greater efficiency. But also the urgent need 

for renewable transmission capacity. 

[The information referred to follows:] 

LAYING A FOUNDATION FOR NEVADA’S ELECTRICITY FUTURE: GENERATION FACILITY

UNCERTAINTIES AND THE NEED FOR A FLEXIBLE INFRASTRUCTURE

PREPARED FOR: ENERGY FOUNDATION, SAN FRANCISCO, CA

PREPARED BY: CARL LINVILL, CHRISTOPHER COOKE, AND SUZANNE PHINNEY, ASPEN

ENVIRONMENTAL GROUP, SACRAMENTO, CA AND RICHARD MCCANN, M.CUBED, DAVIS, CA

FEBRUARY 2008 

Disclaimer: Any opinions, findings, conclusions or recommendations expressed in 

this publication are those of the authors and do not necessarily reflect the view of 

the Energy Foundation. 

Executive Summary 

Sierra Pacific Power Company (SPPC) and Nevada Power Company (NPC) recently announced a delay in the operation of the first 750 megawatt (MW) coal unit 

of the Ely Energy Center (EEC).1 The Utilities have further suggested that uncer-
29 

2 2007. ‘‘Nevada Utilities Want to Kill Bill Amendment that May Stifle Coal.’’ California Energy Markets. December 7, p. 15. 3 NPC. Integrated Resource Plan 2007-2026. Vol. 6, Supply Side Plan , Transmission Plan and 

Financial Plan, pp. 87—93. 4 RETAAC. Phase 1 Report. December 2007, p. 6. 

5 NPC. ‘‘Renewable Energy,’’ http://www.nevadapower.com/company/renewables/, retrieved 

January 30, 2008. 

tainties may lead to further delays or cancellation of the coal power plants.2 While 

all new sources of generation face uncertainties that can affect the timing and ultimate cost of those facilities, the delay or cancellation of the coal units demonstrates 

the risk to reliability and rates associated with a strategy that is dependent upon 

the timely completion of large centralized generation. The potential absence of the 

1500 MW EEC coal plants highlights the need for a contingency plan to meet a resource shortfall. This report frames the issues that need to be addressed by such 

a plan. The intention of this study is to initiate a discussion among the Nevada Utilities and policy makers that will expedite the construction of an infrastructure that 

accesses distributed and centralized resources from the state and the region. To 

their credit, Nevada Utilities and Nevada’s policy makers have already proposed significant infrastructure additions. The proposal in this report differs from existing 

proposals because it emphasizes the importance of getting infrastructure in place in 

advance of the proposed coal plants and it proposes more substantial access to distributed and demand side resources. Building an infrastructure foundation now that 

leverages and extends existing proposals will provide Nevada Utilities and policy 

makers with a flexible array of options. 

The first cornerstone of a flexible infrastructure foundation for Nevada is a northsouth transmission inter-tie. Several north-south interconnections have been proposed, including the Utilities’ Eastern Nevada Transmission Inter-tie (EN-ti) proposal.3 The Renewable Energy Transmission Access Advisory Committee (RETAAC) 

recently expressed its support for a north-south inter-tie in Nevada and RETAAC 

highlighted the importance of such an inter-tie to facilitate development of renewable energy in Nevada.4 Interconnecting SPPC and NPC facilitates reserve sharing, 

captures system coordination benefits, facilitates development of renewable energy 

resources in northern Nevada, and provides NPC with access to electricity reserves 

in the Northwest, Basin and Rocky Mountain regions of the western grid. It fulfills 

a key promise from the Utilities’ merger. Completing a north-south interconnection 

by 2011 contributes significantly to meeting: 

• Nevada’s near term needs by providing NPC with access to SPPC excess capacity and regional reserves, and 

• Nevada’s longer term needs by providing NPC with access to northern Nevada 

and regional renewable energy projects. 

The second cornerstone of building a flexible infrastructure in Nevada is ensuring 

access to cost effective energy efficiency, demand response and distributed generation resources. The Utilities, Nevada policy makers, and the federal government 

have all contributed to energy conservation in the state. However, the announced 

delay in the EEC requires that proposed utility and non-utility efficiency enhancing 

projects are implemented aggressively and that existing proposals are complemented with additional distribution level measures. Existing demand side management (DSM) and demand response (DR) programs should be accelerated and improved, and combined heat and power (CHP) partnerships between large commercial 

entities, such as casinos, and the Utilities should be pursued. Completely accounting 

for all of the energy and demand savings associated with existing utility and nonutility programs in the Utilities’ demand forecasts will be just as important as implementing the programs well because documenting reduced consumption contributes directly to meeting resource adequacy requirements. 

The third cornerstone is beginning pre-permitting, permitting and construction of 

renewable energy transmission collector systems on an expedited basis and aggressive pursuit of renewable energy projects that benefit from the selected collector systems. Nevada is poised to be at the national forefront for solar and geothermal resources, and Nevada can begin adding wind power.5 A review of western planning 

reports finds that these resources are expected to be cost competitive with traditional gas and coal-fired generation. Nevada is evaluating the alternatives, but in 

comparison with other western utility planning reports, the Nevada evaluation 

could be more systematic and comprehensive. SPPC identified routing studies that 

could facilitate more rapid development of renewable energy resources in northern 
30 

6SPPC. 2007 Integrated Resource Plan 2008-2027. Vol. 6, Supply Side Plan, Transmission 

Plan and Financial Plan, p. 98. 7Op. cit., pp. 60-61. 

8 RETAAC. Phase 1 Report. December 2007, p. 9. 

9 Business Wire. ‘‘Nevada Power Announces Plan to Build Natural Gas Facility.’’ November 

28, 2007. Retrieved November 28, 2007 from http://www.businesswire.com/portal/site/google/ 

index.jsp?ndmViewId= newslview&newsId=20071128006106&newsLang=en. 10SPR. Form 10-Q, Quarterly Report, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. November 2007. Retrieved on November 4, 2007 

from http://biz.yahoo.com/e/071102/srp10-q.html. 

Nevada in its most recent Integrated Resource Plan (IRP).6 Yet the Utilities’ ‘‘Preferred Portfolios’’ continue to focus on gas and coal resources and downplay the potential for these resources to meet its needs.7 To its credit, RETAAC identified and 

is refining plans for transmission collector systems statewide that could facilitate 

the development of renewable energy zones in Nevada8 Improving access to resource 

alternatives as technology, resource discoveries and availability of capital equipment 

evolve is an essential cornerstone to laying a flexible infrastructure foundation. Utility and RETAAC efforts are encouraging but delays in the EEC justify expedited 

development of the most promising collector systems and initiating specific request 

for proposals (RFPs) that can attract a set of projects to fill possible collector system 

zones prior to 2013. 

The fourth cornerstone complements the first three and includes building flexible 

gas generation capabilities. NPC has announced that it will ask for approval of an 

additional 500 MW unit at the Harry Allen site. The utility is to be congratulated 

for having a pre-permitted site that can be accessed quickly, however, the generation built should be considered relative to its efficiency and thus CHP applications 

should be considered alongside any new proposed gas plants.9 In addition, the generation considered should also be evaluated based on its ability to support a Nevada 

generation fleet that will have more intermittent generation and more distributed 

and demand side generation in the near future. Finally, construction of gas storage 

facilities should be considered alongside the consideration of new gas generation so 

that flexible gas contracting can increase the Utilities’ flexibility in how it dispatches its existing and planned gas generation fleet. 

Nevada’s long term resource needs will require an infrastructure foundation that 

allows NPC and SPPC to access local, state and regional resources. Federal and 

state policies, regulations and tariffs that facilitate the construction of and access 

to Nevada’s flexible infrastructure can be developed and implemented. The first 

delay in the EEC has created a need for additional resources by 2011. Additional 

uncertainties surrounding the future development of the EEC cited by Sierra Pacific 

Resources (SPR) in its 10-Q include possible changes in environmental regulations, 

emissions limits, climate change legislation and the possibility of increasing plant 

construction costs.10 Given these uncertainties, delaying the deployment of the flexible infrastructure needed to access diverse resources would be a serious mistake. 

Nevada has the opportunity to lay the foundation of a flexible infrastructure now, 

which will address the near term needs created by this first delay and allow it to 

flexibly respond to longer term needs as in-state and regional resources are developed. 

Senator REID. Mr. President, this is done in a scholarly fashion. 

You have Dr. Suzanne Phinney, who is a person who has spent her 

lifetime looking at things like this. She holds a Doctorate in Environmental Science from the University of California, Los Angeles. 

Dr. Carl Linvill holds a PhD in Economics from the University 

of North Carolina where he is now working and on and on with the 

people that worked on this. All eminently qualified who have had 

experience, not only in the academic field. But for example, Dr. 

Linvill was the economic advisor to Governor Gwen when he was 

Governor of Nevada. 

So I hope that the committee will move forward on taking a real 

close look at transmission lines. That’s the key to making this alternative energy a success. I appreciate very much and I apologize 

to my desk mates here coming in late and testifying. I’m going to 

have to go back to the floor if that’s ok with the chairman of the 

committee. 
31 

The CHAIRMAN. Thank you very much, Senator Reid, for the 

statement. We will certainly include the report that you referred to 

as part of the record. We appreciate your strong endorsement of 

the legislation that you’ve introduced. 

Let me start with our questions. We’ll have a 5-minute round of 

questions here. 

Mr. Pickens, one of the points that Senator Reid made is that a 

significant amount of the progress that has been made in promoting renewables has been because of renewable portfolio standards that have been adopted in 25 states. We’ve tried to adopt a 

national renewable portfolio standard and not been successful. 

What’s your view as to the utility of us doing that? Is that something we ought to continue to pursue or does it make a big difference? 

Mr. PICKENS. Let me go back to what I consider the problem that 

I’m trying to attack and that is that we’re paying for $700 billion 

worth of imported oil. So, I then look at what is available to us in 

this country to, in some way, off set that. 

If you go down the list of resources we have available. We have 

oil, which is in decline. We have coal. We have natural gas. We 

have wind. We have solar. We have hydro. We have biofuels. Nuclear. 

We’ve got to look at everything. We got to look at everything. The 

renewables, it’s time for the renewables. The wind is located in the 

right place. 

If I could ask one of my guys to put a map, show me the one that 

the DOE had. This is a great illustration. This is a DOE map that 

was done in April of 2007. But it shows the wind corridor, that 

being right up through the central part of the United States. 

It’s in a perfect place, one, to have safety as to where the location 

is. It’s perfect as far as the people in that area. They want it. They 

want the wind. It’s not like on the coast where you have problems 

there siting those turbines. 

But here they want it. It could happen. I think the Department 

of Energy did an excellent job of identifying the resource and then 

also the transmission out of there. 

I know you asked me the question about the renewables. Renewables, it’s time for the renewables. If you look at the—my second 

again, Department of Energy map. I look like I don’t have any displace here, but I do have some too. 

But anyway, get the one on the solar. Here we’re very, very close 

to doing something on solar. You can see here again across the 

Southwest part of the United States is the solar corridor. This 

could be put, solar and wind do extremely well together in mixing 

them. 

But what we need is leadership to come forward and develop 

these resources for us because we are so close now to having them 

and in quantities that would substantially reduce the $700 billion 

that we’re buying foreign crude oil with. We’ve got to get that 

stopped. 

The CHAIRMAN. You, in your testimony there, you talked about 

how we needed to release natural gas out of power generation so 

that we take what we’re currently using in power generation and 

shift that to the transportation sector. In addition to the renewable 
32 

portfolio standard that we’ve been talking about, are there other 

actions you think the Federal Government should take to try to insure that the transition of natural gas from power generation to 

transportation occurs or will the market just bring that about? 

How do you see that occurring right now? 

I think the utilities have generated more and more power from 

natural gas because that has been the cheapest way to generate 

additional power. I don’t know if the wind generation you’re talking 

about is going to be a more attractive option for them or if we need 

to have policies in place that cause that shift to occur. 

Mr. PICKENS. As we all know in this country that it’s going to 

go to the cheapest, you know, source of power. That’s our system 

that we all operate under. So it’s got to go the cheapest. Wind will 

be cheaper than anything else. Solar will also. Not yet. I’m not saying we’re there yet. We are on wind. We’re not on solar. 

But the natural gas will move out of the power generation slowly. I can see that it moves out and is very conveniently replaced 

over a period of five to 10 years. So I don’t know that I would have 

any recommendations to you on this other than let it happen. Encourage it to happen. 

I think you’ve got to have a PTC to make it work. You know, you 

want to go as quick as you can because you want to reduce the 700 

billion number. So PTC will, on our evaluation was 200,000 

megawatts. The PTC for that would be $15 billion a year to accomplish that. You need to give it a long enough time for planning can 

happen. 

Another point that I’m not sure and this was brought up in a 

meeting last night that we don’t have the manufacturing for the 

wind and it’s GE is big in the business. We have a few other smaller ones, but if we have a PTC that shows the wind manufacturing 

turbine people, they’ll come into the country. We’ll have—and 

that’ll bring down the cost. When they come in they’ll be more competition and it will bring down the cost there. 

But when you look at $15 billion a year, it’s insignificant compared to the 700 billion that’s going out for foreign oil. 

The CHAIRMAN. Alright. 

Senator Barrasso. 

Senator BARRASSO. Thank you very much, Mr. Chairman. First 

I’d like to welcome Mr. Bryce Freeman here to the Senate. He’s 

come from Wyoming. He serves on the Wyoming Infrastructure Authority Board. It’s an organization that was created with my support when I served in the Wyoming State Senate. 

Other states have followed the lead of Wyoming, have set up 

similar organizations to develop electric transmission infrastructure. Plus Bryce has served for years as the Consumer Advocate to 

the State’s Public Service Commission. So thank you very much for 

being here. 

Mr. FREEMAN. Thank you, Senator. 

Senator BARRASSO. There was an article in this morning’s Casper 

Star Tribune under the title, Utility Finds Power Line Foes, which 

gets to the point of what we’re talking about this morning. I’ll just 

read briefly. ‘‘It seems like an idea that any environmentalist 

would embrace. Build one of the world’s largest solar power oper-
33 

ations in Southern California desert and surround it with plants 

that run on wind and underground heat.’’ 

Those things you’re talking about doing and the things that the 

map has shown. Yet San Diego gas and electric and its potential 

partners face fierce opposition because the plan also calls for 150 

mile high voltage transmission line. The show downs over how to 

get renewable energy to consumers will likely play out elsewhere 

around the country as well. 

Providers of renewable power covet cheap land and abundant 

sunshine and wind in places like West Texas, Wyoming, Montana 

and Southern California. But utility executives say no one will 

build plants without power lines to connect those remote spots to 

the cities. That’s the thing that many of you have mentioned. 

I guess my question, Mr. Pickens is that Mr. Freeman talked 

about uncertainty in the market. Now people in this room know 

that a lot of your success comes from seeing more clearly through 

that uncertainty than others have been able to do. When you look 

at this, when you look at the issues of the cost of construction and 

siting and access to corridors, is one of those a bigger burden than 

you see than the other? 

Is it the cost of the construction? Is it the siting and getting the 

permission to get through? What are you dealing with? 

Mr. PICKENS. The biggest hurdle of course, is to get access to the 

corridors. Somehow, I mean, I’m not sure how well versed I am on 

this response. But if we could go the route that Eisenhower used 

with the Interstate Highway System, I think the issue is so critical, 

I think we are in an emergency. 

I think the outflow of the—I keep saying this, but I want to though, but $700 billion a year. We can’t afford that. We’re going 

to be brought to our knees if this continues. 

There’s no reason to believe that the people with the oil are going 

to bring the price down. I mean, if we reverse positions and you 

and I are sitting on the table with the oil and they don’t have the 

oil. We’re going to want to sell the oil for the best price we can get 

for it. I mean, that’s just human nature. 

They do have a finite resource. They do not have as much oil as 

they can tell us they do. It isn’t there. 

I do believe in peak oil. I believe that you have peaked out at 

85 million barrels a day globally. Now we’re using 21 million barrels of the 85 million and producing about 7 of the 21. 

So if I could take just a minute on this point. The demand is 

about 86.4 million barrels a day. When the demand is greater than 

the supply, the price has to go up until it kills demand. 

That’s where we are. That’s what we’re dealing with. We’re killing demand in the United States. 

We killed 500,000 barrels a day of demand in the last year. But 

the Chinese have picked it up is what’s happened. We are in a 

global situation, is what’s happened to us. 

You know, when we say our truckers in this country and I met 

with the Swift Trucking Company out in Phoenix 2 weeks ago. 

They said what’s in store for us. I said you’re going to pay more 

for diesel is what’s going to happen. 

It takes four barrels of oil to make one barrel of diesel. That is 

becoming more and more expensive. Now I know you’re thinking 
34 

does he mean you can get one barrel of diesel and throw away the 

other three barrels. No, that isn’t what happened because it comes 

out of the products. 

But diesel is becoming more and more expensive around the 

world. You look at those truckers over there in France and Turkey 

and they are parking their trucks and they’re frustrated. You 

know, they’re saying we’ve got to have cheaper fuel. 

They do, if they’re going to make money at the rates they’re 

charging so that price is going to go up or I don’t think they’re 

going to get any cheaper fuel is what’s going to happen. So we’ve 

got to take care of ourselves. I think if you can open up those corridors for transmission and for renewables. I see the corridors as 

being for renewables. I think that’s very healthy and for the country. 

Senator BARRASSO. Thank you. Mr. Freeman, hearing what Mr. 

Pickens said where he thought that the issue with the siting and 

the corridors was greater than the cost that was the bigger expense 

was not the financial cost, but the getting through the corridors. 

Can you tell us about your experience in Wyoming? What you’ve 

learned and what you think we need to do? He had talked about 

possibly like an Interstate Transportation System. 

Mr. FREEMAN. I, Mr. Chairman, Senator Barrasso, I certainly 

agree with Mr. Pickens with regard to the importance of energy 

corridors and particularly electric transmission corridors. I neglected to mention in my summary that that is a challenge that we 

have in the West is—and I think that we’re convinced that the Federal Government, particularly the Department of Energy can play 

a much larger role than they have in the past in identifying and 

designating national interest electricity transmission corridors. We 

think, frankly that in combination with the renewable resource 

zone initiative that the WGA has recently announced that that will 

significantly enhance our ability to identify and develop low cost renewable resources in the West. 

So, I do agree with Mr. Pickens that certainly the corridor issue 

is first in time to a lot of the other issues because you have to plan 

those corridors. You have to get the right of way sewed up before 

anything else can happen. A lot in the West, a lot of those corridors 

traverse Federal lands. 

We’ve had some difficulty in the past working in an efficient 

manner with the Federal agencies to try to get transmission facilities sited. It doesn’t look like that’s going to get any better unless 

we work on that problem specifically. So corridors certainly are a 

high priority for us. 

Senator BARRASSO. Thank you, Mr. Freeman. Thank you, Mr. 

Chairman. My time’s expired. 

The CHAIRMAN. Thank you. 

Senator Johnson. 

Senator JOHNSON. Mr. Kolevar, in a question that you asked 

Western Area Power Administration about transmissions like 

Western power own thousands of miles of transmission lines. How 

does the DOE envision the PMAs willing to grow in developing 

wind energy resources? 

Mr. KOLEVAR. Thank you, Senator. The PMAs, the Western area 

Power Administration and Bonneville in particular, already have 
35 

substantial authority. Bonneville, in particular can finance lines 

and in limited circumstances use the power of eminent domain to 

site those lines. They are constrained by the manner in which they 

would designate the costs, or a portion of the costs, for those lines 

across all of the people that utilize that system. 

At the end of the day I think both of those power administrations 

will play a key role in achieving the type of infrastructure system 

you see on the map right there. That is not our current infrastructure. That really envisions a much larger series of high voltage 

backbones, including lines that connect the Eastern Interconnection to the Western Interconnection. 

Both of the power administrations will play a role in that. In and 

of themselves, they lack the authority to do that now. I understand 

that there have been some discussions. 

Senator Reid’s bill speaks to the manner of which they might bolster those authorities. I understand that there are advocates as 

well as those that oppose within their customer base. So I think 

there is a lot of room for discussion on this involving those customers who are very concerned about the way the costs of any new 

lines would be borne by them when the benefits might be realized 

by someone else. 

Senator JOHNSON. I yield. 

The CHAIRMAN. Senator Smith. 

Senator SMITH. Thank you, Mr. Chairman. Mr. Pickens, thank 

you for being here. We’re honored to have you here. I wonder if in 

your vision in terms of the transmission generation by wind, how 

much investment is needed? Do you think that private capital is 

available for this transmission? 

I ask that question because I think the difference, as I understand it, between your bill and Senator Reid’s is your talking about 

private capital investing in the transmission. I think he’s talking 

about public investment in that transmission. 

Mr. PICKENS. Let me give you a number and I’m going to check 

it and then come back to you on it. Ok? For the 200,000 megawatts 

that I had our guys look at and say, well, you know, my question 

was the same as yours. What’s this going to cost to move 200,000 

megawatts wherever it’s going to go? I believe that number was $70 billion. All the numbers that we 

keep coming up with are so miniscule compared to what we’re paying for foreign oil that it almost, you know, when you think about 

it. You step back and look at it. This is a bargain. This is an absolute bargain when you look at that map with all of the resource we 

have of the renewable there. 

All we have to do is to transport. Give it PTC and then transport 

it. I start to see it as a pretty simple solution to a huge, huge problem for this country. 

Senator SMITH. But you do believe private capital is available to 

accomplish that? 

Mr. PICKENS. I think private capital can do it if you have a PTC. 

Senator SMITH. Ok. 

Mr. PICKENS. I think you’ve got to have that. I almost believe 

that it could work with private capital and no PTC. But it’s going 

to be years and years to get to where you want to be. 

So it becomes cheap to get rid of the burden of foreign oil. 
36 

Senator SMITH. Sure. In your vision for the future would natural 

gas be used as an alternative fuel as it is now or as a feed stock 

for fuel cell vehicles? 

Mr. PICKENS. That again is an unbelievable timing for this country. You almost start to think divine intervention because here we 

are depleting our oil. It’s, you know, we peaked in 1970 in the 

United States on oil. We’ve been in decline since that time. 

If you look at natural gas. Natural gas is actually being, you’re 

replacing your production annually. You’re adding to the reserve 

base. 

The reason for this is because we have 21 shale basins in the 

United States. About, I think, about four or five of them are under 

development now. This geologist, I would have never believed you 

could ever get gas out of shale. But you can. 

That technology is so advanced now that there are tremendous 

reserves. I think you can probably—our reserves for this country is 

about 250 trillion cubic feet of gas. I think that that will probably 

be doubled with the shale reserves. 

So we have the reserves now. Do we have it forever? No, you 

don’t have it forever. I what I foresee will happen if you could move 

today—this I think is worth mentioning, that I have tried to promote natural gas as a transportation fuel since 1988. It was cleaner, cheaper and it was domestic. 

When I tried to make that pitch that the only thing that people 

heard when it came out was they didn’t care whether it was cleaner. They didn’t care whether it’s domestic. They just wanted it to 

be cheaper. It was cheaper. But it wasn’t enough cheaper to pick 

up and that happened. 

But what’s happened around the world in the last 3 years the increase in natural gas vehicles has gone from five million to eight 

million. So we’re eight million vehicles around the world today. 

General Motors makes 19 platforms out of this country but only 

one in this country because the demand isn’t here. Not because 

there is anything wrong with GM. 

Ok. We only have 142,000 vehicles in the United States on natural gas. We lag the world. We have the natural gas. 

So it can happen. It can happen, you know, very conveniently. 

We still have plenty of gas for petrochemicals and other uses for 

natural gas. 

Senator SMITH. I want to emphasize the point that I think you 

were making that if we’re using natural gas just to make electricity 

we’re really wasting it. We’re not using it as efficiently as you’re 

suggesting we ought to be. 

Mr. PICKENS. That’s hard for me to say it’s wasting it. I’m not 

saying it’s wasting because the industry has to sell their product. 

Once you can make the investment, now you have a well. Now you 

have to use it. There is no question it’s the cleanest of all for, other 

than renewables, in power generation. 

Senator SMITH. Mr. Kolevar, Oregon has some of the most promising sites on Earth for wave energy, if properly sited to avoid conflict with fisheries. We could also generate up to 200 megawatts of 

wave energy without needing any new transmission. Can you tell 

me why the Department has been so slow to embrace wave and 

tidal energy? 
37 

Mr. KOLEVAR. I guess it’s hard to answer that question, Senator. 

It’s not within the portfolio that I oversee. It is a technology that 

is receiving increased attention at the Department. 

It’s a technology that is still expensive. But I think that the increased attention at the Federal level through research and development efforts at the private level, a number of states, other than 

Oregon are interested in this as well. Hawaii as you can imagine 

is very interested in this kind of technology and ocean thermal and 

so it is one that is certainly relative to the other forms of technology, a clean technology, that we have looked at that is relatively 

a recent arrival on the scene. 

Notwithstanding that, given the push that we’re seeing toward 

cleaner forms of energy, I expect that it will be receiving a lot of 

attention in the future. I do know that there are a number of some 

of our best people at the Department in the lab community that are 

very interested in pursuing this. 

Senator SMITH. I hope they will. I certainly want to encourage 

it. Thank you. 

The CHAIRMAN. Senator Dorgan. 

Senator DORGAN. Mr. Chairman, thank you very much. Mr. 

Kolevar, last year the President had recommended $115 million for 

your agency. My Appropriations Subcommittee funds the Department of Energy and related areas. I added $53 million, almost 40 

percent more than the President requested because I agree with 

the Chairman and many of the witnesses. 

This is one of the most important areas to unlock the opportunities that exist. Can you tell me why there has been, what I think, 

is relatively an anemic funding request from the President in his 

budgets for your area? 

Mr. KOLEVAR. Sir, I of course, support the President’s budget. 

But I can tell you that we have done very good work within the 

bounds of the funding provided through that budget but also the 

additional funding. I guess the real substantive answer to that 

question mirrors the previous question. 

In my experience, and I’ve been at the Department for about 

seven and a half years now, you see attention focused on a lot of 

very exciting forms of technology; and resources tend to flow there. 

Those are resources in the forms of dollar. As well as resources in 

the form of the kinds of technical expertise from students coming 

out of college that want to get involved. 

We’re seeing a change. I think we’re realizing a change. Not just 

at the Department but across the country in the need for greater 

support for the enabling technologies in particular that apply to the 

grid and electricity storage. 

So, again I guess I can’t offer adequate explanations to you for 

why we haven’t in the past pushed harder on this except to say I 

think that’s there’s a great realization today. I think it’s really 

taken place over the last couple of years, that we need to focus 

much greater attention on our grid—— 

Senator DORGAN. It requires investments in the areas where we 

need to get this done. The Midwest. I was just looking at Midwest 

ISO for example, determined if they were to do the studies for all 

the projects in their queue they would complete it by 2362. That’s 

354 years from now. 
38 

I mean, we have a lot of things to do to fix this. I just, I make 

the point that the President has not requested sufficient funding. 

I’m going to try to increase it again this year. The last person that 

came to this table working for this President and said that they 

needed a little more money, the next morning was fired. 

[Laughter.] 

Senator DORGAN. So if I bully—well, no, it’s true. 

Senator SANDERS. So watch what you say. 

Senator DORGAN. It’s true. In fact the person sat at that very 

table the day before he was fired. So I understand you have to support the President’s budget. 

I do think however, we have to make the right investments here. 

I want to make a point and then ask a question of Mr. Pickens. 

In 1916 we put in place a pretty substantial incentives to people 

to look for gas and oil. Because you go out and find yourself some 

gas and oil, we’re going to provide some tax break. 

We want you to do that. That’s what our country needs and 

wants. So we did it. It was permanent. It’s been there forever, almost. It’s now almost a century. 

In 1992 we said production tax credit. That’s what we wanted to 

incentivize you to do. Production tax credit. In 1992 we put it in 

place, and we have extended it five times on a short-term basis. We 

let it expire three times. It’s a pathetic, anemic response. 

In my judgment this country ought to say here’s where America’s 

headed for a decade, count on it. The production tax credit, solar, 

other incentives, count on it for the next decade because here’s 

where America’s going. That’s what we ought to do. 

The bill on the floor that we can’t even get passed has a 12 

month extension, a miserable extension. Better than nothing, but 

I mean that’s not where we ought to go. We ought to go in a much 

more aggressive way. 

But the Chairman asked the question, Mr. Pickens, and I did not 

hear the answer, specifically. We have tried very hard to get the 

Federal Government to create a renewable energy standard. I happen to feel very strongly that we ought to do that. 

The country ought to say here’s where we aspire to go. Yet, we’ve 

been unsuccessful, whether it’s 10 percent, 20 percent, 15 percent. 

Do you think that the market system will move in this direction 

of its own will or do you think it would be useful for the Congress 

through a renewable electricity standard to describe a goal? 

Mr. PICKENS. I think you’re going to have to do it. Because I 

don’t think it’s going to go that direction just because people want 

to do renewables. I think I’m answering the question you asked me, 

aren’t I? 

Senator DORGAN. Right. 

Mr. PICKENS. Ok. Again what you’ll do is you’ll go back to the 

cheapest way to do it is the way it will be done. I mean that’s the 

system we live in. 

Senator DORGAN. But we affect the price with tax incentives, 

don’t we? 

Mr. PICKENS. Yes, we do. So if you can give some help. But I 

keep going back to this point and I don’t think I made exactly this 

one, but almost. 
39 

But that you know the way we’ve operated here as far as energy 

concerned, the way our country has, it’s almost like send us the oil, 

never mind the cost. We just kept using more and more oil. You 

know, and now we’re up to 70 percent. We’re in the trap. We are 

in a trap, is where we are. We’re caught in the trap. 

We’ve got to go to renewables. There’s no question about it. But 

when you look at these studies by the DOE, clearly we have energy 

available to us. Why haven’t we used it? We haven’t used it. Now 

comes the leadership that causes that to happen. 

Senator DORGAN. Wvery addiction ends in a trap. The question 

is, is there public policy that leads us out of this in a different direction. You’re correct in my judgment that the market system 

moves to the cheapest form of energy. 

Mr. PICKENS. It does. 

Senator DORGAN. But we also can have a significant impact 

about what energy, with respect to what is the price of energy. The 

price of a gallon of gas is not $4. It’s probably about $10 if you factor in the cost of defense and other things that we’re spending in 

the free world. 

Mr. PICKENS. Right. 

Senator DORGAN. So, but we have an impact on what the price 

can be with respect to incentives. We put them in place a century 

ago for oil and gas. We can, in my judgment can send a much 

stronger signal for renewables than we’ve done. 

Mr. PICKENS. I agree. I think you can send a stronger message 

on renewables. But we know we have it. 

Finding oil and gas is a tough deal. I know. I’ve been in that 

business for over 50 years. I’ve found a lot of oil and gas, but it’s 

been expensive at times, very, very expensive. You can drill a lot 

of dry holes. 

I will say this. You won’t have to have anybody before you this 

year that has drilled more dry holes than I have. 

[Laughter.] 

Senator DORGAN. Mr. President, my time has expired, but I 

wanted to make one additional point. Wind and solar are both 

intermittent forms of energy. But there are ways to firm up an 

intermittent form of energy. 

We have a project in North Dakota that I sponsored in which 

we’re taking energy from the wind, producing electricity through 

electrolysis separating hydrogen water and storing hydrogen for vehicle use. You can take an intermittent energy source and produce 

vehicle fuel in terms of hydrogen. So there’s a lot of things we can 

do with wind and it’s not hard to find wind, at least in North Dakota. 

Mr. PICKENS. That’s right. You have one of the best resources of 

anyplace in the country. 

Senator DORGAN. The Department of Energy says it’s the Saudi 

Arabia of wind. We are No. 1 in wind and we’re number 50 in 

trees. 

[Laughter.] 

Mr. PICKENS. I—— 

Senator DORGAN. So there’s nothing there to break the wind. 

Mr. PICKENS. My ranch is in Van Allen, Texas and I’ve lied about 

wind forever, that it doesn’t blow as much as you all think it does. 
40 

That’s what I always say. Now I say, can you believe it, this wind 

is great. 

[Laughter.] 

Mr. PICKENS. So, you know, it’s just different times in your life. 

The CHAIRMAN. Senator Sanders. 

Senator SANDERS. Thank you, Mr. Chairman. Mr. Pickens, there 

are a number of people. I think you heard Senator Reid and myself 

and others up here who see huge potential in sustainable energy 

if we can get our hands on and solve the transmission problem. 

So let me start off by asking you if we got our act together. You 

talked about wind in the Midwest. Senator Reid talked about solar 

thermal in the Southwest. What percentage of electricity in this 

country could be generated by sustainable energy? 

I think the folks from the Western Governors’ Association were 

talking about 17 percent within the reasonable future coming from 

solar thermal in the Western part of this country. What do you 

think? 

Mr. PICKENS. Ok, if you look at that map right across the top it 

says at 20 percent. Now that’s from the DOE. We do not disagree 

with that. 

Senator SANDERS. By when? 20 percent by when? 

Mr. PICKENS. Right, that’s what it says across the top there. 

Senator SANDERS. Twenty percent by 2020? 

Mr. PICKENS. No, they say by 2030. But I think you can beat 

that. 

Senator SANDERS. Ok. 

Mr. PICKENS. Where we differ with them is how quick it could 

be accomplished. If you called it an emergency, which I believe it 

is that. I think you could do the 20 percent in less than 10 years. 

But you’ve got to do it quick because you have so much outflow 

of money. 

Senator SANDERS. Right. You, I know, have been focusing on 

wind. What do you see the potential of solar? 

Mr. PICKENS. I’m not an authority. I’m pretty good on wind. I’m 

not that good on solar. I’m real good on oil and gas. 

[Laughter.] 

Mr. PICKENS. But let me tell you that some of, you know, some 

people really for me to go to renewables, a geologist who’s been in 

oil and gas his whole life they’re somewhat surprised and astounded of that. But this is where we have to go. But quick answer 

on solar, it’s there. There’s no question it’s there. 

Now it’s not as cheap. Those things are going to happen. If you’ll 

give the incentives and tell them this is direction you want. 

Just look at what the President did for ethanol. The President 

came out for ethanol. I mean ethanol happened. It went and it 

probably was not the best idea I’ve ever seen. But anyway—— 

[Laughter.] 

Senator SANDERS. All right let me ask you this. Obviously we are 

dealing now with two international crises. There’s global warming 

and the high price of fuel. In terms of wind, which you do know 

a lot about, how cost competitive is it today with other sources of 

energy? 

Mr. PICKENS. The wind is—it’s competitive. I think that the 

wind, I’m going to stick my neck out here, but I believe it—when 
41 

you take coal and bring it up to clean it up and everything else, 

I think wind will be, is competitive with coal. 

Senator SANDERS. So today. Today, not in the future what you’re 

saying—— 

Mr. PICKENS. No, I’m saying today. 

Senator SANDERS. Today. This is an extraordinary statement 

that he’s saying today wind is cost competitive or maybe cheaper 

than coal. Is that what you think? 

Mr. PICKENS. I’m saying that, yes. 

Senator SANDERS. Let me ask you another thing. You know a little bit about oil, right? 

Mr. PICKENS. About what? 

Senator SANDERS. Oil. You’ve heard of oil? 

Mr. PICKENS. I’m ready. 

Senator SANDERS. Alright. 

[Laughter.] 

Senator SANDERS. Now it is interesting. Many of our friends—I 

was on two television shows the other day and kind of conservative 

commentators were saying the solution is drill, drill, drill. We’re 

going to solve all of our problems if we just drill for all the oil that 

is in the United States. 

Now I heard you mention several times ago you believe it peak 

oil. Are we capable of drilling our way out of this crisis? 

Mr. PICKENS. Let me take you on a little history. But we peaked 

in the United States at ten million barrels a day in 1970. We’re 

now producing five million barrels a day. 

Could we have kept it at ten? There’s no way that we had the 

resources to do that. An average oil well in the United States is 

five barrels a day. An average well in Saudi Arabia is 5,000 barrels 

a day. 

The Saudis are lifting six barrels of water with every barrel of 

oil which tells me they’re mature. That’s mature. The Russians are 

lifting nine barrels of water with every barrel of oil. We’re lifting 

over 100 barrels of water with every barrel of oil. 

So we are mature. Now could we drill our way out of it? No. 

There’s no way you can do that. 

The—I don’t agree with the USGS that there’s 86 billion barrels 

of oil off the East and West coast of the United States. Those guys 

work on that a lot more than I do. So I’m not going to say it’s a 

ridiculous number. I just don’t agree with it. 

When I look at ANWAR I would look at ANWAR and feel like 

it may be time. I almost, and I laughed about it last night at dinner. I said if I was one of the Senators that voted against ANWAR, 

I would almost see the American people today. 

It is shifting and the American people are wanting to do something. They don’t know for sure what it is, but they’re voting for 

ANWAR. I saw a poll the other day, 57 percent. 

I said I almost think if I was one of those Senators that voted 

against it, I’d say, you know, back there when those Republicans 

were trying to get me to do ANWAR at $20 a barrel. It was too 

cheap. But now at $120 a barrel, I may be more interested in doing 

it. 

So maybe we’re coming around to a point where the value of the 

oil at ANWAR, and I’m not one that believes there’s 16 billion bar-
42 

rels at ANWAR either. There was 14 billion at Prudhoe Bay which 

is the largest field we ever had in the United States. The ANWAR 

does not have the same sediments because you cross a fault going 

east of Prudhoe Bay. See, I know this subject. 

Senator SANDERS. Alright, but let me just—— 

Mr. PICKENS. But I don’t think the oil in ANWAR is anything 

like 16 billion. So don’t have the idea that our problems will be 

solved with a big discovery. 

Senator SANDERS. I surely don’t. Mr. Halvey, what were your estimates about what solar thermal in the Southwest from the Western Governors’ Association? What percentage of electricity do you 

think it has the potential to produce? 

Mr. HALVEY. Let me say first of all it’s going to depend on, I 

think, the value that you’re going to place on doing the solar. One 

of the problems that we’ve got with solar is that there isn’t a manufacturing capacity. In the Clean and Diversified Energy Report 

they talked about having 8,000 new megawatts of solar online by 

the 2015. That was a conservative estimate. It was based on current manufacturing capacity. 

If you talked to the people in those industries what they will tell 

you is that they will be cost competitive with the cheapest sources 

of energy if there are incentives, if the manufacturing capacity increases, if they can achieve the kind of economies of scale that 

would be available. So I think, you know Senator Reid mentioned 

that there’s a tremendous potential. You know, exploiting that potential is going to be dependent on a lot of different things, finding 

the right type of land. 

I mean if you look at the map of solar it looks like there’s these 

broad—— 

Senator SANDERS. But you published—you issued a publication 

which I think said that you expected within the not to distant future, if we got our act together we could do something like 17 percent of the electricity that this country needs just from the Southwest. Is that correct? 

Mr. HALVEY. What we said in the Clean and Diversified Energy 

Report was 8,000 megawatts by the year 2015, 8,000 new 

megawatts by the year 2015. That I think is a 2-year-old figure. I 

think we would revise it significantly upward at this point. 

Senator SANDERS. Upwards, though? 

Mr. HALVEY. Yes. 

Senator SANDERS. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Dorgan wanted to make a short statement and then we’ll go on to the second panel. Go right ahead. 

Senator DORGAN. I just wanted to observe while we have substantial wind energy capability in North Dakota and we’re developing it, not quite as quickly as I would like. But it’s happening. 

We are locked by transmission problems, which is the purpose of 

this hearing. 

We can produce, should produce and will produce much, much, 

much more electricity from wind. But we’ve got to solve this transmission problem if we’re going to move the product of that around 

this country on a grid. So that, I mean that’s the underlying foundation of this hearing which is important for us to always remember. 
43 

There’s a lot of potential here. But we won’t unlock that potential 

moving around the country in the way we need to unless we solve 

the transmission problem. Nobody comes to the transmission issue 

to say, you know what, I’m going to commit a lot of money to build 

and I’m not quite sure how the income stream going to be developed to pay for it. That just doesn’t happen. 

That’s why we need some sort of policy directions and some plans 

to get this transmission issue solved. I appreciate the Chairman 

holding the hearing on that subject. 

The CHAIRMAN. Let me thank our witnesses here. I think it’s 

been very useful testimony from this first panel. Thank you very 

much for being here, appreciate it. 

Mr. PICKENS. Thank you. 

The CHAIRMAN. Let me ask the second panel to go ahead and 

come forward. On the second panel we have Mr. Gary Hanson with 

the South Dakota Public Utility Commission. I think Senator Johnson was going to make a short introduction of him when we start 

the panel. 

Stephen Wright with the Bonneville Power Administration. 

Will Kaul who is with the Great River Energy in Maple Grove, 

Minnesota. 

Don Furman representing American Wind Energy Association. 

Senator Johnson, did you want to make a statement here before 

we heard from your Commissioner? 

Senator JOHNSON. I just wanted to take—— 

The CHAIRMAN. Alright, well why don’t we start with you, Mr. 

Hanson. Why don’t you give us about a 5-minute summary of what 

you think we need to understand on this issue. Then we’ll go right 

to Mr. Wright and then Mr. Kaul and then Mr. Furman. Go right 

ahead. 

STATEMENT OF GARY HANSON, CHAIRMAN, SOUTH DAKOTA 

PUBLIC UTILITIES COMMISSION, PIERRE, SD 

Mr. HANSON. Thank you, Senator Bingaman and thank you very 

much Senator Johnson. Excuse me? Thank you, Senator Bingaman 

and thank you Senator Johnson. I sincerely appreciate having a 

very good, old friend introduce me this afternoon. I appreciate that 

immensely. 

My name is Gary Hanson. I’m Chairman of the South Dakota 

Public Utilities Commission. I’m testifying today on behalf of that 

agency. 

I very much appreciate the opportunity to appear before you this 

morning. I ask that my testimony be made a part of the record as 

if fully read. I will summarize my written testimony. 

The South Dakota PUC regulates the retail rates and services of 

investor owned electric, gas and telephone utilities. We’re obligated 

under the laws of our State to ensure the establishment and maintenance of such utility services as may be required by the public 

convenience and necessity and to ensure that such services are provided under rates and subject to terms and conditions of services 

that are just, reasonable and non-discriminatory. It is in our Nation’s best interest to resolve the challenges which have retarded 

the healthy growth of electric transmission facilities. 
44 

Otherwise our efforts to assemble a viable, renewable energy regime will fall far short of expectations. Additionally, unless a more 

expeditious process is implemented to facilitate transmission expansion serving interstate needs, we will be at risk for serious reliability problems. Chief among the solutions are resolving siting and 

cost allocation challenges. 

A disparity of policies across the states compels load serving entities to locate wind capacity and associated transmission based upon 

political boundaries instead of physics, economics and other best 

practices. Local politics and parochialism in one State should not 

be allowed to prohibit the economic and environmentally friendly 

construction of renewable energy facilities in another State. Our 

Nation’s energy future is far too important to allow this practice to 

continue. 

To have the greatest economic and environmental benefits practical considerations require transmission facilities be regionalized. 

States need to have an active role in transmission decisions. However, an effective regional transmission system requires a regional 

transmission authority with regional siting authority. 

The present system used for pricing transmission and compensates providers for that service is essentially based on a regulatory method that is also—that is almost 100 years old. The current regulatory system does not recognize that power flows based 

on physical laws. Rather it assumes that power will flow based on 

who contracts for the purchase of power. 

A robust regional electric transmission system is an essential 

prerequisite to support the reliability function and the market 

function allowing more generators to reach loads and compete directly for sales to such loads and meet national goals for renewable 

generation and energy independence. A new rate design is needed 

that will facilitate the construction of the strong transmission background required to support the Nation’s electric market and reliability missions. 

Any prospective transmission rate design should cover new as 

well as existing transmission facilities. 

Facilitate not impede construction of needed new transmission 

facilities. 

Reflect the regional use of the grid. 

That power flows according to laws of physics. 

Provide simplicity and certainty through a standard tariff that 

defines in advance who will pay for new transmission facilities. 

How such costs will be recovered rather than relying on potentially contentious, costly and time consuming, case by case, facility 

by facility analysis of beneficiaries to determine who will pay the 

cost of a specific facility. 

Provide certainty that the parties owning transmission facilities 

can obtain cost recovery and are not faced with a risk of trapped 

cost. 

I recommend a highway/byway rate design for the Midwest ISO. 

Under this proposal a license plate component of the transmission 

rate would recover the cost of local, low voltage facilities. The cost 

of these byway facilities would be paid solely by the load in the 

local license plate zone as is currently the case. 
45 

The cost of defined high voltage highway facilities would be included in a rate charged to all loads in the footprint on a postage 

stamp basis. For administrative ease and to avoid case by case disputes the tariff definition of highway facilities would be determined 

by voltage level. Given the rate of return currently allowed by the 

FERC on transmission facilities and with these suggested changes, 

there should be no shortage of capital to invest in the needed 

transmission infrastructure. 

I believe there are benefits for the WAPA to join MISO. However 

in order to be fair and equitable for all participants significant 

challenges need to be overcome first including reducing the cost of 

MISO’s charges and challenges with regard to the queue. Thank 

you, Mr. Chairman. 

[The prepared statement of Mr. Hanson follows:] 

PREPARED STATEMENT OF GARY HANSON, CHAIRMAN, SOUTH DAKOTA PUBLIC

UTILITIES COMMISSION, PIERRE, SD 

My name is Gary Hanson. I am Chairman of the South Dakota Public Utilities 

Commission (SDPUC) and I am testifying today on behalf of that agency. The 

SDPUC regulates the retail rates and services of investor owned electric, gas, and 

telephone utilities. We are obligated under the laws of our State to ensure the establishment and maintenance of such utility services as may be required by the public 

convenience and necessity and to ensure that such services are provided under rates 

and subject to terms and conditions of service that are just, reasonable, and nondiscriminatory. 

It is in our nation’s best interest to resolve the challenges which have retarded 

the healthy growth of electric transmission facilities throughout our country. Without vigorous transmission capacity our efforts to assemble a viable renewable wind 

energy regime will fall far short of expectations. Additionally, it is extensively acknowledged that the demand for electric energy in the United States will grow by 

nearly 400 gigawatts over the next 23 years. That demand can not be met without 

significant upgrades to our present transmission system and yet investment to the 

infrastructure has been virtually stagnant for many years. Unless a more expeditious process is implemented to facilitate transmission expansion serving interstate 

needs, we will be at risk for serious reliability problems. Chief among the solutions 

are obtaining resolutions to siting and cost allocation challenges. 

Traditionally the states have been the incubators and drivers of inventive energy 

policy. An example is the wide variety of renewable portfolio standards across the 

country. However, the product result is a patchwork of conflicting energy policies. 

This disparity of policies compels load serving entities to locate wind capacity and 

associated transmission based upon political boundaries instead of physics, economics, and other best practices. An example is the hundreds of megawatts of wind energy facilities in Minnesota that curiously end at the South Dakota border, just as 

the wind resource potential increases. 

To have the greatest economical and environmental benefits transmission facilities, similar to renewable portfolio standards, should not be localized or nationalized; practical considerations require they need to be regionalized. This is not to say 

that states’ rights are to be ignored. Just as states have a role in the siting of interstate highways, states need to continue to have an active role in transmission decisions. Even so, a regional transmission system requires a punctual regional transmission authority with regional siting authority. We must overcome the inability or 

unwillingness of individual states to provide timely action on proposed interstate 

transmission projects. In some instances regulatory bottlenecks are holding back the 

development of transmission projects as well as renewable energy in an effort to 

prevent clean coal projects. Local politics and parochialism in one state should not 

be allowed to prohibit the economic and environmentally friendly construction of renewable energy facilities in another state. And our nation’s energy future is far too 

important to allow this practice to continue. 

The present system that is used for pricing transmission and which compensates 

providers of that service is essentially based on a regulatory method that is almost 

100 years old. The existing transmission regulatory process was developed at a time 

when a vertically integrated utility built the generation and transmission in its 

service area. The current regulatory system does not recognize that power flows 
46 

based on physical laws. Rather it assumes that power will flow based on who contracts for the purchase of power. This, of course, is fiction. 

A robust regional electric transmission system is an essential prerequisite to support a) the reliability function to keep the lights on and b) the market function allowing more generators to reach loads and compete directly for sales to such loads 

in order to increase competition amongst generation suppliers and meet national 

goals for renewable generation and energy independence. A new rate design is needed that will facilitate the construction of the strong transmission backbone required 

to support the nation’s electric market and reliability missions. 

Any prospective transmission rate design should cover new as well as existing 

transmission facilities and (1) facilitate, not impede, the construction of needed new 

transmission facilities; (2) reflect the regional use of grid and that power flows according to the laws of physics; (3) provide simplicity and certainty through a standard tariff convention that defines in advance who will pay for new transmission facilities and how such costs will be recovered, rather than relying on potentially contentious, costly, and time-consuming case-by-case, facility-by-facility analyses of 

‘‘beneficiaries’’ to determine who will pay for the cost of a specific facility; and (4) 

provide certainty that the parties owning transmission facilities can obtain cost recovery and are not faced with the risk of ‘‘trapped costs.’’ 

Before I describe what I believe is a much better way for pricing transmission, 

let me first describe the more typical methods that are being used today. The first 

method is the ‘license plate’ rate. The license plate rate method requires the load 

to pay a rate for transmission service based on the transmission zone where the 

load resides. It obviously takes its name from car license plates where each car 

owner purchases a license plate from its home state and can then drive any place 

in the nation. The problem with this method when it comes to transmission service 

is that a load located in zone A and wants to purchase power from a generator in 

zone B would only pay for the transmission in zone A. If there is transmission needed in zone B, in order to export the power from zone B to zone A, the load in zone 

B will have to pay for the needed transmission. There is a disincentive for the load 

in zone B to build transmission for the benefit of the load in zone A. Additionally, 

rural areas find it especially challenging to build transmission for exporting renewable energy to other states. 

A second method is the ‘postage stamp’ rate. Under this scheme all load in a single marketing area such as the Midwest Independent System Operator footprint, 

would pay the same transmission rate. This is similar to paying the same postage 

for mailing a letter anywhere in the nation. There tends to be a lot of resistance 

to implementing this type of transmission pricing scheme because the more densely 

populated areas tend to have a lower cost for transmission service versus the rural 

areas. Thus if one were to implement this scheme there would be a cost shift with 

the urban areas seeing a cost increase for their transmission service while the rural 

areas would see a cost decrease. 

A third method is the ‘pancake rate’. With this method, each time a transaction 

is deemed to cross another transmission zone the user of the service pays another 

full transmission tariff. This is similar to paying a toll on a road. Each time a car 

uses the next segment of the road, the user must pay another toll. However there 

is a great difference on the actual use of a toll road and a power transaction. In 

the case of a toll road, the driver physically uses the toll road so it is appropriate 

that he pay for that use. However, in the case of an electrical transaction, the power 

the user purchases might not even flow over the transmission in the zone for which 

he is paying. This is actually the worst and most expensive transmission pricing 

method. It Balkanizes the system more than the license plate method, does not recognize how electric energy flows and hinders the development of renewable energy 

and energy independence. Additionally, it can stifle any generation market as costs 

of transport may be prohibitive. This is actually the system that we currently face 

in my home state of South Dakota. 

The fourth and final method that I wish to discuss is the ‘highway/byway’ rate 

method. This method is a hybrid between the license and postage stamp rates discussed earlier. Under this method higher voltage transmission uses the postage 

stamp pricing scheme and lower voltage uses the license plate pricing scheme. The 

highway/byway method avoids some of the cost shift that a pure postage stamp 

method causes and at the same time encourages investment in high voltage transmission and generation. This nation desperately needs high voltage transmission to 

encourage development of renewable generation and assist with energy independence and promote reliability. 

Under the highway/byway proposal, a local license plate rate would remain in 

place for defined low voltage facilities (‘‘byway facilities’’). The cost of these facilities 

would be paid solely by the load in the local license plate rate zone, as is currently 
47 

the case. This avoids much of the urban/rural cost shift mentioned previously. The 

cost of defined high voltage (‘‘highway’’) facilities would be included in a wholesale 

regional formula rate and recovered from all loads in a regional market area such 

as the Midwest ISO footprint on a postage stamp basis. For administrative ease, the 

definition of highway facilities would be determined in advance by voltage level. I 

would suggest highway facilities should include all non-radial facilities 100 kV or 

greater. 

The proposed highway/byway transmission pricing approach addresses the key 

issues. It facilitates construction by providing financial certainty. Any transmission 

owner would collect the cost of it’s highway facilities under a regional tariff such 

as the Midwest ISO wholesale tariff charge and thus (under established law) eliminate any ‘‘trapped cost’’ risk that may exist under a tariff that does not definitively 

or formulaically derive an allocation of costs among transmission owners. 

This proposal also facilitates construction of needed new facilities in the event an 

existing local transmission owner for any reason declines to undertake construction 

of new transmission facilities. In these situations, another transmission owner or a 

third party financial investor could construct new highway facilities, place the cost 

of the facilities into the wholesale postage stamp rate and be assured cost recovery 

on a basis comparable to any other investor. As a practical matter, this possibility 

will provide incentive to the local transmission owner to undertake the construction 

rather than forego the lost return to another party. 

A postage stamp wholesale rate for new highway facilities would minimize disputes concerning who will pay for new facilities. While there likely would be the 

usual regulatory protests when the tariff change to implement the highway/byway 

rate design was filed at FERC, this would be a one-time contest. Once the tariff was 

in place, the ‘‘who pays’’ question is resolved definitely in the regional transmission 

tariff. This is an important consideration in my recommendation because it avoids 

the often case-by-case modeling approach to cost allocation for major new facilities 

and avoids the contentious and protracted debate over the modeling and other assumptions used to derive a proposed cost allocation. 

In this regard, please note that the postage stamp ratemaking convention historically has been used by federal and state regulators to recover the cost of transmission and distribution facilities. Regulators long ago recognized that administrative convenience dictated a simple postage stamp convention rather than spending 

the time and effort to develop detailed allocation methods that could achieve only 

fictional accuracy. Applying the postage stamp rates to just the highway facilities 

continues this historical convention and at the same time recognizes the changes 

that we need to make in the current transmission pricing scheme to promote our 

national interests. 

Transmission is not an end in itself; it is a means to allow the most efficient and 

desirable mix of electricity to reach markets. We need to recognize that transmission 

rates should be designed to further this goal, and we should develop transmission 

rates that optimize generation supply efficiencies instead of rates that stifle necessary generation development. 

ADDITIONAL DISCUSSION

A. Background 

South Dakota has significant wind resources and land available for the development of those resources. Those resources are essentially land locked in South Dakota because of a lack of transmission capacity. Unfortunately South Dakota, for the 

most part, is not part of a regional independent system operator, specifically the 

Midwest ISO. For this reason, any generation development in South Dakota, either 

wind or conventional must pay a pancaked transmission rate to get the power to 

market. As noted earlier, this transmission pricing scheme is a significant barrier 

to generation development in South Dakota. To me this is not in keeping with our 

state or our national goals. The major transmission provider in South Dakota is the 

Western Area Power Administration (WAPA). The SD PUC has no jurisdiction over 

WAPA so we cannot order WAPA to join the Midwest ISO even though we believe 

that this would be in the best interest of our state. 

To me the Midwest ISO offers many benefits. The Midwest ISO has commenced 

regional transmission service operation, implemented joint regional transmission 

planning, commenced operation of day-ahead and real-time bid-based energy markets, and institutionalized centralized security constrained unit dispatch and regional congestion management. The Midwest ISO now is in the process of a functional consolidation of balancing authorities, creation of a region-wide market for 

ancillary services and implementation of some form of a regional capacity construct. 
48 

In short, nearly all grid and market functions have been regionalized, including 

pricing, except for transmission service pricing. 

The pricing for transmission service first and foremost should facilitate, not impede, construction of needed new transmission facilities. A robust regional electric 

transmission system is an essential prerequisite to support the Midwest ISO’s a) reliability function (For example, from July 31 to August 2, 2007 the Midwest ISO 

had excess generation trapped on the west side of the Midwest ISO due to limited 

transmission and while this generation was trapped on the west, simultaneously the 

Midwest ISO imposed emergency actions in central and eastern portions of the Midwest ISO and curtailed service to interruptible customers due to high peak demands.) and b) market function (allowing more generators to reach loads and compete directly for sales to such load as envisioned). A new rate design should facilitate the construction of the strong transmission backbone required to support the 

Midwest ISO’s market and reliability missions. 

Although I believe the slightly modified license plate pricing approach currently 

used in the Midwest ISO was a useful compromise initially to avoid cost shifts and 

facilitate the formation of the Midwest ISO, a pure license plate pricing approach 

no longer meets these needs of the Midwest ISO, its stakeholders or our national 

interests. The continued use in any pure form of license plate rate design will be 

counterproductive and make it more difficult than necessary to construct the transmission facilities essential to the Midwest ISO’s reliability and market functions. 

B. Recommendation 

I recommend that WAPA join the Midwest ISO as a transmission owner. This 

would eliminate the pancake transmission rate that generation in South Dakota 

now faces. This pancaked transmission rate alone causes generation in South Dakota to be 25% higher than generation located just a few miles to the east in Minnesota. This is not good energy policy and it is certainly not good national policy. 

I further recommend a highway/byway rate design for the entire Midwest ISO 

footprint. Under the proposal, a license plate component of the transmission rate 

would recover the cost of local byway facilities. The cost of these byway facilities 

would be paid solely by the load in the local license plate rate zone, as currently 

is the case. 

I note that while the allocation of costs to specific customers will differ in a particular year under a postage stamp approach (compared to the existing license plate 

approach), over a long term planning and construction horizon, such difference 

should not result in large inequities. In my judgment, the essential choice is accepting a rough justice over time in the interest of the common good of facilitating the 

construction of needed new transmission facilities to support the Midwest ISO’s reliability and the market functions versus leaving in place a license plate pricing regime likely to cause ongoing cost allocation disputes over each project and further 

complicate the already too difficult process of transforming a planned project into 

new facilities. 

The cost of defined highway facilities would be included in a wholesale formula 

rate charged to all loads in the Midwest ISO footprint on a postage stamp basis. 

For administrative ease and to avoid case-by-case disputes, the tariff definition of 

highway facilities would be determined in advance by voltage level. I propose that 

the highway facilities include non-radial transmission facilities operated at a voltage 

of 100 kV or above. Any party that constructed such new highway facilities would 

place the cost of such new facilities into the wholesale postage stamp rate and obtain a formulaic revenue recovery under the Midwest ISO tariff. Under this approach, if the local transmission owner chose not to construct a planned highway 

facility in a timely manner, any transmission owner or third party could invest in 

such transmission facilities and obtain comparable formula rate cost recovery of its 

investment under the Midwest ISO’s tariff. Given the current rate of return currently allowed by the FERC on transmission facilities and with these suggested 

changes, there would be no shortage of capital to invest in the needed transmission 

infrastructure. 

The CHAIRMAN. Thank you very much. 

Mr. Wright. 

STATEMENT OF STEPHEN J. WRIGHT, ADMINISTRATOR, 

BONNEVILLE POWER ADMINISTRATION, PORTLAND, OR 

Mr. WRIGHT. Good morning, Mr. Chairman. My name is Steve 

Wright. I’m the Administrator of the Bonneville Power Administration. There are three main points to my testimony today. 
49 

First, wind and other renewables have value to the electric utility industry and are being implemented rapidly in the Pacific 

Northwest. 

Second, renewables in large quantities do create some cost and 

reliability concerns for the utility industry. 

Third, we at Bonneville are taking actions to mitigate these concerns such as through the development of transmission in our region. But much work is left to be done. 

Now I’m sure this committee is aware that the Bonneville Power 

Administration is an agency as part of the Department of Energy 

serving the States of Oregon, Washington, Idaho and Montana. 

We’re a not for profit organization seeking to market power from 

the Federal hydro-electric facilities in the Northwest. We market 

about 35 percent of the energy in the Pacific Northwest and operate about 75 percent of the high voltage transmission in our region. 

We have the authority to acquire cost effective generation. We 

have the authority to build transmission. We have access to capital 

through two sources—money that we can borrow from the United 

States Treasury, up to a limited capped amount, and the ability to 

use third party financing to be able to support our transmission 

construction activities. 

We’ve promoted renewables over the years. We were the first to 

eliminate the imbalance charges for wind resources back in 2002, 

a policy that was ultimately adopted by the FERC. We have developed a significant number of interconnections for new wind projects 

in our region. We have purchased wind output that we are using 

to serve our customers in the Northwest. 

The amount of wind on our system over the last 3 years in particular has exploded, in part due to our own policies, in part due 

to the production tax credit, and in part due to State policies within our region. 

We now have more than 1,400 megawatts operating on our system. We are simultaneously pleased, proud and anxious about that 

development. We’re pleased and proud because we believe the 

green nature of these resources represent the values of the Northwest. We’re anxious because these resources have operational characteristics that we’re still learning about in which, as I mentioned 

earlier, I do have some cost and reliability consequences that we’re 

trying to figure out how to deal with. 

To put it most simply utilities have responsibility to assure that 

loads and resources balance instantaneously at all times. That does 

make us somewhat conservative. Intermittent renewables increase 

the challenges because it’s not clear how much they can be relied 

upon during the peak hour and due to our relative inability to predict their hour by hour variations. 

We view these as challenges that need to be addressed and are 

attempting to take them head on. Two years ago we formed the 

Northwest Wind Integration Steering Committee, a group of utilities, developers, regulators and members of the environmental community. An action plan was developed by that committee that 

unanimously agreed on 16 recommendations. We’re now in the 

process of implementing those recommendations. 

One of the key recommendations was the need for new transmission to broaden the geographic base of wind supply. Thereby in-
50 

crease the diversity of wind output that should reduce some of the 

operational risk of wind that I referenced earlier. 

Developing new transmission under FERC’s open access tariff as 

FERC has acknowledged has been difficult. But BPA has put together a new approach working with a group of Northwest stakeholders and with the Federal Energy Regulatory Commission. That 

new process has allowed us to offer what’s called a network open 

season. 

This new process does not require developers to provide up front 

financing, addressing one of the issues that came up in the last 

panel. FERC approved this approach last Friday for which we are 

grateful. Our open season closed yesterday. I just received the results this morning. It appears to be an overwhelming success. 

We had hoped that we would receive somewhere in the range of 

two to three thousand megawatts of commitments, developers who 

were prepared to pay for transmission if we built it. Based on what 

we received last night, we received 6,800 megawatts of commitments. More than double what were anticipating. Over 5,000 

megawatts comes from wind resources. 

The probability looks good that we have found a way to break the 

log jam that will allow more transmission to be built, further opening the wind frontier in the Pacific Northwest. I also want to note 

that we’re participating in the Western Electric Industry Leaders 

Group, a group of Western electric chief executive officers. This 

group recognizes that the West effectively operates as one for reliability and market purposes. 

We’ve begun to look at the potential impacts of renewable portfolio standards and CO2 limits in the West on rates and reliability 

and the policies that can help to mitigate these impacts. Particularly we’ve looked at a coarse screening level analysis of the cost 

effectiveness of new interstate transmission to support renewables. 

Our preliminary conclusion that requires further testing is that 

new interstate transmission and the development of a new renewable energy credits market is worthy of further exploration. 

This recognizes however, that there’s a big challenge to maintain 

reliability, and to fill new interstate transmission lines with intermittent, reliable, renewable resources alone. This conclusion is fundamentally driven by the potential value of renewables in more remote regions of the West potentially exceeding the cost of new 

transmission lines. 

Mr. Chairman, from this short synopsis you can see that we’ve 

been busy with respect to renewables in particular. Yet I’m barely 

able to scratch the surface of the activities that we’re undertaking 

with the time that I’m allowed. I look forward to answering your 

questions and would ask that my full remarks be entered into the 

record. 

[The prepared statement of Mr. Wright follows:] 

PREPARED STATEMENT OF STEPHEN J. WRIGHT, ADMINISTRATOR, BONNEVILLE POWER

ADMINISTRATION, PORTLAND, OR 

Good morning, Mr. Chairman. My name is Stephen J. Wright and I am the Administrator of the Bonneville Power Administration (BPA). I appreciate the opportunity to relate BPA’s experience to date in bringing renewable electricity to markets and how we are positioning the agency to integrate additional renewable resources into the Pacific Northwest electricity system. My testimony today will de-
51 

1Federal Columbia River Transmission System Act, 16 U.S.C. § 838k. 

2See Federal Columbia River Transmission System Act, 16 U.S.C. § 838i(b)(5); see also Bonneville Project Act, 16 U.S.C. 832a(f). 3Federal Columbia River Transmission System Act, 16 U.S.C. § 838k(a); Continuing Appropriations for 1983, Act of December 21, 1982, Pub. L. 97-377, Title V, § 115, 96 Stat. 1830, 1912 

(1982); Energy and Water Development Appropriation Act of 1984, Pub. L. 98-50, Title III, 97 

Stat. 257 (1984); Consolidated Appropriations Resolution of 2003, Pub. L. 108-7, Title VII, § 701, 

117 Stat. 423 (2003). 4 Budget of the U.S. Government Fiscal Year 2003, Office of Management and Budget, at 133 

(2002). 5 Bonneville Project Act, 16 U.S.C. § 832a(e), (d). 

6Pacific Northwest Electric Power Planning and Conservation Act, 16 U.S.C. § 839d 

scribe the success we’ve experienced in bringing a significant amount of new renewable energy into our transmission system this past decade to the present. I’ll discuss 

some of our concerns that have arisen from that experience and how we and our 

regional partners have responded to those issues. I’ll complete my remarks by describing how we will evaluate and respond to opportunities to bring more renewable 

electricity to our customers in a cost-effective manner. 

INTRODUCTION AND BACKGROUND

BPA, founded in 1937, is a power marketing agency under the Department of Energy. We are headquartered in the Pacific Northwest where we operate about threequarters of the high voltage transmission and market power from 31 Federal dams 

in the Columbia River Basin as well as the output of one nuclear plant. We supply 

about 34 percent of the Northwest’s electricity, selling at wholesale and at cost. 

Our customers include Northwest cooperatives, municipalities, public utility districts, Federal agencies, investor-owned utilities, direct-service industries, port districts, irrigation districts, and tribal utilities. Our service area covers Washington, 

Oregon, Idaho, western Montana, and small parts of eastern Montana, California, 

Nevada, Utah, and Wyoming. BPA is a self-financed agency that recovers its full 

costs and repayment obligations from its customer ratepayers through power and 

transmission rates. BPA receives no annual appropriations for its operations. 

We sell transmission-related services to more than 200 utilities, power generators 

(including wind generators), and power marketers. Consistent with Federal Energy 

Regulatory Commission (FERC) rules, BPA has one open access tariff. It provides 

transmission services to all customer utilities, power generators and marketers 

under the same rates, terms, and conditions that it applies to its own Power Services business line. 

BPA’S AUTHORITIES TO BUILD AND FINANCE TRANSMISSION

BPA’s statutory authorities include the authority to construct transmission lines 

to deliver power to customers in the Pacific Northwest. The capital costs to construct transmission lines to these sites are significant—typically $1-$3 million per 

mile. In addition, there are environmental and social impact mitigation considerations for siting new transmission lines. 

BPA’s statutory authorities give us access to capital for new transmission construction needs. In addition to a limited amount of borrowing from the U.S. Treasury,1 we have the authority to rely on capital of third parties.2 BPA has successfully 

used third-party financing of facilities, through lease-purchase arrangements, to 

avoid depletion of our more limited Treasury borrowing authority, which is capped 

at outstanding indebtedness of $4.45 billion.3 The President’s Fiscal Year 2003 

Budget supported the use of third-party financing for future investments in transmission system upgrades.4 BPA also has authorities to acquire real and personal 

property and to acquire real property through eminent domain.5

BPA’S ACTIONS TO PROMOTE RENEWABLE ENERGY

BPA’s authorities to acquire resources to meet the loads of Northwest utility customers require priority for cost-effective energy conservation measures and renewable resources.6 Wind development has become a success story for developing new 

renewable generation. 

Commercial-scale wind development on the BPA system began in 1998 with a 25 

megawatt (MW) project in eastern Oregon. Over the next several years, development proceeded slowly, but steadily. By 2005, there were 428 MW of installed wind 

capacity on the BPA system. During the first phase of development, BPA purchased 

wind output to serve a portion of our customers’ load and helped nurture the growth 

of regional wind development in several ways. In 2002, BPA recognized that the 

then-current FERC standard penalty for generators who failed to meet their hourly 
52 

* Figures 1–2 have been retained in committee files. 

scheduled output was actually a significant barrier to cost-effective wind generation. 

This penalty was originally developed to provide an economic disincentive for 

dispatchable generation to choose to go offline. BPA determined that the variable 

nature of wind power generation resulted in an unwarranted penalty not likely to 

have the desired effect of causing operators to schedule generation more carefully 

and so decided to eliminate the penalty for wind generators. This change was subsequently adopted by FERC as a component of its Order 890 pro forma tariff. 

In 2004, BPA developed a wind integration service that facilitated the purchase 

of wind energy by our public power customers by using the Federal hydroelectric 

system to offset the variations in wind power output. At the time, with a total of 

428 MW of wind in a 9,000-MW control area, we did not experience large operational or cost issues associated with integrating the variable output of wind into 

our system. 

By 2005, things began to change. That year, the Northwest Power and Conservation Council (Council) released its 5thNorthwest Power Plan. The 5th Power Plan 

called for up to 6,000 MW of wind development in the Pacific Northwest over the 

next 20 years. Around the same time, many utilities started aggressively marketing 

voluntary renewable energy options to customers interested in reducing greenhouse 

gas emissions, and several Northwest states enacted policies to encourage further 

the development and use of renewable energy by electric utilities in the region. 

Spurred by continued volatility in the power and natural gas markets, wind development began to increase rapidly. 

Since 2005, wind development has increased rapidly in the BPA control area. 

Today, there are 1,425 MW of installed wind capacity directly connected to our grid. 

Less than three weeks ago, we recorded a new record single-hour wind output of 

1,304 MW. That’s a third again as much energy as it takes to power the City of 

Seattle. Wind development has proceeded so rapidly, in fact, that we have had to 

develop a new rate to recover the costs of providing the balancing services that are 

necessary to maintain reliability as generators’ output increases or decreases. 

Wind is a valuable resource, but it has characteristics that create an integration 

challenge from a cost and reliability perspective. Due to its intermittent nature, only 

part of the wind generation can be relied upon to meet peak electricity demand. 

Utilities must maintain adequate generation at the ready to meet peak loads if wind 

generation is unavailable. In addition, the output of wind generation can swing up 

and down in very short periods of time. See Figure 1.* That means that the generation to balance the wind fleets must be maintained to safeguard system reliability. 

Much of the wind development on the BPA system has been concentrated in one 

general region of our system—east of the Columbia Gorge. This raised the concern 

that the natural variability and uncertainty of wind generation, combined with its 

overall low capacity value (—in other words, its tendency not to generate at times 

of peak load)—would be exacerbated by highly concentrated geographical development. With many of the wind projects clustered in one part of our region, they 

would all tend to behave in the same general fashion, creating potentially large 

swings in our system operation. This potential presented itself at a time of declining 

flexibility of the Federal hydro system because of growing non-power constraints, 

such as the support of endangered salmon runs. 

These issues of wind’s geographic concentration, system capacity needs, and system reliability created challenges for BPA about the potential impacts of integrating 

large amounts of wind energy into the Northwest power system. Other regional utilities shared our concern. 

As a result, in August 2006, BPA and the Council co-sponsored a regional initiative to develop a Northwest Wind Integration Action Plan. Central to the effort was 

an attempt to examine the technical feasibility of integrating substantial amounts 

of wind into the Pacific Northwest electricity system. We assembled a Steering Committee drawn from the leadership of 22 regional utility, regulatory, wind development, and environmental organizations to guide the work of technical specialists 

from across the region who were assigned to address several key questions related 

to system operations, transmission expansion, and regional collaboration. 

The Northwest Wind Integration Action Plan was released in March 2007 with 

the unanimous endorsement of the regional Steering Committee. The Action Plan 

concluded that the fundamental value of wind (and other intermittent resources) 

was to produce energy on an as-available basis to displace the output of dedicated, 

dispatchable firm resources such as natural gas and coal plants that would be necessary to maintain reliable electrical service. The Action Plan found no fundamental 

technical barriers to integrating 6,000 MW of wind in the Northwest, but did conclude that the costs of integration, per unit of wind, would increase as more wind 
53 

comes onto the system. As a result, the Action Plan called for 16 specific actions 

to help the region meet its wind energy objectives in the most cost-effective fashion 

possible. First of all, the Action Plan called for greater collaboration among regional 

utilities to expand the availability of integration services and to spread the variability of wind energy across a broader generation base. Secondly, the Plan recommended increasing the geographic diversity of the region’s wind resources 

through transmission construction and new transmission products such as conditional firm service. The Plan also encouraged the development of new flexibility and 

storage technologies to help manage wind variability and shape the energy into periods of peak demand. BPA and other regional organizations are now actively implementing these recommendations. 

In a sign of real progress, BPA is joining several of the region’s other utilities to 

participate in a cooperative effort to pool the diversity in their system operations 

known as the Area Control Error (ACE) Diversity Interchange Pilot Project. Experience gained from this collaborative effort may lead to other strategies for sharing 

flexibility resources among regional utilities and for helping dampen the rate of 

growth in wind integration costs. 

We believe that we have established a sound regional consensus for the next steps 

to resolve technical challenges for effective integration and transmission of renewable energy. We next face issues of financing and building necessary transmission 

and managing the queue of service requests. We expect another 1,500—2,000 MW 

of wind to come online in the next two years, along with additional requests for 

transmission capacity, and, with that, continued challenges. We are committed to 

addressing these challenges head on. 

Our immediate new initiative is known as the Network Open Season. By 2006, 

the number of new wind projects seeking service on the BPA transmission system 

had exploded to over 15,000 MW. While clearly some of this was speculative development, it became readily apparent that the prevailing method of planning and offering new transmission service would be inadequate. Network Open Season marks 

a major change from traditional practices associated with managing our transmission queue and financing new lines. 

Under the Network Open Season, we are making contractual offers of transmission capacity to all of the entities seeking access on the BPA transmission network via our transmission queue if they sign precedent agreements committing 

them to take and pay for service at a specified time and under specified terms. 

Those who sign the agreements will be grouped into cluster studies to determine 

how much new transmission capacity will be needed to meet all the requests. Under 

the agreements, BPA has committed to provide the new transmission service if it 

can be offered at our embedded cost rate and all relevant environmental siting requirements can be met. BPA would secure the necessary funding, either through 

Treasury borrowing or from third parties. Unlike prior business models, the generation developers will not be asked for up-front financing for the transmission. Those 

entities that do not accept BPA’s offer of new service by signing a transmission 

agreement will be removed from the queue. Customers can reapply for service, as 

BPA has committed to conduct a Network Open Season at least once a year. 

The deadline for signing the first wave of these agreements was yesterday, June 

16. There has been a tremendous regional response to our Network Open Season, 

and we are anticipating that a significant number of customers, including many 

wind developers and utilities seeking to purchase wind power, will have signed 

agreements allowing us to move forward confidently. By aggregating demand of 

those ready to take service, it is likely that BPA will then finance, using either 

Treasury borrowing or third party financing, and construct those transmission expansion projects that will be supported by the rates of the future path users. 

In order to better utilize our existing transmission assets, BPA has developed a 

redispatch pilot that we are using to optimize generation dispatch to relieve transmission congestion. Also, BPA will offer a conditional firm transmission service 

product that will allow more efficient use of existing transmission capacity. These 

new techniques for managing congestion on BPA’s transmission system will help 

support a more geographically diversified wind fleet in the Northwest. 

A regional stakeholder Transmission Issues Policy Steering Committee has guided 

the development of our Network Open Season and congestion management efforts 

and we have been very pleased with the level of support we have received regionally 

as well as nationally. 
54 

CONCERNS FROM THE ENERGY INDUSTRY PERSPECTIVE

The general theme of regional collaboration that guided the development of the 

Northwest Wind Integration Action Plan and the design of the Network Open Season has now emerged more broadly among utilities in the Western United States. 

In April, I joined the leaders of 15 Western electric utilities in signing a letter 

to Western state governors, regulators and other key policy makers to call for a collaborative approach to addressing the challenges of integrating renewable electricity 

into utility portfolios. The group began its letter by stressing the inescapable fact 

that ‘‘our western electric grid is fully interconnected, and [that] changes in policy, 

resource additions and operations affect us all.’’ 

As the letter expressed, there is concern about the potential rate and reliability 

impacts of evolving public policy, particularly in the West. The group believes it is 

imperative to look at what can be done to achieve the various energy and environmental policy mandates implemented by our home states, while ensuring the reliability of our interconnected power grid at a reasonable cost. The letter also suggests some alternatives worthy of pursuit to help mitigate these concerns. 

The group identified key issues that should be considered for meeting future energy needs in the lowest-cost, most reliable and environmentally sustainable manner. In pertinent part, the key issues identified by the group are: 

• Renewable resources, especially in the West, often are located far from the 

urban centers that need the power and will require new transmission lines to 

deliver them to market. Coordination is needed among state, local and Federal 

agencies to expedite the current planning, permitting and approval process for 

building new electric transmission to provide access to renewable and conventional resources while ensuring grid reliability. • Some renewable resources, such as wind and solar, are not available at certain 

times of the day—when the sun doesn’t shine or the wind doesn’t blow. Changes 

are needed in our transmission systems and the operation of conventional generating resources to accommodate the inherent voltage and frequency fluctuations of these intermittent renewable resources. Future technology advances in 

controlled demand response, electricity storage and better wind forecasting 

could help address these challenges. In the interim, the group believes that new 

natural gas—fired and other state-of-the-art resources must be developed as a 

bridge to the new technologies. They also believe this will require the development of adequate natural gas infrastructure. • Maintaining the output and operating flexibility of existing power sources is 

vital to managing rates, ensuring grid reliability and adequate supply while 

utilities pursue increased renewable energy. • Low carbon generation resources and optimal use of the interconnected grid are 

major elements in the effort to address climate change. Significant investment 

in the research and development of low carbon generation resources and interactive grid technologies is required to meet our policy objectives. 

The industry leaders group reminded the policymakers that energy efficiency is 

still the most economic resource and urged them to work with us to maximize the 

benefits of energy efficiency, advanced metering technologies and other demand-side 

programs for customers and our electrical system. With this reminder, they pledged 

to continue to work with the Western state leaders to resolve these issues. 

POTENTIAL LONG-DISTANCE TRANSMISSION

It is important to remember that renewable electricity resources differ from coal, 

natural gas and uranium in that they generally cannot be transported, except by 

transmission wire. Solar energy must be generated where the sun shines. Wind energy must be generated where the wind blows. Geothermal energy exists where geothermal deposits exit. So we first must look for renewable resources that are closest 

to electricity load. Unfortunately, resource maps indicate that close-in attractive opportunities are limited. Another way to look at this is that large population centers 

generally have not developed where the wind is blowing hard much of the time. 

But renewable sites can still be economical even if they are at some distance from 

load centers. For wind, there is an economic advantage for generation at a site located where the wind blows stronger and more continuously. In the Pacific Northwest, there are significant differences in the quality of wind throughout the region 

depending on the terrain and prevailing weather conditions. Since the fuel is free, 

energy cost at the generator is far lower at the higher quality sites. 

Adding diversity to the resource mix can also improve the economics of integrating wind into the power system. A map of existing and proposed wind generating sites in the Pacific Northwest shows the high concentration of currently 
55 

planned development sites east of the Columbia Gorge. Projects were clustered in 

this area initially because that is where existing transmission lines are located. 

Also, it was the highest quality wind that was close to load centers and the existing 

generation—literally in the center of the BPA system. Unfortunately, production in 

the Gorge is highly correlated—the projects ramp up and down together as the wind 

picks up and abates. This limits the capacity value relative to a more geographically 

diverse portfolio of wind resources. 

Sites that are at some distance from the Gorge would add value if the wind regime is different. Projects in one area may be increasing output while others fall 

off. Overall, the power system would see much more constant production which 

would be better able to meet consumer demands. 

In addition, increasing the diversity of the renewable resource mix reduces the up 

and down challenges of wind. Geothermal plants generate at a near steady rate. 

Solar projects produce in a predictable manner during daylight hours. And ocean energy, when it becomes economically viable, is also fairly predictable throughout its 

daily cycle. 

To take advantage of these opportunities, it may reduce costs and enhance reliability to build transmission facilities to the more remote regions of the Northwest 

or interregionally to capture their higher value and diversity. 

The western energy leaders group collectively funded a reconnaissance study to 

consider the potential economic attractiveness of new high-voltage electric transmission to transport renewable electricity from renewables-rich zones to load centers. The fundamental question the study addressed is whether the differential in 

cost per kilowatt-hour produced from areas where the wind blows harder or the sun 

shines brighter is enough to offset the cost of new transmission. The study was intended to provide a ‘‘coarse screen’’ analysis and was not meant to be dispositive 

about any particular project or whether to move forward. Yet, it provides interesting 

and thought-provoking insights. 

It is unlikely that new transmission could be justified solely by the benefit associated with wind generation alone because of the likely low capacity factors. Other 

uses such as resource diversity sharing, storage and shaping may be necessary to 

make the full benefits of transmission investment cost-effective. There are a substantial number of transmission projects under consideration in the West that will 

be actively testing these assumptions underlying this initial, coarse analysis. Key 

issues will be the differentials in renewable resource costs across the West, the cost 

of new transmission, the availability of financing, and financing costs. 

CONCLUSION

To conclude, Mr. Chairman, legislative and regulatory policy in the Western 

United States is creating an explosion of renewable resource development. Bringing 

these renewable resources onto our utility systems creates rate and reliability challenges. At BPA, we believe the region has worked well together to understand the 

multiple issues; develop analytical, technical, and financial tools to respond; and to 

design processes to identify and site economically justifiable transmission and generation. We are also expanding our scope to work collaboratively with utilities 

across the West, but much work remains to be done. I look forward to answering 

questions from the Committee. 

The CHAIRMAN. We will include everyone’s full remarks in the 

record. 

Mr. Kaul, go right ahead. 

STATEMENT OF WILL KAUL, GREAT RIVER ENERGY, MAPLE 

GROVE, MN 

Mr. KAUL. Thank you, Mr. Chairman, Senator Domenici and 

Senator Johnson. It’s a pleasure to be here today. My name is Will 

Kaul. 

I’m a Vice President at Great River Energy which is a large generation and transmission cooperative with operations in North Dakota, Minnesota and Wisconsin. I’m here today on behalf of the 

CapX 2020 project as its Chairman and also on behalf of the trade 

association called WIRES as its President. I’ll get back to WIRES 

in a minute. 
56 

CapX 2020 is a collaboration of ten utilities in Minnesota, in the 

Eastern Dakotas and Western Wisconsin who, which was formed in 

the year 2004 in recognition of the need for some major grid expansion. We are a joint ownership initiative including cooperatives, 

municipals and investors in utilities jointly planning, financing and 

owning new transmission facilities. We took a two prong approach 

in our initiative. 

One was to develop a long range, comprehensive, coordinated 

plan for grid expansion out to the year 2020. The other was to address certain regulatory issues that we felt needed to be addressed 

in order for us to achieve that vision. We have accomplished both 

of those things including going to our State legislature and getting 

some cost recovery issues and others things addressed by our State 

legislature. 

I’m happy to report today that our first group of projects is now 

moving through the regulatory process in Minnesota. We have 

about 700 miles of primarily 345 kV projects. $1.7 billion of investment, now moving through the process with the support of all of 

major stakeholders. 

That includes the Minnesota Department—or Minnesota Office of 

Energy Security. It includes a broad coalition of environmental 

groups. It also includes the Midwest ISO. 

In the year 2007 the Minnesota legislature passed a law requiring 25 percent of all energy produced by utilities be renewable by 

the year 2025. That required our planners to go back. Make some 

major adjustments in our plans. 

They now are in the process of developing another set of projects 

similar in size and scope to the first group of projects. So that by 

the year 2016 we expect to have over $3 billion of new transmission 

infrastructure in service. So far, so good. 

We’re now looking beyond that timeframe. We realize that we 

need to bridge beyond the time of 2016 out to the year 2025. We 

also realize that we need to bridge beyond the geography of Minnesota. We see that effort is going to require an extraordinary level 

of cooperation among many people among the utilities, among the 

various State regulators in numerous states, with wind developers 

and with others. 

The CapX effort has been very successful so far. But it’s been 

successful because of a number of reasons. We’ve had very favorable situation we’re dealing with. 

We have a clear State energy policy. We have a group of utilities 

that are used to working with each other. We have an opportunity 

for great economic development benefits from the wind generation. 

We have the support of the environmental groups, etc, etc. 

When you expand beyond the boundaries of Minnesota and go 

into the MISO market then you add many, many other political jurisdictions, different kinds of energy policies, different ways of recovering costs, some very significant challenges there. There are a 

number of efforts that are going on right now to address some of 

those issues. 

First and foremost I would say the Midwest ISO, which operates 

an organized market in our area, has brought together the planners of the utilities of the region. We’re developing a plan for meeting the renewable energy requirements of all the states within 
57 

MISO. So instead of a 6,000 mega watt market that we need just 

for Minnesota, we’re talking about 15,000 or more megawatts in 

the entire MISO market. 

So they are convening a group. They’re also working to develop 

a plan. They’re also working on tariff design which is critical. Cost 

recovery is critical for every project of this scale. 

Also, going on at MISO is a study with the PJM market, the 

Tennessee Valley Authority and also the Southwest Power Pool to 

look at inter regional transmission needs for a 20 percent renewable energy requirement for the Eastern Interconnect, another very 

important study. 

Another parallel effort that’s going on is the Midwest Governors’ 

Association. They had a summit this last fall with a very aggressive renewable energy platform. They recognized transmission is a 

critical strategy for achieving that goal. Working groups now are 

working on transcending all of the issues from State to State. 

Finally CapX itself is looking at its own business model recognizing the need to expand its partnership beyond the ten utilities 

that are currently involved and involve American Transmission 

Company in Wisconsin, ITC in Southern Minnesota and Iowa, 

Basin Electric and WAPA out West. We are looking at how we can 

partner and plan with those other utilities. 

So that’s a quick discussion of what CapX is doing. I wanted to 

mention the WIRES organization. It’s a coalition of transmission 

owners and transmission customers, independent system operators 

and others. That it’s trying to elevate the profile of transmission 

in the energy policy debate. 

Se’ve done a couple of projects I wanted to make you aware of. 

One is we did a major piece last year on cost recovery. It outlines 

principles for cost recovery. We have a blue ribbon panel that we 

empanelled to do this with national and international experts in economics, engineering and public policy. 

Also a very germane to this hearing we also are doing a study 

on clean energy corridors. We’re looking at the proposal of Senator 

Reid and also proposals in Colorado, California and Texas. We’re 

trying to look at them to see what can be learned from those practices and what the best practices might be. 

Thank you, Senator. I appreciate your attention. 

[The prepared statement of Mr. Kaul follows:] 

PREPARED STATEMENT OF WILL KAUL, GREAT RIVER ENERGY, MAPLE GROVE, MN 

Mr. Chairman, members of the Committee, my name is William Kaul. I serve as 

the transmission vice president at Great River Energy, a generation and transmission cooperative located in Maple Grove, Minnesota with operations in North Dakota, Minnesota and Wisconsin. I am a founder and chairman of CapX 2020, a collaboration of 10 utilities including Xcel Energy, Minnesota Power, Otter Tail Power, 

Missouri River Energy Services, Southern Minnesota Municipal Power Agency, Central Minnesota Municipal Power Agency, Wisconsin Public Power Incorporated, 

Dairyland Power Cooperative and the Rochester Public Utilities. I am also the president of WIRES, a national coalition of transmission providers and customers. Today 

I will talk about the work of both CapX 2020 and WIRES aimed at the necessary 

expansion of electric transmission infrastructure. 

CapX 2020 collaboration.—CapX 2020 was formed in 2004 in recognition of the 

need for a coordinated vision for grid expansion in the greater Minnesota area. 

CapX 2020 is a ‘‘joint ownership’’ initiative that involves cooperative, investor-owned 

and municipal utilities in the planning, financing and ownership of new trans-
58 

* Additional materials have been retained in committee files. 

mission. A package of materials further describing CapX 2020 and its proposed 

projects is included with this testimony.* 

CapX 2020 took a two-pronged approach to planning and implementing a vision 

for grid expansion by: 1) establishing a coordinated and comprehensive planning 

process, a ‘‘vision study’’, for grid expansion in our collective service territories, and 

2) seeking a workable regulatory environment that will enable that vision to be realized. 

Vision study.—CapX 2020 set a planning horizon of 15 years, projected load 

growth during that period and ran scenario analyses of different generation mixes, 

assuming a 10% renewable energy component. The result was a conceptual plan, a 

vision for grid expansion, with transmission line projects prioritized in groups. 

Regulatory environment.—Regulatory reforms were needed to reduce project 

risks, ensure cost recovery and make the permitting process more predictable and 

efficient. We collaborated with stakeholder groups including regulators, environmental groups and others on a legislative initiative that resulted in formula rates 

for the investor-owned utilities, ensuring predictable revenue recovery and cash 

flow, streamlined permitting of need and siting, recognition of transmission as regional infrastructure and the ability to transfer assets into a transmission-only company if deemed in the public interest by the Minnesota Public Utilities Commission. 

Group 1 project status.—CapX 2020 Group 1 projects are currently pending state 

regulatory review and approval. Group 1 projects include four transmission lines, 

three at 345 kilovolts (kV) and one at 230 kV, totaling 700 miles in length and projected to cost $1.7 billion. The 345 kV projects have been grouped into a single certificate of need filing and are supported by all major stakeholders, including the 

Minnesota Office of Energy Security, the environmental coalition and the Midwest 

ISO. With this support, the environmental coalition and the Office of Energy Security are recommending these 345 kV projects either be upgraded to a higher capacity or built to support future double circuit capability. The 230 kV project has no 

interveners in its certificate of need filing. 

Minnesota Renewable Energy Standard and Group 2.—In 2007, the Minnesota 

Legislature passed a law (MN RES) requiring all utilities to generate at least 25% 

of their electricity from renewable sources by the year 2025, with Xcel Energy required to meet a 30% requirement by 2020—25% in the portfolio needs to be sourced 

from wind power. Included in the law is a requirement that utilities develop a transmission plan enabling compliance with the MN RES. This dramatically changed the 

planning assumptions from the original CapX 2020 Vision Study. CapX 2020 is now 

in the process of developing another group of 345 kV projects similar in scope to 

Group 1 that are intended to achieve renewable energy milestones through 2016. 

CapX 2020 expects to invest more than $3 billion in the first two groups of projects 

by 2016. 

Bridging beyond the 2016 timeframe and Minnesota’s geography.—Our planning 

horizon is now in the 2016 to 2025 timeframe. We realize that the excellent wind 

resources located in the Upper Midwest can and should be developed for a much 

broader market. While it is expected that 6000 MW of wind will be developed just 

to meet the MN RES, the market potential for Midwest states is much greater and 

we are now shifting our focus beyond the greater Minnesota region. 

As the demand for renewable energy in regional markets evolves, the Upper Midwest states will develop renewable energy resources that will need transmission for 

exporting renewable energy to distant markets. Accomplishing that feat will require 

an extraordinary level of cooperation among utilities, state regulators and legislators, renewable energy developers and other stakeholders. While CapX 2020 has 

been a very successful initiative, it was achieved under very favorable circumstances: one primary political jurisdiction, a clear state energy policy, an organized energy market and tariffs (MISO), the prospect of significant economic development from wind generation and the support of environmental groups. The challenges of developing major inter-regional transmission infrastructure increase exponentially with additional political jurisdictions, multiple transmission providers, 

conflicting energy policies, differential economic benefits, etc. 

New initiatives to address new challenges. Several parallel efforts are underway 

to address these challenges: 

1. Midwest ISO.—The Midwest ISO has begun an initiative, the Regional 

Generation Outlet Study (RGO study), that brings together planners from 

across the MISO footprint to develop an expansion plan for renewable resources 

that meets the needs of the MISO market. In addition, MISO is conducting a 

joint planning effort with PJM, Tennessee Valley Authority and Southwest 
59 

Power Pool to evaluate needed transmission under a 20% wind energy mandate 

for the Eastern Interconnection. 

2. Organization of MISO States.—This is a group of public utility commissioners, one from each state within MISO, that is closely monitoring the activities of MISO and utilities within MISO. The attention of this group to grid expansion planning is critical since it is the public utility commissions who certify 

the need for new transmission projects, site the lines and rule on cost recover 

at retail. 

3. The Midwest Governor’s Association.—The Midwest Governor’s Association 

held an environmental summit last fall. Its stated objectives were to improve 

energy efficiencies, deploy lower-carbon renewable and fossil fuels and implement geologic CO2 storage and terrestrial carbon sequestrations. The MGA 

identified the development of transmission for renewable energy as a key strategy for goal achievement. The MGA has working groups now addressing the 

carbon reduction and transmission expansion issues. 

4. CapX 2020 future strategy.—The CapX 2020 utilities are developing a 

strategy on how to plan and partner with other transmission developers in the 

region such as International Transmission Company (ITC), American Transmission Company (ATCo), Western Area Power Administration (WAPA), Basin 

Electric Power Cooperative and others, with an objective to develop needed 

transmission projects to maintain reliability and satisfy the various renewable 

requirements within the Midwest. Just last week, CapX 2020 convened a forum 

for transmission system planners from these companies to initiate broader regional transmission plans. CapX 2020 also is actively participating in the MISO 

RGO study and the MGA working groups. 

WIRES.—Working at a national level, CapX 2020 is a founding member of 

WIRES, which was formed in 2006 and is the nation’s only pure transmission advocacy group. WIRES membership includes CapX 2020, ITC, Trans-Elect, National 

Grid, ONCOR, Xcel Energy, FPL Energy, Quanta Services and Northeast Utilities. 

WIRES believes that policy issues must be addressed in order to achieve necessary transmission expansion. In 2006, WIRES convened a Blue Ribbon Panel on 

cost allocation consisting of nationally and internationally recognized economists, 

engineers and public policy experts. I am providing the Committee with copies of 

their report submitted with my testimony. One of the critical barriers to transmission expansion is cost allocation—and resolution is paramount in order for large 

scale transmission grid expansion. 

WIRES has just commissioned an additional study to evaluate various proposals 

for integration of wind and remote clean energy resources into the existing transmission grid. In addition to proposals introduced as legislation in Congress, a number of states, including Texas, California and Colorado have developed and implemented renewable energy zone concepts and related transmission expansion and upgrade policies. WIRES will examine these initiatives with an eye out for what can 

be learned from the experience so far and to identify ‘‘best practices’’. The study is 

scheduled to be completed this fall and WIRES would be pleased to be able to share 

the results with the Committee. 

On behalf of the CapX 2020 consortium, WIRES and Great River Energy, thank 

you for inviting us to participate in this hearing. I look forward to answering any 

questions you may have. 

The CHAIRMAN. Thank you very much. 

Mr. Furman, you’re our wrap up witness today. So go right 

ahead. 

STATEMENT OF DONALD N. FURMAN, REPRESENTING 

AMERICAN WIND ENERGY ASSOCIATION 

Mr. FURMAN. Mr. Chairman and members of the committee, 

thank you for the opportunity to appear today. My name is Don 

Furman. I’m Senior Vice President for Iberdrola Renewables. We 

are America’s second largest developer and operator of wind generation. So we’re the ones who are making the investments and 

trying to find our way through the transmission system to get to 

the market. 

I’m appearing today on behalf of the American Wind Energy Association for whom I’m the President Elect and the Chair of the 
60 

Transmission Committee. Since I am batting clean up I’m going to 

try to say a few things that hopefully you can remember and not 

repeat. 

First of all, talking about the DOE report. The thing that comes 

out of the DOE report that’s important to remember is that wind 

energy and achieving the 20 percent goal is absolutely feasible. 

We’re here talking about the one thing that the 20 percent—that 

the DOE report identified. 

The CHAIRMAN. You’re saying the 20 percent by which year? 

Mr. FURMAN. 2030. I’m sorry, did I misspeak? 

The CHAIRMAN. No, no. You didn’t misstate it. I just wasn’t clear. 

Mr. FURMAN. Now the DOE report I think was trying to, I think 

the point of the DOE report was to identify what was truly the art 

of the possible. The one issue that DOE raises that is a significant 

issue and which we’re here to talk about today is the transmission 

system. 

There have been a number of numbers thrown around today. I 

believe Mr. Pickens was asked what the cost was for the system. 

He was right on the total cost. 

I want to add one other point though. That is I’m going to quote 

Suedeen Kelly, Commissioner at the FERC who recently noted that 

if we were to make the investment identified in the DOE report it’s 

about 50 cents per customer on the average bill. It’s not a big investment. It’s not going to have a big impact. 

In fact transmission, typically those of us in the power industry 

who look at transmission, it’s a relatively small part of the average 

bill. But it has big impacts. The investment itself and the recovery 

of that investment is a small part of the bill. 

But it has big impacts on the overall bill because it enhances reliability. It allows access to the least expensive resources. It allows 

those inexpensive resources to be operated the most. So it’s a very, 

very good investment overall. 

In fact the investment in the transmission system in this country, it was pointed out earlier. Senator Bingaman, I think in your 

opening remarks, you noted that we have lagged behind investment in this part of our infrastructure. It affects reliability. It affects our ability to operate the system at lowest cost. 

We need to do this anyway. Forget about renewables. We need 

to invest in this transmission system anyway. 

Renewables is a great additional reason to do it. It is, as has 

been pointed out, it is an impediment. So why aren’t the investments happening. 

The single biggest issue in making investments in this country 

is the fact—it’s not a lack of capital. It’s not a lack of investment 

incentives. We’ve tried that and it hasn’t really made that much of 

a difference. 

It’s the division of responsibilities between Federal and State 

government. It’s been eluded to several times. The reality is most 

of the transmission investment in this is owned and operated by 

investor owned utilities that are regulated at the State level. 

So that investment sits in State rate base and it is under the 

control and the regulation of people like my colleague to the right, 

Commissioner Hanson. Commissioner Hanson in his comments, I 

thought, made some very courageous statements which is this 
61 

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

needs to be regionalized. We can’t be making these decisions on a 

State by State basis. 

How we do that? There are a number of different ways we can 

do it. But somehow we’ve got to have a decisionmaking process that 

allows the differing State interests to be compromised in the national interest. That’s very, very critical. 

I think it’s time to start that dialog. You cannot expect a State 

Commissioner, who is in some cases elected or at a minimum, is 

at least appointed to be out comprising it, his or her State’s interest, when their job is to look after the individual consumers of that 

State. You know, we have a lot of Commissioners in this country 

who understand that, at the State level who understand that. Yet 

it’s too much to ask I think for them to do that. 

The third point I want to make is the importance of the Federal 

power marketing agencies. This transmission investment that is 

controlled by the Bonneville Power Administration, the Western 

Power Administration, TBA and others is regionalized. Those costs 

are recovered over a regional basis. The decisions are made on a 

regional basis because those agencies cover those broader areas. 

They also have condemnation authority. They have the ability to 

essentially socialize or peanut butter those costs. Those, particularly Western Area Power Administration, the Bonneville Power 

Administration are in the windy State areas. So they’re very, very 

critical. I do applaud Administrator Wright. I sat Friday for about 

an hour signing transmission contracts in his open season. I’m glad 

to hear that it was as successful as it appears to have been. 

So we are poised to change the electric system in ways that benefit national security, consumers, the environment. It’s very important that we get creative. We step away from the old way of doing 

business and find ways to make this investment flow. The dollars 

are there. There’s plenty of dollars available to invest in the system. 

That concludes my remarks. I’d be glad to answer any questions. 

Thank you again for the opportunity. 

[The prepared statement of Mr. Furman follows:] 

PREPARED STATEMENT OF DONALD N. FURMAN, REPRESENTING AMERICAN WIND

ENERGY ASSOCIATION

INTRODUCTION

Mr. Chairman and members of the Committee, thank you for the opportunity to 

appear before you today and thank you for holding this important hearing. My name 

is Donald N. Furman. I am Senior Vice President of Business Development, Transmission and Policy for Iberdrola Renewables, an energy company that, among other 

things, is engaged in the development and operation of wind and solar electric generating facilities. Iberdrola Renewables is the leading generator of wind energy 

worldwide and is the second largest wind energy generator in the United States. Assuming that Congress acts to further extend renewable energy tax credits, Iberdrola 

Renewables plans to invest at least $8 billion between now and 2010 in wind and 

solar energy projects located in the United States. I am also appearing here today 

on behalf of the American Wind Energy Association where I serve on the Board of 

Directors and as Chairman of the Transmission Committee.1 In a prior job, I ran 

the transmission business for a large, multistate utility in the West. As a result, 
62 

2 ‘‘20 Percent Wind Energy by 2030—Increasing Wind Energy’s Contribution to U.S. Electric 

Supply’’ (‘‘20 Percent Wind Energy Report’’), U.S. Department of Energy (May, 2008). 3 In addition, there are over 6,800 gigawatts of solar energy resources that could, potentially, 

be tapped in seven southwestern states alone. ‘‘Analysis of Concentrating Solar Power Plant 

Siting Opportunities: Discussion Paper for WGA Central Station Solar Working Group’’, M. 

Mahos, National Renewable Energy Laboratory, July, 2005 at page 2. 4 Id. at pages 12-18. 

5 26 U.S.C. §45. The PTC is currently available for the production of electricity from wind, 

geothermal, biomass, small irrigation, landfill gas, trash combustion facilities and certain type 

of hydropower facilities. Solar power facilities are eligible for an investment tax credit, in lieu 

of the PTC, which is also scheduled to expire on December 31, 2008. 26 U.S.C. §48. 6 ‘‘Using the Federal Production Tax Credit to Build a Durable Market for Wind Power in the 

United States’’, Ryan Wiser, Mark Bolinger, and Galen Barbose, Lawrence Berkeley National 

Laboratory (November, 2007) at page 9. 

I have had the opportunity to view transmission issues from the perspective of both 

a transmission developer/operator and a transmission customer. 

The purpose of my testimony is to discuss the essential link between a robust, 

properly functioning electric grid and the ability of emerging renewable energy technologies, such as wind, solar, and geothermal, to meet a substantial portion of the 

nation’s demand for electricity. 

According to a report released last month by the Department of Energy,2 wind 

power on its own could supply twenty percent of all the electricity consumed in the 

United States by 2030.3 The benefits would be enormous: 

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

• The amount of natural gas required to generate electricity would be cut by 50 

percent and United States gas consumption would be 11 percent lower overall— 

helping to limit our reliance on energy imports and reducing consumer energy 

costs; 

• Because water is not required to operate wind farms, water consumption would 

be reduced by 4 trillion gallons; 

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

• Local tax revenues would rise by more than $1.5 billion.4

The Department of Energy report analyzed the barriers that must be addressed 

to reach the twenty percent target and concluded that two distinct, but related, 

transmission barriers are critical. The first is transmission infrastructure. Many of 

the best sites for the development of renewable energy facilities are located in remote areas, some distance from population centers where most electricity is consumed or in places that the existing transmission grid does not reach. Without sufficient levels of transmission capacity many good wind and other renewable energy 

sites will not be developed. I would note that there are a number of potential wind, 

solar and other renewable energy projects in most of the states represented by members of this Committee, including New Mexico, North Dakota, South Dakota, Oregon, Washington, Colorado, Montana, Idaho and Wyoming, which are not being developed today because of transmission constraints. 

The second key barrier is power system operation with high levels of variable resources, such as wind, given our current system of balkanized electricity grids. The 

Department of Energy report concluded that twenty percent wind is feasible if each 

of the three electric grids—the Eastern Interconnect, the Western Interconnect and 

Texas—operate more like single large power pools instead of the current system of 

140 independent balancing areas. This would also improve the efficiency and reliability of the system. 

Before discussing the policy options for addressing these transmission barriers, I 

would like to emphasize that the lack of a long-term stable policy structure has 

hampered the environment for investments in new renewable energy facilities and 

the transmission to connect them to the grid. With the renewable energy production 

tax credit (‘‘PTC’’)5 currently scheduled to expire on December 31, 2008 and the current uncertain legislative environment, projects representing thousands of 

megawatts of renewable energy expected to be installed next year are now in question. The PTC, since its enactment, has expired on three separate occasions and has 

never been extended for longer than a three year period. The stop-start nature of 

the PTC has impeded development of a domestic manufacturing base and has raised 

significantly the capital cost of a wind power project.6 It is important for Congress 

to extend the PTC as soon as possible for as long as possible. Congress should also 

consider more stable long-term policies, including the adoption of a national renewable portfolio standard (‘‘RPS’’). We applaud Chairman Bingaman’s leadership on 

this issue and hope that Congress will adopt RPS legislation soon. 
63 

7 ‘‘20 Percent Wind Energy Report’’ at page 94. 

8Statement of Richard Sergel, President and CEO of the North American Electric Reliability 

Corporation, American Wind Energy Association Press Conference (March 19, 2008). 9 ‘‘20 Percent Wind Energy Report at pages 12-17. 

10 Energy Information Administration Annual Energy Outlook (2005). 11 Ibid. 12 ‘‘20 Percent Wind Energy Report’’ at page 96. 

* Map has been retained in committee files. 

13 Id. at page 98. 14 Id. at 94. 

BACKGROUND

As a nation, we are facing a potentially serious transmission crisis. Between the 

mid-1970’s and the late-1990’s investments in new electric transmission capacity 

dropped from an average of $5.5 billion per year to less than $3 billion per year 

(adjusted for inflation).7 Although transmission investments have risen in recent 

years, the United States faces the prospect of not having sufficient transmission infrastructure to meet the growing demand for electricity in a carbon-constrained environment. According to Richard Sergel, the President and CEO of the North American Electric Reliability Corporation (NERC): ‘‘[T]he grid will be threatened unless 

we build the transmission infrastructure that is necessary to support renewable resources like wind, that will enable us to locate new clean coal facilities—or even gas 

facilities . . . It doesn’t matter if it’s going to be the clean coal plant or the nuclear 

plant or the wind project or the solar project. The common denominator is that they 

are going to require transmission to move it from where it is toward the load centers.’’8

The lack of sufficient transmission capacity not only challenges the ability of utilities to keep the lights on, it also increases the price of electricity. Transmission congestion limits the ability of utilities to access cheaper sources of generation that may 

be located some distance away. Congestion also limits fuel diversity. If there is not 

sufficient transmission capacity to access electricity generated at remote locations, 

utilities will be forced to rely increasingly on natural gas-fired electric generation 

facilities which are easier to site closer to load centers. There are legitimate concerns that a dramatic rise in the reliance on natural gas for electric generation will 

further increase U.S. demand for energy imports and will increase the pressure on 

gas prices.9

Although the level of investment that will be required for new transmission facilities is substantial, the costs of doing nothing are far greater, both in terms of reliability and overall electricity prices. Transmission typically makes up less than ten 

percent of the delivered cost of electricity.10 New transmission capacity typically enables a utility to access lower cost generation—which makes up a much larger portion of consumer electric costs11—and thereby the transmission more than pays for 

itself. The Midwest Independent System Operator (‘‘MISO’’) recently examined the 

costs and benefits of developing 16,000 megawatts of wind energy on the MISO system and 5,000 miles of new 765 kv transmission lines to enable the transmission 

of wind energy generated in North and South Dakota to the New York City area. 

Even though the generation and transmission costs would amount to approximately 

$13 billion, the study determined that, on a net basis, consumers would save approximately $600 million per year because the new transmission would enable utilities to acquire lower cost electricity.12

In the 1950’s this country united to create the national interstate highway system 

in order to address an increasingly antiquated transportation system. I believe that 

a similar effort for interstate transmission highways would bring substantial benefits, prevent blackouts, and enable the nation to reduce its greenhouse gas emissions 

and promote energy security through the use of domestic renewable resources. 

TRANSMISSION AND RENEWABLE ENERGY

As the attached map* demonstrates, the United States is blessed with substantial 

wind resources. However, it also identifies the challenge—significant transmission 

investments will be required to access these remote resources. According to the Department of Energy, an investment of $60 billion in new transmission capacity is 

needed between now and 2030 to enable wind power to supply twenty percent of 

our electricity.13 This would amount to approximately $3 billion per year, a modest 

addition to the $8 billion that has been spent in recent years on transmission infrastructure.14 This is a small price to pay given the plethora of benefits that would 

result from reaching the twenty percent target. Congress, federal and state regulators and industry all need to work toward this goal. 
64 

15Section 1221 of the Energy Policy Act of 2005 authorizes FERC to consider the approval 

of a transmission line proposed to be located in a National Interest Electric Transmission Corridor as designated by the Department of Energy if state regulators fail to approve the line. 16 ‘‘Facilitating Wind Development: The Importance of Electric Industry Structure’’, B. Kirby 

and M. Milligan, National Renewable Energy Laboratory (May, 2008). 

The U.S. electric grid was not originally designed to be operated on a large integrated basis. Instead, the grid was initially built primarily to enable individual utilities to meet customer needs with locally generated electricity. There was not much 

need to accommodate transactions spanning several state borders or across regions. 

Regulatory oversight was set up accordingly, at the state level, with limited authority provided to the Federal Energy Regulatory Commission (‘‘FERC’’). 

The two main barriers to transmission development are cost allocation and siting 

of transmission lines. Cost allocation is a challenge because of the incentive to free 

ride. Many states, utilities, and end users across a wide region and over a long time 

period benefit from interstate transmission, and it is not in any of their interests 

to pay for something that benefits so many others. With jurisdiction largely at the 

state level, where state public utility commissions (‘‘PUCs’’) generally permit cost recovery of only those costs that provide direct benefits to that state’s ratepayers, it 

is difficult to gain approval for the recovery of costs associated with interstate transmission. The situation with siting is similar. State siting approvals are based on 

demonstrations of need where ‘‘need’’ is defined as impacts within the state. Interstate lines that benefit a region and the nation can be prevented from being built 

by individual states. States may also fail to consider regional needs when approving 

the location of specific transmission lines. 

Moreover, utilities have little regulatory incentive to build transmission facilities 

of the appropriate size. A 765 kv backbone transmission facility can transmit much 

more electricity more efficiently than a 345 kv line which might be of sufficient size 

for a utility to serve its traditional customers. State regulators are unlikely to permit utilities to recover the costs of these larger lines which provide broader benefits. 

FERC has limited jurisdiction and has been given little encouragement by Congress to address regional and national objectives. The Commission has no authority 

over utility decisions to build transmission or, generally, over a utility’s ability to 

recover transmission investments. Even in areas where most transmission has been 

placed into FERC-jurisdictional Regional Transmission Organizations (‘‘RTOs’’), utility members of RTOs can change their membership status to avoid assignment of 

costs. Moreover, FERC has been too deferential to state wishes on cost allocation. 

The Energy Policy Act of 2005 did provide FERC with limited siting authority.15

However, given the tremendous controversy surrounding the Commission’s siting 

authority and the limited areas where FERC is authorized to approve a transmission line, there is considerable uncertainty whether this authority will yield significant new transmission investments. 

There are some innovative state-based solutions that should be commended. Several states, including Texas, Minnesota, California and Colorado are pro-actively 

planning to access renewable energy. In addition, the Western Governors Association has initiated a four-phase regional transmission development and cost-allocation strategy with the intention of unlocking the region’s vast supplies of wind, 

solar, geothermal, biomass and wave power. The Midwest Governors Association has 

also initiated a wide ranging process to promote regional transmission for renewable 

energy. While these state-based efforts will help, there are limitations to what they 

can accomplish. There is a significant national interest in the proper development 

of the transmission grid to access renewable energy resources that only Congress 

can adequately address. 

INTEGRATING VARIABLE RESOURCES

In addition to ensuring that there is sufficient transmission capacity to access our 

country’s enormous renewable energy resources, it is equally important that the 

electric grid functions effectively. Wind, solar and certain other resources generate 

power on a variable basis. For instance, wind power fluctuates depending on the 

wind speed where the wind project is located. Electric systems need to accommodate 

this variability just as they accommodate constantly changing levels of consumer demand. This is easier to do in regions served by RTOs because generation and demand is balanced over a broad geographic region.16 Wind generation tends to be less 

variable the broader the region—the wind may die-down in one area and pick up 

in another at the same time. The breadth of RTO regions also provides greater access to conventional sources of electric generation that can ramp up and ramp down 

to address the variability of wind and certain other renewable resources. 
65 

17 Congressmen Jay Inslee and Earl Blumenauer have introduced a similar bill—H.R. 4059, 

‘‘The Rural Clean Energy Superhighways Act’’. 

I recognize that some regions have put RTO development on hold and it is unlikely that new RTOs will be established in those regions any time soon. In the absence of RTOs, utilities need to work together to achieve some of the same benefits 

of reliability, efficiency, and integration of non-dispatchable resources. These actions 

should include the consolidation of balancing areas and the sharing of generation 

across balancing areas to address variability issues. 

TRANSMISSION POLICIES REQUIRED TO PROMOTE RENEWABLE ENERGY DEVELOPMENT

It is essential that Congress and the Federal government act to help promote a 

more robust and effectively functioning electric grid, if we are going to reap the full 

benefits associated with the nation’s renewable energy resources. As I have discussed, the current regulatory structure is not well-suited to the challenges of the 

future. Unless Congress makes it easier for utilities and other entities to build the 

transmission necessary to access our renewable resources, consumers, the economy 

and the environment will suffer. It is imperative that Congress remove these barriers to help meet our national goals of reducing greenhouse gas emissions, enhancing our national energy security, providing consumers with reasonably-priced electricity and growing the economy. More specifically, Congress should ensure that: 

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

• The costs of new transmission facilities are fairly allocated to take into account 

regional and national benefits, including the development of renewable electric 

generation; 

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

• States cannot unfairly inhibit the development of transmission that will provide 

multi-state benefits; 

• U.S. power marketing agencies, the Department of Energy, and FERC are encouraged to promote regional transmission infrastructure and system operations 

in support of renewable energy development; and 

• Legislation regulating greenhouse gas emissions recognizes the contributions 

transmission can make to reducing emissions in the electric generation sector. 

I want to commend Senator Reid for his leadership in introducing S. 2076, the 

Clean Renewable Energy and Economic Development Act.17 This legislation would 

establish national renewable energy zones, encourage regional cost allocation for 

transmission built to serve renewable generation, enable utilities building transmission in renewable energy zones to recover their costs from ratepayers, and fund 

Federal utility construction of transmission in renewable energy zones if private entities fail to make their own investments. The Reid bill also would require the Bonneville Power Administration (‘‘BPA’’) and the Western Area Power Administration 

(‘‘WAPA’’) to use their transmission systems to aid in the integration of wind and 

solar power. These are all remedies that would prove extremely helpful. 

Senator Reid’s legislation wisely recognizes that the Federal utilities can play an 

important role in promoting the development of renewable energy. BPA and WAPA, 

in particular, are two of the largest transmission owners in the Western United 

States. Both serve regions with substantial wind and solar resources. Both are able 

to build transmission without some of the barriers faced by utilities subject to state 

regulation. In particular, through its Open Season process, BPA is helping utilities 

in the Pacific Northwest access renewable energy and other remotely located electric 

generation by engaging in a program designed to build additional transmission capacity. We encourage Congress to provide similar authority to WAPA, to help promote the development of renewable resources in North Dakota, South Dakota, Colorado and other states served by WAPA. 

Mr. Chairman, this concludes my prepared presentation. I am happy to respond 

to any questions you and members of the Committee may have. 

The CHAIRMAN. Thank you very much. Let me first turn to Senator Domenici. He hasn’t had a chance to ask any questions that 

he might have. 

Senator DOMENICI. First, Mr. Chairman I—and members of the 

panel and those who were on the previous panel I know probably 

have gone. But I want to state publicly my—that I feel very badly 
66 

that I was not here. But this place it’s hard to be in two places at 

once. 

We had a meeting called by our Republican leader. I was supposed to be there because the meeting is about something I do 

around here. So I go and be a participant or go and don’t go and 

let a major issue go into somebody else’s hands. So I apologize. I’m 

sorry. 

I just want to be brought to date from one of you in a very simple 

way. When we have, when Senator Bingaman and I were putting 

the big bill together 3 years ago, the one that took us so long and 

everybody was pleased with the reform. We did have an opportunity to address the impact that pipelines were having. 

We did provide a way to end up resolving disputes that we 

unresolvable and the Federal level would take over and resolve the 

issues. Is that not right? Didn’t we do that in our bill? 

Yes, the transmission corridors part of the national bill? What 

does it do? What are the things we have to add to it to do what 

you’re talking about? Mr. Furman, could you talk about that a 

minute? 

Mr. FURMAN. Sure, Senator. The provisions of that bill provide 

back up authority. 

Senator DOMENICI. Right. 

Mr. FURMAN. So in the case where there isn’t investment being 

made, the Federal Government essentially can step in and provide 

that back up authority. Unfortunately, particularly in the case of 

renewables, that authority has not been construed to extend to essentially an extension cord into a renewable energy zone. The back 

up authority has been construed to be there to relieve congestion 

on the system. 

Now you might argue that the lack of a line going from North 

Dakota into Chicago is congestion because there is no line there. 

But so far that’s not the way it’s been interpreted. So and I think 

the other issue is, frankly, that transmission lines are often controversial. I think there’s been a reluctance on the part of the government to invoke that authority unless it’s absolutely critical. 

Senator DOMENICI. Let me just, without distinguishing any of 

you, just ask you collectively. If we’re having problems as you described them here today. What are the recommendations that you 

have made, just quickly, to fix them. Is there anything we should 

be doing or somebody not doing their job or why are we having the 

problems that we’re having? Could anybody give me a short summary so that I could get that before I leave here today? 

Mr. HANSON. I’m a regulator, so I’m probably not the one to answer that. But I think at least from my own perspective as a regulator it appears to me that there needs to be certainty in the markets, that those who would invest in transmission need to know 

that they are actually going to be able to pay for that transmission 

that they invest in. Certainly there are, as was pointed out by Mr. 

Furman, there are significant challenges when we have a patchwork of laws across the United States and a variety of positions 

taken by regulators. 

There’s significant challenges, I would think, to building transmission when it takes longer to get regulatory authority and siting 
67 

authority to build that transmission than it does to actually construct the transmission. 

Senator DOMENICI. Anybody else want to comment? 

Mr. WRIGHT. Senator Domenici, I’ll take a shot at that. I’m Steve 

Wright from Bonneville Power Administration. Before you came in 

I mentioned that we’ve spent the last year working on a process 

to try to allow us to get support from developers that will commit 

them to spend money to take transmission if we build it. Based on 

the results that we got yesterday, it looks really good. It looks like 

we’re going to be potentially going on and building some new transmission. 

I think our biggest challenge going forward, candidly is explaining to the public why it is we’re going to need big, new transmission lines that are going to go through some people’s dew sheds. 

We are going to struggle with that issue. We’re going to be on the 

cutting edge out there in terms of trying to build some new transmission. 

The more help we can get in terms of hearings like this, explanation to the public about why it is that this create value for the 

citizenry as a whole, how we are operating as a Nation and not as 

a group set of individuals. That’s going to make the difference as 

to whether we’re going to be successful in building transmission. 

Mr. KAUL. Senator, I would just say that I would agree with both 

of these gentlemen to my right here. But also add that there’s a 

significant issue with respect to cost allocation and cost recovery 

for new transmission. It makes the investments risky for utilities 

and difficult to put together the financing etcetera. 

Mr. FURMAN. I would just add, Senator Domenici that I think all 

three answers illustrate what the fundamental problem is. Mr. 

Wright operates a system that crosses numerous states. He has the 

ability to make investments in transmission and allocate the costs 

across all the consumers in the Pacific Northwest that benefit from 

them. That’s at a good model. 

Unfortunately that’s the exception rather than the rule. The rule 

tends to be more in Mr. Hanson’s world which is where you have 

investor owned utilities. They’re vertically integrated and so they’re 

regulated at the retail level. If you have the primary owners of the 

big transmission grids, they’re multi-State. So they need to somehow get their different states to agree on a transmission investment. 

For some of those states there may be a benefit in the form of 

economic development, for example. The State of Wyoming has 

been trying to get transmission built out of it for many, many 

years, partly for economic development. On the other hand some of 

the States that those lines would cross will then ask the question 

well, what’s in it for me and their State commissions will say, well, 

I don’t see the benefit. 

So I think that that is a big part of the problem that needs to 

be solved. 

Senator DOMENICI. I want to, not having been here I want to 

comment, Mr. Chairman, on Majority Leader Reid’s observations 

about the bill we’re going to vote on this afternoon. That’s a very 

important bill to the industry that is involved in solar and wind 
68 

and two or three other of the alternative fuels because it extends 

the tax credits that are very important. 

As a Republican I want to state what we think the problem is, 

No. 1, we have never voted for—we have voted for all of the extensions. The last time we voted, we voted 88 to 8 to extend them all. 

They were not paid for. Only when we agreed that they would not 

need to be paid for did the vote of 88 to 8 occur. 

That’s the problem now. The House is insisting that for the first 

time in order to continue these they must be paid for by taxing 

other people. They have at least got off the idea of taxing other energy sources. But just finding it in the tax code revenues that 

would offset it is what they think is important. 

The Republicans have said we don’t need any tax increases for 

those extenders because we voted for them all already. This is just 

an extension and they are all readily useable and will readily develop economic—have economic positive results immediately upon 

adoption. So for those who are waiting around, we’re in a deadlock. 

The House says unless you put the taxes on we won’t have the 

bill. We say put them on like we’ve always had and you’ll get a bill. 

We also want to comment that the bill that’s being held up has 

three other things. 

It has Davis-Bacon provisions in it. It has lawyer contingency fund provisions in it. Third it has provisions that provide for a $1.2 

billion corridor or an electric train of some sort in the city of New 

York. 

We didn’t vote for that ever before on a bill that extended these 

credits. So we’re not very anxious to vote for it now. But there’s 

plenty of reasons not to before we get to that. 

Having said that, Senator Bingaman, I don’t know what you expected to get out of today’s hearing. But it was certainly something 

that turned out to be very, very important. A lot of good information came forward. 

Whenever you’re trying to solve the problems that you bring before us, it’s obvious that there’s polarization occurring all over the 

place. We never want to get that quite involved. It’s the Federal 

Government. 

But we did bite off a little bit in the Energy Policy Act that had 

not ever been taken before by anyone. I was proud of that. I 

wouldn’t count us out if there’s too many deadlocks out there where 

people won’t give and won’t be reasonable and states won’t. 

Who knows? The Senate might find a way to solve another problem or two by making ourselves felt in a real way. Thank you, Mr. 

Chairman. 

The CHAIRMAN. Thank you very much. 

I just have one additional question I wanted to put to the panel 

because Senator Johnson had to leave for another appointment. He 

asked me to ask you, Commissioner Hanson, in your testimony you 

explained how localized decisions on siting electricity transmission 

lines may not always optimize environmental and economic benefits of renewable energy resources. He wanted you to explain or describe any specific instances of projects where regulatory bottlenecks have frustrated the development of electricity transmission 

infrastructure and then what the consequences of those bottlenecks 

have been on grid reliability? 
69 

Mr. HANSON. That’s quite a question. 

The CHAIRMAN. Yes. I thought it was a fairly all encompassing 

question. If you have any response, we’d be glad to hear it. 

Mr. HANSON. Certainly. At the risk of starting a war between the 

states is not my intention, by any means. But certainly there are 

challenges when one State has certain renewable portfolio standards, for instance and an adjoining State does not or if the legislature passes certain laws which cause a load serving entity to have 

to build capacity in a particular State. 

We have a challenge right now where we have sited a coal plant 

in South Dakota, as an example. We’re attempting to—they are attempting rather to build the transmission for that facility. The load 

is in Minnesota and there is a protracted siting process in Minnesota that is making it very difficult and making the construction 

of this plant to be rather tentative. 

It’s an exciting opportunity with this plant in that, since he 

asked for an example, in that, there’s approximately 150 

megawatts of excess capacity for that transmission line which will 

be used for renewable energy. So when we’re looking at—it’s also 

a twin plant to another coal plant adjacent to it. They have agreed 

to a significant amount of investment to reduce the emissions from 

both plants so that they will be less than the one plant all by itself. 

So there’s some real benefits there. 

However the plant has been approved through the siting authority in South Dakota some time ago and it’s taken 3 years to go 

through the process. It’s still in process in Minnesota. So that 

would be an example. 

There are other states that have basically limited what type of 

power, what type of capacity is permitted to enter their State and 

it creates some challenges. 

The CHAIRMAN. Alright. We appreciate very much the good testimony from all of you. We may have some additional questions that 

we come to you with. 

Thank you very much for being here. That will end our hearing. 

[Whereupon, at 11:58 a.m. the hearing was adjourned.] 

[The following statement was received for the record.] 

STATEMENT OF THE AMERICAN PUBLIC POWER ASSOCIATION

APPA represents the interests of more than 2,000 publicly owned electric utility 

systems across the country, serving approximately 45 million Americans. APPA 

member utilities include state public power agencies and municipal electric utilities 

that serve some of the nation’s largest cities. However, the vast majority of these 

publicly-owned electric utilities serve small and medium-sized communities in 49 

states, all but Hawai’i. In fact, 70 percent of our members are located in cities with 

populations of 10,000 people or less. 

Public power systems’ primary purpose is to provide reliable, efficient service to 

their local customers at the lowest possible cost. Like hospitals, public schools, police and fire departments, and publicly owned water and waste water utilities, public power systems are locally created governmental institutions that address a basic 

community need: they operate to provide an essential public service, reliably and 

efficiently, at a reasonable, not-for-profit price. 

The vast majority of APPA’s members are ‘‘transmission dependent,’’ meaning 

that they must pay for access to the bulk transmission system in order to acquire 

electricity from power plants for distribution. However, a small number of public 

power systems own a significant amount of bulk transmission—including Los Angeles Department of Water and Power (LADWP) and Nebraska Public Power District, 

among others. 
70 

TRANSMISSION INVESTMENT NEEDED

It is widely recognized that our current transmission system is insufficient and 

highly constrained. The weaknesses of the grid not only threaten reliability, they 

undermine the ability of all types of generation, including renewable generation, to 

get constructed. Transmission improvements increase the overall efficiency and reliability of the system. While improvements could increase the transmission rate paid 

by an end-user, the same end-user would benefit from increased reliability. Since 

generation and transmission are linked, the end-user could also benefit from lowerpriced generation that would be available with additional transmission access. 

Historically, the challenges to improving the grid have been obtaining rights-ofway, environmental concerns about where the transmission lines are sited, and 

state siting procedures. While these challenges still exist for the most part, one 

major positive development has occurred in recent years—the enactment of federal 

‘‘back-stop’’ siting authority for transmission lines. This authority was granted in 

the Energy Policy Act of 2005 (EPAct05) in Section 1221, and sets up a process 

whereby: 1) the Department of Energy designates certain corridors where transmission is highly congested; 2) the Federal Energy Regulatory Commission (FERC) 

can employ federal eminent domain authority for siting transmission lines if, after 

a certain period, FERC has found that either state agencies and state compacts 

have failed to act in exercising their own siting authorities, a state does not have 

the authority to approve the siting of facilities or to consider the interstate benefits, 

or the permit applicant is a transmitting utility that does not serve end-use customers in the state of the proposed project; and 3) FERC must take certain issues 

into consideration when using its siting authority, including that the proposed facilities will: significantly reduce transmission congestion in interstate commerce; protect or benefit consumers; and enhance energy independence. The proposed construction or modification must also be consistent with sound national energy policy. 

The mechanics of the siting authority established in EPAct05 have only been finalized in recent months and the first request from a transmission owner for FERC 

to employ this authority was filed only in the last couple of weeks. APPA believes 

that the thoughtful use of FERC’s authority in this area will improve the bulk 

transmission grid over time. We have been disheartened that some in Congress have 

sought to repeal this authority, but are encouraged that they have not been successful to date. 

JOINT OWNERSHIP WOULD IMPROVE TRANSMISSION INVESTMENT

Encouraging proportional joint ownership of transmission facilities by those loadserving entities, like public power utilities, providing service in a given region is another way to get more transmission built. If the responsibility for building and owning the transmission grid is spread more broadly among entities serving loads (i.e. 

demand) in a region, then joint transmission planning will be facilitated, simply because there are more participants at the planning table. If network customers of a 

dominant regional transmission provider are encouraged to buy in to their load ratio 

share of the transmission system, transmission usage and ownership will be more 

closely aligned, and the frictions between transmission-dependent utilities and 

transmission owners can be reduced. 

Public power utilities have participated in jointly-owned transmission arrangements for many years. One model of joint ownership that has worked for public 

power is investment in a transmission-only company. A second model is ownership 

in a shared system. There are two transmission-only companies that are partially 

owned by public power utilities. These are the American Transmission Company in 

Wisconsin and the Vermont Electric Power Company. In shared or joint transmission systems, two or more load-serving utilities combine their transmission facilities into a single system. Examples of public power participation in shared transmission systems are found in Indiana, Georgia, Minnesota, and the upper Midwest 

region. 

One impediment to expansion of joint ownership is the ‘‘private use’’ restriction 

imposed on tax-exempt financing that is discussed in more detail below. While other 

types of financing mechanisms are used where private use restrictions apply, this 

situation is not ideal from a parity standpoint with investor-owned utilities that 

have federal financial incentives at their disposal for building new transmission. 

REGIONAL PLANNING IS ESSENTIAL

Transmission improvements will be made where there is the greatest benefit to 

the regional system as a whole. Because of the physical properties of electricity, an 

improvement at one point in the regional system can increase the efficiency in a dif-
71 

ferent part of the region. Historically, utilities have made transmission-building decisions based on where the greatest benefits would occur, and these decisions typically have been made in consultation with other regional utilities. This is doubly 

true because of the political and policy barriers to transmission siting delineated 

above. Successful regional planning has occurred throughout the country as several 

of the witnesses at this hearing have shown, but not at the pace or volume necessary to meet demand for electricity while maintaining high reliability. 

Regional planning and support from a broad array of stakeholders is equally important to siting transmission to renewable facilities as it is to traditional base load 

power plants. The major difference between base load power plants and some renewable generation facilities is that often renewable plants, like wind projects, for 

example, must be sited remotely from population centers because that is where the 

wind blows, etc. So, an added challenge to siting transmission lines to most renewable facilities is the length of the lines and the remoteness of the locations. Public 

power systems, like LADWP, have taken a lead role in promoting transmission 

projects to renewable facilities. Two LADWP transmission projects are in the planning phases that will enable southern California to access thousands of megawatts 

of new renewable generation capacity. One of these projects is a joint ownership arrangement as noted below: 

(1) Barren Ridge Renewable Transmission Project: This project consists of 

construction of new 60 mile double-circuit 230 kV from a newly constructed Barren Ridge substation to a proposed new substation called Haskell. The project 

also includes reconductoring existing 230 kV line. This project will allow access 

to over 1200 MW of wind and solar generation resources in the Tehachapi and 

the high desert by Mohave. The project is in the environmental and permitting 

process and the first phase of the project is expected in 2012. 

(2) Green Path North Project: This project consists of the development of an 

approximately 100 mile high voltage transmission line for the Coachella Valley 

area to the Hesperia area in Southern California. The transmission system will 

be interconnected to the Imperial Irrigation District (a public power system), 

LADWP, and Southern California Edison (an investor-owned utility). The purpose of the project is to provide access to the vast geothermal and solar resource 

potentials in the Imperial Valley. Development work including preliminary engineering and environmental studies are underway. Depending on various factors, the project is expected to be in-service by 2013. 

CONCERNS WITH FEDERAL MANDATES TO BUILD RENEWABLE TRANSMISSION LINES

Until most non-hydropower renewable energy can be used reliably at anytime (as 

opposed to intermittently when the wind blows or the sun shines), base load generating plants like those powered by large-scale hydropower, natural gas, nuclear energy, and coal must be used to produce electricity and to ‘‘firm up’’ the renewable 

resource. With that in mind, legislative initiatives that would mandate 75 percent 

renewable usage for a given bulk transmission line are not feasible from a reliability 

standpoint. Furthermore, once these lines interconnect to the rest of the grid, such 

a requirement would be extremely hard to determine. The laws of physics are such 

that electrons will flow where they will, and new high voltage additions could well 

change transmission system configurations substantially, causing changed power 

flows—some of which would be non-renewable—that even the engineers did not anticipate in advance. 

In addition, the variability of generation availability and transmission assets from 

region to region dictates the need for regional, rather than national, solutions. Even 

the federal back-stop siting authority that APPA strongly supports envisions extensive state and regional planning before the federal government has a role. And, 

many of the witnesses at the hearing, including Steve Wright of Bonneville Power 

Administration (BPA), Rich Halvey of the Western Governors Association, and Bryce 

Freeman of the Wyoming Infrastructure Authority, have provided excellent examples of significant actions to access renewable energy at the state and regional levels. APPA members have participated in and will continue to participate in the 

types of initiatives discussed by these witnesses as well as others initiated by public 

power entities like LADWP. 

We have strong concerns about congressional mandates to build transmission to 

certain types of generation sources when the focus should instead be on getting 

transmission built, period. We are especially concerned about mandates on the federal transmitting entities, like BPA, the Western Area Power Administration, and 

the Southwestern Power Administration, as their 70 year mission and contractual 

obligation to their customers is to market federal hydropower—a mission that is difficult enough to perform on its own. 
72 

LIMITS ON THE USE OF TAX-EXEMPT FINANCING

Traditionally, our federalist system of government has respected the right of state 

and local governments to pursue activities that are in the public interest and the 

interest of the citizens they serve. Congress has promoted and protected the right 

of government to issue municipal bonds for ‘‘government owned and operated 

projects and activities.’’ Public power systems are just that—government-owned and 

-operated systems similar to other local infrastructure projects such as water systems, prisons, hospitals, and transportation lines. 

While outside the scope of this committee’s jurisdiction, we believe and want to 

emphasize that Congress should continue to recognize that a basic tenet of the federal system of government is the constitutional doctrine of reciprocal immunity, 

under which the federal government cannot tax the interest on obligations issued 

by state and local governments for public purposes and state and local governments 

cannot tax the interest on federal obligations. 

In addition to continued access to tax-exempt bonds to finance electricity infrastructure, it is important that Congress provide adequate flexibility in the ability 

of public power utilities to partner with private entities in the financing and use 

of certain facilities, as is discussed above. Congress has recognized this necessary 

flexibility by allowing a certain amount of ‘‘private use’’ from output facilities financed with tax-exempt bonds. Prior to the 1986 Tax Reform Act, the limitation on 

private use was set at 25 percent for all governmental issuers. However, the 1986 

legislation reduced the amount of private use to 10 percent. In addition to the reduction of the private use limitation from 25 percent, the federal tax code also provides 

that for certain output facilities—public power and public natural gas generation 

and transmission facilities—the private use limit is the lesser of 10 percent or $15 

million. Private use restrictions limiting the benefits available to private entities 

from publicly financed facilities are based on sound and appropriate public policy 

considerations. However, the restrictions should apply equally to all governmentally 

financed and operated facilities. 

The special $15 million private-use limitation that applies only to publicly owned 

electric and gas facilities is not supported by any public policy justification. It may 

force local governments that provide transmitting facilities to have their surplus capacity sit idle rather than having it sold to others in order to avoid the private use 

limitation. This provision should be repealed because it is discriminatory and it encourages practices that are neither environmentally nor economically sound. It also 

discourages an expansion of the joint ownership model that has been so successful 

in some regions, and could be used to improve the bulk transmission system in others. 
(73) 

APPENDIX 

RESPONSES TO ADDITIONAL QUESTIONS

DEPARTMENT OF ENERGY, 

Washington, DC, September 19, 2008. 

Hon. JEFF BINGAMAN, 

Chairman, Senate Energy & Natural Resources, U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: On June 17, 2008, Kevin Kolevar, Assistant Secretary, Office of Electricity Delivery and Energy Reliability, testified regarding examining the 

challenges and regional solutions to developing transmission for renewable electricity resources. 

Enclosed are the answers to 10 questions submitted by you, Senators Domenici 

and Johnson to complete the hearing record. 

Sincerely, 

LISA E. EPIFANI, 

Assistant Secretary, Congressional and Intergovernmental Affairs. 

[Enclosures.] 

RESPONSES TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. It strikes me that the most difficult issues that we face in getting 

transmission built are those of siting and cost allocation. Both are complicated by 

the fact that long-distance transmission must be built through several states and 

so across several jurisdictional boundaries. How do you envision a multi-state approach to siting working, and what regulatory framework would be required to sustain it? 

Answer. Ideally, when an application to site a major multistate line is filed with 

one or more States, a working group with representation from all of the affected 

States, and Federal agencies when federal lands are involved, would be convened. 

This group would establish a common list of information requirements needed to 

evaluate the proposed project, and to the extent possible agree upon a common 

schedule for the parties’ respective reviews. Thus, the reviews would be done in parallel, on a coordinated schedule and working from a common information base. 

To date, no projects have been addressed in this way, largely because no such 

projects have yet been formally proposed. This voluntary process, however, appears 

quite relevant to some of the major multistate projects now being discussed in both 

the West and in the Midwest Independent System Operator area. If this process 

proves effective, it could be replicated in other regions. DOE would also be happy 

to work with the States in other regions to establish such protocols now, before actual proposals are ready for review. 

Question 2. Your zones are described as areas that contain the resources. The purpose of cost allocation—who bears what share of the cost—it would seem that the 

zones need to include the load centers since it is the customers who are buying the 

electricity who ultimately will pay for the transmission. How do you see resolution 

of this problem working? 

Answer. In most cases it is not yet clear which load center markets would be 

served by which resources, and thus it would be difficult for the Western Governors 

Association (WGA) to include load centers into their Western Renewable Energy 

Zones (WREZs) at this point. 

WGA’s project does include later phases after the Phase 1 Renewable Energy Zone 

Identification that will attempt to resolve some related issues of transmission planning, which specifically addresses which load centers would buy the WREZ electricity, and the allocation of costs. 

Cost allocation, however, is a responsibility of the Federal Energy Regulatory 

Commission. 
74 

RESPONSES TO QUESTIONS FROM SENATOR DOMENICI

Question 1. Is the Department’s ongoing effort with WGA on planning limited to 

renewable generation resources? Could it be applicable to other clean energy 

sources? 

Answer. The current WGA effort on Western Renewable Energy Zones is limited 

to renewable generation resources. However, it could be applicable to other clean energy sources as well should the Steering Committee choose to make it so. The Department has helped and is currently helping WGA on a range of regional electricity 

planning issues outside of the Western Renewable Energy Zones effort, concerning 

both renewable and non-renewable, clean energy sources. Moreover, the Steering 

Committee Charter for the WREZ initiative clearly states this effort is to complement other work WGA is doing to advance clean energy in the West. 

Question 2. You testified that limiting planning efforts to only the state infrastructure level decisions. Is there recognition at the state level regarding the need 

for regional transmission planning? Are some areas of the country moving forward 

with regional planning while other areas are not? 

Answer. I think there is broadening awareness of the need for regional-scale 

transmission planning, among the States and across the electricity industry. The 

Federal Energy Regulatory Commission’s requirement under Order 890 for regionalscale transmission planning is prompting some of the awareness. 

However, there are still two major hurdles at the State level in regards to regional transmission planning. One is that the transmission planners are often stymied by uncertainties about where the new generation resources are likely to be located, so it is not clear where the new transmission will be required. Regional 

groups of States need to develop more coordinated concepts about what amounts of 

new generation, using what resources, they would like to see developed where—and 

with energy efficiency programs included in the process. 

The second problem is that there are many ‘‘seams’’ problems at the boundaries 

between Regional Transmission Organizations (RTOs), Independent System Operators, and the areas that do not have centrally organized markets. Many of the most 

significant transmission constraints exist at these seams where differences in planning and operational practices inhibit the development of effective solutions. Seams 

issues have bedeviled the industry and its regulators for many years. Although some 

progress has been made, the problems today seem more severe because the industry 

is now seeking to move larger amounts of energy across regional boundaries. 

Question 3. DOE is to be commended for working with the WGA on this collaborative regional effort. Clearly this Western Renewable Energy Zones process is a 

multiyear undertaking. Will this project continue with the change in Administration 

next year or will all this hard work be lost? 

Answer. DOE has worked productively with the WGA under several Administrations. I see no reason why this effort will not continue. 

Question 4. The Department recently formed the Electricity Advisory Committee 

(EAC) and held its first meeting in May 2008. Will the EAC be examining similar 

issues with regard to renewable energy generation and transmission? 

Answer. The Committee has undertaken an analysis of the major issues associated with maintaining an adequate electric infrastructure in the face of the multitude of new challenges such as siting difficulties and likely carbon-constraints. I 

expect that key issues pertaining to renewables and transmission will be addressed 

in their report. 

Question 5. Most of the hearing testimony emphasizes the benefits of a collaborative regional process to address the critical need for transmission infrastructure 

for a number of reasons, including reliability and the need to transmit alternative 

energy sources. Mr. Pickens, however, insists that these collaborative frameworks 

are—at several years—too lengthy and that the country can’t wait that long. Do you 

agree with Mr. Pickens? Is there any way to expedite or streamline these efforts? 

Answer. Our existing institutions may function reasonably well if there is a clear 

sense of urgency about the need for timely and effective action. There is a much 

broader appreciation today of the need for transmission additions than there was 

three years ago. A lot of important work is being done on a regional basis today, 

and I hope that in a few years we will find that we have made substantial progress. 

If not, we may need to think about some institutional changes. 

Question 6. In general, is it advisable to mandate a transmission line to carry only 

renewable resources? Given the capacity factor issues, shouldn’t the construction of 

facilities needed to deliver wind also be available to deliver the back-up power and 

move other energy when the wind is not blowing? 

Answer. It would be technically difficult to implement such a mandate—as this 

runs counter to the laws of physics that dictate how AC transmission lines work— 
75 

and it would also tend to erode one of the principal benefits of transmission, which 

is to enable the most efficient use of a region’s entire generation fleet. Transmission 

facilities are very long-lived assets. Once such facilities are in place, it is difficult 

to anticipate how to use them to the region’s best advantage in the face of ongoing 

changes in fuel prices, patterns of economic activity, natural disasters, and other 

events. A robust transmission network makes the electricity infrastructure more 

flexible and resilient in the face of such changes, and we need to enhance that flexibility, not restrict it. 

RESPONSES TO QUESTIONS FROM SENATOR JOHNSON

Question 1. Recently the state of South Dakota approved a large generation resource and associated interstate transmission project. The interstate transmission 

lines have been identified by the regional transmission organization as the least cost 

alternative for interconnection of the resource. The regional transmission organization has also described the transmission grid in that area as ‘‘severely restricted.’’ 

The transmission facilities will also support the interconnection of renewable resources. In this case, the state of Minnesota which has had the application to build 

these lines before it for three years has not yet taken any action. 

In instances such as these, where one state frustrates the development and approval of transmission lines, what authorities does the Department of Energy have 

to address these issues? 

Answer. The Energy Policy Act of 2005 amended the Federal Power Act to create 

a procedure that could be used if necessary to deal with situations in which neighboring States are unable to agree on the siting of a regionally beneficial transmission facility. The Act directed DOE to publish an electric transmission congestion 

study every three years, starting in August 2006; the Department is now making 

plans for its 2009 Congestion Study. As amended, the Federal Power Act further 

authorizes DOE to designate such areas as it considers appropriate as ‘‘national interest electric transmission corridors’’ (National Corridors), based on its congestion 

study, comments received from the States and other stakeholders, and other relevant information. 

In turn, the Act also authorizes the Federal Energy Regulatory Commission 

(FERC), in certain situations, to exercise jurisdiction to site and issue permits for 

the construction of transmission facilities that would ease transmission constraints 

within designated National Corridors. At present, this area of the country is not 

identified as a National Corridor. For that reason, the FERC has no authority to 

act under the provisions of section 1221(a) of the Energy Policy Act of 2005. Should 

a future National Corridor be designated which covers this area, FERC would have 

the authority to consider whether an application for construction of such a line was 

in the national interest irrespective of State (in)action. 

Question 2. Recently the state of South Dakota approved a large generation resource and associated interstate transmission project. The interstate transmission 

lines have been identified by the regional transmission organization as the least cost 

alternative for interconnection of the resource. The regional transmission organization has also described the transmission grid in that area as ‘‘severely restricted.’’ 

The transmission facilities will also support the interconnection of renewable resources. In this case, the state of Minnesota which has had the application to build 

these lines before it for three years has not yet taken any action. 

What recommendations would you have for improving or expediting federal approval for the siting and approval of interstate transmission projects? 

Answer. I recommend that the process established by the DOE to implement the 

electricity title of the Energy Policy Act of 2005—a process in place for less than 

a year—be allowed to work for a few years before we consider making changes. 

Using the authority provided by the Energy Policy Act, DOE designated two National Corridors in October 2007, one in the Mid-Atlantic—New York area, and one 

in Southern California also covering some of Arizona. The intent of these designations was to underscore the importance of addressing transmission congestion problems in these areas, as opposed to prescribing the solutions. The States still have 

primary responsibility for dealing effectively with these problems, but if they do not 

do so, would-be transmission developers may request FERC to exercise siting responsibility. 

This arrangement gives the States strong incentives to work with their neighbors 

to resolve transmission issues. At the same time, I expect that DOE will continue 

to designate National Corridors where they are needed to ensure that major transmission problems receive appropriate attention. 
76 

DEPARTMENT OF ENERGY, 

Washington, DC, September 19, 2008. 

Hon. JEFF BINGAMAN, 

Chairman, Senate Energy & Natural Resources, U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: On June 17, 2008, Stephen J. Wright, Administrator, Bonneville Power Administration, testified regarding examining the challenges and regional solutions to developing transmission for renewable electricity resources. 

Enclosed are the answers to 11 questions submitted by Senators Domenici and 

Smith to complete the hearing record. 

Sincerely, 

LISA E. EPIFANI, 

Assistant Secretary, Congressional and Intergovernmental Affairs. 

[Enclosures.] 

RESPONSES TO QUESTIONS FROM SENATOR DOMENICI

Question 1. BPA started adding wind resources to its system about a decade ago. 

Initially, Bonneville was able to use the federal hydropower system to shape the 

load but I understand that this is no longer possible due to competing non-power 

demands on the hydropower system. Please elaborate. 

Answer. The Columbia River serves multiple purposes besides power generation, 

including flood control, irrigation, and navigation as well as fisheries mitigation and 

enhancement. These purposes have system operation requirements that limit the 

optimization of river operations for power generation. 

The recent growth of wind generation in BPA’s control area comes at a time when 

the federal hydropower system is being further constrained by storage and operation 

requirements to facilitate anadromous fish migrations. Those requirements, established in response to the Northwest Electric Power Planning and Conservation Act 

of 1980 and the Endangered Species Act of 1973, prescribe periods of time when 

water must be spilled, rather than run through dam turbines, and flow volume requirements that must be met through seasonal reservoir storage. 

These spill and storage operations have reduced the flexibility of the hydropower 

system to meet peak demands and to follow load. As your question points out, this 

was not as much of a concern when wind generation began to be added to BPA’s 

control area. Now, with 1,500 MW of wind generation that can appear or disappear 

quickly, BPA’s hydropower system that operates at an average of 9,000 1 MW is 

straining within the non-power constraints to fill in for the intermittent wind. 

We are continuing to actively seek solutions to this challenge that facilitate the 

growth of the wind resource while keeping the cost of integrating wind output with 

the rest of the generation system as low as possible, and while also meeting system 

reliability and fish protection requirements. Currently, the primary venue for this 

effort is the Wind Integration Team which we committed to form and fund as part 

of a recent rate case settlement. 

Question 2. In general, is it advisable to mandate a transmission line to carry only 

renewable resources? Given the capacity factor issues, shouldn’t the construction of 

facilities needed to deliver wind also be available to deliver the back-up power and 

move other energy when the wind is not blowing? 

Answer. Limiting a transmission line to carry only renewable energy would likely 

undermine the cost-effectiveness of construction. The ability of a line to support a 

diversity of resources would improve its capacity factor and its cost recovery and 

would also be consistent with electric transmission open access policies. 

Question 3. The intermittent nature of renewable resources like wind present 

some challenges. How far off are future technological advances, such as electricity 

storage and better wind forecasting, which could help address some of these challenges? 

Answer. Accurate wind forecasting is available today only over an extended time 

period; for example, expected average output over a year. Utilities operate from 

what is often called ‘‘real time,’’ which means the actual operating hour that wind 

is occurring (the time domain of a transmission operator or regional transmission 

organization) to next hour and a day ahead (and longer) that is the time domain 

of the generation side of a utility or Independent System Operator (ISO). 

Accurate within the hour ‘‘real time’’ wind forecasts are not yet commercially 

available. These forecasts are about being able to anticipate sudden changes in wind 

generation. Large changes in wind energy are difficult to predict but are important 

for effective integration of wind operations and utility operations. The lack of forecast capability, when the wind is currently generating, has led to transmission operators increasing the amount of reserve generation. This has increased the integra-
77 

tion costs for wind to connect to the grid to serve a contracted load. Several United 

States and European wind forecast vendors are developing prototype systems to 

forecast wind within the hour. Research supporting this development is being sponsored by BPA, DOE, California, and the European Union. 

Wind forecasts for the next operating hour and operating day are improving. However, wind behavior is peculiar to regional geography (coastal, central, mountain), 

global wind influences (trade winds, jet stream), and terrain (river gorges, mountains, plains). An accurate wind forecast system that may work well in the Midwest 

(for example) may not work all that well if applied to California. Regardless, wind 

forecasts a day ahead have become more accurate from what were available several 

years ago. An important note—day in advance wind forecasts are only able to forecast hourly average wind, which may have little benefit to manage wind within the 

hour—the time domain of the transmission operator. 

Pumped storage (water) remains the storage leader for utility-scale application. 

However, it has locational and environmental issues. BPA’s Office of Technology Innovation has a 2007 comprehensive study on utility energy storage systems that 

may be the most up to date assessment of utility scale energy storage systems. We 

have included it as an attachment to our response (Attachment 1). 

Prototype utility-scale energy storage devices are currently under development 

and field testing. The broad application of energy storage to support renewable 

intermittency has yet to be achieved. The challenge is finding a technology that can 

fully charge and discharge tens of megawatts several times in every 10 minute period to support intermittency, and yet have sufficient life to recover costs and earn 

a rate of return. Several utility-scale systems are currently in service in the USA, 

but they are small and only economic when applied in specific situations. 

BPA’s Technology Innovation Office, in partnership with DOE’s Office of electricity Delivery and Energy Reliability (OE), DOE National Laboratories, and The 

state of California is in the second year of a three year research effort to see if 

flywheel technology can be scaled up to meet the wind integration demands. Several 

other storage technologies are showing promise such as Sodium Sulfide (NaS) batteries. 

Further, DOE is developing an integrated energy storage program to meet the 

evolving needs of the electric power grid through OE’s Energy Storage and Power 

Electronics program, in collaboration with the Office of Science. OE currently supports several grid demonstrations of various applications of energy storage, including compressed air, super-capacitors, flywheels, and batteries. 

Question 4. With the National Interest Electric Transmission Corridor process established in EPAct 2005, Congress sought to address the critical issue of transmission siting. However, at this time, these provisions haven’t been fully implemented and.no line as been sited pursuant to EPAct. Nevertheless, the NIETC process has been contentious. 

I was surprised then to read some testimony—including that from Mr. Pickens 

and Mr. Freeman with the WIA—that suggested these Energy Policy Act authorities 

did not go far enough. Mr. Pickens goes so far as to call on Congress to provide 

FERC with exclusive jurisdiction to site new transmission for a renewable project. 

Please comment. 

Answer. The currently designated National Interest Electric Transmission Corridors are in other parts of the nation than the Pacific Northwest. BPA has been 

able to site new transmission lines successfully in this region, including recent 

major additions of 500-kV capacity. 

BPA’s statutory authorities allow it to acquire interests in land to site transmission lines, including the authority for eminent domain. BPA has been able to site 

new transmission lines in the Pacific Northwest working through public processes 

with federal, state, tribal and local governments as well as private landowners. We 

have also been able to construct transmission in sensitive environmental areas. For 

example, we were able to construct new transmission reliability in the City of Seattle’s watershed, winning the support of the City Council and environmental 

groups. BPA does not have a position on additional transmission siting authority for 

FERC. 

Question 5. BPA’s Open Network Season was a tremendous success. What are 

your next steps? 

Answer. BPA was pleased by the customer response to its first Network Open 

Season. By June 27, 27 customers had provided security deposits for 153 Precedent 

Transmission Service Agreements (PTSA) for a total of 6,410 megawatts (MW) of 

service. Most of those PTSAs were associated with wind development. 

Now that BPA has received the security payments, it will determine what existing 

long-term firm capacity can be granted to the PTSAs and begin the cluster study 

to evaluate transmission needs and facility requirements where capacity is not 
78 

available. Once the cluster study is complete, then BPA will know what transmission facilities are needed to meet the requests for service. BPA will use its financial model to evaluate the results of the cluster study to determine the potential 

rate impacts. BPA will need to complete all National Environmental Policy Act requirements before starting new construction. 

RESPONSES TO QUESTIONS FROM SENATOR SMITH

JOE IMPLEMENTATION

Background 

In 2000, Congress passed the Joint Operating Entity (JOE) legislation (PL 106- 

273) which amended the Pacific Northwest Electric Power Planning and Conservation Act. This 2000 Act requires the Bonneville Power Administration (BPA) to sell 

preference power to a qualifying JOE. The intent of the Congress was to establish 

a new type of eligible preference customer, a JOE, which could aggregate its members’ contracts for the purchase of power from BPA into a single contract. Congress 

wanted the JOE and its member utilities, which are preference customers of BPA, 

to have the opportunity to join together to meet their retail load power needs in a 

more efficient, cost-effective manner. In BPA Administrator Judith Johansen’s 3-29- 

00 response to Rep. John Dingell’s 1-19-00 letter regarding the JOE legislation, the 

Administrator stated ‘‘(g)enerally, customers might realize such benefits as reduction in administrative staff, reduction in legal fees, combinations of operations and 

maintenance work, or optimized use of the interconnected transmission and distribution systems. Pooling would also provide the utilities with greater opportunity 

to better manage the use of, addition to, or sales from non-BPA resources than they 

could individually.’’ Pooling of geographically diverse loads and resources under one 

contract is one mechanism for a JOE to optimize the use of the interconnected 

transmission system; for example, sinking resources to its geographically diverse 

load is one way to minimize transmission costs. 

As the region moves forward with new long-term contracts, one primary goal of 

the Regional Dialogue is to encourage utilities to develop resources. ‘‘Having willing 

utilities responsible for resource acquisition decisions also enhances competition in 

the marketplace and spreads risk.’’ (Regional Dialogue Policy, page 6) 

Question 1. How does BPA’s Regional Dialogue process, including the Tiered Rates 

Methodology and the new Regional Dialogue power contracts, facilitate a JOE’s ability to develop new power resources? 

Answer. Ensuring adequate infrastructure development is one of our primary 

goals in the Regional Dialogue contracts. In line with that goal, we have focused 

intently on making it practical for our customers to develop their own resources to 

meet their load growth. The new Regional Dialogue contracts and Tiered Rate Methodology (TRM) will facilitate a JOE’s ability to develop new power resources in a 

number of major ways. First and foremost, they will remove a barrier that would 

otherwise be nearly insurmountable—BPA’s past practice of meeting customers’ load 

growth at melded rates. When new resource costs are far in excess of BPA melded 

rates, this practice makes resource development by customers economically impractical. Second, BPA is offering to provide at-cost services to back up and reshape the 

output of customer-acquired resources, making it much easier and more practicable 

for customers to add their own resources. Third, BPA has agreed to pay for transmission of customers’ new resources over third party transmission systems. Fourth, 

BPA has committed to not use its existing system resources to advantage its own 

sales of power for load growth over customers’ own resources. Fifth, BPA has taken 

steps to give customers ample time to decide between adding their own resources 

and buying from BPA to meet their load growth, so they are not rushed into making 

a choice. Sixth, BPA will provide flexibility in how customers schedule power from 

their own resources to their loads, in order to reduce the delivered costs of those 

resources, so long as these flexibilities do not create costs for other customers. These 

are just some of the steps BPA is taking to facilitate resource development by a 

JOE, and by other customers. 

Question 2. The 2000 Act states that BPA ’shall’ sell wholesale power to a JOE. 

How is BPA implementing the various components of the Regional Dialogue to ensure the statutory benefits of the JOE legislation intended by Congress remain intact? 

Answer. As a qualified customer of BPA, a JOE will continue to be able to purchase an amount of power for its members’ aggregated load service from BPA, similar to how BPA currently sells power to PNGC Power (PNGC), which is the only 

JOE with which we have a contract now. We have invested substantial time and 

effort into minimizing the extent to which Energy Northwest bond requirements 
79 

constrain PNGC’s future purchase relationship with us, and believe that effort has 

been largely successful. We are now in the midst of intensive efforts to work out 

contractual and rate provisions as they apply to PNGC and other JOEs, so it is premature to answer this question definitively, but we are seeking to preserve the statutory benefits of JOE status under the new contractual relationship and expect to 

be successful. 

Question 3. Do BPA’s Regional Dialogue scheduling policies advance the goals of 

PL 106273 and the Regional Dialogue, regarding resource development? And are 

they consistent with how BPA treats its own resources, that is, in the most efficient 

and cost-effective manner possible? 

Answer. Yes, we believe the approach to resource scheduling in the Regional Dialogue is consistent with PL 106-273 and the Regional Dialogue. Specifically, BPA 

is offering scheduling services on behalf of customers who add their own new resources, thereby removing one of the primary potential barriers to customer resource addition. We have also indicated to PNGC, that we will provide them scheduling flexibility for their new resources, limited only by the need to ensure that it 

does not impose costs on other BPA customers. We must also ensure that the scheduling policies/provisions ensure that implementation of the agreement is workable, 

though we do not expect that to be a significant impediment. Given the importance 

you place on this matter, we will highlight this issue in the contract negotiations 

with PNGC and other customers, who could be impacted by the offering of the services. 

This treatment may not be entirely consistent with how BPA treats its own Tier 

2 resources because BPA must deliver those resources to preference customer loads 

wherever they are located, and cannot necessarily avoid incremental scheduling 

challenges across constrained paths by netting new resources against existing load. 

RESIDENTIAL EXCHANGE PROGRAM

BPA has drafted a proposal in which preference utilities will be asked to give up 

their right to exchange power under the Residential Exchange Program (REP) (established by section 5(c) of the Regional Act), in order to sign new Regional Dialogue 

contracts. Without rights to participate in the REP, the economics of new resource 

acquisition and development by preference utilities is dependent on the continuing 

existence of tiered rates during the term of the contract. 

Question 1. What assurances can BPA give to those utilities that sign Regional 

Dialogue contracts and forego their exchange rights that there will be no melding 

of Tier 1 and Tier 2 costs during the contract term (2028) and that there will be 

a transparent separation of Tier 1 and Tier 2 costs? 

Answer. In the Tiered Rates Methodology BPA set forth a number of principles 

that guide the allocation of costs. In particular, Principles 2 and 3 provided as follows: 

Tier 1 Costs will be kept separate and distinct from Tier 2 Costs. Tier 1 Costs 

will be recovered through the Tier 1 Rates. Tier 2 Costs will not be recovered 

through the Tier 1 Rates except when necessary to ensure BPA’s cost recovery 

during the Rate Period or to conform to court order. 

Individual Tier 2 Cost Pools are to be kept separate from one another; customers paying the cost of one Tier 2 Cost Pool will not be responsible for paying 

the cost of another Tier 2 Cost Pool. 

BPA’s intent in determining the costs included in individual Tier 2 Cost Pools is 

that the costs and cost of risk faced by each customer that elects a particular Tier 

2 Rate Alternative will reflect BPA’s incremental cost of serving the customer and 

will be comparable to the types of costs and risks the customer would face if purchasing from a non-Federal source. 

These principles are being implemented through extensive provisions in the TRM. 

BPA has expended extensive effort to give customers the greatest possible assurance 

that these TRM provisions will be observed for the full duration of the new contracts. Sections 12 and 13 of the draft TRM are largely devoted to providing customers with protections against changes in these TRM provisions over the 20-year 

life of the contracts, as are related sections of the draft contracts. 

While we believe these provisions provide substantial protection against Tier 2 

costs migrating to Tier 1, we always reserve the right to collect otherwise unrecoverable costs in Tier 1. This is necessary to assure that U.S. taxpayers are not burdened with inappropriate costs. 

Question 2. During the term of these contracts, does BPA plan to combine the 

costs of new and existing resources, offer melded rates, or allow other preference 

customers to exchange new resource costs with BPA? 
80 

Answer. BPA does not plan on combining the costs of new and existing Federal 

resources when it sets its power rates, except for an identified and very limited 

amount of resources acquired to augment the Federal system, as defined in the July 

2007 Regional Dialogue Policy. Beyond this limited augmentation, the costs of energy from Federal resource acquisitions made after September 30, 2006, will be allocated to particular Tier 2 cost pools and will not be added to the set of Tier 1 System Resources. 

BPA will provide Load Following customers with a limited opportunity to select 

a Shared Rate Plan (SRP). Participants in this plan will be subject to the same 

tiered rate structure as other customers, but their bills will be averaged after 

charges are calculated for each customer. BPA plans on limiting the participation 

in the SRP to less than 10 percent of total preference sales. 

Under the Regional Dialogue contracts, there is no provision that would allow 

preference customers to exchange the costs of new non-federal resources with BPA. 

Customers who wish to exchange the costs of new resources will not have the opportunity to sign a Regional Dialogue contract, and would not receive a high water 

mark. Such customers would be offered a contract at some point in the future. The 

terms and conditions of such alternative contracts have not been defined, in part 

because of the expectation that all or virtually all customers will sign the Regional 

Dialogue contracts. 

Question 3. What options has BPA examined to allow preference customers to retain exchange benefits? 

Answer. BPA believes that the ability to exchange resources under the Residential 

Exchange Program is incompatible with the concept of tiered rates, and is likewise 

incompatible with the customers’ strong desire to keep the costs of the resources 

BPA acquires for service at the Tier 2 rate out of the Tier 1 rate. In the Regional 

Dialogue Policy BPA stated: 

The cornerstone of the Regional Dialogue Policy is to limit BPA’s sales 

of firm power at the lowest cost-based rates to approximately the firm capability of the existing Federal system. Customers may purchase additional 

Federal power, but it will be priced at a Tier 2 rate based on the marginal 

cost of serving the additional load. The costs of power acquired to serve load 

subject to a Tier 2 rate will be kept as low as possible; however, BPA will 

not subsidize Tier 2 rates to create a financial advantage over a non-Federal resource. 

This goal of keeping the costs of new resources separate from the costs 

of the existing system would be thwarted if customers’ higher-cost new acquisitions were to flow back to the Tier 1 rate through the Residential Exchange Program. 

RESPONSES OF BRYCE FREEMAN TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. Do we need to change something in legislation to accomplish what you 

think needs to be done about the federal backstop siting authority? If so, what 

changes do we need to make? 

Answer. No, we believe the 2005 Energy Policy Act provides sufficient authority. 

However, in the West we believe it would be appropriate for the Department of Energy to define congestion more broadly than it currently does, for purposes of designating electric transmission corridors of national interest. For example, DOE could 

consider areas that are determined to be Western Renewable Energy Zones and the 

transmission corridors that need expansion in order to deliver these renewables to 

be corridors of national interest. There are many other examples in the west where 

congestion would exist if new generation was brought on to the system. This imminent congestion is not adequately taken into account by the DOE under its current 

practice. 

Question 2. How is the process working to get siting permits in the states that 

you are working with? 

Answer. We are currently involved in TransWest Express, a project that will require siting in Wyoming, Utah and Nevada. An application has been filed and the 

Bureau of Land Management has been designated the lead agency. We are very 

early in the process. At this point our relationships with the regional land management agencies are excellent. In addition, the three Governors have agreed to implement provisions of a transmission siting protocol that was adopted by Western Governors; this process will help to ensure close coordination among the state and federal agencies. 

Question 3. How are you allocating the costs for your projects? Is it made easier 

by the fact that a state agency is involved? 
81 

Answer. First, the Wyoming Infrastructure Authority is an instrumentality, not 

a state agency. In the projects we are involved in, we are exploring business models 

that are alternative to the traditional, vertically-integrated utility rate-base model. 

We are hoping this innovation will help break through some of the cost allocation 

barriers. 

For example, the Wyoming Colorado Intertie is conceived as a merchant line with 

capacity sold through a FERC sanctioned open season auction. Costs of the line will 

be allocated through this process. 

For the TransWest Express project, we are exploring the use of an anchor tenant 

model, in which electric generation producers would commit to capacity on at least 

some of the line’s capacity during the initial stages of development. Under this approach a significant fraction of the costs would be allocated to these anchor tenant 

customers. Additional capacity would likely be offered through an open season, 

much like the Wyoming Colorado Intertie example above. 

Question 4. Do your projects fit into a regional planning framework? If so, how 

did that framework develop? 

Answer. Yes. The regional planning blue print for our current projects included 

a comprehensive plan that was sponsored by Governor Freudenthal and then-Governor Leavitt in 2004—the Rocky Mountain Area Transmission Study. Our projects 

are also included in WECC’s ongoing regional and sub-regional planning framework. 

RESPONSES OF BRYCE FREEMAN TO QUESTIONS FROM SENATOR DOMENICI

Question 1. The WIA started its planning process back in 2004 and already has 

underway a number of transmission projects. Is the WIA also participating in the 

Western Renewable Energy Zone process spearheaded by the Energy Department 

and the Western Governor’s Association? If so, how are you coordinating these two 

efforts? 

Answer. Yes, we will actively participate in the Western Renewable Energy Zone 

process. While this effort is just getting underway, we anticipate that Wyoming’s 

high quality wind resource will be identified as a WREZ, and that the transmission 

projects we are developing, and likely additional transmission needs beyond our current projects, will be identified as transmission needed to facility the delivery of Wyoming wind to load centers in the West. 

Question 2. Is the WIA process focused solely on renewable resources or are you 

also looking at alternative clean sources of energy? 

Answer. There is a significant effort in Wyoming to foster the development of 

clean technologies that will utilize Wyoming’s abundant coal resource. The WIA is 

a part of this effort. In 2006, the State Legislature expanded WIA’s mission to include the promotion of advanced coal electricity generation. The WIA formed a partnership with PacifiCorp to explore the feasibility of locating a commercial-scale integrated gasification combined cycle (IGCC) facility in Wyoming. As part of this partnership we have been petitioning the Federal Government to appropriate funds to 

implement Section 413 of the 2005 Energy Policy Act—which authorizes DOE to 

fund the development of a western IGCC demonstration project at altitude, including the capability to capture and sequester carbon dioxide emissions. For a number 

of reasons, including lack of federal funds, this partnership has been put on hold. 

WIA remains interested in pursuing alternative clean sources of energy. 

Question 3. You testified that FERC needs to allow experimental business models 

like the WIA has done in embracing innovative development tools, like open seasons 

and anchor tenant models. Please explain how these tools work in practice. Also, 

in your opinion, why hasn’t the Commission been receptive to approving such models? 

Answer. The open season process is a FERC-sanctioned business model. See the 

answer to Senator Bingaman’s question # 3 for a brief description of how this tool 

works in practice. 

Applying the anchor tenant model to a transmission project will require approval 

from FERC. Since this model is used regularly in pipeline regulation, and given 

some of the characteristics of the TransWest Express Project, we are hopeful that 

FERC will be receptive to approving the model. 

Question 4. Most of the testimony today emphasizes the benefits of a collaborative 

regional process to address the critical need for transmission infrastructure for a 

number of reasons, including reliability and the need to transmit alternative energy 

sources. Mr. Pickens, however, insists that these collaborative frameworks are—at 

several years—too lengthy and that the country simply can’t wait that long. 

Do you agree with Mr. Pickens? Is there any way to expedite or streamline these 

efforts? 
82 

Answer. The process for planning and developing a transmission line is lengthy. 

For our projects, we have a sense of urgency as well as a since of good coordination 

among federal and state agencies. Please see my answer to Mr. Bingaman’s question 

# 2 above. We do think the NIETC process could be expanded, in conjunction with 

the pending WREZ initiative. 

Question 5. With the National Interest Electric Transmission Corridor process established in EPAct 2005, Congress sought to address the critical issue of transmission siting. However, at this time, these provisions haven’t been fully implemented and no line as been sited pursuant to EPAct. Nevertheless, the NIETC process has been contentious. 

I was surprised then to read some testimony—including your testimony and that 

from Mr. Pickens—that suggested these Energy Policy Act authorities did not go far 

enough. Mr. Pickens goes so far as to call on Congress to provide FERC with exclusive jurisdiction to site new transmission for a renewable project. Please comment. 

Answer. Please see my answer to Senator Bingaman’s question # 1. We believe 

the Energy Policy Act provides sufficient authority to DOE and to FERC. Within 

this authority we would encourage DOE to take a broader consideration of what it 

considers to be congestion. This could contribute significantly to the WREZ initiative 

and other transmission expansions in the west. 

Question 6. In general, is it advisable to mandate a transmission line to carry only 

renewable resources? Given the capacity factor issues, shouldn’t the construction of 

facilities needed to deliver wind also be available to deliver the back-up power and 

move other energy when the wind is not blowing? 

Answer. No, we do not think it would be advisable to mandate a transmission line 

to carry only renewable resources. We are currently engaged in a transmission 

project development where a significant portion of the line capacity could be allocated to parties wanting to ship renewable power to markets. To the extent this includes intermittent resources such as wind generation, there will be excess transmission capacity that would be made available to the market place on an open access basis. It is possible that in conjunction with the development of wind generation in Wyoming, that back-up gas-fired generation would develop to produce a more 

firm and reliable product. It is also possible that this wind generation would be 

backed up by existing gas-fired generation already owned by the load serving entities that are buying the wind power. 

RESPONSES OF GARY HANSON TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. You propose that the electricity system should be planned and built 

for regional markets. What is the appropriate regulatory framework to make decisions about a regional grid? Should it be federal, or can there be some kind of regional authority composed of state regulators? 

Answer. It could be either. I simply have a bias against what I believe would be 

a terribly complex and potentially cumbersome ’one size fits all’ federal bureau. Additionally, regional disagreements are usually easier to work out than national, especially with the integration of interstate transmission. However, federal laws 

would be necessary to create the authorities for regionalization and the FERC would 

be the most likely entity to oversee the regional authorities. One of the challenges 

needed to be overcome is the patchwork of state siting laws and authorities that 

create impediments to interstate transmission projects. Except perhaps for the natural division between the eastern and western grid, it is difficult to draw lines that 

separate regions when addressing electricity flows other than RTOs. I imagine the 

current map of RTOs/ISOs representing individual regional footprints. However, 

none of these footprints can operate independently and seams issues still need to 

be continually resolved. 

Further, while there can be regional authorities, there will be disputes such as 

siting and cost allocation issues of major transmission lines between regions, and 

among states. There will be policy issues with broad effects that will affect all regional entities and those policy issues along with some of the disputes will have to 

be resolved at the federal level. 

The MISO region is large in terms of both area and affected states and provinces. 

MISO is governed by a board and through stakeholders comprised of groups representing, among others, service providers, vendors, energy users, environmental 

groups and regulatory personnel. The affected states have joined to form an oversight group, but this group must petition the FERC if it disagrees with MISO policy. 

MISO is primarily concerned with operating the transmission system, including 

consideration of system expansion for both reliability and economic purposes. 
83 

This framework could, and most likely should be used to accomplish Congressional policy directives as we move toward expanding the role of renewable energy 

sources. Still, that doesn’t mean the regional entity would have pervasive authority. 

There will be issues, as stated above, that will require the FERC or DOE or possibly 

another federal agency’s decision-making in order to accomplish both regional and 

national goals. I envision this process looking much like, or being added to the functions performed by an RTO with Federal oversight. 

Question 2. I think that your proposal that WAPA join the Midwest ISO is an interesting one. Do you know why that has not happened? Is there some problem in 

federal law that prevents it? 

Answer. We know that both cost and operational barriers exist for wind generation developers in WAPA’s footprint who wish to sell into the MISO market. No 

doubt WAPA could outline benefits it would achieve with MISO membership. The 

reason this has not happened is very simple: it is the negative cost/benefit accruing 

to WAPA and its existing customers if it joins MISO. 

WAPA serves a number of regions, including one which is primarily North and 

South Dakota. Costs incurred in this region must be paid by those in the region who 

use WAPA services. MISO membership also comes with a cost. If WAPA joined 

MISO to support wind generation it would unquestionably benefit wind generators. 

However, the costs of WAPA membership in MISO under the present rate structure 

would have to be paid by ND and SD WAPA customers. And the cost of membership 

is much too high to be diluted by the potential new wind generators. The existing 

customers would receive a benefit which is much less than the additional cost of 

MISO membership. There is a fundamental problem when the beneficiaries will be 

entrepreneurs and customers in markets outside the ND/SD region, yet the bulk of 

the cost will fall upon those who will likely benefit least. This is a challenge caused 

by license plate pricing and pancaking of rates. 

I am not aware of Federal laws preventing WAPA from joining MISO. 

RESPONSES OF GARY HANSON TO QUESTIONS FROM SENATOR DOMENICI

Question 1. Mr. Pickens suggests that Congressional siting provisions in EPAct— 

namely the NIETC process—did not go far enough. He suggests that we give FERC 

exclusive siting authority over renewable projects. As a state regulator, what do you 

think of this suggestion? 

Answer. States have local knowledge that would benefit any transmission siting 

decision and that knowledge should be used. That considered, there is no doubt 

siting and construction of interstate lines face huge, if not insurmountable and time 

consuming barriers as attempts are made to traverse multiple states. In some cases 

intrastate lines may face huge barriers as well. 

It seems fairly certain that state-by-state siting authority will not yield any nearterm results for rapid expansion of the transmission system. Federal authority with 

state assistance appears to be a must if we are to move forward in developing a 

robust interstate grid for renewable energy. I also refer you to the answers to Senator Bingaman’s questions. 

Question 2. I understand that South Dakota is having some problems getting a 

transmission line through Minnesota for a clean coal project. Please elaborate. 

Answer. Otter Tail Power Company is the lead partner in a proposed project to 

construct a base load generation plant to burn coal in a supercritical boiler to 

produce electricity. This plant, Big Stone II, is to be located adjacent to Big Stone 

I, both in South Dakota. The site is within a few miles of the Minnesota border, 

and would need either new or increased capacity of existing power lines to transport 

the power to a load or to where it enters the regional grid. BS II agreed to provide 

850 MW of excess capacity on the transmission system for renewable energy. The 

endpoints of Otter Tail’s transmission line construction are in Minnesota. Although, 

the plant received approval after the proper hearing process from the South Dakota 

PUC in 2006, the Minnesota commission has yet to approve the construction of the 

transmission line. Additionally, this is not a lengthy transmission line. 

The Minnesota commission’s process, which has initial hearings before administrative law judges, has essentially re-reviewed our proceedings twice. The first time 

the ALJ recommend approval. But after delays caused costs to rise, the Big Stone 

II partnership make-up changed and the plant was to be slightly smaller in capacity. Minnesota used this change to review it again and the second time the ALJ’s 

recommended denial of the transmission line based on a second review of the plant. 

The final decision of the commission is now on hold as the commissioners could not 

reach a decision and one commissioner decided additional information was necessary. 
84 

Question 3. In general, is it advisable to mandate a transmission line to carry only 

renewable resources? Given the capacity factor issues, shouldn’t the construction of 

facilities needed to deliver wind also be available to deliver the back-up power and 

move other energy when the wind is not blowing? 

Answer. Exactly, because of the capacity factor issue one should not mandate renewable-only transmission. Also, the interwoven nature of the grid and physics of 

electricity operate in such a way that efficiency may be improved by allowing flows 

based on operating circumstances and not by generation source. 

The lowest per unit cost of transmission is achieved when the line is used to capacity twenty-four hours a day. This is a 100% capacity factor, and as one shrinks 

usage and lowers the capacity factor the throughput is lowered and average cost per 

unit will be higher. Wind generally achieves capacity factors well below 50% and 

any facility dedicated solely to wind will come with a high transmission cost component. With the cost of new energy capacity continually increasing, it would be unwise to inflate those costs even further by specifying renewable-only transmission. 

Question 4. The intermittent nature of renewable resources like wind present 

some challenges. How far off are future technological advances, such as electricity 

storage and better wind forecasting, which could help address some of these challenges? 

Answer. Efficient and economical energy storage is an exciting issue and could 

change the industry in terms of generation and delivery, and would affect not only 

the traditional electricity markets, but the transportation industry as well. Although 

significant technological advances have been achieved, I know of no immediate or 

even near-term resolution for economical storage. 

Better wind forecasting, development of areas with better wind regimes, and development of wind farms over larger areas aid greatly in resolving reliability and 

grid integration issues. Nonetheless, wind is intermittent and nondispatchable and 

will always need base load generation or dependable and economical storage. 

RESPONSES OF T. BOONE PICKENS TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. You state that renewable projects need the production tax credit for 

long enough to get everything put into place to get a project going. How long do 

you think the tax credit should be extended? 

Answer. Based upon my experience, if you want to encourage large scale projects 

like the Pampa project, the production tax credit needs to be in place for at least 

eight years in order for a developer to plan and complete development of a multigigawatt scale project. The extension of the production tax credit needs to be long 

enough to permit prudent people to plan and commit capital. 

The production tax credit does not just affect wind project developers, it also affects decisions by equipment suppliers to commit the capital to open additional manufacturing facilities, and the decision by makers of component parts to commit to 

manufacture component parts for wind turbines in the United States rather than 

forcing turbine manufacturers to buy parts from existing European and Asian suppliers. Bringing these facilities to the United States requires that businesses feel 

good about investing in manufacturing facilities, and in hiring and training skilled 

workers. These investments need a multi-year extension to justify investing the capital. They cannot invest tens of millions of dollars to plants and people that may 

not be needed in two years. 

Question 2. Do you think that a federal renewable electricity portfolio standard 

is a good idea? 

Answer. I do believe that a federal renewable electricity portfolio standard is a 

good idea. As I have previously indicated, the federal government should view the 

energy crisis as a national priority that affects our national security, and do everything possible to encourage the development of renewable electricity generation as 

an alternative to oil importation. As of May 8, 2008, there were 30 states with some 

form of renewable portfolio standards according to the Department of Energy 

website, including three states with voluntary standards. At some point, it becomes 

important to have consistent national standards and deep, liquid markets for renewable energy credits. A federal standard would permit renewable projects to be located where they are most efficient and provide the greatest economic benefit to the 

country while the renewable electricity that they produce would benefit the entire 

country. 

RESPONSES OF T. BOONE PICKENS TO QUESTIONS FROM SENATOR DOMENICI

Question 1. Under your proposed plan, natural gas would replace oil as a transportation fuel, thus leading to a 38% decline in foreign oil imports. Renewables, in 
85 

turn, would replace natural gas as an electricity source. As you know, currently approximately 3% of our electricity is provided by renewable resources. How much of 

an increase in renewable energy production would be ‘‘meaningful’’ for purposes for 

your plan? 

Answer. I believe that the United States can reasonably achieve a goal of generating at least 22% of its electricity from wind and other renewables as the Department of Energy has outlined in the study that it released in April. The increase 

from 3% to 22% understates the amount of additional renewable generation that 

would be required, because the total amount of electricity that will be required by 

the United States in the future will be greater than it is today. However, this also 

means that you are not talking about putting existing generation facilities out of 

business as much as you are talking about building to meet new demand. 

I also want to make clear that I favor using all of our resources to reduce our 

dependency on foreign oil. My plan is not just about wind, or even renewables, it 

is about using all of our available domestic resources, including nuclear and clean 

coal, to save our country. 

Question 2. Your wind project certainly doesn’t follow the norm—there aren’t 

many people who are able to undertake the construction of their own transmission 

line. Your parallel project, the planned water pipeline, along with your water district’s eminent domain authority, puts you in the unique position to deal with siting 

and permitting issues. However, you still have to face the financing and cost recovery issues. How are you planning to proceed on those issues or will you self-finance 

the transmission line? 

Answer. I have the ability to pay for the transmission line out of my out pocket. 

I have not yet decided whether to do so. It would be patently unfair to deny cost 

recovery to me just because I do have the ability to pay for the transmission line 

out of my own pocket. There are, however, trade offs that are required for cost recovery, and I have not yet decided how to balance those tradeoffs, and may not decide for some time. However, whatever my decision, unless you want the additional 

renewable energy suppliers to be limited to a few people in my position, cost recovery needs to be addressed at the national level so that other renewable developers 

can also succeed. 

Question 3. Most of the hearing testimony emphasizes the benefits of a collaborative regional process to address the critical need for transmission infrastructure 

for a number of reasons, including reliability and the need to transmit alternative 

energy sources. However, you insist that these collaborative frameworks are—at 

several years—too lengthy and that the country simply can’t wait that long. Is there 

any way to expedite or streamline these efforts? 

Answer. I have proposed that Congress grant to the FERC primary, original jurisdiction for interstate transmission projects, and require that the FERC process 

should be subject to a limitation, say nine months, on the length of time involved. 

I believe that this is necessary given the urgent nature of the imported oil crisis. 

I do believe that there are models for responsible collaborative processes that involve the various stakeholders in siting decisions, and that those processes can be 

included without engendering significant delays. The Texas Competitive Renewable 

Energy Zone process is a good model, but as the first of its kind, it has taken a 

while to figure out all of the steps required and work through them. The Western 

Governors Association has undertaken a similar program, the Western Renewable 

Energy Zone process, funded by the DOE, that is working on a shorter timeframe. 

California apparently has sponsored a program involving various stakeholders to 

reach consensus on siting for renewable projects and transmission, which I understand is expected to be completed within nine months. 

DOE should be mandated to work with states and regions that are interested in 

cooperating to help them bring their stakeholders together and reach a consensus 

on their views on siting and permitting and put those views forward in the FERC 

proceeding. This would allow for a collaborative process, but still require that the 

timeframe that I have proposed be implemented. 

Question 4. In general, is it advisable to mandate a transmission line to carry only 

renewable resources? Given the capacity factor issues, shouldn’t the construction of 

facilities needed to deliver wind also be available to deliver the back-up power and 

move other energy when the wind is not blowing? 

Answer. Let me first say that transmission lines are usually constructed to serve 

a particular project or group of projects, so a requirement that a transmission line 

be intended substantially to serve a renewable project will probably be sufficient. 

However, let me also say that there may be technical reasons to permit a modest 

amount of controllable generation on the transmission line for purposes of grid stability. In addition, it may improve the economics of the transmission line significantly, saving consumers money, if the transmission line is permitting to carry elec-
86 

tricity generated from controllable generation sources when renewable energy is not 

available. 

RESPONSES OF RICHARD HALVEY TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. It strikes me that the most difficult issues that we face in getting 

transmission built are those of siting and cost allocation. Both are complicated by 

the fact that long-distance transmission must be built through several states and 

so across several jurisdictional boundaries. How do you envision a multi-state approach to siting working, and what regulatory framework would be required to sustain it? 

Answer. In 2002, the Western Governors developed the Transmission Permitting 

Protocol. By June 2004, the governors of 12 Western states (AK, AZ, CA, CO, ID, 

MT, NV, NM, OR, UT, WA, WY), four federal agencies (Departments of Energy, Interior, and Agriculture and the Council on Environmental Quality), and the Premier 

of Alberta had signed the Transmission Permitting Protocol. The Protocol provides 

for coordination of permitting agencies for proposed interstate transmission projects; 

however, to date, there have been no new proposed interstate transmission lines 

that would trigger the protocol. Similarly, Section 1221(h) of the Energy Policy Act 

of 2005 requires coordination of federal agency permitting activities, and an interagency MOU has been executed to implement this section. Unfortunately, it is unclear how these two agreements will interact. We agree with Senator Bingaman that 

securing federal permits for interstate transmission remains the most difficult hurdle for transmission developers in the West. In any case, the Western Governors are 

reaffirming their commitment to the 2002 Protocol and would use the Protocol to 

approach multi-state siting. 

Interstate allocation of the cost of new transmission has been held to be the ultimate obstacle to the construction of major transmission. It is important to note that 

the existing transmission backbone in the Western Interconnection was constructed 

through voluntary agreements among multiple companies. The cost of these projects 

was passed through to consumers. However, there is reason to believe that the future will not look much like the past. That is, when multiple load-serving entities 

determine they want to access the power at the other end of a major proposed transmission line they will successfully allocate the cost of the line among themselves 

and state regulators will find such an allocation prudent. The continued success of 

interstate cost allocation may, of course, depend on FERC policy allowing those who 

pay for transmission to use the transmission. 

Question 2. Your zones are described as areas that contain the resources. The purpose of cost allocation—who bears what share of the cost—it would seeming that 

the zones need to include the load centers since it is the customers who are buying 

the electricity who ultimately will pay for the transmission. How do you see resolution of this problem working? 

Answer. The current first phase of the WREZ project is critical. The WREZ will 

identify those areas that have a specific, significant amount of renewable energy potential, are developable given potential obstacles related to wildlife, lands, and natural resources, and have favorable development cost characteristics. In other words, 

the WREZ will make obvious the most favorable renewable energy development 

areas. This will in turn enable individual load serving entities (LSE) to more easily 

evaluate which zones make economic sense to them. Where multiple LSEs have interest in a zone, they may provide the critical mass for development of a transmission project to move generation from that zone to the LSEs. As part of the 

WREZ project, a transmission model is also being developed to enable LSEs, regulators and others to evaluate which zones might individually be the most attractive. 

The WREZ project will also allow LSEs to evaluate more distant renewable resources areas. We believe the LSEs understand the needs in their services areas. 

What they may not understand is the optimal potential for meeting those needs 

with renewable energy. This project will provide broad geographic information that 

will assist the LSEs in increasing the renewable energy portion of their portfolios. 

RESPONSES OF RICHARD HALVEY TO QUESTIONS FROM SENATOR DOMENICI

Question 1. In your ongoing WREZ process with the Energy Department and 

other stakeholders, how are you addressing some renewable resources, such as 

water power, that will not fit neatly into these zones? 

Answer. At this point, it is the intent of the WREZ project to at least identify renewable resources both within and outside a renewable energy zone. However, additional analytical work such as development of cost curves and examination of wildlife, lands and natural resources characteristics will be limited to the renewable en-
87 

ergy zones. The major thrust of the WREZ is to identify those geographic areas with 

enough resource and other favorable characteristics to justify major transmission investments. Small resource areas, such as a single small hydro project typically do 

not require major transmission investments. However, as part of the identification 

of renewable energy potential, we intend to develop a roadmap that will outline how 

smaller resource areas can be integrated into resource portfolios. 

Question 2. Most of the hearing testimony emphasizes the benefits of a collaborative regional process to address the critical need for transmission infrastructure 

for a number of reasons, including reliability and the need to transmit alternative 

energy sources. Mr. Pickens, however, insists that these collaborative frameworks 

are—at several years—too lengthy and that the country simply can’t wait that long. 

Do you agree with Mr. Pickens? Is there any way to expedite or streamline these 

efforts? 

Answer. The WREZ project is working on an expedited timeline and we expect 

to have the identification of zones completed by early 2009. And given that the 

WREZ project is really a first of its kind with respect to its regional approach, it 

is premature to conclude that it will not provide the stimulus for more rapid renewable energy and transmission expansion. Secondly, given the potential opposition to 

certain renewable and transmission projects, the WREZ is likely to create greater 

certainty and minimal opposition regarding the developability of a number of areas. 

This in itself should reduce the overall timelines for project development. While Mr. 

Pickens’ suggestion of mega-developers with access to virtually unlimited capital is 

one model, it is not the norm, nor can we rely on it. Finally, if there is an implication that federal pre-emption of state siting processes will expedite development, the 

pre-emption process established in Section 1221 of EPAct has often triggered litigation. In the West, the record shows that it is the federal agencies that are typically 

the major cause of delay in permitting transmission lines. We believe that if the federal government streamlines and coordinates its permitting process before preempting state siting processes, it will result in expedited development. 

Question 3. With the National Interest Electric Transmission Corridor process established in EPAct 2005, Congress sought to address the critical issue of transmission siting. However, at this time, these provisions haven’t been fully implemented and no line as been sited pursuant to EPAct. Nevertheless, the NIETC process has been contentious. 

I was surprised then to read some testimony—including that from Mr. Pickens 

and Mr. Freeman with the WIA—that suggested these Energy Policy Act authorities 

did not go far enough. Mr. Pickens goes so far as to call on Congress to provide 

FERC with exclusive jurisdiction to site new transmission for a renewable project. 

Please comment. 

Answer. As you state, there is no track record that Section 1221 pre-emption 

works. To the contrary, to date this process has resulted in excessive litigation. We 

believe that if the federal government is to pre-empt state siting decisions it should 

only do so based on clear, convincing information. For example, in the case of the 

Department of Energy’s designation of a Southwest National Interest Electric 

Transmission Corridor, designation was based on anecdotal information and appears 

to be an arbitrary use of federal power. For that reason, any future federal NIETC 

designations must be based on robust information justifying the designation. Additionally, the pre-emption authorities in Section 1221 only apply to the condemnation 

of private lands. The major challenge in the West is securing permits to cross federal lands. 

Question 4. In general, is it advisable to mandate a transmission line to carry only 

renewable resources? Given the capacity factor issues, shouldn’t the construction of 

facilities needed to deliver wind also be available to deliver the back-up power and 

move other energy when the wind is not blowing? 

Answer. It is the policy of the Western Governors that transmission be available 

for whatever energy sources require it. Mandates that transmission carry only renewable power are not needed and may, in some circumstances, hinder development 

of renewable resources. For example, coupling flexible dispatch non-renewable generation with variable output renewable generation may improve the economics of a 

major transmission proposal by reducing generation integration costs and increasing 

line utilization resulting in higher prices for the renewable generation and lower 

transmission rates. The WREZ is intended to complement all the efforts related to 

implementing WGA policy, including development of a mix of clean and diverse energy resources and having a secure, reliable interstate transmission network that 

can move all generated electricity to markets. 
88 

RESPONSES OF WILLIAM KAUL TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. You say that you had to get legislation passed to facilitate the process 

to ensure cost recovering and permitting. Was that just in Minnesota or were there 

elements in the laws of other states that had to be changed? Is there something that 

we should do at the federal level in legislation? 

Answer. The legislative changes in Minnesota included addressing the issues of 

regulatory lag in cost recovery for investor-owned utilities, giving regional reliability 

and the electricity market due consideration in the certificate of need process, placing all transmission permitting within the purview of a single state agency and allowing for the transfer of transmission assets into a Transco if deemed in the public 

interest by the Minnesota Public Utilities Commission. Legislative changes sought 

and achieved in North Dakota and South Dakota addressed the regulatory lag issue 

only as other changes were deemed unnecessary. In our region, permitting and 

siting issues continue to take time (oftentimes 2 to 3 years) but the issues have not 

developed to the point that requires a federal role. 

Having said that—viewing transmission expansion primarily from the point of 

view of enabling the development of renewable energy resources—there have been 

significant delays and controversy surrounding the certificate of need process in 

Minnesota for two transmission lines that provide an outlet for the proposed Big 

Stone II coal plant, located in South Dakota, just across from the Minnesota border. 

There are significant unresolved issues associated with that project, related to carbon emissions from the plant, even though it is not located in Minnesota. The Minnesota Public Utilities Commission has delayed making a decision on the transmission line certificate of need pending further development of the record around 

future risks and liabilities for ratepayers for carbon costs. 

The CapX 2020 collaboration, as an open access, non-discriminatory common carrier, does not take any positions on the relative merits of various sources of generation, as required by the National Energy Policy Act of 1992. 

As the market for renewable energy develops regionally, and the need for significant new, extra high voltage (EHV) transmission materializes, a much broader regional collaboration will be necessary and the collaboration needs to include key regulatory and legislative policy makers in addition to transmission utilities. Initiatives 

are underway attempting to meet the challenges. 

For example, the Midwest ISO (MISO) has begun a process of developing a transmission grid expansion plan and a new transmission tariff for renewable energy development within a 13 state region. The first phase of the plan is to be completed 

in June 2009. Also, the Midwestern Governors Association (MGA) has a working 

group addressing the challenges of expanding the transmission grid for the purpose 

of developing renewable energy in its broad Midwestern region. The challenges are 

significant and if the MISO and the MGA are unable to meet them, a strong argument for federal legislation and/or regulation, multi-state siting and/or cost recovery 

could evolve. While time is of the essence—since the planning horizon for a large 

scale, inter-regional EHVgrid expansion is many years—the need for federal role in 

this region is not immediate. The CapX 2020 planning horizon is now in the 2016- 

2025 timeframe and these are the very issues we face. 

Question 2. Does the Midwest ISO cost allocation formula on file at FERC, that 

is 80% participant funding/20% rolled-in cost, facilitate the construction of new 

transmission for renewables? 

Answer. Inadvertently. While it never was intended to, the MISO ‘‘reliability’’ 80/ 

20 tariff will provide a substantial ancillary benefit for wind development with the 

initial group of CapX 2020 projects. Actually, MISO has three tariff formulas in 

place that apply to projects depending on how they are classified, either as reliability, generation interconnection or economic. The 80/20 tariff formula is for 

projects that fit into the reliability category. Different cost allocation formulas apply 

for projects classified as generation interconnection or economic. In the reliability 

category, 80% is paid by customers in the geographic area whose service reliability 

is directly affected by the project. The 20% portion is rolled-in or ‘‘postage stamp’’ 

MISO-wide. The rolled-in portion (the 20%) of the tariff only applies to projects 345 

kV or greater. CapX 2020 has two projects that were designed to address system 

reliability issues and likely will be classified as such, but that will also provide significant additional transfer capability to the system. 

The MISO generator interconnection tariff is the tariff directly relevant to wind 

generators. However, this tariff was developed prior to the time when the transmission service request queues started filling up with wind projects. It was designed 

more for the gas turbine projects of the day and worked well for that purpose. It 

calls for the generation developer to pay for 50% of the network upgrades necessary 

for reliable operation of the system caused by the generator’s project. The other 50% 
89 

is paid by local customers who derive a reliability benefit from the network upgrades. It’s widely acknowledged that the generator interconnection tariff does not 

work well for wind projects. That is because the transmission developer must be 

able to identify the wind project developers at the time the transmission project is 

proposed. Since major transmission projects have a 5 to 7 year or longer lead time 

and wind projects have just a 2 year or shorter lead time, it is impossible to line 

up the developer’s 50% commitment when the transmission project is proposed. 

Wind project developers cannot negotiate power purchase agreements (PPAs) that 

far in advance. 

The California ISO has come up with, and the FERC has approved, an innovative 

financing approach that has the transmission owner pay all capital costs up front. 

Until the transmission investment later is recouped from wind generators as they 

interconnect to the transmission line, the transmission owner begins recovering the 

investment from its retail customers. Other regions, including ours, are looking at 

this approach to the extent it can be applied to certain types of transmission lines. 

In our view, cost allocation procedures should take an inclusive, long-term view 

of project benefits and allocate costs over an appropriate size region. The mechanism(s) should be understandable and predictable without unreasonable analysis requirements and administrative burden. As mentioned above, MISO is working with 

stakeholders to propose a tariff that will facilitate the development of renewable resources in this region. 

Once again I will refer you to the White Paper on principles of cost allocation and 

recovery commissioned by the WIRES organization, included with my testimony. 

RESPONSES OF WILLIAM KAUL TO QUESTIONS FROM SENATOR DOMENICI

Question 1. You testified that CAPX is a ‘‘joint ownership’’ initiative that involves 

investor-owned, municipal and cooperative utilities in the planning, financing and 

ownership of transmission upgrades. What are the benefits of the ‘‘joint ownership’’ 

model and why did you proceed in this manner? 

Answer. The Upper Midwest is populated with numerous non-profit cooperative 

and municipal utilities, as well as investor-owned utilities. These business models 

each have their advantages. For the non-profits, the advantages are low cost capital 

that can be leveraged for consumer benefit and self-regulation. Investor-owned utilities provide good investment opportunities in a highly capital intensive business 

that needs to attract capital. Joint ownership provides each business model an opportunity to achieve its goals. It also presents an opportunity to coordinate and gain 

consumer, landowner and political support for large-scale transmission projects. The 

CapX 2020 joint ownership model further provides efficiencies in planning, constructing and operating facilities, reducing the need for redundant functions and facilities in our overlapping geographies. 

Question 2. Are there other successful examples of ‘‘joint ownership’’ of transmission in the U.S? 

Answer. Joint ownership is not new—this model was used during the last major 

infrastructure build-out in the 1970’s for new generation and transmission. Many 

power plants are jointly owned by multiple parties that include public power, cooperatives and investor owned utilities. One of the oldest transmission joint ownership arrangements is the integrated system in Georgia, which is jointly owned by 

Georgia Power, Georgia Transmission Company (a cooperative) and the Municipal 

Electric Authority of Georgia. Some other examples include: the American Transmission Company (Wisconsin Public Power Inc. owns 5.7% of the company); and 

Cinergy, Wabash Valley Power Association, and Indiana Municipal Power Agency 

which own a Joint Transmission System covering two-thirds of Indiana, part of Ohio 

and a small part of Kentucky. 

Areas where joint ownership exists as the transmission development model have 

more robust integrated planning and development. This, generally, results in fewer 

transmission reliability and capacity deficiencies than occur in areas without joint 

ownership. We believe that joint ownership could facilitate financing and construction of transmission in every part of the country, given sufficient support from Congress and the FERC. 

Question 3. The State of Minnesota has a very aggressive state RPS requirement—30% by 2020 for Xcel Energy and 25% by 2025 for other utilities. Is Minnesota on target to meet these RPS requirements? 

Answer. Minnesota utilities are on track to meet these requirements. One of the 

concerns at the time the bill was drafted was whether transmission system limitations would prevent achieving the RPS. To address that concern, the legislation also 

required a transmission study that would identify new transmission facilities necessary to meet milestones in 2010, 2012, 2016, 2020 and 2025. That study was com-
90 

pleted in November 2007. The result indicated that the CapX 2020 utilities had in 

place, proposed or were planning new projects to achieve the milestones through 

2016. 

As indicated in my testimony, meeting milestones beyond 2016 requires the integration of Minnesota RPS requirements with those of a larger market—going from 

6000 MW to 15,000 MW or more; thus, efforts were launched by MISO, the MGA 

and CapX 2020 to look at broader regional planning. However, there are significant 

issues associated with transmission cost allocation if we are to build transmission 

beyond the needs of the Minnesota RPS. The current MISO tariff options do not 

meet the market needs for transmission development on this much broader scale, 

primarily for renewable energy development. 

Question 4. In general, is it advisable to mandate a transmission line to carry only 

renewable resources? 

Answer. No. Laws of physics and concerns about reliability and economics militate 

against such a mandate. Additionally, the Energy Policy Act of 1992 prohibits discriminatory use of the transmission system and therefore requires all generation resources equal access and use of the transmission grid. A national policy on carbon 

and/or renewable energy portfolio standards would be a more effective approach if 

the Congress wants to accelerate renewable energy development. 

Given the capacity factor issues, shouldn’t the construction of facilities needed to 

deliver wind also be available to deliver the back-up power and move other energy 

when the wind is not blowing? 

Yes. Intermittent resources such as wind need not only back-up power but other 

ancillary services as well. These other ancillary services include such things as load 

following, frequency response and voltage support. The transmission system needs 

to be designed to integrate all sources of generation, in addition to intermittent resources, into the entire system and managed as a whole, to be efficient and maintain reliability. While it may be possible to use the transmission that was constructed for the wind to also provide the back-up power and ancillary services for 

the wind, siting the needed back-up generation to use the transmission for wind capacity may not be the best location for system reliability or economics. To achieve 

a high level of penetration of intermittent renewable resources in an area, such as 

wind, that area must be able to interact with other areas to maintain the required 

real-time load-generation balance. That interaction requires sufficient transmission 

capacity between the areas, and this consideration alone will require expanding the 

system. 

Siting any generation is very fact specific and depends on the generation technology to be used. Transmission plays an important role in generation siting but 

there are many other factors such as fuel source, water source, labor availability 

and the ability of technology to maintain reliability to name a few. 

Question 5. The intermittent nature of renewable resources like wind present 

some challenges. How far off are future technological advances, such as electricity 

storage and better wind forecasting, which could help address some of these challenges? 

Answer. As the amount of wind generation increases, the challenges of providing 

load-following, frequency response and voltage support will increase. There will be 

a real limit on how much intermittent energy can be accommodated by the electric 

grid, both in physical and economic terms. Industry experience to date, at lower levels of penetration of wind generation, has been mostly positive, especially in an organized market such as exists in MISO. However, there was a recent experience of 

system instability in Texas in which wind generation was a contributing factor. As 

penetration of intermittent resources increases, utilities will gain experience in 

managing the challenges, but we must be cautious. So far, storage remains in a research mode and not yet commercially viable. Integrating weather forecasts into operations will help some. Geographic scope and diversity of the intermittent resources 

will help smooth the variability, but a much more robust transmission system will 

be required to realize that benefit. 

Question 6. With the National Interest Electric Transmission Corridor process established in EPAct 2005, Congress sought to address the critical issue of transmission siting. However, at this time, these provisions haven’t been fully implemented and no line as been sited pursuant to EPAct. Nevertheless, the NIETC process has been contentious. 

I was surprised then to read some testimony—including that from Mr. Pickens 

and Mr. Freeman with the WIA—that suggested these Energy Policy Act authorities 

did not go far enough. Mr. Pickens goes so far as to call on Congress to provide 

FERC with exclusive jurisdiction to site new transmission for a renewable project. 

Please comment. 
91 

Answer. In the Upper Midwest where some state level RPS mandates exist, transmission developments are moving along without a lot of regulatory impediments. As 

stated in my testimony, moving beyond a single jurisdiction or into a broader region 

without relatively consistent policy alignment and interest in renewable energy development, difficulties in permitting and determining cost allocation can be expected. These challenges increase the risks of transmission and wind developments 

and add delays and costs to an already long and expensive process. In the event 

that regional collaborations, such as that being undertaken by the MGA and the 

MISO are not successful, then a federal authority may be necessary in some cases. 

Once again, thank you for the opportunity to appear before the Committee. 

RESPONSES OF DONALD N. FURMAN TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. Could you expand on the thought that larger control areas reduce the 

effect of the intermittency of wind generation? What ownership and management 

structures seems to provide this kind of benefit? In other words, are there parts of 

the country where things are managed better than in others, and if so, where? 

Answer. There is strong evidence that larger control areas (also known as balancing areas) facilitate the integration of wind energy. The electric output from 

wind turbines over a broader area is less variable than the output from turbines 

clustered in a smaller area. In addition, larger balancing areas tend to facilitate access to a greater number of flexible generation facilities that can help integrate 

wind energy. 

Regional Transmission Organizations (RTOs) and Independent System Operators 

(ISOs) typically offer larger balancing areas. 74% of wind development in the U.S. 

has occurred within RTOs and ISOs, even though these areas comprise only 44% 

of the nation’s wind resources and 53% of electricity demand. 

A recent study required by the Minnesota legislature to assess the reliability and 

cost of providing 20% of the state’s electricity from wind stated: ‘‘The MISO [Midwest Independent System Operator] energy market also played a large role in reducing wind generation integration costs. Since all generating resources over the market footprint are committed and dispatched in an optimal fashion, the size of the 

effective system into which the wind generation for the study is integrated grows 

to almost 1,2000 individual generating units. The aggregate flexibility of the units 

on line during any hour is adequate for compensating most of the changes in wind 

generation.’’ 

Question 2. What kind of regulatory framework do you see as necessary for the 

resolution of multi-state cost allocation issues or siting problems? 

Answer. High-voltage transmission facilities benefit everyone by promoting electric reliability and providing consumers access to a greater number of electric generation facilities. In addition, these transmission facilities are critical if the nation 

is going to be able to tap the full potential of our vast renewable energy resources. 

Transmission cost allocation is probably the most challenging barrier to transmission development. The problem is that we have been allocating costs for a public 

good (transmission) on a voluntary basis. Some utilities their regulators would prefer to be free-riders, which leads to under-investment in transmission. 

FERC should be given more authority and guidance to spread transmission costs 

broadly across all users and over time. This approach has been used in Texas and 

the UK, with positive results. In the context of interstate transmission facilities, 

FERC is best positioned to advance the public good through broad cost allocation. 

FERC should also be given more authority to issue permits to construct transmission facilities if states are unwilling or unable to site the lines. FERC’s current 

siting authority should be expanded to include transmission lines that are needed 

to access and deliver significant amounts of renewable energy. 

RESPONSES OF DONALD N. FURMAN TO QUESTIONS FROM SENATOR DOMENICI

Question 1. It is my understanding that the capacity, or availability, of wind resources in the U.S. is between 10 and 15%. Is this correct? 

Answer. The electrical output of a wind turbine depends on the wind speed. For 

the period 2004-2006, the typical wind plant in the U.S. operated at an average of 

33-35% of its nameplate capacity, which is known as the plant’s capacity factor, a 

figure that discounts output to account for time periods when the turbine is not producing or is producing below its maximum output. While an average capacity factor 

of 33-35% may sound low, this compares quite favorably to the capacity factors of 

many other types of power plants. Historical data from MISO indicates an average 

capacity factor of 8% for natural gas combustion turbine power plants, 11% for natural gas combined cycle plants, 3% for oil fired power plants, 27% for hydroelectric 
92 

plants, 66% for coal power plants, and 75% for nuclear power plants. In addition, 

wind plant capacity factors continue to increase due to advances in turbine technology and wind plant design. 

Question 2. Since wind is an intermittent resource, must a buyer arrange for 

back-up power to meet load when the wind does not blow? 

Answer. Grid operators are accustomed to accommodating a large amount of variability in the supply and demand of electricity. Demand for electricity changes constantly. Similarly, electricity supply can vary significantly if a power plant experiences failure and must disconnect from the grid in a fraction of a second, as all 

power plants do on occasion. 

To accommodate this variability, system operators maintain a significant amount 

of reserve generation that can be called-up on short notice. Grid operators pool reserves for the whole system to allow them to respond to a variety of potential 

changes in electricity supply and demand. These same reserves are what grid operators use to accommodate the variability of wind energy. 

Adding a large amount of wind energy to the grid can add some variability to the 

power system and thus cause an incremental increase in the need for reserves. However, a large number of studies have indicated that incremental reserve additions 

needed to accommodate wind energy are very modest, as are the costs of maintaining these reserves. 

Question 3. Is the wind industry undertaking research and development to assist 

transmission providers with dealing with the intermittent nature of the resource? 

Answer. Research and development efforts undertaken by members of the wind 

industry have produced technological advances hat have greatly enhanced the capability of wind plants to control voltage, frequency, and reactive power in ways that 

significantly improve the reliability of the power grid. As wind energy has become 

a mainstream source of electricity generation, industry leaders have devoted significant resources to ensuring that wind energy technology keeps pace with the demands of being a mainstream contributor to electric grid reliability. 

The American Wind Energy Association (AWEA) has developed and distributed 

best practices for the reliable integration of wind energy with the electric grid. 

AWEA works with the Institute of Electrical and Electronics Engineers (IEEE), the 

Utility Wind Integration Group, the National Renewable Energy Laboratory, the 

Department of Energy, electric utilities, and international experts to disseminate 

the latest scientific findings related to the reliable integration of wind energy. 

Question 4. In general, is it advisable to mandate a transmission line to carry only 

renewable resources? Given the capacity factor issues, shouldn’t the construction of 

facilities needed to deliver wind also be available to deliver the back-up power and 

move other energy when the wind is not blowing? 

Answer. For transmission lines that serve as part of the grid network, it is physically impossible to restrict the use of these lines to electricity from renewable resources. First, it is impossible to discern between electrons that are generated by 

renewable resources and electrons that are not. Even if this were not the case, the 

laws of physics dictate that electricity will flow along the path of least resistance 

from where it is generated to where it is consumed, making it very difficult to regulate the flow of electricity on the grid. 

It is possible to ensure that new transmission lines will carry a significant 

amount of renewable energy by prioritizing construction of transmission lines in regions with significant renewable energy resources. Policies to promote the construction of transmission to renewable energy resource zones have been quite successful 

in Texas, Colorado, and California. 

Question 5. The intermittent nature of renewable resources like wind present 

some challenges. How far off are future technological advances, such as electricity 

storage and better wind forecasting, which could help address some of these challenges? 

Answer. Wind energy forecasting is already playing an important role in reducing 

the cost of integrating wind energy by reducing uncertainty about what wind output 

will be several hours or days in advance. Wind forecasting techniques are already 

quite advanced and are highly accurate, although incremental improvements in data 

collection and modeling techniques may yield further increases in accuracy. There 

is significant potential for better integrating wind forecasts into grid operations and 

better tailoring these forecasts to formats that are most useful to grid operations. 

For example, the New York ISO recently announced its implementation of a wind 

forecasting system that will allow operators to know in advance the level of wind 

output on its system. 

Energy storage technologies deployed to serve the needs of the grid as a whole 

have the potential to modestly reduce the cost of integrating wind energy. Currently, increasing and decreasing the output of flexible generators has proven to be 
93 

1 20 Percent Wind Energy Penetration in the United States http://www.20percentwind.org/ 

BlacklVeatchl20lPercentlReport.pdf 

* Graphics have been retained in committee files. 

a more cost effective means of accommodating variability on the electric grid than 

energy storage. It is important to emphasize that even if energy storage were to become more cost-effective, it would be inefficient to treat it as a resource dedicated 

to accommodating the variability of wind energy alone. It is much more efficient for 

flexible resources, such as energy storage, to serve as reserves for the grid as a 

whole instead of being dedicated to specific generators. 

Question 6. With the National Interest Electric Transmission Corridor process established in EPAct 2005, Congress sought to address the critical issue of transmission siting. However, at this time, these provisions haven’t been fully implemented and no line as been sited pursuant to EPAct. Nevertheless, the NIETC process has been contentious. 

I was surprised then to read some testimony—including that from Mr. Pickens 

and Mr. Freeman with the WIA—that suggested these Energy Policy Act authorities 

did not go far enough. Mr. Pickens goes so far as to call on Congress to provide 

FERC with exclusive jurisdiction to site new transmission for a renewable project. 

Please comment. 

Answer. The Energy Policy Act of 2005 authorized provided FERC with ‘‘backstop’’ authority to site transmission lines, under certain circumstances, if the proposed line would be located in a National Interest Electric Transmission Corridor 

(NIETC) as designated by the Department of Energy (DOE). FERC has no authority 

over a proposed transmission facility if the facility is not in a NIETC. To date, DOE 

has only designated two corridors. In addition, it is not entirely clear whether DOE 

believes it has the authority to designate corridors in areas that are not currently 

congested but where significant renewable resources are located. At the very least, 

the statute should be amended to permit DOE to designate areas with significant 

renewable energy potential as NIETCs. 

It may also be appropriate for Congress to consider whether to grant FERC exclusive authority to site certain interstate transmission lines. As FERC Chairman 

Kelliher recently testified before the Senate Energy and Natural Resources Committee, FERC’s current backstop authority does have some limits that could impair 

the construction of vitally necessary transmission facilities. I agree with Chairman 

Kelliher that Congress should consider giving FERC broader authority. 

Question 7. I understand that it can be difficult to quantify the costs of wind 

power to the consumer. Please provide the committee with the cost per kilowatt 

hour of wind energy throughout the county on a region-by-region basis and, if possible, state-by-state basis. 

Answer. The cost of wind will vary by region of the country, mostly related to the 

wind resource and capacity factor. The Midwest and Western regions of the country 

have some of the best wind resource and therefore may have a lower cost per kilowatt hour than other regions of the country. The range of capacity factors in 2007 

by region are below, from DOE Annual Wind Power Market Report. 

An improvement in capacity factor will lead to an equivalent improvement in cost. 

For example, a 10% increase in capacity factor (33% increasing to 36%) will lead 

to a 10% decrease in cost per kWh, holding all else equal. 

For the recent DOE report, 2% Wind Energy by 2030, Black & Veatch developed 

cost estimates for wind, along with other technologies.1 Without the PTC, the wind 

cost estimates range from 7.2 cents to 8.5 cents per kilowatt hour for class 4 

through 6 wind resources, depending on capacity factor. 

Finally, the cost of wind has increased significantly in recent years, primarily due 

to increased turbine costs which is a result of exchange rate penalty and declining 

value of the US dollar, increased steel prices and other raw commodities, and labor 

costs. The cost of all energy resources has increases similarly. The recent increase 

is documented in the DOE Annual Wind Power Market Report, see chart below.* 

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