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[Senate Hearing 110-538]
[From the U.S. Government Publishing Office]

                                                        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

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           BOB CORKER, Tennessee
KEN SALAZAR, Colorado                JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel

                            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

                         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.
    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 
potential, 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 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.

    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.
    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 infrastructure, 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.
    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.

              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 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 
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, bio-fuels, hydroelectric and 
nuclear.
    Natural gas and bio-fuels are the only fuels on the list that work 
to replace foreign oil for transportation. It's my belief that bio-
fuels, while helpful, will not be the total solution.
    So we have domestic natural gas as the replacement for foreign oil. 
Natural gas is clean, abundant, affordable and, again, domestic.
    Natural gas is the second largest energy resource in the country. 
When you look at the piechart of power generation in the United States, 
you have 50 percent coal, 22 percent natural gas, 20 percent nuclear 
and 8 percent hydro and renewables.
    If we take the natural gas we're using for electrical generation 
and move it to transportation, we can replace 38 percent of our foreign 
oil imports. And that, sports fans, is a real number.
    Using natural gas for transportation is not a new idea. While there 
are only 150,000 vehicles running on natural gas in the U.S., there are 
nearly 8 million automobiles worldwide and that number is growing 
rapidly. We're getting beat by the French in nuclear power, and by the 
world in natural gas vehicles. We should be leaders, not laggards.
    I know that we can do this because we've done it before. President 
Eisenhower led us to build an extraordinary interstate highway system. 
President Kennedy took us to the moon. And President Reagan led us to 
win the cold war.
    If you could lower your foreign oil imports by 38 percent, you are 
reducing the amount of money you're exporting by 38 percent. Reduce 
$700 billion in foreign oil purchases by 38 percent and you'll see an 
annual savings of nearly $300 billion every year. $300 billion more 
would be staying inside our country instead of going to other countries 
overseas.
    Nothing can reduce your imports better than this and you work with 
energy supplies right here.
    But if we use all of that natural gas for transportation, how do we 
displace it from the nation's electrical grid?
    The Sweetwater, Texas, wind complex is the model. If you take the 
total Sweetwater complex it will soon be producing 2,000 megawatts. The 
Shell Oil Company and TXU are getting ready to do another project just 
north of Sweetwater, and that's 3,000 megawatts. My company, Mesa 
Power, just put under contract with GE the largest single turbine order 
that has ever been given. The first phase of the Mesa Pampa Wind 
Project will be capable of generating 1,000 megawatts of electricity, 
enough for 300,000 average U.S. homes. When we complete the entire 
project, it will have the capacity to generate some 4000 megawatts and 
will have cost close to $10 billion.
    We have the best wind in the world. It's time we got serious about 
using it.
    The US wind corridor runs from Sweetwater to Pampa and Goodland, to 
Kansas, and Hastings, Nebraska and right up the line to Canada. The 
Department of Energy in April of this year showed that we could develop 
20 percent of our electricity generation from wind using wind resources 
in the heartland of the United States.
    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 built to high 
capacity, which means that there must be a large amount of generation 
capacity in one place.
    I happened to be lucky with my project, because I was already 
planning a water project that required a pipeline running in the same 
direction that I needed transmission for my wind project. The water 
project pipeline right of way eliminated the siting and permitting 
issues, but I still have to face the financing, and cost recovery 
issues.
    As you may know, Texas has taken a leadership role in encouraging 
the development of wind generation. The Texas Legislature has adopted a 
renewable portfolio standard, which has encouraged development of wind 
projects in Texas, and has directed the Texas Public Utility Commission 
to identify competitive renewable energy zones (CREZ)--areas that are 
well suited to development of renewable energy production, and to adopt 
policies that will make transmission available to those zones.
    However, the Texas CREZ process began in 2005, and is expected to 
be completed in 2013. I am eighty years old, and I don't have time to 
wait for the process to be completed, and neither does this country. I 
am building my own transmission line, which will ultimately travel 250 
miles in Texas from the top of the Panhandle to near the Dallas/Fort 
Worth area, and I will have to pay for this transmission line myself. 
Not very many wind developers are in a position to do this.
    I expect to sell my power in the Texas ERCOT market where prices 
are set by competition among power generators. As a result, I will not 
be able to simply increase the price of my power to cover transmission; 
instead, my profits will be reduced by my transmission line costs. This 
is a penalty that I am willing to pay in order to get my electricity to 
market first, but it is not a burden that most developers can bear. It 
requires scale and financial capacity. That is how I came to build the 
world's largest wind farm. It is the only way to pay for the 
transmission capacity as a private line, and it is only feasible within 
Texas. If you want to do it on a national scale, where the transmission 
line distances will be much longer, and utility regulations are 
different, Congress must act.
    As I said earlier, I believe that the United States has the 
opportunity to build renewable electricity capacity to serve a 
substantial part of our needs for energy. By doing so, we will increase 
our energy security, improve our environment, revitalize the heartland 
of the United States, reduce the demand for natural gas to be used as 
fuel for generation, reduce the production of greenhouse gases, and 
reduce the demand for water to be used in thermal generation.
    In order to secure these benefits, the issues that I identified 
above must be addressed. Let me take a moment to explain each of them.
    Siting Authority.--As a land owner myself, I understand concerns 
that landowners have about having their property taken for public use. 
Quite properly, our Constitution provides protection for landowners 
from arbitrary takings. However, for more than 150 years, we have 
recognized that private companies transporting the common necessities 
of life, food, water, fuel and electricity, to cities and towns are 
serving the public interest because life in the cities would not be 
possible without those necessities. As a result, private companies, 
such as Mesa Power, have been permitted to use the power of eminent 
domain, subject to oversight by public authorities and the courts, to 
obtain rights of way for transportation corridors.
    This system worked well for many years, but the large distances 
between the best sites for renewable power and the places where that 
power is needed have presented new challenges. The state public 
authorities that oversee the use of eminent domain by private companies 
are required to consider the benefits of the project to the citizens of 
their states. They often have indicated that they do not have the 
authority to consider the benefits to citizens of the United States who 
are not residents of their states in deciding whether a particular 
transmission line should be permitted to be located through the power 
of eminent domain.
    No project sponsor likes to use eminent domain powers. It is slow, 
cumbersome, expensive and unpredictable. Negotiated easements that 
result in a landowner willingly permitting the use of the land are very 
desirable. However, a transmission line with a gap in it, no matter how 
small, is useless. Any single landowner along a transmission route can 
prevent the entire project from being constructed, no matter how 
important the transmission project, unless the transmission provider 
has the power of eminent domain.
    Where state utility commissions are limited by state law to 
considering benefits to citizens of their state, eminent domain power 
may not be available to transmission developers wishing to cross the 
state without providing transmission service to local generators or 
local electricity users. This problem was recognized in the Energy 
Policy Act of 2005 (EPAct 2005), but the provisions of that act, which 
added Section 216 of the Federal Power Act, need to be extended. 
Section 216 currently requires that the Secretary of the Department of 
Energy conduct a study and issue a report designating corridors as a 
National Interest Electric Transmission Corridors every three years. 
After the designation, a transmission service provider can seek siting 
approval from a state commission, and if the approval is not received 
within one year, the provider can then seek siting approval from the 
Federal Energy Regulatory Commission (FERC). This introduces a 
potential delay of over four years before the FERC transmission 
approval process can even begin. In addition, there is not agreement 
that the language of Section 216 authorizes a finding by the Secretary 
of Energy that transmission is ``constrained'' if there is a proposed 
project, but no available transmission at all. Congress needs to 
address these issues by amending Section 216 to direct the Secretary to 
make designations of National Interest Electric Transmission Corridors, 
outside the three year cycle provided by Section 216, upon request from 
a transmission service provider who can show that a renewable project 
developer has requested service and a load serving entity is willing to 
contract to purchase power from the renewable project developer. 
Congress also needs to provide the FERC exclusive jurisdiction to site 
new transmission for a renewable energy project in the specific case 
where a developer has contracted to build, and a load has contracted to 
buy the energy from, a new renewable energy resource.
    Federal Lands.--Most long transmission lines in the west will cross 
federal lands. Again, while EPAct 2005 recognized the issue, and 
provided a process to address the issue, the process for approval 
should be streamlined. Either designation of a national interest 
electric transmission corridor by the Secretary of Energy or specific 
siting approval by the FERC should be sufficient to grant approval by 
the United States for use of any federal lands crossed by the proposed 
transmission line. (EPAct 2005 excluded lands included within the 
National Park System, the National Wildlife Refuge System, the National 
Wild and Scenic Rivers System, the National Trails System, the National 
Wilderness Preservation System, or a National Monument from its scope, 
and that exclusion should be continued.). Any affected federal agency 
could appear in the FERC proceeding to present any concerns regarding 
the use of federal lands included in the proposed route for the 
transmission line.
    Federal Permitting.--Every transmission line involves multiple 
approvals from the United States and its agencies and departments. 
While it is possible with enough time and patience to gather the 
necessary permits, it introduces unnecessary delays into the process. 
Again, EPAct 2005 addressed the issue, but the process can be further 
streamlined. While EPAct 2005 did authorize the DOE to take the lead in 
coordinating federal permitting, and required other agencies and 
departments to enter into a memorandum of understanding with DOE 
regarding permitting projects, I believe that DOE should be authorized 
to issue the required permits directly after the transmission service 
provider meets the requirements for those permits in the judgment of 
DOE.
    Equitable Cost Allocation and Recovery.--As I said earlier, a 
transmission line with a gap in it is worthless. Put another way, there 
is no useful way to build a transmission line in phases. It either is 
or it isn't. As a result, the costs are all incurred at once before it 
is available for use. Generation, on the other hand, can be built over 
time, and may have to be built as wind turbines become available. That 
means that the first wind turbines on a transmission line may not be 
able to bear the entire cost of the transmission line until more of the 
transmission line capacity is in use.
    In Texas, we have concluded that transmission service to renewable 
energy production areas is socially desirable, and our legislature has 
directed our public utility commission to develop a plan, the CREZ plan 
that I mentioned earlier, to pay for extending transmission lines to 
serve areas where renewable resources are available to generate 
electricity. The cost of those lines will be paid by the ratepayers 
throughout ERCOT, because all of them benefit. In Texas, we have a very 
large market for electricity, the ERCOT market, so that several billion 
dollars of costs can be spread across the entire market without 
creating a problem for electric rates. In much of the rest of the 
country that is not true. It is a particular problem where many 
interconnected systems would benefit from new long distance 
transmission to serve renewable generation projects, but one utility or 
group of rate payers is expected to bear the entire cost.
    Once again, Congress addressed the issue in EPAct 2005, but the 
FERC needs to be directed to spread the costs more widely, across 
multiple states if necessary, to reflect the benefits that are gained 
from the transmission project in terms of congestion relief, and other 
benefits. I propose that the FERC should be directed to allocate the 
costs of a new transmission line constructed under a special renewable 
resource NIETC designation that the FERC has sited to all load that 
benefits from the access to the energy transmitted over the line.
    Equitable Allocation of Capacity.--If I put several billion dollars 
at risk, which I expect to do with my project, it does not strike me as 
fair that someone else can show up after everything is built, and all 
of the risks have been taken, and ask for and receive the right to use 
the transmission line that I paid for and force me to curtail 
transmission of my own electricity to permit them to use the 
transmission line. If you are going to encourage people to take 
entrepreneurial risk, you cannot expect them to do so if they can 
receive the same benefits by sitting back and waiting for someone else 
to take all the risk. Open access is fine for transmission lines that 
have already been in service for many years and their costs recovered, 
but there must be a process that encourages renewable generation 
developers to put up risk capital in return for preferred access rights 
to transmission capacity.
    Financial Incentives.--I think that I may be unique both in being 
willing to take the risks that I am taking in developing my wind 
project, and in having the capital to do so. Most of the other wind 
developers, even the other developers who are willing to develop on 
utility scale, are not willing to take the sorts of risks that I am 
facing. I would not be willing to do it if I was not a believer that 
Congress will do the right thing in the end. Wind and other renewable 
energy projects need production tax credits. For projects like the one 
that I am building, we need predictable policies regarding the credits 
for the long period that it takes to get everything put together. My 
project, even with the favorable regulatory climate for wind in Texas, 
will take seven or eight years to complete. If we decide to build more 
generation capacity to supply other parts of the country, it may even 
take longer from start to finish. We need to know, when we start, what 
economic incentives will be in place when we get to the finish line. 
Otherwise, developers have to use very conservative assumptions about 
project economics, and many projects just won't get built. We also need 
targeted incentives for transmission lines, such as the loan guarantee 
program for rural renewable transmission lines that was proposed by the 
Senate in its version of the Farm Bill. Long distance transmission 
projects for renewable energy should qualify for an investment tax 
credit as well. When climate change legislation is considered again, if 
a cap and trade program is the mechanism, renewable energy projects 
should receive an allocation of credits based upon production. Those 
credits can be sold to help underwrite the cost of transmission lines 
to serve remote projects.
    If we do these things, our country will benefit. We will see 
reduced demand for imported oil, cleaner air, a reduction in the price 
of natural gas, savings in demand for water to cool thermal generation, 
revitalization of the rural heartland in the central United States, and 
natural gas used for higher, better purposes than electricity 
generation.
    We can fix these problems over time if we move a meaningful amount 
of our power needs to alternatives. There are no enemies, no 
competitors, nothing in domestic alternatives.
    I have a mission ladies and gentlemen. That mission is to try to 
explain what I've just explained here. And no matter how many times I 
explain it nobody argues with me about it. Which is interesting because 
I wish somebody would jump up and say you're wrong and let me show you 
where you're wrong. And nobody does that. Everybody says, well, that 
sounds like a good idea.
    So, I don't know whether it's a good idea or whether they don't 
understand.
    Again, thank you Mr. Chairman for holding this hearing today. If we 
don't solve the energy problems we are facing, the hole we are in will 
continue to grow and swallow more and more of our scarce resources and 
will overwhelm us as a nation.
    I am happy to answer any questions you may have.

    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 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 California, 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 
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 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 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.
    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.

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.*
---------------------------------------------------------------------------
    * Project maps have been retained in committee files.
---------------------------------------------------------------------------
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 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. To-date, 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:  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
   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 on-ramps 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.
    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.
    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.
    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 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 uncertainties 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.
---------------------------------------------------------------------------
    \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
    \2\ 2007. ``Nevada Utilities Want to Kill Bill Amendment that May 
Stifle Coal.'' California Energy Markets. December 7, p. 15.
---------------------------------------------------------------------------
    The first cornerstone of a flexible infrastructure foundation for 
Nevada is a north-south 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:
---------------------------------------------------------------------------
    \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.

   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 non-
utility 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 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 Nevada\8\ 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.
---------------------------------------------------------------------------
    \5\ NPC. ``Renewable Energy,'' http://www.nevadapower.com/company/
renewables/, retrieved January 30, 2008.
    \6\ SPPC. 2007 Integrated Resource Plan 2008-2027. Vol. 6, Supply 
Side Plan, Transmission Plan and Financial Plan, p. 98.
    \7\ Op. cit., pp. 60-61.
    \8\ RETAAC. Phase 1 Report. December 2007, p. 9.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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= 
news_view&newsId=20071128006106&newsLang=en.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \10\ SPR. 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.

    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.
    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 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 operations 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 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 
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.
    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?
    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.
    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.
    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. 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 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 barrels 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.
    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.
    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.
    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 non-discriminatory.
    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 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 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. 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.
    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 increase 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 describe 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 three-quarters 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\
---------------------------------------------------------------------------
    \1\ Federal Columbia River Transmission System Act, 16 U.S.C. Sec.  
838k.
    \2\ See Federal Columbia River Transmission System Act, 16 U.S.C. 
Sec.  838i(b)(5); see also Bonneville Project Act, 16 U.S.C. 832a(f).
    \3\ Federal Columbia River Transmission System Act, 16 U.S.C. Sec.  
838k(a); Continuing Appropriations for 1983, Act of December 21, 1982, 
Pub. L. 97-377, Title V, Sec.  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, Sec.  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. Sec.  832a(e), (d).
---------------------------------------------------------------------------
               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.
---------------------------------------------------------------------------
    \6\ Pacific Northwest Electric Power Planning and Conservation Act, 
16 U.S.C. Sec.  839d
---------------------------------------------------------------------------
    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 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.
---------------------------------------------------------------------------
    * Figures 1-2 have been retained in committee files.
---------------------------------------------------------------------------
    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 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.

             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 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.
    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 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 transmission. 
A package of materials further describing CapX 2020 and its proposed 
projects is included with this testimony.*
---------------------------------------------------------------------------
    * Additional materials have been retained in committee files.
---------------------------------------------------------------------------
    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 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 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 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, I have had the opportunity to view transmission 
issues from the perspective of both a transmission developer/operator 
and a transmission customer.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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:
---------------------------------------------------------------------------
    \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.

   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\
---------------------------------------------------------------------------
    \4\ Id. at pages 12-18.

    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.
---------------------------------------------------------------------------
    \5\ 26 U.S.C. Sec. 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. Sec. 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.
---------------------------------------------------------------------------
                               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\
---------------------------------------------------------------------------
    \7\ ``20 Percent Wind Energy Report'' at page 94.
    \8\ Statement of Richard Sergel, President and CEO of the North 
American Electric Reliability Corporation, American Wind Energy 
Association Press Conference (March 19, 2008).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \9\ ``20 Percent Wind Energy Report at pages 12-17.
---------------------------------------------------------------------------
    Although the level of investment that will be required for new 
transmission facilities is substantial, the costs of doing nothing are 
far greater, both in terms of reliability and overall electricity 
prices. Transmission typically makes up less than ten percent of the 
delivered cost of electricity.\10\ New transmission capacity typically 
enables a utility to access lower cost generation--which makes up a 
much larger portion of consumer electric costs\11\--and thereby the 
transmission more than pays for itself. The Midwest Independent System 
Operator (``MISO'') recently examined the costs and benefits of 
developing 16,000 megawatts of wind energy on the MISO system and 5,000 
miles of new 765 kv transmission lines to enable the transmission of 
wind energy generated in North and South Dakota to the New York City 
area. Even though the generation and transmission costs would amount to 
approximately $13 billion, the study determined that, on a net basis, 
consumers would save approximately $600 million per year because the 
new transmission would enable utilities to acquire lower cost 
electricity.\12\
---------------------------------------------------------------------------
    \10\ Energy Information Administration Annual Energy Outlook 
(2005).
    \11\ Ibid.
    \12\ ``20 Percent Wind Energy Report'' at page 96.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    * Map has been retained in committee files.
    \13\ Id. at page 98.
    \14\ Id. at 94.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \15\ Section 1221 of the Energy Policy Act of 2005 authorizes FERC 
to consider the approval of a transmission line proposed to be located 
in a National Interest Electric Transmission Corridor as designated by 
the Department of Energy if state regulators fail to approve the line.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \16\ ``Facilitating Wind Development: The Importance of Electric 
Industry Structure'', B. Kirby and M. Milligan, National Renewable 
Energy Laboratory (May, 2008).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \17\ Congressmen Jay Inslee and Earl Blumenauer have introduced a 
similar bill--H.R. 4059, ``The Rural Clean Energy Superhighways Act''.
---------------------------------------------------------------------------
    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 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 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 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?
    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.

                     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 lower-priced generation 
that would be available with additional transmission access.
    Historically, the challenges to improving the grid have been 
obtaining rights-of-way, 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 load-serving 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 different 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.

               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.
                                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.

              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 regional-scale 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--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.
                                 ______
                                 
                                      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 integration 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 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 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?
    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?
    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?
    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.
    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 near-term 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.
    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 multi-gigawatt 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 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 electricity 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 energy 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 pre-empting 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.
                                 ______
                                 
      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% 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 completed 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.
    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 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 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.
---------------------------------------------------------------------------
    \1\ 20 Percent Wind Energy Penetration in the United States http://
www.20percentwind.org/Black_Veatch_20_Percent_Report.pdf
---------------------------------------------------------------------------
    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.*
---------------------------------------------------------------------------
    * Graphics have been retained in committee files.

                                    

      
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