```

[Senate Hearing 110-134]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 110-134
 
      ALTERNATE ENERGY-RELATED USES ON THE OUTER CONTINENTAL SHELF 
=======================================================================
                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   TO

    RECEIVE TESTIMONY ON ALTERNATE ENERGY-RELATED USES ON THE OUTER 
CONTINENTAL SHELF: OPPORTUNITIES, ISSUES, AND IMPLEMENTATION OF SECTION 
                  388 OF THE ENERGY POLICY ACT OF 2005

                               __________

                              JUNE 7, 2007

                       Printed for the use of the
               Committee on Energy and Natural Resources

                              -------

                     U.S. GOVERNMENT PRINTING OFFICE

37-581 PDF                 WASHINGTON DC:  2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office  Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800  Fax: (202) 512-2250 Mail Stop SSOP, 
Washington, DC 20402-0001

               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                    CRAIG THOMAS, Wyoming *
TIM JOHNSON, South Dakota            LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana          RICHARD BURR, North Carolina
MARIA CANTWELL, Washington           JIM DeMINT, South Carolina
KEN SALAZAR, Colorado                BOB CORKER, Tennessee
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

----------
* Senator Thomas passed away on June 4, 2007.

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Allred, C. Stephen, Assistant Secretary for Land and Minerals 
  Management, Department of the Interior.........................     2
Bak, Jason, CEO, Finavera Renewables, Inc., Vancouver, British 
  Columbia.......................................................    28
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     1
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     8
Grainey, Michael W., Director, Oregon Department of Energy, on 
  Behalf of Governor Ted Kulongoski, Salem, OR...................    14
Robinson, J. Mark, Director, Office of Energy Projects, Federal 
  Energy Regulatory Commission...................................     9
Steve, Jaime, Legislative Director, American Wind Energy 
  Association....................................................    36

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    41

                              Appendix II

Additional material submitted for the record.....................    45

      ALTERNATE ENERGY-RELATED USES ON THE OUTER CONTINENTAL SHELF

                              ----------                              

                         THURSDAY, JUNE 7, 2007

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 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. I think we'll go ahead and get started. I 
believe Senator Domenici is on his way, and I know some of the 
other Senators are, as well; but, unfortunately, we're going to 
have some votes here in the next hour, I believe, on the Senate 
floor, so we need to go ahead.
    Today, the committee will hear testimony regarding the 
opportunities for alternative energy on the Outer Continental 
Shelf. I look forward to hearing about the role that 
alternative energy generated on the Outer Continental Shelf can 
play in meeting our Nation's energy needs.
    One focus of the hearing will be the progress in 
implementing Section 388 of EPAct 2005, which authorizes the 
Secretary of Interior to issue leases, easements, and rights-
of-way for alternative energy projects and alternate uses on 
the OCS.
    Pursuant to that authority, the Minerals Management 
Services is developing regulations and a programmatic 
environmental impact statement for an alternative energy and 
alternate-use program on the OCS. However, I understand that 
the Federal Energy Regulatory Commission is also asserting 
jurisdiction under the hydropower provisions of the Federal 
Power Act for purposes of licensing ocean energy projects on 
the OCS.
    The MMS has filed formal protests to the assertion of 
jurisdiction by FERC over these projects. MMS argues that the 
hydroelectric licensing provisions are not appropriate for wave 
energy projects. For example, MMS points out that a 30- to 50-
year license under the hydropower provisions is too long for 
exclusive use by prototype projects with uncertain cumulative 
impacts. It's unclear to me whether both agencies should play a 
role with respect to authorizing these projects. One goal in 
enacting Section 388 was to simplify the authorization process 
for alternative energy projects. FERC's hydroelectric licensing 
process has a history of being complex. I'm not certain that 
applying the hydroelectric licensing process fits that well in 
this context.
    I understand that FERC and MMS have been working on a 
memorandum of understanding on these jurisdictional issues, and 
look forward to hearing from the Department of Interior, FERC, 
the State of Oregon, and other witnesses on the topic.
    Long-term potential for the generation of electricity off 
the coasts of the United States is enormous. National Renewable 
Energy Laboratory estimates there's a potential for 266 
gigawatts of wind energy development on the OCS. According to 
an Electrical Power Institute study, the estimated potential 
for wave and current power from our oceans is over 350 billion 
kilowatt hours per year. It's important that the process for 
authorizing these projects facilitates production of this 
energy, also that it ensures environmental protection and 
appropriate siting.
    So, I thank all the witnesses for being here. We have two 
panels. Why don't we start with the first panel. We're very 
pleased to have the Honorable Stephen Allred, who is the 
Assistant Secretary for Land and Minerals Management in the 
Department of Interior; J. Mark Robinson, who is the director 
of the Office of Energy Projects for the Federal Energy 
Regulatory Commission; and Michael W. Grainey, who is the 
director with the Oregon Department of Energy, in Salem, 
Oregon.
    Thank you all for being here. Why don't we just have you 
summarize your testimony in that order that I've introduced 
you, and we'll have some questions.
    So, Steve, thank you for being here.

 STATEMENT OF C. STEPHEN ALLRED, ASSISTANT SECRETARY FOR LAND 
      AND MINERALS MANAGEMENT, DEPARTMENT OF THE INTERIOR

    Mr. Allred. Thank you, Mr. Chairman, for giving us the 
opportunity to discuss alternative energy. We continue to be 
concerned, as I've talked with you before, about the imbalance 
between our energy consumption in the United States and 
domestic energy production. In the months since you've 
confirmed me to this position, I've become acutely aware of 
that issue and the challenges that we face as a Nation 
regarding our energy needs. I've come to believe that there is 
no silver bullet. We have to aggressively pursue all of the 
energy opportunities that we have if we're to meet those needs. 
Increasing the supply of renewable and alternative fuels is 
imperative in that effort.
    The Energy Information Administration's 2007 Annual Energy 
Outlook estimates that, between 2007 and 2030, renewable energy 
production will grow by 57 percent, and, by 2030, will account 
for 10 percent of the domestic production and 7 percent of our 
consumption. Interest in the Outer Continental Shelf-based 
alternative energy development in the United States is growing 
rapidly, particularly in the Northeast and along the West 
Coast.
    As you are probably aware, New York, Oregon, and 
California, for example, have set specific targets for 
renewable energy production. With the enactment of EPAct in 
2005, Congress gave Interior new authorities for encouraging 
and facilitating the development of these promising new energy 
resources.
    Today, I'll focus specifically on the Minerals Management 
Services Outer Continental Shelf Alternative Energy Program.
    Through Section 388 of EPAct, Congress recognized that 
effective development and management of alternative energy 
would require comprehensive authority to permit access in a 
fair and equitable manner, to assure environmental and 
operational compliance, and to achieve a fair return to the 
Nation. Congress provided that authority to Interior for the 
OCS.
    While the Department's the lead agency for this program, 
MMS continues to work with other agencies to make certain that 
the unique role of each agency is considered and addressed 
while providing for a single-point processing, to the extent 
possible.
    Questions have arisen, as you indicated, as to which 
Federal agencies have authority to authorize certain OCS 
projects. To address these questions, short of any legislative 
action, MMS approached the Federal Energy Regulatory Commission 
to seek the development of a memorandum of understanding to 
resolve these issues specifically with regard to wave energy.
    On June 5, after a number of meetings, the Department 
provided a draft of a memorandum to FERC, which I understand 
they are currently reviewing. While we believe that EPAct 
established MMS as the lead agency with regard to the OCS, we 
want to assure that FERC's concerns regarding the transmission 
of electrical energy are addressed as part of our regulatory 
program.
    With regard to development of the OCS Renewable Energy 
Program under EPAct, the Department and coastal States, with 
which will receive, as you remember, 27 percent of the revenues 
generated within the first 3 miles of the Federal waters off 
their shores, share a common goal of promoting the development 
of new alternative energy technologies in the marine 
environment in a safe, orderly, and environmentally responsible 
manner.
    In developing this program, MMS has held ten scoping 
meetings and nine public hearings on the draft programmatic 
EIS, which was published on March 21 of this year. The public 
comment period ended on May 21. We anticipate that the final 
programmatic EIS will be issued in late summer.
    To implement the proposed program, MMS also must draft 
proposed rules, and, during that period of time, we have held 
four regional stakeholder meetings in the Northwest, Northeast, 
and the South, to discuss the Alternative Energy Program. That 
program is now under internal review within the Department, and 
we anticipate that we will have that proposed rule late this 
summer.
    There were two projects that you also gave us--responsible 
for the legacy projects, both Cape Wind and the Long Island 
Offshore Wind Project. Just a word about those.
    For Cape Wind, we anticipate the publication of the draft 
EIS in August of this year. We will be holding public hearings 
in Massachusetts on the draft EIS this fall, and issuing a 
record of decision early in the summer of 2008.
    In June 2006, we conducted public scoping meetings in 
preparation of the draft EIS for the Long Island Project. Since 
that time, we have identified additional information that we 
need in order to complete that EIS, and we are working with 
Florida Power & Light and Long Island Power Authority to gather 
that information.
    Producing energy from alternative and renewable energy 
resources is critical to the Nation's energy portfolio. We are 
working to achieve a clear, efficient, and easily understood 
regulatory program that will encourage the most rapid 
development of that energy resource. We are committed to such a 
program, and to working both with this committee and others to 
assure that it is in place and operating efficiently.
    Thank you for the opportunity to visit with you today.
    [The prepared statement of Mr. Allred follows:]
 Prepared Statement of C. Stephen Allred, Assistant Secretary for Land 
          and Minerals Management, Department of the Interior
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear here today to discuss with you the Minerals 
Management Service's (MMS) alternative energy and alternate use 
program.
    The Department of the Interior appreciates the leadership that the 
Committee on Energy and Natural Resources has demonstrated in looking 
to the Federal Outer Continental Shelf (OCS) as a source of alternative 
energy and in providing the legislative means to allow the Nation to 
tap into that energy. The Administration first proposed legislation to 
establish an OCS alternative energy program in June 2002, and the 
legislation was first introduced as H.R. 5156 in July 2002. The 
Administration supported that bill and worked diligently with the 
Committee and others to bring the proposed legislation to fruition as 
part of the Energy Policy Act of 2005 (EPAct).
    Energy is vital to expanding our economy and enhancing Americans' 
quality of life. However, the Administration continues to be concerned 
with the imbalance that exists between our energy consumption and 
domestic energy production, and has been working to find ways to narrow 
the gap between the amount of energy used and the amount domestically 
produced. In his State of the Union Message on January 23, 2007, 
President Bush asked Congress and America's scientists, farmers, 
industry leaders, and entrepreneurs to join him in pursuing the goal of 
reducing U.S. gasoline usage by 20 percent in the next 10 years--20 in 
10. One key component of the strategy to meet this goal is to increase 
the supply of renewable and alternative fuels. There is no single 
solution, but the Administration believes that renewable and other 
alternative sources are integral components of our Nation's energy 
future.
    The Energy Information Administration's (EIA) 2007 Annual Energy 
Outlook estimates that consumption of renewable energy will grow from 
6.5 quadrillion British Thermal Units (BTUs) in 2005 to 10.2 
quadrillion BTUs in 2030. This growth will be a result of advancements 
in renewable energy technologies, higher fossil fuel prices, state 
requirements to produce renewable energy, and incentives provided under 
EP Act. This is an increase of about 1 quadrillion BTUs more than EIA 
estimated in its 2005 Annual Energy Outlook. The EIA currently 
estimates that in 2030, renewable energy will account for over ten 
percent of our domestic energy production and about seven percent of 
our consumption.
    The EPAct encourages the development of renewable energy resources 
as part of an overall strategy to develop a diverse portfolio of 
domestic energy supplies for our future. In fact, according to EIA's 
2007 Annual Energy Outlook, public and private wind and other renewable 
energy generating sectors of our economy are the fastest growing energy 
sources in the United States.
    The quantity of domestic renewable energy produced on Federal lands 
is small in comparison to conventional resources. However, the growing 
cost of conventional energy resources and the need to diversify our 
energy portfolio has spurred an increased interest in renewable energy 
development on federal lands both onshore and offshore.
    The Department of the Interior (Department), as the manager of over 
one fifth of the Nation's land, plays a significant role in this 
projected increase in domestic renewable energy production. Lands 
managed by the Bureau of Land Management (BLM) currently supply almost 
half of the nation's geothermal generation and approximately 4 percent 
of domestically installed wind capacity. The EP Act gave the 
Department's bureaus, specifically the Minerals Management Service 
(MMS), the BLM, and the United States Geological Survey (USGS), new 
authorities for encouraging and facilitating the development of 
promising new energy sources such as onshore and offshore wind, solar, 
and biomass energy and to assist in ensuring these technologies are 
developed in an environmentally responsible manner.
    Today, you have requested that I discuss with you the MMS's OCS 
Alternative Energy Program. The Administration first proposed 
legislation to establish an OCS alternative energy program in June 
2002, and the legislation was first introduced as H.R. 5156 in July 
2002. That bill represented the results of more than six months of 
extensive discussions and collaboration with all Federal agencies 
having permitting responsibilities on the OCS, as well as the 
President's Task Force on Energy Project Streamlining. More important, 
the legislation was developed in a consensus with MMS' sister agencies 
and reflected the best efforts of the Administration to address the 
array of issues associated with permitting various OCS energy-related 
projects that were not currently covered under existing statutes. Those 
projects included renewable energy projects such as wind, wave, ocean 
current and solar energy.
    After careful analysis of the mechanisms that were currently in 
place to handle requests for innovative, non-traditional energy-related 
projects on the Federal offshore lands, it became clear that--with 
limited exceptions--there existed no clear authority within the Federal 
government to comprehensively review, permit, and provide appropriate 
regulatory oversight for such projects. The exceptions to this general 
rule included oil, gas and other mineral activities permitted under the 
OCS Lands Act (43 U.S.C. 1301 et seq., Department of the Interior); 
offshore oil terminals permitted under the Deep Water Ports Act (33 
U.S.C. 1501 et seq., Department of Transportation); and projects 
permitted under the Ocean Thermal Energy Conversion Act (42 U.S.C. 9101 
et seq., Department of Commerce).
    This meant that the vast majority of OCS alternate energy-related 
projects that were being proposed, or which may be contemplated in the 
future, by the private sector had no clearly defined permitting 
process. There was no single agency with an overarching role to 
coordinate that process. Instead, various Federal agencies with 
different responsibilities were responsible for permitting a specific 
part of a proposed project. The Department of the Interior is regarded 
as the Federal Government's primary ``land manager.'' Since the 
proposed legislation pertained to the permitting and oversight of 
energy uses on offshore Federal lands, it was only logical that any new 
legislative authority that was enacted remain with the Department 
already entrusted with that overall responsibility.
    Congress recognized that management of alternative energy and 
alternate use activities would require comprehensive authority to 
permit access in a fair and equitable manner, to ensure environmental 
and operational compliance, and to achieve a fair return to the Nation. 
The Administration worked closely with this Committee to include the 
Administration's legislative proposal as part of the EP Act.
    Section 388 of the EPAct amended the OSC Lands Act, and granted the 
Department discretionary authority to grant leases, easements or 
rights-of-way for activities on the OCS that produce or support 
production, transportation, or transmission of energy from sources 
other than oil and gas. Simply put, the new authorities under EPAct 
gave the Department the ability to manage the future development of 
promising new ocean energy sources in the OCS such as wind, wave, ocean 
current, and solar energy. Additionally, the Department was given the 
authority to grant leases, easements, or rights-of-way for other OCS 
activities that make alternate use of existing OCS facilities. These 
other uses would be limited to energy-related and authorized marine-
related purposes, such as offshore research, recreation and support for 
offshore operations to the extent that those activities are not 
authorized by other applicable law.
    While the Department is the lead agency for this program, the MMS 
continues to work with its sister agencies to make certain that the 
unique role of each agency is considered and addressed in order to 
ensure that the Federal Government's myriad interests in such projects 
are fully considered and that the Nation's economic, environmental and 
land use interests are adequately protected. The Department's new EPAct 
jurisdiction does not supersede or modify existing Federal authority; 
all activities permitted must adhere to existing Federal law, including 
the National Environmental Policy, Coastal Zone Management, Endangered 
Species, Marine Mammal Protection, Magnuson-Stevens Fishery 
Conservation and Management, and the Migratory Bird Treaty Acts.
    The MMS is working diligently to develop a regulatory program to 
authorize offshore alternative energy proposals, such as wind, solar, 
wave, and ocean current technologies. The public comment period for the 
renewable energy and alternate use draft programmatic environmental 
impact study (EIS), developed by the MMS, closed on May 21, and MMS is 
reviewing the comments received. The EIS will form the foundation for 
the new alternative energy program and for future applications. The MMS 
is developing regulations to implement the new EPAct authority and 
expects to publish a proposed rule in late summer of 2007 and a final 
rule in early 2008.
    Interest in OCS-based alternative energy development in the United 
States is growing, particularly in the Northeast and along the West 
coast. Many of these coastal states have put in place renewable energy 
portfolio standards (RPS) requiring utilities to substantially increase 
their reliance on renewable energy sources. For example, in the 
Northeast, New York has set a goal for public utilities to achieve a 
25% share by 2013, one of the most aggressive targets in the country. 
In the Pacific West, Oregon has instituted a plan that calls for 
renewable energy to account for a 25% share, approximately 1,600 
megawatts (MW) by 2025, while California has codified a renewable 
energy target of 20%, approximately 5,500 MW, by 2010. To put this into 
perspective, according to the Edison Electric Institute, based on 2005 
average annual usage by U.S. residential customers, one megawatt of 
electricity powered roughly 790 homes. The OCS can provide clean 
sources of energy and has a role in helping states and the Federal 
Government meet their renewable energy targets.
    Government resource estimates and industry interest indicate that 
the OCS provides several significant sources of alternative energy. 
According to estimates provided to the MMS by the Department of Energy 
(DOE), the potential offshore wind resource, excluding Alaska and 
Hawaii, is 2,500 gigawatts (GW), ocean waves 240 GW, ocean tides 7.5 
GW, and ocean currents 2.5 GW. Since the enactment of EPAct, the MMS 
has spoken to several companies and become aware of dozens of potential 
development proposals involving offshore wind off the east coast from 
Virginia, north to Massachusetts.
    The strongest wave energy resources are located on the west coast, 
where there is already substantial interest in wave energy development, 
particularly offshore Northern California and Oregon. Currently, the 
MMS is discussing with the Federal Energy Regulatory Commission (FERC) 
a Memorandum of Understanding (MOU) to coordinate Federal efforts in 
reviewing and authorizing these exciting new proposals. The 
Department's desire with regard to that memorandum is to assure that 
FERC's interest and authorities with regard to the transmission of 
electrical energy issues are considered as part of the regulatory 
program for which we believe MMS has the lead responsibility on the 
OCS.
  alternative energy and alternate use on the outer continental shelf
    The Department and MMS decided that to facilitate the orderly 
development of the new programmatic responsibilities and associated 
rulemaking, we would not entertain for review any new applications 
relating to alternative energy or alternate use on the OCS until the 
program is in place. We believe that this transparent process allows 
those interested in developing projects, the states, Congress, and the 
public to understand and provide their input into how that the program 
is established. While we recognize that this creates some delay for 
project proponents, we believe that potential delays and challenges 
after the program is adopted will be minimized.
    As the first step in the rulemaking and program development 
process, the MMS on December 30, 2005, published an Advance Notice of 
Proposed Rulemaking (ANPR) to solicit comments from all interested and 
affected parties. The ANPR sought comments on five major program areas: 
(1) access to OCS lands and resources; (2) environmental information, 
management, and compliance; (3) operations; (4) payments and revenues; 
and (5) coordination and consultation. We received a total of 149 
comments originating from 26 states and the District of Columbia. These 
comments were submitted by private citizens, alternative energy 
industries and associations, environmental organizations, State and 
local governments, Federal agencies, nongovernmental organizations, 
universities, Members of Congress, small business, and the oil and gas 
industry. In general, the ANPR comments were supportive of renewable/
alternative energy developments on the OCS and reuse of existing OCS 
facilities. Some comments received advised the MMS to proceed with 
caution as it develops the program and supporting regulations and 
advocated early stakeholder involvement with both the program and the 
individual project permitting. Many commenters who were familiar with 
the MMS OCS oil and gas program suggested that MMS use the offshore 
program as a model for consultation and environmental compliance. The 
renewable energy industry and environmental groups suggested that MMS 
establish a structured, rigid process, citing the need for 
predictability and for compliance and timeliness in reviews. Others, 
noting the up-and-coming nature of the renewables industry, advocated 
that MMS remain flexible in our program approach and address each 
project on a case-by-case basis. A majority of comments identified 
preparation of a programmatic environmental impact statement as a first 
step.
    The MMS is preparing rules to guide the development of the program 
activities. At the same time, MMS's programmatic EIS will examine the 
potential environmental consequences of implementing the program. 
However, the innovative and evolving nature of the offshore renewable 
technologies; the nascent industry; the need to acquire environmental 
and economic baseline information; and, the location of the promising 
resources in OCS frontier areas have all presented challenges to the 
program's regulatory development.
    Despite these challenges, the MMS is proceeding in a deliberate and 
diligent manner in developing this important new regulatory program. 
The Agency has been working with many of the same agencies involved in 
activities already authorized under the OCS Lands Act, such as the Army 
Corps of Engineers, the National Oceanic and Atmospheric 
Administration, the Environmental Protection Agency, the U.S. Coast 
Guard, and the Fish and Wildlife Service, to establish new ``renewable 
energy'' interfaces with each agency's existing Federal statutory 
requirements and responsibilities. The MMS has also begun to forge new 
partnerships with the DOE and FERC and we are actively working on 
agreements with each agency.
    On March 21, 2007, the MMS announced the availability of the draft 
programmatic EIS and the opportunity for public comment. This document 
is a high level analysis of the potential impacts of the activities 
that could result from establishment of an OCS alternative energy and 
alternate use program and regulations under MMS' new authority, from 
initial site characterization through decommissioning. The analysis 
looks at three alternatives: (1) establishment of a nationwide OCS 
program and regulations (the proposed action); (2) case-by-case 
authorization of activities; and (3) no authorization of activities 
authorized under section 388. The programmatic EIS does not evaluate 
specific sites on the OCS as to their suitability for alternative 
energy activities. Thus, MMS will analyze siting issues as it considers 
specific project proposals. The public comment period for the draft 
programmatic EIS closed on May 21, 2007 and MMS held public hearings on 
the document in April and May of 2007. The MMS is reviewing the 
comments received and revising the programmatic EIS where appropriate. 
The final programmatic EIS is on schedule for publication in late 
summer 2007.
    Currently the proposed rule is undergoing internal Departmental 
review in accordance with Departmental and the Office of Management and 
Budget guidelines. Major components of the alternative energy portion 
of the rule include, but are not limited to what rights will be 
associated with leases, rights-of-way, rights-of-use and easements; 
financial terms such as financial assurance (bonding); rentals before 
production begins and operating fees when production commences; process 
for site assessment, construction and operation plans; environmental 
and safety management, inspections and facility assessments; and, end 
of life decommissioning.
    The EPAct requires the Department to grant a lease, easement, or 
right-of-way on a competitive basis unless, after public notice, it is 
determined that there is no competitive interest. If there is no 
competitive interest, many of these initial applications may be issued 
noncompetitively, requiring the applicant to bear the cost of proposal-
specific studies. However, based on the state-initiated renewable 
energy portfolio standards and interest from industry, it is expected 
that MMS will offer a competitive lease sale in the next 3 to 5 years 
most likely in the North Atlantic or the North Pacific.
    The MMS recently conducted a series of regional stakeholder 
meetings in several coastal states to assist in preparing the new rule. 
The purpose of these meetings was to identify and explore stakeholder 
issues and concerns; to discuss the various ocean energy technologies 
and economics; and, to identify state energy profiles and renewable 
energy portfolio standards.
    Several coastal states (i.e., New Jersey, California, Washington, 
and Oregon) have approached MMS about partnering to efficiently 
evaluate and offer prospective OCS areas for lease on a regional basis. 
The U.S. Commission on Ocean Policy, the Pew Oceans Commission, and the 
Joint Ocean Commission Initiative, made similar recommendations 
concerning federal-state partnering to improve ocean governance in 
general. To promote such cooperation and coordination, the MMS proposes 
to establish federal/state task forces--a concept that has been used 
successfully in MMS's Marine Minerals Program--and to begin assessing 
potential development and environmental implications.
            cape wind and long island offshore wind projects
    The EPAct also gave the Department and MMS responsibility for two 
existing offshore alternative energy proposals, the Cape Wind Energy 
and the Long Island Offshore Wind Park projects. The MMS is reviewing 
each proposal and supporting information, and is preparing project-
specific environmental analyses.
    Cape Wind Associates has proposed to construct an offshore wind 
facility located on Horseshoe Shoal in Nantucket Sound covering 24 
square miles in federal waters and located 4.7 miles offshore 
Massachusetts. The proposal entails 130 offshore wind turbine 
generators to produce about 460 MW of electricity. The MMS anticipates 
publishing the draft EIS in late summer 2007. Because offshore wind is 
a new resource and technology for the Nation and Cape Wind is one of 
the first OCS alternative energy projects under review by MMS, the 
agency is proceeding with the review of the proposal and associated EIS 
in an appropriately deliberate and diligent manner.
    The Long Island Power Authority and Florida Power and Light Energy 
have proposed an offshore wind project covering eight square miles in 
Federal waters, located between three and four miles off the south 
shore of Long Island, New York. The proposed wind project would entail 
installation of 40 offshore wind turbine generators with a capacity of 
140 MW of electricity for use in Long Island communities. The timeline 
for the project is being revised and should be available in the near 
future.
                               conclusion
    In conclusion, energy is vital to expanding our economy and 
enhancing Americans' quality of life. Producing energy from renewable 
and other alternative domestic resources is a critical component of the 
Nation's energy portfolio. Lands managed by the Department have a major 
role to play in the diversification of the Nation's energy sources. The 
Department has been working with other agencies and has taken steps in 
a variety of scientific endeavors to understand renewable and other 
alternative energy resources and to help bring them to a place where 
they may contribute to the energy mix of the country in an 
environmentally friendly way. The MMS has been working on a variety of 
fronts, both onshore and offshore, to meet the demand for renewable and 
other alternative sources of energy. We stand ready to respond to the 
ever-increasing need for energy development from the resources we 
manage on behalf of the Nation.
    Thank you for the opportunity to highlight a few of the steps MMS 
has taken to encourage the development of renewable and other 
alternative energy resources on the OCS public lands. This concludes my 
testimony. I would be happy to answer any questions you have.

    The Chairman. Well, thank you very much.
    Let me just, first, ask if Senator Domenici wanted to make 
any kind of opening statement before we go on with these other 
two witnesses.
    Senator Domenici. I have a very brief one, and I'll just 
put it in the record, Mr. Chairman. Thank you.
    The Chairman. All right.
    [The prepared statement of Senator Domenici follows:]
    Prepared Statement of Hon. Pete V. Domenici, U.S. Senator From 
                               New Mexico
    Good Morning. I'd like to thank Senator Bingaman for calling this 
hearing. I'd also like to add my thanks to our witnesses for being with 
us today.
    The purpose of today's hearing is to receive testimony on the 
implementation of Section 388 of the Energy Policy Act of 2005. Section 
388 represents a new Congressional policy designed to encourage the 
development of alternate energy projects on the Outer Continental Shelf 
such as offshore wind and ocean energy.
    The potential energy production from these alternate projects is 
significant. According to the Energy Department, offshore wind 
resources could generate an additional 2,500 gigawatts (GW) of energy. 
And FERC estimates that new power produced from ocean currents, tides, 
and wave action could double the nation's existing 54 GW of hydropower 
capacity. DOE calculates that one GW alone can power up to 800,000 
households.
    Under EPAct, Congress directed the Minerals Management Service, in 
consultation with other relevant federal agencies, to issue the 
necessary regulations for alternate energy production on the OCS within 
9 months of the bill's enactment. We are still waiting for these 
regulations to be issued.
    I'm disappointed that it is taking so much time for the MMS to 
develop its program and get it up and running. Almost two years after 
the enactment of EPAct, we still don't have any offshore wind energy 
projects in this country--far behind what Europe has already achieved. 
We are now in a situation where the proposed Cape Wind project, which 
has received all of the needed state permits, is in danger of having 
those permits lapse before the MMS takes action. This is not what 
Congress intended.
    I also understand that there is an ongoing effort between the MMS 
and FERC on a Memorandum of Understanding to govern how the two 
agencies interact for those wave projects located wholly or partially 
on the OCS. I encourage the Administration to resolve this interagency 
dispute.
    In my opinion, we should not be placing this promising, clean 
energy on hold. The federal government must work to get the alternate 
energy program for the OCS in place as soon as possible.
    I look forward to today's testimony. Thank you.

    The Chairman. Mr. Robinson, why don't you go ahead. Thank 
you.

   STATEMENT OF J. MARK ROBINSON, DIRECTOR, OFFICE OF ENERGY 
         PROJECTS, FEDERAL ENERGY REGULATORY COMMISSION

    Mr. Robinson. Mr. Chairman, Senators, my name is Mark 
Robinson and I am the director of the Office of Energy 
Projects. We're responsible for the authorization of LNG 
terminals, the certification of natural gas pipelines and 
storage reservoirs, the permitting of transmission lines for--
under backstop licensing authority, and, more significant to 
this hearing, the licensing of hydroelectric projects, to 
include these new technologies that are before us now. 
Specifically, by ``new technologies,'' I mean current energy, 
wave energy, and tidal energy.
    We've had a surge of activity at the Commission in this 
area, and I'd just like to highlight a few of the things the 
Commission has done.
    First, we identified criteria that would allow these 
experimental energy facilities to be tested using the Verdant 
rule. The Verdant rule allows an entity that identifies a 
project as an experiment of short duration and not affecting 
the grid as being available to be constructed and operated 
without a license from the Commission. That was used by the 
Verdant people in the East River, New York, and we have several 
other entities that are using that avenue to test these 
projects.
    Second, we initiated a policy statement, or a policy 
inquiry, on how we could use preliminary permits to better 
facilitate these facilities. One of the things that we did 
immediately was to institute a strict-scrutiny policy on 
preliminary permits to make sure no one was trying to site bank 
areas, to lock up areas that would put them off limits for 
other individuals, who are really trying to pursue projects, to 
go out and develop those projects.
    Third, we have issued 38 preliminary permits for these 
types of facilities, these new technologies, from Alaska to 
California, and from Florida to Maine. There is a lot of 
activity going on right now for real projects.
    Fourth, we had our first license filing from Makah Bay. 
Makah Bay is a project--a wave energy project--that's proposed 
for off the shore of Washington. There, the application came in 
November. Seven months later, we issued our environmental 
assessment. If we get the cooperation that we think we will 
from the National Marine Fisheries Services under the 
Endangered Species Act, and from the State of Washington under 
the Coastal Zone Management Act, we feel like we'll have that 
project ready for Commission action within 1 year of its having 
filed its application.
    Then, fifth, we have been working with the MMS on an MOU, 
and I'd like to make two points on that before I go on and 
describe what we've been doing--or how our licensing process 
can work for these new technologies.
    First, the evidence we have indicates that the majority of 
the work that we will be doing in this area will not occur in 
the OCS. As an example, we have 21 pending preliminary permits 
right now; only three of those even straddle the OCS, one is 
fully within OCS, and 17 are inside the OCS. So, we think most 
of our work is certainly going to be inside. It only stands to 
reason; it's cheaper, the closer you are, in terms of these 
particular facilities. Right now, testing these facilities has 
a lot to do with how much they cost and how much it takes to 
get them in the ocean.
    The other point that I'd like to make is, in working on 
this MOU we are trying very hard--and I think we're making 
great progress, and we still have an early summer timeframe for 
trying to complete this--for the MOU to effectively weave our 
two systems into one, so that there would be no redundancies 
and the industry would have a known path for how to work with 
both agencies when there would be a project in the OCS.
    Now on to the licensing process very quickly. It's three 
phases. First, the preliminary permits that I mentioned 
earlier--that allows an individual to do studies on the 
economic, the engineering, and the financial feasibility of 
projects during a period when they have reserved that site. It 
authorizes no construction, but it just allows someone to take 
a look over a 3-year period.
    Second is licensing. There, it's a process of shared 
decisionmaking. Licensing a facility--almost any kind of 
infrastructure that I mentioned earlier is an exercise in 
sharing that decisionmaking authority with other agencies, 
State and Federal, who have decisional authority. Here, as an 
example, in the Federal Power Act, section 4(e) would allow an 
agency, like Minerals Management Service, to provide 4(e) 
conditions that would be mandatory on the Commission, with no 
opportunity for change. Whatever they required would have to go 
into any license issued.
    The Coastal Zone Management Act allows the State agency to 
provide conditions on how a facility should be operated in 
State waters, and also to deny a CZMA if they don't think it's 
compatible with their coastal zone purposes.
    Then, the State would also have, under 10(j), the 
opportunity to provide conditions to protect fish and wildlife. 
Unless the Commission found those to be inappropriate or 
inconsistent with law, we have to accept them.
    We've shown remarkable, I think, flexibility in the 
existing processes to handle these projects. As I mentioned, in 
Makah Bay, we set up a program of licensing that allowed the 
NEPA process to be coincident with the application preparation. 
For Verdant, we found a way to allow them to test that project, 
even with the Federal Power Act and the provisions that it has 
on needing a license to operate a hydropower project.
    In closing, I'd just like to say that the Commission is 
committed to encouraging this new technology. We feel like we 
are uniquely positioned to ensure that the developmental and 
nondevelopmental values associated with the development of any 
infrastructure is adequately considered through our very 
transparent and cooperative licensing process that includes the 
States, includes the Feds, the national--the NGO's, the 
natives--tribal concerns. Everyone has a role at the table, and 
everybody can be very effective in helping us license these 
projects in the public interest.
    Thank you very much.
    [The prepared statement of Mr. Robinson follows:]
  Prepared Statement of J. Mark Robinson, Director, Office of Energy 
             Projects, Federal Energy Regulatory Commission
                              introduction
    Mr. Chairman and Members of the Committee:
    My name is J. Mark Robinson and I am the Director of the Office of 
Energy Projects at the Federal Energy Regulatory Commission 
(Commission). I appreciate the opportunity to appear before you to 
discuss the Commission's growing involvement with hydropower using new 
technologies. I use the term ``new technologies'' to mean mechanisms 
that produce hydropower from ocean currents, tides, and wave action, 
without the use of a dam. As a member of the Commission's staff, the 
views I express in this testimony are my own, and not those of the 
Commission or of any individual Commissioner.
    The Commission regulates over 1,600 hydroelectric projects at over 
2,500 dams pursuant to Part I of the Federal Power Act (FPA). Together, 
these projects represent 54 gigawatts of hydroelectric capacity, more 
than half of all the hydropower in the United States. Hydropower is an 
essential part of the Nation's energy mix and offers the benefits of an 
emission-free, renewable, domestic energy source with public and 
private capacity together totaling about nine percent of U.S. capacity. 
Today we are looking at development of a new source of hydropower that 
has the potential to add a substantial amount of power to the nation's 
generation capacity, perhaps one day doubling our total hydropower 
generation.
    The Commission's existing procedures are well established and well 
suited to address this expansion of conventional hydropower with new 
technologies, and we are prepared to learn from experience in this 
rapidly evolving area and to make whatever regulatory adjustments are 
appropriate in order to help realize the potential of this renewable 
energy resource.
    Before I present the Commission's regulatory program for new 
technology projects in more detail, I want to make two specific points 
regarding how these projects may affect the Outer. Continental Shelf 
(or OCS). First, we expect that the majority of new technology projects 
will be located in state waters, not on the OCS. Of the 21 preliminary 
permit applications for ocean projects pending at the Commission as of 
May 31, 2007, three propose boundaries straddling the state-OCS line 
and only one would be located entirely on the OCS. The other 17 
applications are for sites within state waters. This distribution of 
proposals reflects the cumulative costs of development, which include 
the costs associated with purchasing and installing transmission cable 
needed to bring project power onshore, making it advantageous to locate 
projects nearer to the shore. Second, for those projects located wholly 
or partially on the OCS, the Commission will work closely with the 
Minerals Management Service of the U.S. Department of the Interior 
(MMS), which has the responsibility to issue leases for these projects. 
Currently, in the spirit of cooperation and good government, we are 
working on a Memorandum of Understanding with MMS to weave the MMS and 
FERC processes together and eliminate redundancy for the benefit of 
applicants, other stakeholders, and the two agencies.
    In my testimony I will describe 1) the strengths of the 
Commission's existing program and its compatibility with the new 
technologies, 2) the flexibility the Commission has exercised and 
alterations the Commission is making to its processes to address the 
concerns of stakeholders about specific aspects of that compatibility, 
and 3) the Commission's efforts to work with the MMS to establish an 
efficient program for new technology projects to be located outside 
state waters on the OCS.
              ocean energy activity before the commission
    Applications for ocean-based hydropower projects can potentially go 
through three stages at the Commission. First, developers can apply for 
preliminary permits. Preliminary permits maintain priority of 
application for license for a site for up to three years while a 
developer researches site feasibility and makes financial arrangements. 
Second, developers can apply for a license to construct and operate a 
hydropower project. (A preliminary permit is not required prior to 
applying for a license.) By statute the Commission can issue a license 
for a term of up to 50 years. Third, if licensed, the developer must 
operate the project in compliance with the terms of the Commission's 
license order. Throughout the term of the license, the Commission 
monitors the project to assure compliance with the license.
    Recently, the Commission has responded to a surge in applications 
for preliminary permits for the new technologies, including over 40 
applications in 2006 alone. As of May 31, 2007, the Commission has 
issued 38 preliminary permits for new technology projects and requested 
further information regarding many of the others that are pending. None 
of the four issued wave permits fall on the OCS, nor of course do the 
26 tidal energy permits. All eight preliminary permits issued for ocean 
current energy projects are proposed for the OCS. Unlike wave and tidal 
efforts, this energy source has not yet reached the prototype phase.
    The Commission received the first license application for a wave 
energy hydropower project from AquaEnergy, Inc., now Finavera 
Renewables, in November 2006 and issued its environmental assessment in 
May 2007. The Makah Bay Offshore Wave Energy Project is proposed for 
Makah Bay in Clallam County, Washington. The project would consist of 
four buoys, which together would generate up to 1 megawatt (MW).
    In the tidal hydropower arena, Commission staff has been working 
with Verdant Power, LLC, a permit holder seeking to develop a license 
application for the Roosevelt Island Tidal Energy Hydropower Project. 
The project ultimately would consist of as many as 200 free-flowing 
turbine generator units (about 10 MW total), located below the water 
surface in the East River in Queens County, New York.
    Similarly, Commission staff has been working with Reedsport OPT 
Wave Park LLC and other stakeholders as they prepare a license 
application for a proposed wave energy project in Douglas County, 
Oregon. The proposal is for up to 200 buoys generating up to 50 MW.
      compatibility of the commission's existing process with the 
                            new technologies
    Projects using new technologies are compatible with the 
Commission's well-tested regulatory process that has been refined 
continuously since the original passage of the Federal Water Power Act 
of 1920. Regulating the development of power generation from the 
nation's waters is a primary role of the Commission. We analyze 
developers' proposals for energy generation from navigable and Commerce 
Clause waters, along with interests expressed by other stakeholders. 
Ultimately, we seek to comprehensively balance the benefit of power 
generation with environmental protection and other values as directed 
by statute. After years of collaboration with other agencies and 
parties, we have achieved a high level of regulatory efficiency. We 
have improved our licensing process to include early engagement with 
the applicant and other stakeholders, earlier and more predictable 
study requirements, more certain time frames, and overall reduced 
processing time.
    In reviewing a license application for a project, the Commission 
integrates and weighs the concerns of the licensee, federal and state 
resource agencies, Native American tribes, and members of the public. 
We do so through an information-gathering process and technical 
analysis that enables a fully informed Commission decision while 
complying with the mandates of the Federal Power Act, the National 
Environmental Policy Act, the Endangered Species Act, and other 
applicable laws. The National Marine Fisheries Service (NMFS), within 
the National Oceanic and Atmospheric Administration of the U.S. 
Department of Commerce, is one federal agency that has been actively 
involved in the Commission's licensing process for conventional 
hydropower projects and we expect would be similarly involved in new 
technology projects.
    Cooperation and consultation with the agencies begins early in 
application development and continues throughout the licensing process. 
The Commission requires that applicants consult with agencies and 
tribes in the preparation of a license application. Under the Federal 
Power Act, Congress assigned the state and federal fish and wildlife 
agencies specific authority in hydropower licensing. Essentially, the 
Commission is to accept state and federal fish and wildlife agency 
recommendations unless they clearly are in conflict with another part 
of the statute. These recommendations contribute to the comprehensive 
balancing of energy development and the protection of fish, wildlife, 
recreation, and other resources. Finally, the Commission's licensing 
process and supporting analysis incorporates other statutes in which 
Congress has given important authorities to the states such as the 
Coastal Zone Management Act of 1972 and the National Historic 
Preservation Act of 1966. Together, these statutory, regulatory, and 
informal relationships have supported good coordination and cooperation 
with the agencies that will extend to the new technologies.
     flexibility to adapt commission processes to accommodate the 
                            new technologies
    While the Commission has a strong foundation for overseeing the 
orderly development of these new technologies, we also recognize the 
need to tailor the program to the characteristics of these new 
technologies. Within our established process, significant flexibility 
exists to apply innovative approaches when appropriate. For instance, 
in the Makah Bay and Roosevelt Island cases, Commission staff has 
allowed the use of different license processes that better fit the 
applicants' needs. This flexibility has enabled 1) the inclusion of 
Commission staff and stakeholders in the study development and 
implementation and 2) the development of much of the National 
Environmental Policy Act information in parallel with the project's 
license application development. In the Roosevelt Island case, the 
process may also encourage negotiation of a settlement.
    In addition, the Commission has been proactive in addressing the 
new issues unique to this nascent industry. In 2005, as activity in the 
field of new hydropower technologies began to increase, the 
Commission's Office of Energy Projects formed a committee of technical 
and legal staff to initiate research on the regulatory, environmental, 
and developmental aspects of these new technologies. On December 6, 
2006, the Commission hosted a technical conference to discuss the 
status of new technologies in hydroelectric generation from ocean 
waves, tides, and currents and from free-flowing rivers, and to explore 
the environmental, financial, and regulatory issues pertaining to the 
development of these technologies. Conference participants included 
ocean energy developers and consultants, trade associations, 
representatives from state and federal agencies, non-governmental 
organizations, and members of the public. Following the conference, the 
Commission solicited and received written comments from the 
participants.
    In the case of experimental pilot projects the Commission has shown 
flexibility in the application of the statute. For example, the 
Commission determined that Verdant Power could install its six-turbine 
demonstration project in the East River without applying for a 
Commission license. In a July 27, 2005, Order on Clarification, the 
Commission concluded that Verdant's activities effectively would have 
no net impact on the interstate electric power grid or on interstate 
commerce. This determination established a policy that allows 
experimentation without a license when 1) the technology in question is 
experimental; 2) the proposed facilities are to be used for a short 
period and for the purpose of developing a hydropower license 
application; and 3) power generated from the test project will not be 
transmitted into, or displaced from, the national electric energy grid. 
In addition to testing power generation, Verdant will carry out 
extensive monitoring of fishery impacts as part of the experimental 
deployment. Although not required to be licensed during its testing 
phase, Verdant was of course obligated to obtain necessary approvals 
under other existing state and federal statutes. Staff continues to 
explore new ways to accommodate experimental pilot projects within the 
maximum flexibility allowed by statute.
    In order to respond to industry concerns about the applicability of 
the existing preliminary permit system to new technology projects, the 
filing of a large number of recent applications for preliminary permits 
using ``new technology'', and to follow up on the Hydroelectric 
Infrastructure Technical Conference, the Commission on March 1, 2007, 
issued a notice in the Federal Register seeking comments on how the 
Commission should treat applications for and regulate preliminary 
permits for hydropower projects involving wave, current, and instream 
technologies. The notice set an interim policy for reviewing such 
applications, proposing to scrutinize them strictly by imposing 
requirements on any permits issued, such as the submission of progress 
reports, the development of study plans, and the establishment of 
deadlines to file a subsequent license application. Alternatives to the 
strict scrutiny policy include: (1) continuing the standard policy for 
processing applications for hydropower permits, by not subjecting them 
to extensive scrutiny and not imposing additional requirements on 
permit holders; or (2) declining to issue any preliminary permits for 
projects involving new technology, in which case applicants could only 
pursue such projects directly through the licensing process. Based on 
the comments received, the Commission is now deciding which of these 
options is in the public interest.
    In the meantime, under the interim policy, the Commission is 
ensuring that permit holders are actively pursuing studies and 
consultations that may lead to development of a license application in 
hopes of preventing site-banking, the practice of reserving potential 
project sites without intent to develop projects. The Commission also 
is processing preliminary permit applications with a view toward 
limiting the boundaries of the permits. This approach should provide a 
disincentive for developers to seek permits for projects that they are 
not ready to pursue.
        working with the minerals management service on the ocs
    The Commission is committed to achieving a fair and predictable 
regulatory program that allows orderly development of new technology 
projects while considering environmental, recreational, cultural, and 
other uses of the resource. To address concerns about overlapping 
jurisdiction of the Commission and the MMS, both staff and Chairman 
Kelliher have met with representatives of the Department of the 
Interior. The two agencies have agreed to work together to develop a 
Memorandum of Understanding that will apply the best resources and 
authorities of both agencies to develop an efficient and effective 
program for regulating the development of hydropower in all offshore 
areas, including the OCS.
    As we have learned in our MOU discussions, the Commission and the 
MMS bring complementary strengths to developing such a program. The 
Commission offers an existing and adaptable hydropower licensing 
program with the goal of ensuring that any project licensed will be 
best adapted to a comprehensive plan for development of the water 
resource in the public interest. This program would provide consistency 
across hydropower generation projects in state and federal waters 
including providing federal oversight for transmission of power from 
the project site to the electric grid. MMS offers an established set of 
tools for comprehensive planning for the development of the OCS and 
extensive leasing experience as a land management agency. Efficient use 
of the considerable resources of the two agencies could work to the 
benefit of all parties.
                               conclusion
    In closing, the Commissioners have stated publicly their interest 
in promoting the development of this potentially important source of 
renewable energy. They also have expressed their desire to reduce 
regulatory barriers to the development of new technologies, where 
possible.
    We are confident that under the Commission's statutory structure, 
refined over almost a century, hydropower resources using new 
technologies can be developed in an orderly way while protecting other 
beneficial public uses, such as fish and wildlife, and meeting the 
requirements of other federal statutes and state interests. As 
experience is gained in the area of new hydropower technologies, we 
will make appropriate regulatory adjustments as we have in response to 
other technology changes in the past. We will work with the Minerals 
Management Service to develop a program for the OCS that makes the best 
and most efficient use of our respective resources and provides 
thorough analysis of environmental impacts, and we will continue to 
cooperate and consult with other federal agencies, including NMFS, and 
individual states in the licensing of new technology projects. We look 
forward to continuing to carry out the Congressional mandate in the 
Federal Power Act and performing our regulatory duties fairly, openly, 
and efficiently to realize the potential of this promising renewable 
energy resource.
    That concludes my remarks and I would be pleased to answer any 
questions you may have.

    The Chairman. Thank you very much.
    Mr. Grainey, go right ahead.

STATEMENT OF MICHAEL W. GRAINEY, DIRECTOR, OREGON DEPARTMENT OF 
    ENERGY, ON BEHALF OF GOVERNOR TED KULONGOSKI, SALEM, OR

    Mr. Grainey. Thank you. Good morning, Mr. Chairman, members 
of the committee. Thank you for the opportunity to speak for 
Oregon Governor Ted Kulongowski.
    Wave energy is a promising renewable resource, and Oregon 
has some of the best sites in the country. It is essential that 
the process for siting ocean resources be fair and timely.
    Let me turn to the two questions I've been asked to 
address.
    First, should the U.S. Minerals Management Service, MMS, or 
the Federal Energy Regulatory Commission, FERC, approve ocean 
energy? Regardless of which agency is involved, the Federal 
role in ocean energy should be limited in scope and time, 
should recognize that ocean energy is different from dams and 
other instream hydroelectric facilities. The Federal role 
should not interfere with the State's traditional power to 
determine power plant siting. Rather than choose between 
agencies, we believe that any Federal agency Congress chooses 
should follow these principles. For example, Section 388(e) of 
the Energy Policy Act, which you mentioned previously, reversed 
State jurisdiction and other rights over submerged lands, 
subject to MMS's review. We support section 388(e), and similar 
language should apply to FERC for any role Congress provides 
FERC on ocean energy.
    FERC has interpreted the Federal Power Act to include ocean 
and other wave energy projects as hydroelectric facilities 
under its jurisdiction, as you have heard. However, ocean 
energy facilities are not comparable to dams and other instream 
structures. They do not present navigability and other issues 
that instream structures raise. For example, Oregon law treats 
ocean energy different from hydroelectric facilities for State 
tax credits.
    Nevertheless, we have worked with FERC staff to cooperate 
and coordinate our State review with FERC. We are willing to 
work in a similar fashion with MMS.
    FERC held a workshop last year on wave energy. We commend 
FERC for publicly examining what its role should be, and for 
some initial steps it has proposed from that workshop. If 
Congress decides that FERC should play the lead role in ocean 
energy, we urge you to clearly provide that FERC should not 
treat ocean energy like dams. Instead, FERC's role should be 
consistent with the principles listed above, and State siting 
authority should be preserved.
    This brings me to the second question: ``What role should 
the States play in ocean energy facilities?''. We believe that 
States should have the authority to decide whether to site 
ocean energy facilities within their territorial waters. 
Traditionally, States, not the Federal Government, have made 
the siting decisions on power plants. Ocean energy facilities 
are power plants. Ocean energy facilities are not instream 
dams, and do not present Federal Power Act issues raised by 
instream structures.
    The State can address siting and environmental issues in a 
more timely fashion than either Federal agency, with less cost 
and expense to the developer and with more meaningful 
involvement by the public. Even with an expedited process, it 
could take up to 3 years or more for a Federal agency to make a 
final decision on an ocean energy application for full 
commercial operation on a large scale.
    In contrast, Oregon's centralized process for siting large 
energy facilities takes less than 1 year from receipt of a 
complete application. Our process has sited thousands of 
megawatts of power plants, hundreds of miles of transmission 
lines, natural gas pipelines, and natural gas storage 
facilities with a public process which is accessible and 
convenient for our citizens. Our process has also denied energy 
projects which failed to meet Oregon's strict environmental 
standards.
    Finally, our experience with the recent preemption of the 
State in siting liquified natural gas, or LNG, facilities has 
been that it has taken more time, not less, to reach a 
decision, with a process which is more difficult for our 
citizens. I urge you not to take that path for ocean energy.
    In conclusion, our beaches are public property, and Oregon 
law provides public access to all beaches to our citizens. The 
State has a fundamental interest in the use of the Oregon 
coast, and should make the primary decision on on whether, and 
where, ocean energy power plants are sited on our coast. I've 
provided more details in my written statement on our process.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Grainey follows:]
 Prepared Statement of Michael W. Grainey, Director, Oregon Department 
       of Energy, on Behalf of Governor Ted Kulongoski, Salem, OR
    Good morning, Chairman Bingaman, members of the Committee. Thank 
you for the opportunity to present this testimony on behalf of Governor 
Ted Kulongoski.
    The Oregon Department of Energy is responsible for siting large 
energy facilities, including power plants, transmission lines, natural 
gas pipelines and natural gas storage facilities. The Department is 
also responsible for implementing the state's energy policy of 
promoting energy efficiency and renewable energy.
    In 2005, Governor Kulongoski adopted a Renewable Energy Action 
Plan, to guide Oregon's energy future. The Plan contains more than 130 
recommendations to increase the use and development of renewable energy 
in Oregon, including wave energy. These involve federal and state 
legislation, as well as actions agencies, businesses and individuals 
can take. Governor Kulongoski sent to the current session of the Oregon 
Legislature a comprehensive legislative package to implement that Plan, 
including over twenty measures in five bills. I have attached a summary 
of the Governor's legislative package for your information.
    A key part of that policy is the recent adoption by our Legislature 
of Governor Kulongoski's Renewable Portfolio Standard, Senate Bill 838. 
That standard is one of the most aggressive in the nation. It requires 
that 25% of Oregon's total load come from new renewable energy by the 
year 2025. This means that virtually all of Oregon's load growth must 
be met by renewable energy.
    This is a commitment the state is eager to make. But to do so we 
must have renewable resources that are available and can be sited 
efficiently. Wave energy is an emerging renewable technology and Oregon 
has some of the most promising sites in the entire country. Oregon has 
unique sites especially favorable for wave energy development based on 
its wave resource and access to coastal transmission. It is essential 
that the process for siting ocean resources be fair and timely.
    Interest in wave energy in Oregon is high and is favorable in 
coastal communities, so long as development is done carefully and in a 
way that avoids adverse impacts on fishing, scenic vistas and 
recreational uses. Oregon has worked with industry, local officials, 
marine resource users such as crabbers and fishers, environmental 
groups and the general public, to create a consensus roadmap for 
developing wave energy.
    Already four leading wave energy developers have received 
preliminary permits at several locations off the Oregon coast. Three 
more sites have permits pending. In addition, Oregon is a world leader 
in wave energy research, with the team led by Doctor Annette Von 
Jouanne at Oregon State University. Their research is helping to move 
wave energy from a promising technology to a commercially viable source 
of energy. As part of this work, Oregon State University has proposed 
to develop a National Wave Energy Center off the Oregon coast to test 
innovative wave energy devices. In fact, Oregon State is in the process 
of deploying a test device this summer off the coast of Newport.
    Governor Kulongoski has made a commitment to ensure that Oregon 
leads the nation in the research and commercialization of wave energy 
development in the United States. In addition to the Renewable 
Portfolio Standard, initiatives of Governor Kulongoski on wave energy 
include:

   Creation of a new non-profit entity, the Oregon Wave Energy 
        Trust, to spearhead efforts to develop a wave energy sector in 
        Oregon, including a statewide environmental assessment, assist 
        in streamlining the regulatory process, fund R&D efforts, and 
        provide input for coastwide planning for wave energy sites 
        supported by coastal communities.
   Designation of an Oregon Solutions project for the proposed 
        project off the coast of Reedsport. That designation provides 
        high priority involvement by the Governor's staff in a 
        collaborative process involving all stakeholders, including 
        affected citizens, local governments, interested industry, 
        utilities, state agencies and others. The project goal is to 
        develop consensus support for the first commercial wave energy 
        project in the United States.
   $5.2 million in the Governor's budget for the 2007-2009 
        biennium for additional research and development of wave 
        energy.
   Expansion of the state's business energy tax credit to 50% 
        on up to $20 million investment. The tax credit applies both to 
        wave energy generation projects as well as manufacture of 
        technology and equipment used for wave energy devices.

    With that context, let me turn to the two questions I have been 
asked to address.
    Question 1. Should the US Minerals Management Service (MMS) or the 
Federal Energy Regulatory Commission (FERC) Have Federal Authority Over 
Ocean Facilities?
    Answer. Regardless of which federal agency is involved, we believe 
that the federal role in ocean energy facilities should be limited in 
scope, complexity and timing. The federal role should be flexible, 
recognize the unique nature of ocean projects as compared to 
traditional river hydroelectric facilities, appropriately consider 
state standards, adequately address state interests, and be 
expeditious.
    The federal role should not interfere with the state's traditional 
power to determine power plant siting, including within the state's 
territorial sea. The federal role should also not be duplicative of the 
state review and it should not interfere with the state review. Rather 
than choose between agencies, we believe that any agency Congress 
assigns responsibilities for a federal role in ocean energy facilities 
should follow these principles.
    For example, Section 388(e) of the Energy Policy Act of 2005, which 
provides authority to MMS to grant proprietary authorizations (leases, 
easements and rights-of-way) for energy-related uses on the outer 
Continental Shelf (beyond the three-mile limit), explicitly recognizes 
and preserves state jurisdiction and other rights over any submerged 
lands subject to MMS's review. We support Section 388(e). Similar 
language should be included for any responsibility Congress gives FERC.
    FERC has interpreted the Federal Power Act to include wave and 
other ocean energy projects as hydroelectric facilities under its 
jurisdiction, including those within the three-mile limit. These 
facilities are not comparable to dams and other in-stream structures. 
Nevertheless, we have engaged constructively with FERC staff to try to 
coordinate state reviews with FERC's asserted role. We are willing to 
work in a similar fashion with MMS for any duties Congress assigns to 
that agency.
    FERC recognizes that ocean energy facilities present different 
issues than in stream hydroelectric facilities and held a workshop last 
December to examine these issues. We commend FERC for taking the 
initiative to publicly examine what its role would be and ways to 
address the unique nature of these ocean sites. Attached is the 
testimony I provided to FERC at that time.*
---------------------------------------------------------------------------
    * Document has been retained in committee files.
---------------------------------------------------------------------------
    We are also pleased with some initial steps FERC has proposed in 
response to that workshop and we encourage FERC to act favorably on 
more of the suggestions made at that workshop. If Congress decides that 
FERC should play a role in ocean energy, we urge Congress to clearly 
direct that FERC should develop a process for ocean sites that 
recognizes the differences between ocean wave facilities and river 
hydroelectric facilities, particularly within the three-mile limit. In 
addition, FERC's scope of review and process should be consistent with 
the principles listed above.
    Question 2. What role should the states play in ocean energy 
facilities?
    Answer. States should have the authority to decide whether to site 
ocean energy facilities within their territorial waters. Traditionally, 
states, not the federal government, have made the siting decisions on 
power plants located in their states.
    Ocean energy facilities are not like dams and other structures 
which may restrict navigation on navigable rivers. Ocean energy 
facilities are power plants, which use mechanical energy to generate 
electricity, and states should be allowed to apply their own 
coordination process to address any localized impacts of these 
facilities.
    Section 388 of the Energy Policy Act of 2005, in providing MMS lead 
responsibility for federal leasing decisions, does not preempt the 
traditional role of the states in siting power plants. Instead, Section 
388(e) explicitly preserves state authority to make siting and state 
leasing decisions. For example, Section 388(e) preserves not only 
Oregon's siting authority but also the authority of our Department of 
State Lands to issue state leases for activity on state property. We 
believe this approach makes sense, where federal and state agencies 
focus on their respective areas. Under Section 388(e) MMS makes leasing 
decisions outside of the three-mile limit, and the State makes power 
plant siting decisions and leasing decisions for state property.
    If Congress agrees with FERC's assertion of jurisdiction over ocean 
energy facilities, we urge Congress to add language similar to Section 
388(e) to apply to FERC.
    The State can address siting and environmental issues in a more 
timely fashion than either FERC or MMS can, with less cost and expense 
to the developer and to the general public. Even with an expedited 
process it would probably take either federal agency up to three years 
to make a final decision on an ocean energy application for large scale 
commercial operation.
    In contrast, Oregon's process for siting large energy facilities 
takes less than one year from receipt of a complete application. For 
large energy facilities, Oregon has a centralized state siting process 
in which the licensing decision is made by the state Energy Facility 
Siting Council. The Siting Council's review covers issues normally 
reviewed by other state and local agencies. The Siting Council's 
decision must be made in less than one year from the time a complete 
application is filed.
    Oregon's process has successfully sited thousands of megawatts of 
power plants, hundreds of miles of transmission lines, natural gas 
pipelines and natural gas storage facilities, while providing a public 
process which is accessible and convenient for interested citizen. Our 
process has also denied applications for energy facilities which failed 
to meet Oregon's strict environmental standards. Oregon's process for 
siting large energy facilities works effectively for a wide variety of 
energy facilities. That process provides meaningful public input while 
resulting in a final decision in a timely manner.
    For small energy facilities (less than 25 megawatts), Oregon has 
also established a process to coordinate review among state and local 
agencies called the Oregon Solutions process mentioned previously. The 
Oregon Solutions process operates parallel to state and local licensing 
and can shorten the licensing process by resolving issues early. It has 
been used successfully on a number of important environmental and 
energy issues in the last four years.
    As mentioned previously, Governor Kulongoski has designated the 
Reedsport Wave Energy Project an Oregon Solutions project. That 
designation provides high priority involvement by the Governor's staff 
in a collaborative process involving all stakeholders, including 
affected citizens, local governments, interested industry, utilities, 
state agencies and others. This process allows the State to act more 
quickly and more flexibly than FERC to resolve issues for small ocean 
resources.
    Our Legislature also recently passed House Bill 2925, which 
simplifies the process of siting test and research wave facilities, 
which are not generating electricity for sale to utilities.
    Finally, our experience with federal preemption of the state in 
licensing liquefied natural gas facilities (LNG) is that the Energy 
Policy Act of 2005 has not shortened the process of reaching decisions. 
The state had nearly finished the first phase of its review of two LNG 
facilities when the state's coordinated siting process was preempted by 
other sections of the Energy Policy Act of 2005. The result caused 
confusion and delay to everyone involved. The record of LNG facilities 
and of hydro licensing shows that preemption of state siting is not 
necessarily the way to expedite decisions to site ocean energy.
                               conclusion
    Ocean energy facilities should be treated in the same way as other 
power plants that are reviewed through a coordinated state process. The 
federal role should be limited, streamlined and should not displace or 
preempt the State role. Section 388(e) of the Energy Policy Act 
provides a good approach that should apply to any federal agency 
involved in ocean energy facilities.
    Oregon, along with other states, has a fundamental interest in the 
use of the territorial sea, as well as in the development of renewable 
energy resources. Oregon has a fair and efficient process ready to 
apply to siting ocean energy facilities, and there is no compelling 
reason why that system should not apply to ocean energy facilities.
    Thank you very much.
            Attachment.--Energy Legislative Package for 2007
    Provided below are summaries of Governor Kulongoski's energy 
legislative package.
          senate bill 838--renewable portfolio standard (rps)
    Establishes a Renewable Portfolio Standard (RPS) for electricity. 
The bill requires that 25% of Oregon's electric load come from new 
renewable energy by 2025. The bill includes the following provisions:

          1. The RPS requirement of 25% by 2025 applies to electric 
        utilities and any electricity service suppliers that serve at 
        least 3% of Oregon's electric load. This covers Oregon's three 
        largest electric utilities with over 75% of Oregon's electric 
        load. Depending on load growth, this will likely cover most of 
        the new resources needed to meet these utilities' new load.
          2. The RPS sets interim targets of 5% by 2011, 15% by 2015 
        and 20% by 2020.
          3. Oregon's 31 smallest consumer-owned utilities that serve 
        less than 1.5% of Oregon's electric load are exempt from the 
        25% standard but must meet 5% of their load from new renewable 
        energy by 2025. Utilities which serve between 1.5% and 3% of 
        Oregon's load must meet 10% of their load from new renewable 
        energy by 2025.
          4. Eligible renewable resources include wind, solar, ocean, 
        geothermal, biomass, hydropower and other renewable resources 
        that were operational after January 1, 1995. Eligible 
        generating facilities do not have to be located in Oregon but 
        at least 80% of the electricity from these resources must serve 
        Oregon loads.
          5. No utility will be required to give up access to low-cost 
        firm power from BPA or low-cost hydro contracts with the Mid-
        Columbia dams owned by Washington PUDs.
          6. The RPS is not expected to increase rates; but a cost cap 
        is built in as a backstop to limit any possible cost impact.
          7. Compliance with the RPS can occur by owning eligible 
        resources, by buying the output of resources developed by 
        others, or by acquiring a limited number of unbundled Renewable 
        Energy Certificates.
          8. The public purpose charge is extended through 2025. Use of 
        the renewable energy portion of the public purpose charge is 
        limited to small-scale renewable energy projects 20 megawatts 
        or less to encourage a diversity of the types of renewable 
        energy resources developed.
          9. There is a non-binding goal that one-third of the 
        renewable energy resources will be small-scale renewable energy 
        projects.
                house bill 2210--biofuels fuels package
    Provides a package of measures to encourage greater development, 
distribution and use of agricultural and forest material for biofuels, 
for electricity and for other forms of biomass energy use. The bill 
includes the following provisions:

          1. Expands property tax incentives for biofuel and certain 
        fuel additive production facilities.
          2. Establishes a new tax credit for producers and collectors 
        of biofuel raw materials, based on BTU content of feedstock.
          3. Establishes a Renewable Fuel Standard for biodiesel and 
        ethanol based on in-state production.
          4. Prohibits the sale of gasoline that contains MTBE and 
        certain other additives.
          5. Provides mandate on State agencies regarding biodiesel for 
        backup power generation.
          6. Creates an income tax credit for consumer use of biofuel.
          7. Modifies the site certificate exemption criteria for 
        ethanol and biodiesel production facilities to preclude coal-
        fueled facilities.
          8. Maintains exclusive farm use (EFU) status for on-farm 
        biofuel production facilities.

       house bill 2211--business energy tax credit (betc) changes
    The Business Energy Tax Credit is amended to provide greater 
incentives for renewable energy including the following:

          1. Increases credit for renewable energy systems installed by 
        businesses from 35% to 50% and increases the project cost limit 
        from $10 million to $20 million.
          2. Provides that the costs of constructing facilities to 
        manufacture renewable energy systems and components are 
        eligible for the increased tax credit for renewable energy.
          3. Repeals the offset for federal tax credits for BETC 
        projects that also receive a federal credit.
          4. Provides an incentive to builders of high performance 
        homes that reduce purchased energy use to near zero on an 
        annual basis.
          5. Make combined heat and power projects (CHP) eligible for 
        the increased tax credit.
          6. Increases the size of hydro projects eligible for BETC 
        from 1 megawatt to 10 megawatts for hydro projects meeting 
        state and federal requirements for fish and wildlife.
          7. Makes homebuilders eligible for installation of renewable 
        energy systems in new homes but at the value of the Residential 
        Energy Tax Credit.
          8. Applies to projects receiving final certification after 1/
        1/07.

     house bill 2212--residential energy tax credit (retc) changes
    Makes the incentives for renewable energy more effective the 
following changes:

          1. Allows use of the RETC for more than one qualifying item 
        in the same year, e.g. for a solar water heater and for a solar 
        electric system, and/or for multiple energy-efficient 
        appliances.
          2. Increases the maximum tax credit for fuel cells and for 
        wind generation, similar to the increase in solar electric 
        systems passed in 2005, from $1,500 to $6,000 over four years.
          3. Effective date is 1/1/07.

    The Chairman. Thank you all very much.
    Let me just ask a question or two, and then defer to 
Senator Domenici and Senator Craig.
    First, Steve, let me ask you--you indicated that there's a 
process in place between your agency and FERC to try to have a 
memorandum of understanding as to who's responsible for what. 
Do you have a clear idea that you could explain to me as to 
what you see your job as, versus what you think FERC's job 
should be? What are you trying to ensure has been considered 
before you sign off on one of these projects? What do you 
believe FERC needs to be sure has been considered?
    Mr. Allred. Mr. Chairman, I would be glad to.
    The things that we are concerned about with regard to the 
OCS, that we assure, as we go forward on alternative energy 
projects, are very similar to those that we would be concerned 
about as we look at oil and gas development. These are large 
structures. They are anchored to the floor of the ocean. If you 
remember, a significant amount of the damage during Katrina 
occurred when these structures broke loose. So, the anchoring 
and the engineering that goes into those structures is very 
important to us, to make sure that we have standards, and that 
it's done correctly.
    The Chairman. That is for the safety of the people who use 
the high seas? It's a little different, in the sense that there 
is not going to be any escape of wind, like there would be of 
oil or gas, if you had some kind of a hurricane come through 
and upend a facility.
    Mr. Allred. Mr. Chairman, a lot of it will depend on how 
these structures are constructed. They're engineered, of 
course, but the safety I'm talking about is when one of them 
breaks loose, and they are like a guided missile, as we saw in 
Katrina. Most of the areas where these will occur are areas for 
example, in wind, where there are high winds. That's the reason 
for them.
    The second concern we have is marine mammals. Again, when 
we go offshore, it is the agency's concern, and mine, that we 
not affect marine mammals, and that we do these things in an 
environmentally sound manner. I think that's worked out well on 
the oil and gas, in the standards that we have there.
    The other issue we have to deal with, with FERC, is, while 
they issue a preliminary permit, as you remember, the law you 
passed requires us to provide leasing opportunities on a 
competitive basis. So, we have to deal with the situation where 
someone who may be spending lots of effort and lots of money in 
developing one of these projects may not be the one, under a 
competitive process, who ends up with the lease.
    So, we've got to provide a mechanism on the OCS where our 
processes, and those of FERC, align so that we are not putting 
people at risk of spending lots of money, and then not being 
able to proceed. That can be done, I'm confident.
    We have no desire to develop electrical transmission 
capability within Minerals Management Service, and that's where 
we believe that FERC, in whatever role, has to play a part.
    The Chairman. Mr. Robinson, let me ask you if you could, 
sort of, answer the same question. How do you see the division 
of jurisdiction, or the separation of concerns, maybe, is what 
I'm trying to understand a little better. Are there things that 
you are focused on, related to the electric grid, that are 
distinct from what MMS has to do, or do you do some of the same 
things that they're doing? Or how do you see that?
    Mr. Robinson. I think we share a lot of the same concerns. 
Certainly, we've placed over 1,400 miles of pipeline offshore, 
over $3.3 billion worth of investment; and there, we have the 
same concerns with mammals, transportation safety, navigation. 
We work very closely with all the agencies that also share 
those concerns, including mitigative measures and 
authorizations to ensure protection of all those resources.
    Specifically with MMS, there's a three-step process that 
they go through: their leasing, their studies, and their 
authorization to construct. What we're trying to do through 
that MOU is to make sure that, as the Assistant Secretary said, 
we don't overlap each other, or overburden each other. As an 
example, one of the discussions we're having is, in that first 
phase of their process, when they're doing the leasing, does it 
really make sense for the Commission to issue preliminary 
permits under those kinds of conditions? One of the things that 
might come out of an MOU is the deferral of the preliminary 
permit process to the leasing process. But that's only one 
phase. We have very specific administrative things to work out 
in all three phases.
    The Chairman. So, your thought is, perhaps, at least, it 
would be appropriate, first, for a person to go to MMS and get 
a lease, and then come to you to get a permit, or to do the 
permit--the study--preliminary study.
    Mr. Robinson. That's certainly one model, where the lease 
is taken care of, and then we go into the authorization to 
construct, and the Commission would have a role there.
    The Chairman. OK.
    Senator Domenici.
    Senator Domenici. Mr. Robinson, FERC has issued 38 
preliminary permits for these new ocean wave technology 
projects. To what extent, if any, is NOAA involved? How is FERC 
coordinating with the States?
    Mr. Robinson. NOAA is very deeply involved in everything 
we're doing here, for obvious reasons. They have statutory 
authority under the Endangered Species Act, and so we work with 
them very closely. In fact, we've just initiated some 
discussions with NOAA about how we can work with them in a 
fashion to allow experimental projects to go forward more 
quickly and not necessarily have to go through the entire 
licensing process. As far as the States go, the same applies. 
We work with the States, from the very beginning when we're 
informed of a project, to see what the State concerns are, and 
issues, and to try to get them to initiate their own permitting 
and authorization processes, which we depend on. So, we work 
very closely with both National Marine Fishery Service and the 
State in these projects.
    Senator Domenici. Mr. Chairman, I believe I'll save my 
questions for the next panel.
    The Chairman. All right.
    Senator Salazar.
    Senator Salazar. Thank you very much, Senator Bingaman.
    I have a question to Assistant Secretary Allred, and to 
Mark Robinson.
    The potential for wind energy in the off-coast areas of the 
U.S. is obviously great, from the information that we have 
received. When you look at the statistics about how much wind 
energy is being produced offshore in places like Denmark, they 
are way, way ahead of the United States of America. What is 
your view of what we are doing that might accelerate what we do 
with respect to wind energy offshore?
    Mr. Allred. Mr. Chairman, Senator, I think there's a huge 
potential, as you have indicated, to develop these projects 
offshore. There are a lot of technical challenges in doing 
that, as you can imagine. These will not be without 
controversy. The first two projects, what I call the legacy 
projects that you asked us to proceed on under EPAct, are 
tremendously controversial.
    Senator Salazar. But are the controversial issues relating 
to the esthetics, or are there environmental issues associated 
with the controversy? What's the problem?
    Mr. Allred. These are not simple questions, but I think the 
biggest concern is that there's a visual impact. There is a 
concern about their impact on wildlife, on birds. There also 
have been a number of things enunciated by those who are 
opposed to those projects. That being said, we will work 
through that, just like we do with projects onshore. I think 
there's tremendous potential. I think there are some tweaks 
probably required with the Act. One of them has to do with 
putting out met towers. The Act, as it was written, didn't 
contemplate an ability to put out a short-term met tower in 
order to gather data, for example. We think--and we've been 
working with the committee staff--there needs to be a change, 
perhaps, there to make that much easier so someone can gather 
data very quickly.
    Senator Salazar. Are there any regulatory or legal changes 
to the 2005 EPAct that might make it easier to develop the wind 
energy resources offshore?
    Mr. Allred. In our discussions, Senator, with the committee 
staff, we have identified that specific one, I think, that 
would be best handled by an addition or a technical amendment 
to the Act. It's really only a technical amendment, it has very 
little impact. But it would quickly accelerate the ability to 
go out and find out where the best spots are.
    Senator Salazar. Mr. Robinson.
    Mr. Robinson. Senator, we don't have any statutory 
authority for the siting of wind energy, and so we really don't 
have a role in that area.
    Senator Salazar. OK.
    Mr. Allred, the question related, then, to wave energy--and 
I don't know if some of the other witnesses could comment on 
that--how--what is the potential of that? We see the energy 
that comes through waves in our oceans. How far along is the 
technology, in terms of being able to capture wave energy?
    Mr. Allred. Senator, I--just given the amount of interest 
that has been generated, for example, over the issue of 
jurisdiction--certainly think that we're going to see 
applications and projects. Now, obviously, the economics of 
those with respect to other power sources will determine, 
really, whether they go forward. But we certainly are going to 
be prepared to go forward and to do what we can to accelerate 
any of these technologies, along with the other agencies.
    Senator Salazar. Michael Grainey--from your point of view 
in Oregon, as the director of the Department of Energy for 
Oregon--what do you see the potential for both wind and wave 
energy?
    Mr. Grainey. Senator, they're both very great. Wind energy 
is commercially viable now in Oregon. We have operating over 
500 megawatts of wind power, another 1,000 megawatts have been 
approved, and another 1,000 megawatts are pending in our siting 
process. None of those are offshore. We've had no interest, by 
developers, in offshore wind, and I think that's because we 
have such good sites inland, in rural farming areas, where 
they've been readily accepted, with no controversy.
    Senator Salazar. So, there hasn't been controversy with 
these 1,000 megawatts of development on wind energy?
    Mr. Grainey. Not at all. There's only one site, recently, 
that was applied for, a small site, that's near a sensitive--
visually sensitive area, that's raised some controversy.
    Senator Salazar. How about wave energy? Anything going down 
there?
    Mr. Grainey. For wave energy, again, the potential is very 
large. We estimate that nearly 5,000 megawatts of wave energy 
could be developed off the Oregon coast. That's as much as our 
entire electric load. Now, that will take time, and the costs 
for wave energy are still significantly higher than other 
energy. But, as we saw with wind energy, those costs can come 
down quickly, and the technology is improving. I think, within 
10 years or less, we will see significant commercial 
development off the Oregon coast.
    Senator Salazar. Thank you very much, Mr. Grainey.
    Thank you all.
    The Chairman. Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Well, it's good to hear the general level of enthusiasm for 
ocean energy. We've got about one-fifth of the coastline of the 
United States up north, and we think that there is enormous 
potential for ocean energy, tidal energy. We've got a couple of 
different projects that are being looked at, and we believe 
that there's great opportunity there.
    I apologize if I ask a question that has already been 
answered prior to my arrival here at committee this morning, 
but this is directed to you, Secretary Allred, and to you, Mr. 
Robinson. In your written testimony, you both say that FERC and 
MMS are making progress in working out this memorandum of 
understanding to share the authority, but I want to know 
whether, in fact, that is truly the case, or whether we need 
to, by statute, clarify EPAct. I know that when EPAct was 
before us, and I voted for it, I intended to give MMS some 
ability to provide for the comprehensive planning so that the 
oil and gas leasing in OCS would not be negatively impacted by 
the siting of other energy projects. But I didn't intend to 
have FERC cut out of the reviewing, and, being the approving 
agency for wind and ocean energy, electric projects, 
particularly since FERC has shown its ability to approve these 
projects in a relatively timely manner.
    So, my question to you is whether or not Congress needs to 
revisit this issue.
    Secretary Allred.
    Mr. Allred. Senator, just my own personal philosophy is 
that you ought to make your laws as clear as they possibly can 
be; but----
    Senator Murkowski. We would agree.
    Mr. Allred [continuing]. But, saying that, when I became 
Assistant Secretary and saw what was going on, on this issue, 
and the controversy that was happening, that was 
counterproductive to both agencies. So, I decided to approach 
FERC about sitting down and working out a way where we combine 
our processes, and make it simple to carry out our 
responsibilities. I think we're getting there. The last 
version--it may be the first that we've traded, I don't know 
how many have been passed back and forth--but we recently 
provided a draft to FERC. I personally reviewed that, and I 
think it's something that will work, and I look forward to 
their response. The last thing I want is two Federal agencies 
competing in a way that makes the development of this resource 
undesirable or uncompetitive. But I also want to make sure that 
we don't duplicate responsibilities. We have no intention, at 
Interior, of developing the kinds of expertise that FERC has on 
the electrical transmission side, and we believe that we bring 
to it, because of the vast experience that we have in the OCS 
and other energy sources, a tremendous amount of knowledge on 
how to site and design these facilities, and on how to protect 
the marine environment. We, for example, spent over $780 
million in oceanographic and environmental studies on the OCS. 
That's critical, I think, to having that knowledge, and to 
combining the knowledge into a single process. We cannot afford 
two separate processes.
    Senator Murkowski. Mr. Robinson, what do you think, do we 
need a statutory clarification?
    Mr. Robinson. Not at this time, Senator. I think that we 
are making good progress on the MOU. At FERC, we're very used 
to working with a number of agencies in a shared decisionmaking 
mode. I think that, as our experience in that area becomes more 
apparent to MMS, a lot of the issues that we have right now 
that still remain will be ironed out. We still are hopeful for 
an early summer MOU to make this all happen.
    One of the point, as I said earlier, the majority of this 
type of work will probably occur inside the OCS, in any case. 
The vast majority of our permits, and the one license that 
we're working on, are all in the first 3 miles outside of the 
OCS. I think that experience that we're gaining right now in 
licensing projects will ultimately serve the purposes of both 
FERC and MMS as we move into the OCS.
    Senator Murkowski. Well, if progress with the MOU falls 
apart, we'd like to know about it. So, thank you for your 
answer.
    The Chairman. Senator Craig.
    Senator Craig. Thank you very much, Mr. Chairman.
    In all of our wisdom, sometimes we paint in gray. Now, 
having done that, Mr. Chairman, in EPAct, I find myself in the 
very interesting situation--you've heard the old phrase, 
``Steve is a friend, and Mark is a friend, and I'm for my 
friends''? It is very clear to me that both FERC and MMS have 
unique talents and unique specialties, and neither one should 
develop the others.
    So, carry the discussion on, if you would, Steve and Mark, 
of the kind that you were having with the Senator from Alaska 
as to where we get in memorandums of understanding that clearly 
lay out a process and a procedure and a relationship that does 
not deter, slow down, or bureaucratize the process at hand. 
When I look at this, and I see MMS's jurisdiction in oil and 
gas resource production, and all of the talents there, and FERC 
clearly has jurisdiction in licensing of power and hydro, and 
now we're taking that out into the ocean, it seems to me 
there's some common ground for both, and that we shouldn't 
shift full responsibility and unique talents from one to the 
other, or vice versa.
    So, carry us forward in the next iteration of, and how far 
along are you, and if this is a truly cooperative environment 
that you are now working in.
    Mr. Allred. Senator Craig, we don't have comments back on 
the first draft that we have, but, at least our desire within 
MMS, and I believe that in FERC, is to find a way to solve this 
issue and to, more importantly, come up with a process that 
does not add delays, and hopefully will shorten the time by 
which we can develop these energy resources.
    There are always turf issues. I'm realistic, particularly 
here in Washington, DC, in understanding that. We have to work 
through them, and we're committed to do it.
    Senator Craig. Mark.
    Mr. Robinson. If you look at this--and we've had about a 
month and a half of discussion now, and there has been an 
exchange of a number of ideas on how we can coordinate our 
processes. There's really three steps involved:
    First is the leasing step. We have no expertise there, and 
we have no desire to get involved with that.
    The second is the studies step. The winner of the lease, 
the leaseholder, is responsible for doing studies in the OCS to 
determine what the impacts might be of any kind of placement. 
There, I think that in our discussions it's clear that MMS 
would take a lead there, we would support, in that second 
phase.
    The third phase is the authorization to construct. That's 
where we do have a lot of expertise, in terms of conditioning 
the construction, the operation, the maintenance of facilities. 
Then, we inspect those facilities and have the ability to 
penalize if somebody violates a condition that we place in that 
authorization. I think that's where we bring a lot of 
expertise, and we would like to work with MMS on how we can do 
that third phase, after they've conducted the first, we've 
cooperated on the second, and then we need to cooperate on the 
third to get projects built and constructed in the right way. 
That's more or less where we stand right now.
    Senator Craig. Are either of you suggesting or proposing or 
thinking that Congress ought to clarify or in some way 
reproscribe? Both of you.
    Steve.
    Mr. Allred. Well, again, let me go back and qualify my 
answer by the fact that my personal philosophy is, to the best 
we can, things shouldn't be gray, because it's not the Federal 
agencies that will take advantage of those, it is those who 
want to oppose a project. Having said that, we were--before 
this issue came before you--already proceeding to try to work 
this out. As you know, these kinds of questions occur a lot, 
and have occurred a lot. My attitude is, they should not get in 
the way of doing our job. Given your decision, whether you 
choose to take additional legislative action or not, we will 
find a way to work with it. We were on the path, given the 
current grayness, as you call it, to make sure that we have 
that path--that clear path forward.
    So, if you choose to clarify this issue, we'll work with 
FERC. If you choose that we work it out by ourselves, we will 
do it. I think it'll work well. The only issue that I caution 
you on is that when the questions come up, it won't be between 
Federal agencies, it'll be someone, probably, in the court 
system, as you know, that, if there were any difficulty in that 
grayness, that that's where we'll see it.
    Mr. Robinson. Senator, I don't think so. We work with the 
Forest Service in siting hydroelectric projects on Forest 
Service lands. We work with the Bureau of Reclamation in siting 
hydroelectric projects on their land. We even work with the 
Corps of Engineers in siting hydroelectric projects on their 
dams. So, we have a lot of experience working with other 
agencies that have a significant regulatory role in the 
facilities that we authorize. So, I don't think we need new 
legislation. I think we just need to work with a new partner, 
and that's going--I believe--in the right direction.
    Senator Craig. Mr. Chairman, thank you for the time. Let me 
ask one last question, then.
    If the statute is gray, but you're coming together to 
establish a memorandum of understanding that develops certain 
specificities as to who's on first, who's on second, if you 
will, do you then, Steve, see that as a risk in the courts, or 
have memorandums of understanding and relationships developed 
by memorandums of understanding been clear enough to withstand 
those--the tests that you're concerned about?
    Mr. Allred. Senator, we need to make sure that we do that, 
to the extent that we can. No matter what we do, there's a risk 
in the courts, as you know.
    Senator Craig. With anything we do----
    [Laughter.]
    Mr. Allred. With anything that you do.
    Senator Craig [continuing]. Let alone what you do.
    Mr. Allred. So, we have that risk, and I think that the 
more we can do to clarify that, either as participants in a 
memorandum of understanding, which I think we contemplate would 
be reflected in rules, perhaps joint rules, in order to try to 
deal more with this issue.
    But this is a new technology and a new application as we go 
offshore, and there will be tests. We need to prepare for them.
    Senator Craig. Thank you both. Mr. Grainey, thank you.
    The Chairman. Let me ask a question, and then--Senator 
Landrieu hasn't had a chance to ask her questions.
    But, let me, first, just confess that when we did EPAct, it 
never occurred to me that FERC had authority as to the siting 
of these projects in the OCS. It wasn't something that I was 
aware of. I believe, Mr. Robinson, you said that FERC has no 
jurisdiction as to the siting of any wind project in the OCS. 
You do have siting, as you read the law, or authority over 
siting, of hydroelectric projects because of the hydroelectric 
licensing authority that you have, generally. I don't really 
understand why it's very logical for us to say to FERC, ``You 
don't have authority with regard to siting of wind projects in 
the OCS, you do have authority with regard to siting of 
hydroelectric projects in the OCS.'' It would make more sense, 
it seems to me, just as a matter of logic, to say, ``Look, the 
siting issues will be determined by MMS. The question about, 
you know, the hooking it up to the grid and compliance with all 
of those factors, that's something that FERC is clearly capable 
of, and expert on, and ought to be involved in.'' What's your 
thought as to that?
    Mr. Robinson. Well, Senator, it wasn't that EPAct said the 
Commission has no authority in siting wind in the OCS. It's 
that the Federal Power Act always gave the Commission authority 
to site hydroelectric projects in navigable waters that--where 
Commerce Clause--or Commerce Clause waters, where they're 
connected to the grid. Under that definition, which has been 
there since 1920, these projects are hydroelectric projects--
they produce electricity using hydropower--they fall under the 
Federal Power Act. There are exclusions that were specifically 
laid out in EPAct 2005 on the authorities of MMS to site energy 
projects in the OCS which allowed the Commission to maintain 
that authority, which it's always had, for siting hydropower 
projects in the OCS or in waters 12 miles and in.
    I think the first tidal power project that I worked on at 
the Commission was back in the early 1980s. This is not 
something--when there was a thought, back then, that maybe 
tidal power was an economic way to generate electricity. That 
died off at that time, and we're revisiting it now, but we've 
had that authority since 1920.
    The Chairman. OK.
    Senator Landrieu.
    Senator Landrieu. I'm going to pass with questions, but I 
thank the chairman for calling this hearing, because it is 
something that we need to resolve and move forward, because I 
think the potential and opportunities in our waters are very 
significant. So, I will submit questions later, but I'm just 
here to listen.
    Thank you.
    The Chairman. Thank you.
    We have two votes, starting in about 5 minutes. I guess I 
would be inclined to go ahead and dismiss this panel and bring 
the second panel forward, unless, Senator Smith, you wanted to 
ask some questions before we do that.
    Senator Smith. Just to welcome Mr. Grainey and I appreciate 
your coming here.
    Mr. Grainey. Thank you, Senator.
    Senator Smith. I'll submit a question for the record, Mr. 
Chairman.
    The Chairman. All right, thank you.
    The Chairman. Thank you all for testifying. Why don't we 
ask the second panel to come forward, and maybe we can get 
their testimony in before we have to run to do these two votes.
    We have two statements for the record that I'm just going 
to include. One is from Nathanael Greene, the senior policy 
analyst with the Natural Resources Defense Council, and the 
other is by Diane Regas, who is the managing director of the 
Oceans Program for Environmental Defense. Both of those 
statements will be included as part of our committee record.
    The Chairman. Why don't we start--Jason Bak is the CEO of 
Finavera--is that the correct pronunciation?
    Mr. Bak. Finavera.
    The Chairman. Finavera--Finavera Renewables, Inc., in 
Vancouver, British Columbia; Jamie Steve is the legislative 
director for the American Wind Energy Association, here in 
Washington.
    We thank you both for being here. Jason, why don't you 
start, and then Mr. Steve.

    STATEMENT OF JASON BAK, CEO, FINAVERA RENEWABLES, INC., 
                  VANCOUVER, BRITISH COLUMBIA

    Mr. Bak. Thank you, Mr. Chairman and members of the 
committee, for inviting me to testify.
    Let me, again, start by thanking you, once again, and the 
specific members who have been champions of renewable energy 
for many, many years, Senator Murkowski, Senator Smith, all of 
whom have provided great leadership for the renewable energy 
industry, and we're very grateful for your support.
    Although I'm here in my role as CEO of Finavera Renewables, 
I can tell you that we've spoken with a number of the other 
leading wave energy developers in America, and they share some 
of our concerns that I'm going to outline today.
    We're very concerned about the negative effects of the 
dispute between FERC and MMS, and the over-regulation of wave, 
current, and tidal energy projects within the Federal Outer 
Continental Shelf. Our industry will simply not develop 
projects on the OCS until the dispute is resolved. Even then, 
if the resolution to the dispute leads to a duplicate of 
burdensome and inefficient Federal decisionmaking process, we 
will not use the OCS for our projects. Projects there will 
simply be too difficult to finance with that risk.
    We will be compelled to stay in State waters, which hold a 
fantastic promise for wave energy, but will not tap potentially 
valuable renewable energy resources in the Federal waters. User 
conflicts will become more likely because we're constrained to 
a smaller space. Any hope for Federal royalties or fees will 
not materialize.
    One of the worst cases that we envision is if Congress were 
to do anything to cast uncertainty on FERC's licensing 
authority, since we and others are actively pursuing projects 
right now pursuant to the Federal Power Act process. We urge 
you to reinforce the Commission's authority.
    In saying that, we don't believe that we're asking you to 
weaken MMS's authority or ability to carry out its mission, 
under section 388 or otherwise. MMS is the landlord and has 
clear power to set lease terms. Moreover, as I understand it, 
the Interior Department has authority to set conditions on 
Federal hydropower licenses.
    I suspect that MMS may not be as familiar with the process 
as the Fish and Wildlife Service, but that doesn't mean that 
that authority is unavailable to them, and it certainly doesn't 
justify the creation of any redundant licensing regime. I think 
myself and the others who have testified so far have said, 
``Keep it simple.''
    In other words, we think this dispute is unnecessary. We 
know it's destructive. We hope that it can be addressed 
promptly.
    I'd like to respond to the testimony from our good friends 
at the State of Oregon. I mean it. Oregon has been a tremendous 
ally to the wave energy industry. My written testimony outlines 
the many steps that Oregon has taken to attract the jobs and 
the investment dollars that our industry can provide as we grow 
and succeed, and we're taking international funds and domestic 
funds, and funneling them into Oregon to really push the 
industry forward. That comes with the creation of jobs and a 
number of other benefits for the State.
    We respect and understand the Governor's call to let the 
State carry primary responsibility for licensing projects in 
State waters. We share the Governor's desire to apply a simple, 
efficient process to project licensing. Yet, we do not want to 
make the ideal the enemy of the good by inviting a 
constitutional dispute between Federal and State governments.
    In our view, FERC should administer its integrated 
licensing process in a way that rewards and encourages those 
States that step forward, as Oregon has done, to take 
responsibility for the hard work of stakeholder engagement, 
issue identification, and problem solving required to develop a 
renewable energy project or program with broad public support.
    We see no reason why FERC cannot, under its existing 
authority, grant broad deference to license applications 
developed through State-led procedures that are inclusive, 
transparent, and comprehensive. In fact, we view FERC's style 
and level of involvement in our Oregon projects, and the others 
that we follow, to represent exactly that kind of flexible 
approach.
    We believe that State-level initiatives in FERC--the FERC 
process can actually complement each other to the benefit of 
our industry and the public interests in offshore developments.
    Thank you for giving me a chance to appear here today. I 
would ask that my full statement be included in the record, and 
I'm happy to respond to any questions.
    [The prepared statement of Mr. Bak follows:]
   Prepared Statement of Jason Bak, CEO, Finavera Renewables, Inc., 
                      Vancouver, British Columbia
    Mr. Chairman and Members of the Committee, thank you for the 
privilege of allowing me to testify before you.
    I am the CEO of Finavera Renewables. We are an energy company 
focused solely on development, ownership and operation of renewable 
energy projects around the world. Although we are developing 1500 
megawatts of wind energy in Canada and Ireland, my company is 
represented here today because we are at the cutting edge of ocean wave 
energy in the United States through our U.S. subsidiary, Finavera 
Renewables Ocean Energy.
    We have three wave energy projects under development in California, 
Oregon, and Washington, and we are in discussions about others. These 
are real projects. United States steelworkers are at work today 
constructing our prototype wave energy buoy, which we are going to 
install off the coast of Newport, Oregon this summer. Our Makah Bay 
project is the first, and so far only, wave energy project to apply for 
a federal operating license. We are leaders in an industry that is 
already creating jobs and is poised to bring clean electricity, 
desalination, and, in time, hydrogen fuel to the American economy.
    I wish to begin by thanking the Chairman and the members of this 
Committee who have been champions of renewable energy for many years. I 
would also like to thank Senator Cantwell, Senator Smith, Senator 
Wyden, and Senator Murkowski who have provided important leadership for 
the ocean wave, tidal and current energy industry.
    My purpose in testifying today is to describe two problems in 
existing law that create substantial regulatory risk for the ocean wave 
energy industry. Each problem is rooted in disagreement over the 
Federal Energy Regulatory Commission's authority under the Federal 
Power Act to license ocean wave, tidal, or current energy projects, but 
they have been brought into focus by disputes over the meaning of 
Section 388 of the Energy Policy Act.
    To begin, there is disagreement on the question whether FERC's 
hydropower licensing authority is confined to traditional in-river, 
freshwater hydropower projects or whether it also extends to non-
traditional hydropower projects, such as wave, tidal or current energy 
projects, located in marine areas.
    This question first arose in 2001, when Aqua Energy, a company that 
Finavera acquired last year, proposed the Makah Bay wave energy 
project. Our position at the time was that FERC's authority did not 
extend to our project. FERC, NOAA and other parties disagreed.
    Aqua Energy ultimately acquiesced to FERC's assertion of 
jurisdiction and, in fact, we have been extremely pleased with the 
process and FERC's use of its authority.
    The legal issue has been dormant; it has not been litigated or 
otherwise vigorously tested. It is, nevertheless, a latent uncertainty 
that presents real regulatory and litigation risk. It is an important 
enough matter that the legislature of the State of Oregon, which is 
moving aggressively to promote wave energy development and investment, 
recently petitioned Congress to address the issue by affirming FERC's 
authority. I have attached a copy of that petition to my testimony for 
your consideration.*
---------------------------------------------------------------------------
    * Document retained in committee files.
---------------------------------------------------------------------------
    The second matter of concern arises because the Minerals Management 
Service of the Department of the Interior has asserted that, while FERC 
may or may not have authority under the Federal Power Act to license 
non-traditional hydropower projects located in state jurisdictional 
ocean areas, it lacks authority over projects located on the federal 
outer continental shelf (``OCS''). MMS contends that Section 388 of the 
Energy Policy Act of 2005 gave MMS exclusive authority to regulate 
wave, tidal, or current energy projects on the OCS. This point of 
disagreement was created by the particular language of Section 388, 
which grants MMS broad leasing and other authorities for renewable 
energy projects on the OCS, but includes ``savings'' provisions for 
existing law and agency authorities. MMS's position is, essentially, 
that FERC had no authority under the Federal Power Act to license 
projects on the OCS, so no such authority was ``saved'' by the savings 
clauses. FERC and others disagree.
    This dispute over OCS jurisdiction is a matter of particular 
concern to the ocean wave energy industry because our technologies are 
well suited for offshore areas, including the OCS, while tidal and 
current energy projects are, for the time being at least, likely to be 
located closer to shore.
    To boil it down, the question facing us is whether FERC's Federal 
Power Act hydropower licensing authority extends offshore and, if it 
does, whether the authority ends at the boundary of the OCS.
    This Committee has jurisdiction over every relevant aspect of the 
problem.
    The Federal Power Act and Section 388 can be read--and we believe 
they should be read--in a way that avoids conflict.
    In our view, the proper interpretation of existing law, and the 
proper resolution of the current disagreement, would place FERC 
squarely in the lead for the purpose of licensing our projects wherever 
located. And MMS would have clear authority to convey leases or other 
proprietary rights on the OCS, just as states have authority to issue 
leases or other proprietary rights in state waters. FERC should be the 
principal regulator, and MMS should be the federal landlord. As we see 
it, the agencies both play very substantial, complementary roles with 
regard to use of the OCS. Neither agency's mission need be subordinated 
to that of the other.
    We do not mean to oversimplify the relationship; we understand that 
the boundary dividing the two sets of responsibilities is not absolute. 
The agencies' respective roles are inextricably intertwined. For 
example, under the Federal Power Act, the Interior Department (along 
with other federal agencies, states, tribes, and stakeholders) has 
substantial rights to participate in FERC license proceedings and to 
set conditions for the projects. The agencies must cooperate.
    Rather than ask the Committee to approach this issue purely as a 
matter of statutory interpretation, we urge you also to take into 
account four key policy concerns and to act to clarify existing law 
with these policy considerations in mind.
    First, the ocean hydropower industry is already heavily invested in 
the FERC hydropower licensing process. Finavera and other companies 
have literally built major components of our U.S. business models 
around the substantive and procedural characteristics of the FERC 
licensing process. We have also spent millions of dollars, and are 
poised to spend many millions more, on the studies, consultations, 
analyses, monitoring and other efforts dictated by the FERC procedures.
    It is important to emphasize our view that FERC's licensing 
process, especially the new integrated licensing process, provides an 
appropriately comprehensive, yet flexible mechanism for identifying and 
addressing the public values potentially implicated by ocean wave 
energy projects, including environmental concerns and use conflicts.
    There is empirical evidence for this position. When we filed our 
application for a FERC license for the Makah Bay project, literally 
dozens of stakeholder parties filed comments. Every commentor supported 
the project, provided we develop and implement a strong monitoring and 
evaluation program, which we will do. In other words, the FERC process 
works well enough to resolve the stakeholder interests, and the 
developer's interests, in a first-ever ocean energy project sited in a 
marine sanctuary adjacent to fiercely protected natural areas. We 
expect to receive a license within the year.
    Second, it would be truly devastating to our existing projects and 
the prospects for our industry if Congress were to remove FERC from its 
role as ocean hydropower regulator. There is no other federal agency 
with a regulatory system in place that can substitute for the FERC 
system. Under the best of circumstances, it will take years for MMS or 
any other agency to promulgate rules adequate to the task. The 
practical effect of any move to install another federal agency as 
regulator on state and federal waters would be to put our industry on 
hold for years--which means that we will close our doors in the United 
States. Real jobs will be lost here, and an important new energy 
resource left untapped.
    Third, if Congress were to remove FERC from its role as hydropower 
regulator on the OCS, it would leave the industry and stakeholders with 
the prospect of having to work through two or more different regulatory 
systems applicable to otherwise identical projects with identical 
impacts using the same waves. It would make no sense.
    Fourth and finally, please recognize that the status quo, 
particularly the assertion of project regulatory authority by MMS, is 
already producing results that are not in the public interest or 
consistent with Congressional intent.
    Section 388 was, at its root, meant to signal that Congress hopes 
to stimulate renewable energy development on the OCS. The vision behind 
Section 388 was one of jobs, clean energy, new investments and, in 
time, fees from the OCS for the federal treasury.
    Today, however, no sensible developer will consider placing a wave, 
tidal or current energy project on the OCS. We will all stay away from 
the OCS so long as the regulatory authority is unclear, contradictory, 
or unduly burdensome. This means that valuable sites under federal 
jurisdiction will not be developed. There will be no clean power and no 
rents from the OCS. In addition, the potential for user conflicts, 
particularly conflicts with the commercial fishing industry, is 
significantly increased if the ocean hydropower industry is forced to 
develop its projects entirely within the three-mile band of state 
waters. It is an artificial and unnecessary constraint.
    Mr. Chairman, we believe that current law can be interpreted in a 
way that avoids conflict. However, the unresolved dispute between the 
federal agencies highlights the regulatory and potential litigation 
risk we face today. Our view is that current law should be clarified 
and we urge this Committee to provide that clarification in amendments 
to the energy and climate related legislation soon to be considered by 
the full Senate.
    In late April, Finavera testified before the House Committee on 
Natural Resources alongside environmental groups, scientists, coastal 
state leaders, and commercial fishermen to urge Congress to help 
promote ocean renewable energy, while assuring protection for 
environmental and other stakeholder interests. I have attached for your 
reference a copy of my testimony and answers to written questions.*
---------------------------------------------------------------------------
    * Documents retained in committee files.
---------------------------------------------------------------------------
    There is strong momentum within industry and among the stakeholder 
groups to bring this new energy resource on line. Please help us move 
forward by removing unwarranted jurisdictional uncertainty from the 
law.
    We would be pleased to work with you, Committee members and staff 
to refine potential legislative language so that Congress can send an 
unequivocal signal in support of responsible development of ocean 
renewable energy.
    Thank you for the opportunity to testify.
     Attachment.--Examples of Tax and Other Incentives from Oregon 
                               and Canada
                           oregon's approach
    Oregon has adopted a collection of programs designed to create 
incentives for private investment in renewable energy sources, 
including ocean wave energy.
Business Energy Tax Credit
    The Oregon Business Energy Tax Credit (BETC) is valued at 35% of 
`eligible costs' for any particular project. The manufacturing of 
renewable energy devices qualifies for the BETC. The maximum eligible 
cost is $10 million, resulting in a $3.5 million tax credit. The credit 
is a dollar for dollar credit against State of Oregon Business taxes 
owed. In addition, there is a `pass-through' option that converts the 
tax credit to a cash payment upon project completion. A pass through 
partner is identified (with assistance from ODOE) and takes the credit 
on one's behalf in exchange for a 25.5% cash payment based on eligible 
costs. Details, contact persons and applications can be found at http:/
/www.energy.state.or.us/bus/tax/taxcdt.htm
Energy Loan Program
    The Oregon Energy Loan Program (also known as SELP) promotes energy 
conservation and renewable energy resource development. The program 
offers low-interest loans for projects that: save energy; produce 
energy from renewable resources such as water, geothermal, solar, 
biomass, biofuels, waste materials or waste heat; use recycled 
materials to create products; or use alternative fuels. The costs of 
designing and building an Oregon wave energy equipment manufacturing 
plant is eligible for a loan from Oregon's Energy Loan Program. 
Likewise, the costs of planning, designing and building a wave energy 
facility in Oregon is eligible for an energy loan. It appears that both 
a manufacturing plant and a wave energy facility would qualify for 
lower-rate loans resulting from tax-exempt bonds. Projects must be in 
sited Oregon. http://www.energy.state.or.us/loan/selphme.htm
Enterprise Zone Exemption (ORS 285C.055)
    Through a short-term tax exemption, an Oregon enterprise zone 
induces eligible businesses of all sizes to make additional investments 
that will improve employment opportunities, spur economic growth and 
diversify business activity. Qualifying new plant & equipment in a zone 
receives a total exemption for at least three and--in some cases--up to 
five consecutive years from the local assessment of ad valorem property 
taxes, which can otherwise have a deterring effect on private investors 
seeking to start or enlarge operations with a substantial capital 
outlay. Enterprise zone property (except hotel/resorts and utilities) 
also is exempt for up to two years while it is being constructed or 
installed. http://www.econ.state.onus/enterthezones/whatare.htm
Construction-in-Process (C-i-P)
    For up to two years, all structures and heavy equipment are exempt 
from taxation. This exemption is available for each year, in which on 
January 1 the facility has been neither placed in service nor used or 
occupied for intended, commercial operations. http://
www.econ.state.or.us/Blexemp.htm
Strategic Reserve Fund
    The Strategic Reserve Fund (SRF) was established by the Oregon 
Legislative Assembly to support economic and community development in 
Oregon. SRF projects must be approved for funding by the Governor. With 
the SRF, Oregon supports cost effective projects that create, expand 
and preserve the principal traded-sector industries of Oregon. The fund 
encourages diversification and preservation of regional economies. 
Administered by the Oregon Economic and Community Development 
Department (OECDD), the SRF is used to invest in time-sensitive 
economic opportunities statewide. Awards from the fund must be directly 
approved by the Governor of Oregon and are most often in the form of a 
forgivable loan.
Research Tax Credit
    The credit applies to research activity or investments during the 
tax year. It equals 5 percent of the increase in research expenses over 
a base amount for the taxable year. Alternatively, the credit is 5 
percent of qualified research expenses that exceed 10 percent of Oregon 
sales for the year (capped at $10,000 for each percentage point in 
excess). The annual maximum credit allowed per taxpayer is $2 million. 
This credit is based on the federal R&D credit and available only to 
corporate taxpayers. http://www.oregon.gov/DOR/BUS/docs/102-694-9.pdf
Strategic Investment Program (SIP)
    The Strategic Investment Program (SIP) was authorized by the 1993 
Legislature to increase Oregon's ability to attract and retain capital-
intensive industry and jobs, particularly in high-technology industry. 
Under the SIP, traded-sector companies making large investments in new 
real and personal property are subject to fewer taxes, with the aim of 
fostering economic growth and improving employment opportunities in the 
state. Projects approved for the SIP must pay full property taxes on 
the first $25 million or $100 million invested, a threshold that 
increases 3 percent each year; all value above this threshold is exempt 
from taxation. An annual Community Service Fee equal to 25 percent of 
abated taxes, up to $500,000 or $2 million, must also be paid. 
Additional fees can be negotiated, as part of the local approval 
process with the county and city government. http://
www.econ.state.or.us/Blexemp.htm
Workforce Training Funds
    The Employer Workforce Training Fund (EWTF) provides a resource for 
training Oregon's private sector workforce. The emphasis of the funds 
is to upgrade skills of the workforce in order to increase 
productivity, keep Oregon businesses viable and competitive, and to 
offer new skills and opportunities to Oregon's workers. Particular 
emphasis will be placed on investments that assist labor, businesses 
and industries with cost effective training projects that retain and 
expand jobs in traded-sector clusters that are economically important 
to the state's regional economies and the state as a whole.
    After the company has been in operation for at least 120 days, it 
can be eligible for workforce training assistance. Application must be 
made for such grants and issuance of the grants cannot be guaranteed by 
the State. However, the State and the local partners shall make best 
efforts to secure grants for training to meet the company's needs and 
in accordance with state laws and regulations. http://
www.econ.state.or.us/BIAworkforce.htm
                           canadian approach
    Canada, and in particular British Columbia (where Finavera's head 
office is located) is a favorable region in which to set up a 
technology venture, because of generous research and development tax 
credits. These incentives include federal government incentives (New 
``flow through of expenses'' regime and SRED), and provincial 
incentives.
New Federal Government ``Flow-Through'' and Accelerated CCR Incentives
    In its recently-announced 2007 Budget, the federal government made 
ocean energy eligible for the Canadian Renewable and Conservation 
Expense (`Flow Through') and the Accelerated Capital Cost Allowance 
regime.
    The new tax credits will help ocean energy companies raise money 
for development work. The `flow through' tax credit--which currently 
available for mineral and wind resource development--encourages 
investment in exploration by offering tax incentives to investors.
    On April 18, 2007 The Honorable Gary Lunn, P.C., M.P., Canada's 
Minister of Natural Resources, wrote Finavera the following letter:

          Dear Mr. Bak:
          Thank you for your letter of March 26, 2007, regarding tax 
        treatment to ocean energy.
          On March 19, 2007, our government displayed its commitment to 
        the environment and renewable energy by announcing the 
        extension of the accelerated capital cost allowance and 
        Canadian Renewable and Conservation Expense (CRCE) to ocean 
        energy and other renewables. As active proponents of this 
        amendment, Finavera Renewables helped to successfully 
        illustrate to government the utility of these market driven tax 
        incentives to support Canada technology and domestic industry.
          Through the implementation of these important tax incentives, 
        the Government of Canada is investing in technologies that 
        contribute to reductions in greenhouse gas emissions, improved 
        air quality, that promote the diversification of the energy 
        supply and a competitive economy. We will support the ocean 
        energy sector and its Canadian developers and technology 
        leaders such as Finavera.
           Again, thank you for writing on this important matter.
          Yours sincerely,
          The Honourable Gary Lunn, P.C., MP.

    Following are the details of the incentives promulgated in the 2007 
Budget.
             Accelerated Capital Cost Allowance for Clean Energy 
                    Generation
    A 50-per-cent accelerated capital cost allowance (CCA) is provided 
under Class 43.2 of Schedule II to the Income Tax Regulations for 
specified energy generation equipment. Eligible equipment must generate 
either (1) heat for use in an industrial process or (2) electricity, 
by:

   using a renewable energy source (e.g. wind, solar, small 
        hydro),
   using waste fuel (e.g. landfill gas, manure, wood waste), or
   making efficient use of fossil fuels (e.g. high efficiency 
        cogeneration systems).

    Class 43.2 was introduced in 2005 and is currently available for 
assets acquired on or after February 23, 2005 and before 2012. For 
assets acquired before February 23, 2005, accelerated CCA is provided 
under Class 43.1 (30 per cent). The eligibility criteria for these 
classes are generally the same except that cogeneration systems that 
use fossil fuels must meet a higher efficiency standard for Class 43.2 
than that for Class 43.1. Systems that only meet the lower efficiency 
standard continue to be eligible for Class 43.1.
    Where the majority of the tangible property in a project is 
eligible for Class 43.1 or Class 43.2, certain project start-up 
expenses (e.g. feasibility studies, engineering and design work) 
qualify as Canadian Renewable and Conservation Expenses (CRCE). They 
may be deducted in full in the year incurred, carried forward 
indefinitely for use in future years, or transferred to investors using 
flow-through shares.
    The Government continues to review Class 43.2 on an ongoing basis 
to ensure inclusion of appropriate energy generation technologies that 
have the potential to contribute to energy efficiency and the use of 
alternative energy sources.
    The Federal Budget 2007 proposes to extend eligibility to an 
emerging source of renewable energy--wave and tidal energy--and to a 
broader range of applications involving active solar heating, 
photovoltaics, stationary fuel cells, production of biogas from organic 
waste, and pulp and paper waste fuels. The Federal Budget 2007 also 
proposes to extend eligibility for Class 43.2 to assets acquired before 
2020.
    By encouraging investment in these technologies, these changes will 
contribute to a reduction in greenhouse gas emissions, improve air 
quality and promote the diversification of the energy supply.
             Wave and Tidal Energy Equipment
    The 2007 Federal Budget proposes to extend eligibility for Class 
43.1 and Class 43.2 to include equipment that generates electricity 
using wave or tidal energy, provided they do not do so by means of a 
barrage or other dam-like structure. Eligible equipment will include 
support structures, control, conditioning and battery storage 
equipment, subsea cables and related transmission equipment, but will 
not include buildings, distribution equipment or auxiliary electrical 
generating equipment and any other property not used primarily for the 
purpose of the wave- or tidal-energy system. The change will apply to 
eligible assets acquired on or after March 19, 2007.
Federal Government SRED Program
    The Canadian government provides over $1.5 billion of incentives 
each year to companies and other taxpayers who do research and 
development work. This program is known as the Scientific Research and 
Experimental Development Program (SRED). Current information on the 
program is available on the Canada Customs and Revenue Agency (CCRA) 
web site at http://www.rc.gc.ca/sred/. The CCRA is responsible for 
administering the SRED program, while the Department of Finance, an 
executive branch of the federal government, is responsible for the 
legislation that governs it.
            What is SRED?
    SRED is designed and administered as a federal tax incentive 
program to encourage Canadian businesses of all sizes and in all 
sectors to conduct scientific research and experimental development 
(SR&ED) in Canada. The aim is to encourage and, indirectly, finance 
new, improved, or technologically advanced products or processes. SRED 
is the largest single source of federal government support for 
industrial research and development. SRED claimants can apply for SRED 
investment tax credits for expenditures such as wages, materials, 
machinery, equipment, some overhead, and SRED contracts.
            Who Qualifies for SRED?
    Generally, a Canadian-controlled private corporation (CCPC) can 
earn an investment tax credit (ITC) of 35% up to the first $2 million 
of qualified expenditures for SR&ED carried out in Canada, and 20% on 
any excess amount. Other Canadian corporations, proprietorships, 
partnerships, and trusts can earn an ITC of 20% of qualified 
expenditures for SR&ED carried out in Canada. Generally, a CCPC with a 
taxable income in the immediately preceding year that does not exceed 
the business limit may receive a portion of the ITC earned as a refund, 
after applying these tax credits against taxes payable. The ITC earned 
by a Canadian corporation that is not a CCPC is non-refundable, but may 
be used to reduce any taxes payable. The ITC earned by a proprietorship 
or certain trusts may be partially refunded after applying these tax 
credits against taxes payable.
            What Kind of Projects Qualify for SRED?
    To qualify for the SRED program, work must advance the 
understanding of scientific relations or technologies, address 
scientific or technological uncertainty, and incorporate a systematic 
investigation tigation by qualified personnel. Work that qualifies for 
SRED tax credits includes:

   experimental development to achieve technological 
        advancement to create new materials, devices, products, or 
        processes, or improve existing ones;
   applied research to advance scientific knowledge with a 
        specific practical application in view;
   basic research to advance scientific knowledge without a 
        specific practical application in view; and
   support work in engineering, design, operations research, 
        mathematical analysis, computer programming, data collection, 
        testing, or psychological research, but only if the work is 
        commensurate with, and directly supports, the eligible 
        experimental development, or applied or basic research.

            How the SRED Program Financially Assists Companies--
                    Examples
    Even if a claimant has no revenue, or has revenue but is not yet 
profitable, it can receive the SRED credits in cash. The federal 
government will send such a claimant a check. In British Columbia, that 
can amount to as much as 68 cents back on every incremental SR&ED 
dollar spent by the claimant.
    Generally, Canadian-controlled private corporations (CCPCs) with 
less than $200,000 in taxable income can receive a refundable 
investment tax credit (ITC) of 35% (68% after the gross up--see below) 
of qualifying SR&ED expenditures, to a maximum of $2 million of 
expenditures. Most other Canadian corporations, proprietorships, 
partnerships, and trusts can receive an investment tax credit of 20% of 
qualifying SR&ED expenditures.
    So, for every $1.00 the company spends on research and development 
including an overhead allowance, it may be eligible to receive up to 
$.35 back in either cash or a tax credit from the federal government. 
From a corporate finance point of view, this is similar to having a 35% 
equity infusion into the business. Public companies and non-CCPCs, such 
as foreign controlled corporations, are limited to a 20% grant.
    The federal government also allows claimants to claim overhead on 
their SR&ED expenditures. For companies that have a dedicated R&D 
facility this is easy to do, but if the R&D is part of the company's 
overall operation the calculation of overhead can be cumbersome. 
Therefore, the government permits claimants to claim an overhead 
``proxy'' which amounts to 65% of their direct cost. Example: a company 
hires an R&D employee and pays her $100K during the fiscal year. The 
company can actually claim the 35% SRED grant on its total ``deemed'' 
cost of $165K (i.e. $100K  1.65).
British Columbia (BC) and other provincial SRED incentives
    Certain provinces, such as British Columbia, also provide a 
provincial SRED credit. In the case of BC, the Province provides an 
additional 10% SRED credit. So, for every incremental SR&ED dollar 
spent, a total of $.68 can be recovered by way of SRED credits--taking 
into account the provincial and federal SRED credits on the ``overhead 
topped-up'' direct R&D cost.

    The Chairman. Thank you very much.
    Mr. Steve, go right ahead.

 STATEMENT OF JAIME STEVE, LEGISLATIVE DIRECTOR, AMERICAN WIND 
                       ENERGY ASSOCIATION

    Mr. Steve. Certainly. Mr. Chairman, I do intend to truncate 
my already short statement.
    The Chairman. You might want to push that button so 
everyone can hear your truncated statement.
    Mr. Steve. All right. It will be brief.
    Thank you for the opportunity to testify. Appreciate this.
    Mr. Chairman, today's typical wind turbine can generate as 
much as 2 megawatts of power of electricity, or enough 
electricity to provide for the homes of about 540 households.
    A couple of interesting things to note:
    Texas today is the No. 1 State for wind energy production, 
having surpassed California, which held that title for about 20 
years.
    The Statue of Liberty's torch is powered by a purchase of 
wind power.
    Starbucks, Safeway, and Staples are all purchasing 
electricity produced by wind power.
    Examples of jobs created by the wind industry are: 500 
workers building towers for wind turbines in--at Beaird 
Industries, in Shreveport, Louisiana; 350 workers also 
producing towers in North Dakota, as well. There are a lot of 
jobs in this new industry.
    Wind developers also pay roughly $5,000 royalty payments 
per wind turbine, per year, for a period of 20 years. Let me 
repeat that one. About $5,000 to landowners--ranchers, 
farmers--per wind turbine per year for 20 years. A lot of folks 
say, ``Hey, I can put my kids through college now. I can keep 
farming, where I couldn't do that before.'' Significant rural 
economic development.
    We can do even more with offshore development of wind 
turbines; because the turbines are larger, they can produce 
more power, as well.
    But I do want to stress that there are currently no 
existing offshore wind turbine projects in the United States. 
Meanwhile, Europe has been doing this for well over 10 years. 
So, the issues are not technological, they're siting issues.
    The other point I want to make is that the vast majority of 
wind development in the United States is going to be on land. I 
would say probably 90, 99 percent of development will be on 
land. We have a lot more land here to develop for wind than 
they do in Europe. Europe moved to offshore because, 
essentially, they ran out of available land.
    The bottom line for our testimony is that we've been 
working with the Minerals Management Service--we think that's 
the correct place--for offshore--development of offshore rules 
for wind development; however, we'd like to see them move 
faster. The difficulty is that a lot of the folks who are 
trying to develop projects on the Outer Continental Shelf in 
the United States are being significantly slowed down by a slow 
process at MMS. They're good folks. I think they're a little 
overburdened over there. But we'd like to see 'em move faster.
    Thank you.
    [The prepared statement of Mr. Steve follows:]
Prepared Statement of Jaime Steve, Legislative Director, American Wind 
                           Energy Association
    Chairman Bingaman and members of the committee, my name is Jaime 
Steve and I serve as Legislative Director for the American Wind Energy 
Association (AWEA) based here in Washington, D.C.
    Mr. Chairman, today's typical wind turbine can generate as much as 
two megawatts of electricity, or enough power to meet the needs of 
about 540 households. It is also interesting to note that:

   Texas is now the No. 1 wind-producing State in the nation, 
        having recently surpassed California which held that claim for 
        over 20 years.
   The Statue of Liberty's torch is powered through a purchase 
        of wind energy.
   Starbucks, Safeway, and Staples are all purchasing wind-
        generated electricity.
   Examples of wind energy jobs include 500 workers building 
        towers at Beaird Industries in Shreveport, LA and another 350 
        workers building towers at DMI Industries in West Fargo, ND.
   Wind developers pay about $5,000 per turbine, per year for 
        20 years in lease payments to hard-pressed farmers, ranchers 
        and other land owners from Maple Ridge, NY to Abilene, TX. Wind 
        projects also make significant contributions to the local tax 
        base of many rural communities.
   A single wind turbine avoids the same amount of carbon 
        dioxide as is emitted by about 4,800 cars. Larger, offshore 
        wind turbines can produce even more energy and offset even 
        greater amounts of carbon dioxide.

    These examples show that supporting wind energy means creating 
jobs, spurring rural economic development, stemming global warming, and 
enhancing our national energy security.
    Land-based U.S. wind energy production has grown more than 22% 
annually over the last five years. Currently, there are no existing 
U.S. offshore wind energy projects, only a small number of proposals. 
Meanwhile, in Europe hundreds of megawatts of wind turbines have been 
operating for over ten years in waters near Denmark and the United 
Kingdom. If the U.S. is to move forward and follow the European 
example, we must have a coherent, timely, set of rules available so 
that project proposals are not significantly delayed.
    In April of this year the Minerals Management Service (MMS) 
announced a delay in writing Congressionally-mandated regulations for 
offshore renewable energy installations on the Outer Continental Shelf. 
The MMS announced that the target date for the rulemaking--initially 
set by Congress for fall 2007--then slipped to fall 2008, adding a full 
year to projects already on hold until the rulemaking is complete. 
While the original 270-day time frame may have been unworkable for the 
agency, this delay is equally unworkable for the offshore wind energy 
industry.
    Offshore wind energy projects that were working under an already-
long permitting process are now pushed back an additional year. AWEA 
urges the Minerals Management Service to move ahead as expeditiously as 
possible to complete these important regulations so that clean, 
renewable energy technologies can be deployed on a small part of our 
nation's ocean resources.
    Early indications from MMS documents, including the draft 
Programmatic Environmental Impact Statement published on March 16, 
2007, found most environmental impacts from potential offshore wind 
energy projects to be negligible to minor. Offshore wind projects in 
Europe have been intensively studied and have reached similar 
conclusions, but we can't verify that here in the U.S. until projects 
actually move forward. That can only happen when the MMS finishes its 
work. We hope that work can be completed with haste and we stand ready, 
willing and able to assist those efforts.
    Thank you.

    The Chairman. Thank you very much.
    Senator Landrieu had a question.
    Senator Landrieu. Just two questions.
    One--and I'm glad you raised it because I was going to--the 
burdens at MMS, and the backlog and paperwork, what would be 
your No. 1 or No. 2 recommendations, as a seeker of licenses? 
Is it a question of personnel--quality, quantity, or both, or 
training, or--what would you suggest for us, to break through 
this logjam?
    Mr. Steve. Yeah. I don't want to be presumptuous as to the 
inner workings of MMS. We've worked very well with Walter 
Cruikshank over there, who I think is a very dedicated public 
servant on this issue. I do get the sense that they may be 
overburdened. They may need a little bit more, in terms of----
    Senator Landrieu. Staffing issues.
    Mr. Steve [continuing]. Staff analysis, right.
    Senator Landrieu. Secondly--and I thank the Chair--I'm very 
interested, of course, in this royalty-sharing issue. We 
finally got to some fairness in the minerals management 
offshore, as you know, which was a great breakthrough for the 
Gulf Coast States, in terms of sharing royalties from 
traditional sources of energy. But these new sources, you said 
you have the $5,000 per wind turbine for landowners on land. 
What would be your suggestion for offshore placements? Is some 
sort of sharing routine in Europe, or is there any sort of 
industry standard that we should be looking at, in terms of 
between Federal, State, and local?
    Mr. Steve. Yes, good question. I think the best answer 
there is going to be found in some work that was already done 
previously by the Bureau of Land Management with regard to the 
placement of wind turbines on Federal lands. I think that's a 
good place to start out. And they did do a payment regime 
there, as well.
    Senator Landrieu. Do you recall what that is, for the 
record? I can look.
    Mr. Steve. I'm going into the way-back machine here of the 
Energy Policy Act, so I'd want to double-check my numbers. As I 
recall, I believe the payment was somewhere in the range of 
plus or minus $2,000----
    Senator Landrieu. Per turbine.
    Mr. Steve [continuing]. Per megawatt.
    Senator Landrieu. Per megawatt.
    Mr. Steve. Per megawatt, yes. But I'd just double-check 
that.
    Senator Landrieu. Thank you.
    The Chairman. Senator Murkowski, did you have a question?
    Senator Murkowski. I do, thank you.
    The Chairman. They have started a vote. I'd just point that 
out.
    Senator Murkowski. I'll be very brief, Mr. Chairman, thank 
you.
    Mr. Bak, I mentioned, when I was speaking to Secretary 
Allred and Mr. Robinson, that Alaska has a great deal of 
interest in wave energy, ocean energy projects. In dozens of 
small coastal communities that are looking at this, they view 
this as an opportunity to get themselves off diesel-powered 
generation, which is what they're all on right now. If we are 
able to take care of the jurisdictional issues that you 
mentioned here--and they're included in your written 
testimony--and we pass the other pieces of legislation that I 
and some of my other colleagues have been working on, when do 
you figure a company like Finavera could be in a State like 
Alaska, working on some of our projects?
    Mr. Bak. We have looked at Alaska already, and you'll be 
happy to know, and I'm sure you're aware, that Alaska actually 
has the best wave energy resource in the country, even 
exceeding Oregon's, but not to pit one State against the other.
    Senator Murkowski. But they're starting ahead of us.
    Mr. Bak. Exactly. There is fantastic opportunity with the 
off-grid communities in Alaska, because they pay such high 
prices for the diesel that they're importing. So, I see wave 
energy at first being a significant supplement to these 
communities, and then being expanded with economies of scale 
thereafter, so that you could actually have 20- to 100-megawatt 
power plants at some point in the near future. For single 
devices, we'd have to look at our economic modeling, but I 
believe that that is achievable between 2010 and 2013, and 
we're planning to ramp up the installation of our technology 
following the Makah Bay installation, which is targeted for 
2010.
    Senator Murkowski. Good.
    Then, one last question, and that's on fisheries. Of 
course, we want to make sure that if we do move to something 
like an ocean energy, wave energy, that it's not a disturbance 
to the fisheries in the area. Can you speak a little bit to 
that aspect of the compatibility?
    Mr. Bak. Certainly. I live in a small fishing community. My 
brother-in-law is a fisherman. I'm very aware, personally and 
also through the stakeholder processes that we've run as a 
company, of a number of those issues.
    Our goal and our optimum zone in time is to move farther 
offshore. So, initially we're going to occupy some areas that 
are closer to shore, and, with involvement of the stakeholders 
in the licensing process, we will work with all of them to 
ensure that their concerns are addressed. We anticipate that, 
in time, as our technology becomes cheaper, as the scale of 
deployment becomes larger, the project financing, the structure 
of finance, the economics of the project, will allow us to move 
farther offshore into the OCS, and eventually beyond, so that 
we can have large-scale power plants that aren't interfering 
with near-shore fishing. So, that's our end goal.
    Senator Murkowski. How much of a deterrent is that, 
currently, in putting any of your projects in place, whether 
they be in Oregon, Washington, or in Alaska?
    Mr. Bak. All of the projects that we are working on right 
now are within the 3-mile limit. We would like to go beyond 
that. But, because of these existing issues, we can't. There's 
a fantastic resource that needs to be captured, and we can 
generate revenue from that resource, but, until this licensing 
issue--or the agency issue--is sorted out, we have too much 
risk; a bank won't come near these projects. So, it is an 
impediment.
    Senator Murkowski. Thank you, Mr. Chairman.
    The Chairman. Senator Smith.
    Senator Smith. Thank you, Mr. Chairman. I'll be brief.
    My questions are not unlike Senator Murkowski's. Is it fair 
to say, Mr. Bak, that, but for the regulatory uncertainty, the 
risks that you see, you would already be investing in Federal 
OCS in Oregon, but, because of that, you're not?
    Mr. Bak. Correct. Our initial site straddled the boundary. 
The optimal site that we picked did straddle the 3-mile-and-
beyond limit, and we reined ourselves in. So, because of this 
licensing dispute, because of the lack of clarity, we had to do 
that, simply because we want to have a bankable project in the 
near term, rather than later. Our key focus is bringing the 
bank finance to that project.
    Senator Smith. I wasn't here for Mike Grainey's testimony, 
but I'm familiar with it and, obviously, the concern the States 
have in this issue. Obviously, you don't believe that FERC 
should yield to the States. Is that a fair statement?
    Mr. Bak. I think, as an entrepreneur and a CEO, we just 
want to see the most simple and straightforward process when it 
comes to de-risking the development of wave energy projects. 
So, I wouldn't put myself in the middle of it, other than 
saying that we have a fantastic relationship with FERC. They 
have helped us a lot in Makah Bay, and we'd like to work with 
them in the future.
    Senator Smith. Is there any State which you are working 
with where there's a model that seems to be better than others?
    Mr. Bak. Again, the relationship we have with FERC through 
the Makah Bay project in Washington is excellent, with the 
incentives that Oregon has bent over backward to provide the 
industry and really stimulate what can be a huge revenue 
generator. We see a lot of focus being spent on Oregon in the 
future.
    Senator Smith. So, we need to clarify the regulatory 
scheme, or else this just isn't going to happen.
    Mr. Bak. Exactly. Our goal, as a commercial company, is to 
provide the returns for our investors, and we simply want to do 
it as quick as we can.
    Senator Smith. Thank you.
    The Chairman. Well, thank you both very much for your 
testimony. I think it's been very useful.
    That will conclude our hearing.
    [Whereupon, at 11:12 a.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              

                               Appendix I

                   Responses to Additional Questions

                              ----------                              

    Responses of J. Mark Robinson to Questions From Senator Bingaman
    Question 1a. If the Commission applies its hydroelectric licensing 
process to ocean energy projects on the OCS, how would this process be 
coordinated with MMS=s authorization process for renewable energy 
projects under section 388 of the Energy Policy Act of 2005?
    Answer. Through our ongoing MOU negotiations, the Commission and 
MMS intend to achieve a coordinated program for the orderly development 
of wave and current energy on the OCS that avoids redundancy and makes 
use of the complementary resources of both agencies. Those 
complementary resources include the MMS's planning experience and 
knowledge on the OCS and the Commission's established hydropower 
licensing experience. Although the details are still under discussion, 
our objective is to craft an efficient program for the benefit of all 
stakeholders.
    Question 1b. Do you think that the Federal Power Act provides 
authority for MMS to provide mandatory conditions under section 4(e) of 
the Federal Power Act? Please provide any legal analysis that supports 
your conclusion.
    Answer. Yes. Section 4(e) provides that, where the Commission 
issues licenses ``within any reservation'' of the United States, the 
license must include ``such conditions as the Secretary of the 
department under whose supervision such reservation falls shall deem 
necessary for the adequate protection and utilization of such 
reservation.'' Section 3(2) of the Federal Power Act defines 
``reservation'' as ``national forest, tribal lands embraced within 
Indian reservations, military reservations, and other lands and 
interests in lands owned by the United States, and withdrawn, reserved, 
or withheld from private appropriation and disposal under the public 
land laws; also lands and interests in lands acquired and held for any 
public purpose; but shall not include national monuments or national 
parks[.]'' In consequence, the United States' interest in the Outer 
Continental Shelf appears to give the Secretary of the Interior the 
authority to impose section 4(e) conditions on licenses issued for 
projects in that area.
    Question 2a. What responsibilities does the FERC have with respect 
to transmission of electricity generated on the OCS?
    Answer. Section 23(b) of the Federal Power Act makes it unlawful 
for ``any person, State, municipality, for the purpose of developing 
electric power, to construct, operate, or maintain any dam, water, 
conduit, reservoir, power house, or other works incidental thereto 
across, along, or in any of the navigable waters of the United States, 
or upon any part of the public lands or reservations of the United 
States . . . except under and in accordance with the terms of . . . a 
license granted pursuant to this Act.'' Section 2(11) of the Federal 
Power Act defines ``project'' as including ``the primary line or lines 
transmitting power [from a project] to the point of junction with the 
distribution system or with the interconnected primary transmission 
system . . .''. If a hydropower project located on the outer 
continental shelf included a primary transmission line, that line would 
have to be licensed by the Commission. The Commission would not have 
responsibilities with respect to transmission lines from other sources 
of generation, such as wind or thermal energy, absent an appropriate 
invocation of the Commission's supplemental authority to site electric 
transmission facilities under section 1221(b) of the Energy policy Act 
of 2005.
    Question 2b. Please describe how any regulatory activities with 
respect to transmission would be coordinated with the project approval 
or licensing process.
    Answer. The Commission authorizes primary transmission lines, along 
with other project works, as part of the project licensing process.
    Question 3. What do you think should be the respective 
jurisdictions of (1) the MMS; (2) the FERC; and (3) the coastal states, 
in authorizing ocean renewable energy projects?
    Answer. Under the Outer Continental Shelf Lands Act, as amended by 
the Energy Policy Act of 2005, MMS generally has jurisdiction to issue 
leases, easements or rights-of-way on the Outer Continental Shelf 
related to production, transportation, or transmission of energy from 
sources other than oil and gas (although not within any National Park, 
National Wildlife Refuge, National Marine Sanctuary, or National 
Monument). The Outer Continental Shelf includes all submerged lands 
lying seaward and outside of State offshore waters, which are located 
within three nautical miles of state coastlines (three marine leagues 
for Texas and the Gulf Coast of Florida). As noted above, the 
Commission has jurisdiction over hydropower projects located in the 
navigable waters of the United States or on federal lands. This 
allocation of federal jurisdiction between the Commission and MMS seems 
appropriate. Coastal states have authority over ocean renewable energy 
projects to the extent authorized by federal law, such as the Coastal 
Zone Management Act. This authority, which applies within state waters 
(and thus not to the Outer Continental Shelf or to waters beyond the 
three-mile state limit) also seems appropriate. I note, in addition, 
that regardless of whether states have specific regulatory authority 
over particular projects, the Commission remains committed to working 
collaboratively with states in our licensing proceedings.
    Question 4. Under the FERC process, license applicants can obtain 
preliminary permits for up to three years. What gives the FERC 
jurisdiction to issue permits for the use of the submerged lands on the 
OCS? What is the effect of these preliminary permits?
    Answer. Section 4(f) of the Federal Power Act authorizes the 
Commission to issue preliminary permits for the purposes of securing 
data and performing studies necessary to support a license application. 
As set forth in section 5 of the Federal Power Act, preliminary permits 
are issued ``for the sole purpose of maintaining priority of 
application for a license . . . for [a] period . . . not exceeding a 
total of three years . . . ''. Thus, a preliminary permit does not give 
the permit holder the authority to engage in construction or other 
ground-disturbing activity, or to acquire lands.
    Section 4(e) of the Federal Power Act gives the Commission 
authority to issue licenses for project works ``for the development, 
transmission, and utilization of power across, along, from or in any of 
the streams or other bodies of water over which Congress has 
jurisdiction under its authority to regulate commerce with foreign 
nations and among the several States, or upon any part of the public 
lands or reservations of the United States . . . ''. Thus, the 
Commission has authority to issue licenses (or preliminary permits) for 
project works located in offshore waters subject to Congress' Commerce 
Clause jurisdiction, and on the submerged lands of the Outer 
Continental Shelf, which are lands of the United States.
     Response of J. Mark Robinson to Question From Senator Domenici
    Question 1. Isn't it true that a state can stop any project in 
state waters--be it a wind, solar, or LNG project--by denying any state 
permits or authorization?
    Answer. I note that the Commission has no jurisdiction over wind or 
solar projects. However, it is the case with respect to any project 
that requires a federal permit (including LNG projects, natural gas 
pipeline projects, and hydropower projects), that a state may be able 
to stop the project, if it traverses state waters, by denying 
authorization required by federal law, such as the Coastal Zone 
Management Act.
     Responses of J. Mark Robinson to Questions From Senator Smith
    Question 1. Is FERC going to be able license these new wave and 
ocean energy facilities in a way that is not cost prohibitive for the 
developers, since these facilities, at least initially, will produce a 
relatively small amount of power compared to large hydroelectric dams?
    Answer. Yes. The Commission's conventional hydropower review 
process has been refined over almost a century to be flexible and 
efficient while maintaining safety, public health, and environmental 
protection and ensuring the comprehensive development of hydropower 
resources consistent with the Federal Power Act and related statutes. 
Efficiencies existing in the Commission's process include coordination 
of most of the statutory requirements faced by developers into one 
review and one environmental document, early involvement of Commission 
staff, and firm timelines for both stakeholders and staff.
    In order to accommodate the unique characteristics of new 
hydropower technologies, we are adapting our existing licensing process 
to accommodate experimental deployments and reforming our policies on 
issuing and overseeing preliminary permits. These steps are intended to 
minimize the cost and time to develop these important, renewable 
resources while ensuring appropriate oversight.
    Question 2. Last year, there were press reports that plans for a 
wave-energy facility off of Narragansett had been put on hold. One 
reason was the high cost of the FERC licensing process. Another reason 
cited was FERC's ``utility displacement condition,'' meaning that the 
developer was going to have to pay the incumbent utility for the 
$200,000 worth of electricity the test generator was going to displace. 
Can you explain this in more detail?
    Answer. I am not familiar with the specific press reports you 
mention. However, I believe you are referring to interest by Energetech 
America, LLC (Energetech) in developing a demonstration project (the 
Green Wave Tidal Energy Project) to be located in tidal waters about 
1.2 miles from Point Judith, Rhode Island. I assume that the ``utility 
displacement condition'' that you reference relates to the Commission's 
holdings in the Verdant case. Energetech would be subject to these 
holdings. As noted above, section 23(b) of the Federal Power Act makes 
it unlawful for any person to construct hydropower project work on 
navigable waters or federal lands ``for the purpose of developing 
electric power'' without a Commission license. The Act contains no 
exception for electric generation for test projects or for limited 
periods of time.
    In the Verdant case, the Commission was presented with an instance 
where the project developer wanted to test new technology for a project 
in New York's East River without first obtaining a Commission license. 
The test included generating electricity and supplying that electricity 
to the interstate electric power grid. The Commission, in an effort to 
support the development of new energy sources, interpreted section 
23(b) in a creative manner, by holding that the short-term testing of 
new technology in order to perform studies necessary to development of 
a license application would not constitute ``developing electric 
power,'' even where the test project technically did produce power, 
provided that the power did not displace power from the interstate 
electric power grid or otherwise affect interstate commerce. The 
project proponents in Verdant wanted to connect to the grid in order to 
test their project, but agreed to make the test ``grid-neutral'' by 
paying the utility whose power was displaced by the test power for the 
amount of revenues that the utility lost of a result of displacement by 
project power. The Commission concluded that, under these terms, the 
test project would not require a Commission license (although it would 
require all federal, state, and local environmental and other 
applicable approvals).
    Based on past meetings with Energetech, Commission staff 
understands that Energetech wishes to test the Green Wave Tidal Project 
by displacing power from the grid, but does not want to repay the 
affected utility for the costs of displaced power sales. Such a case--
where the project proponent would put power into the grid, receive 
revenue for the power, and displace power from another generator, 
thereby affecting interstate commerce--would go beyond the limited 
circumstances in Verdant in which the Commission found itself able to 
conclude that a test project would not be ``developing electric 
power.'' Energetech, or any similar project proponent, might be able to 
avoid the necessity of a license by testing its project through 
connection to an electrical system that is not connected to the grid or 
by compensating any generator that loses sales as a result of 
interconnection to the grid as Verdant did. Commission staff is always 
available to work with project proponents to determine if there is a 
solution to their concerns.
    Question 3. Is this utility displacement condition an 
administrative policy of FERC, or would Congress have to address this 
in legislation?
    Answer. The Commission's holding in Verdant represents its 
interpretation of the Federal Power Act.
    Question 4. What is the status of the MOA between FERC and MMS?
    Answer. The MMS and the Commission have exchanged several drafts of 
an MOU. It is my hope that we will have a document to sign by early 
summer. I am confident that together we will develop an efficient 
program that makes use of the complementary resources of the two 
agencies without redundancy.
                                 ______
                                 
   Responses of Michael W. Grainey to Questions From Senator Bingaman
    Question 1. Are any of the proposed projects off the Oregon coast 
located on the OCS?
    Answer. Yes, only one of the seven projects proposed off the Oregon 
coast is located on the Outer Continental Shelf (OCS). This project is

   FERC Filing P-12750
   Newport OPT Wave Park
   Lincoln County, Oregon

    The project site is situated both within and outside of the state 
boundary and straddles the OCS. The site is in the open ocean extending 
from about 3 to 6 miles offshore.
    The other six projects are all within the state three mile limit. 
In part this is because of the cost of underwater cables you raise in 
question 2 and because the intensity of the waves seems most promising 
less than three miles from shore. Most wave energy projects in the 
foreseeable future will also likely be less than three miles from shore 
for the same reasons. This underscores the need for states to have the 
same power plant siting authority with respect to FERC for less than 
three miles off shore that Section 388(e) of the Energy Policy Act of 
2005 provides to states in regard to MMS on the OCS.
    Question 2. I understand that underwater power cables can be quite 
expensive--approximately $1 million a mile. How is the State addressing 
this cost issue?
    Answer. Oregon provides incentives to assist developers of 
renewable energy, including not only the turbine, but also related 
infrastructure such as transmission lines and underwater cables. Oregon 
provides a 35% tax credit and a low interest loan for financing the 
capital cost of renewable energy facilities. A project, including 
underwater cables, can qualify for both the tax credit and loan for the 
same project.
    The current session of the Oregon Legislature has increased the 
limit of the Energy Loan Program by $25 million to help finance these 
type of projects. Current state legislation will also increase the 
state energy tax credit from 35% to 50% of renewable energy project 
costs.
    Wave developers are also considering creating a public wave hub or 
universal interconnection platform where various wave energy projects 
could ``plug in.'' This could be part of Oregon State University's 
National Wave Energy Research and Demonstration Center.
    I hope this information is responsive to your questions. Please 
contact me if I can provide additional information. Again, thank you 
for the opportunity to present information to the Committee.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

  Statement of Diane Regas, J.D., Managing Director, Oceans Program, 
                         Environmental Defense
    Thank you Chairman Bingaman, Ranking Member Domenici, and Members 
of the Committee for the opportunity to provide written comments on 
behalf of Environmental Defense on renewable ocean energy development 
in the United States.
    Environmental Defense is a worldwide, not-for-profit organization, 
whose hallmark is ``finding the ways that work,'' environmentally, 
economically and legally. Our organization is deeply committed to 
durable strategies that meet people's needs for energy while taking 
dramatic action to reduce global warming pollution. Achieving this goal 
will entail the use of a variety of tools including energy conservation 
and renewable energy production.
                         ``blue'' ocean energy
    Meeting America's on-going energy needs while at the same time 
addressing the global warming challenge will require a new age of 
energy conservation, and the tapping of sustainable options for 
ecofriendly energy production. There is no doubt that firm limits on 
emissions of greenhouse gases, and increased energy conservation, are 
critical to slowing global warming. But it seems increasingly unlikely 
that conservation alone can meet the nation's energy demands. As the 
world turns to ``low carbon'' or ``clean'' energy sources that minimize 
contributions to global warming, it is increasingly likely that the sea 
will be a part of the ``greening'' (or, maybe more appropriately in 
this case, ``bluing'') of our energy-production portfolio.
    There are key ocean energy sources (like wind, tide, wave, and 
current) that are potentially sustainable, and that will help us 
address global warming, while others will not help us move closer to a 
sustainable future (for example, methane clathrates from the deepsea).
    Ocean energy development should occur under the following guiding 
principles:

          1. National Oceans Policy.--Ocean energy development should 
        be based on clearly defined standards and criteria, and 
        consistent with a national policy of protecting and restoring 
        healthy ocean ecosystems, including minimizing cumulative 
        impacts.
          2. Public Interest.--The public should benefit from the use 
        of public resources, and appropriate incentives should be in 
        place to encourage green energy development.
          3. Public Participation.--Decision processes should encourage 
        public engagement, and meet the highest standards of 
        transparency.
          4. Science and Technology Advancements.--The federal 
        government should support the research needed to develop 
        cutting-edge green technologies, to understand and mitigate 
        their potential impacts, and to accelerate technologies that 
        are less polluting, and consistent with sustainable oceans.
          5. Investment.--The federal government should invest in the 
        science needed to manage marine ecosystems effectively; 
        government decisions should be based on peer-reviewed science.
                      protecting ocean ecosystems
    Today, it appears that while some ocean energy technologies have 
unacceptable impacts on coastal ecosystems, many others may have 
manageable environmental impacts. Even so, our decision-making 
processes are not currently adequate to distinguish among projects that 
are consistent with sustainable oceans and those that are not.
    To make the challenge even greater, many of the technologies 
available today have the very real potential for much greater 
cumulative impacts at larger scales. Little has been done to assess the 
ecosystem consequences of commercial scale operations in the ocean, or 
to identify ways to minimize and mitigate those effects. For example, a 
small wave energy facility may have a negligible impact, but many such 
facilities or a very large scale facility could have adverse impacts on 
local circulation patterns that could be critical for maintaining 
transport of fish larvae, sediment and nutrient delivery, and other 
important ecological processes and services. Similarly, the way ocean 
energy projects are implemented, and the specific kind of technology 
employed, could have a large bearing on the size of their cumulative 
environmental impact. For example, slow-speed turbines that are phased 
in over time would likely have lower environmental impacts than the 
damming of an estuary to construct a tidal energy installation.
                     incentives and public benefits
    The ocean is a vast common resource, presenting significant 
challenges for policy makers on how to avoid unsustainable use while 
encouraging appropriate development. Few ``use privileges'' or other 
conservation incentives exist in the sea that could institutionalize 
orderly and controlled development of marine resources. Environmental 
Defense has recently completed a study of approaches that have been 
used in this country to manage public trust resources, called 
``Sustaining America's Fisheries and Fishing Communities.'' We found 
that while granting use privileges is a common tool in resource 
management, the way those privileges are administered can achieve other 
social benefits.
    There is also a strong need for a new ``social contract'' with 
regard to ocean resource use similar to the evolution of natural 
resource policies, where emphasis has shifted through time from rapid 
extraction at all costs (``use-it-or-lose-it,'' with no economic rents) 
to sustainable use (appropriate regulation coupled to positive 
incentives, and including economic rents, e.g. auctions of 
electromagnetic spectrum).
                           current challenges
    The United States lags behind others in assessing, experimenting 
and investing in truly sustainable ocean energy technologies, and has 
fallen far short on investing in the science necessary to manage ocean 
ecosystems effectively. Basic information on the distribution, 
abundance and function of marine habitats is woefully inadequate. Much 
of the information available on deepwater ecosystems has been developed 
directly by private project proponents. Improving our understanding of 
habitat function and oceanographic processes that support habitats and 
biodiversity is critical to effectively avoiding impacts on important 
habitats, and mitigating for unavoidable impacts. Similarly 
understanding the array of prospective technologies, and their likely 
implications for marine ecosystems, will provide an important 
foundation for sustainable ocean energy.
    Recent debates have centered on the risks and environmental dangers 
of specific installations, and on perceived impacts on coastal ways of 
life, rather than on defining broad science-driven criteria and 
standards for ocean energy development that transcend individual 
projects while conserving coastal landscapes and seascapes. Certainly, 
states, coastal communities and other ocean resource users (e.g., 
fishermen) should have a voice in where development occurs. However, 
fully understanding the potential costs (such as habitat degradation) 
and benefits (including reducing the impacts of global warming) is 
critical to ensuring rational decision-making that is in the best 
interest of all.
    Management authority for ocean uses is split among many agencies 
with unaligned legal requirements. There is neither a clearly defined 
approval process for ``blue'' energy development nor are there set 
conditions for decision-making. Getting past this fractured system of 
ocean governance will require the development and implementation of 
programs that people can trust to ensure that the coastal environments 
they hold dear will not be destroyed by industrial development for 
renewable energy production.
                    defining a regulatory framework
    Establishing a transparent and robust regulatory framework for 
alternative ocean energy can help development of clean energy 
technologies as well as strengthen public confidence and buy-in 
regarding decisions. Industry can benefit from regulatory certainty. 
The public interest can be promoted with rational decision-making.
    This requires establishing both a national policy for protecting 
ocean and coastal ecosystems (including consideration of cumulative 
impacts) and a lead federal agency. Currently both Minerals Management 
Service (MMS) and Federal Energy Regulatory Commission (FERC) have 
authority regarding licensing and permitting of ocean energy 
technologies. Pursuant to the Federal Power Act (FPA), FERC holds 
licensing authority for hydroelectric plants on navigable waters. 
Pursuant to the Outer Continental Shelf Lands Act (OSCLA) MMS 
authorizes the leasing of the seabed of the Outer Continental Shelf 
(OCS) and as amended by the Energy Policy Act of 2005 may lease for 
alternative energy technologies. The dissonancy of federal governance 
necessitates a clarification of jurisdictional authority.
    The FERC licensing process is designed to accomplish these goals 
through a comprehensive review that provides for public comment and has 
an adjudicative process, including a trial-type hearing for issues of 
material fact, ensuring transparency. However, FERC should not be the 
sole agency in the licensing process, especially as it lacks expertise 
in the science and management of ocean ecosystems and resources 
necessary for ocean conservation. In addition, all ocean projects 
should be held to a strong national ocean policy.
    Ensuring that appropriate wildlife agencies, including NOAA, put 
necessary conditions for avoiding or mitigating ocean and coastal 
impacts on licenses is critical. The FPA has provisions allowing for 
mandatory conditions imposed on a FERC license where the hydroelectric 
plants are sited on land reservations under the jurisdiction of another 
agency. This ensures that lands under the control of Department of 
Interior or Department of Commerce (including NOAA) play ``the major 
role in determining what conditions would be included in the license in 
order to protect the resources under their respective jurisdictions.'' 
In addition, Section 10(j) of the FPA provides for consideration of 
fish and wildlife impacts when considering license conditions. Section 
18 of the FPA requires the construction of fishways as prescribed by 
the Secretaries of Commerce or Interior. It is essential that agencies 
with marine ecology expertise have power to establish appropriate 
conservation conditions.
    We urge the Committee to examine whether classifying the OCS as a 
reservation under the FPA would allow for mandatory fish and wildlife 
safeguards to be imposed within the licensing process led by FERC. 
Allowing FERC to lead the licensing process, with inclusion of 
mandatory conditions on the license from relevant wildlife agencies 
(including NOAA), would strengthen the decision-making process.
    Thank you for the opportunity to provide written testimony. I am 
happy to answer any questions in writing.
                                 ______
                                 
Statement of Nathanael Greene, Senior Policy Analyst, Natural Resources 
                            Defense Council
                                summary
General
   Carve-out federal research and development (R&D) dollars for 
        independent studies of environmental impacts to 1) understand 
        the cumulative impacts of large scale deployment of ocean and 
        marine energy technologies, 2) avoid early black-eyes that will 
        set the industry back years, and 3) support an open and 
        transparent permitting and regulatory process by building 
        consensus among regulators, the public, and industry around the 
        environmental benefits and impacts of real concern.
   Look at regions with resources that have high energy 
        production potential and build baseline data on nature of the 
        resource and the ecosystems in place that surround the 
        resources.
   Use the baseline data and analogous technologies to narrow 
        and bound unknowable potential environmental impacts.
   Focus ``lessons learned'' studies on the areas of greatest 
        environmental uncertainty.
   Use these studies to inform adaptive management strategies 
        so that projects can proceed in the face of the real 
        uncertainty surrounding some impacts and also still be eligible 
        for private sector financing.
   Consider a federal fund to support the more extensive 
        potential adaptive management options including removal for the 
        first few projects.
   Utilize early successes in this approach as test cases for 
        future, more large-scale deployment initiatives.
   Focus federal R&D dollars on studies of a few regions with 
        high resource potential, study other manmade installations in 
        oceans and marine areas in order to anticipate impacts of 
        alternative energy technologies, and prioritize post-
        installation lessons' learned studies.
   Require access for independent pre- and post-installation 
        environmental studies as part of eligibility for any federal 
        subsidies.
   Ensure that studies address the cumulative impact of 
        multiple projects and of multiple installations within one 
        project.
   Exclude offshore wind from the Marine Renewable Energy 
        Research and Development Act of 2007 except to study offshore 
        wind projects to learn lessons that may inform other projects 
        and as part of regional cumulative impact analyses.
   FERC should work with state and federal natural resource 
        management agencies to do a programmatic environmental impact 
        statement for the licensing of new hydrokinetic technologies.
   Regional studies should help build consensus around areas 
        that are best suited for early development and those that 
        should be avoided at least until the potential impacts of the 
        technologies are much better understood.
                              introduction
    Thank you for the opportunity to share my views on Outer 
Continental Shelf alternative energy technologies. My name is Nathanael 
Greene. I'm a senior policy analyst for the Natural Resources Defense 
Council (NRDC) and one of our main experts on renewable energy 
technologies. NRDC is a national, nonprofit organization of scientists, 
lawyers and environmental specialists dedicated to protecting public 
health and the environment. Founded in 1970, NRDC has more than 1.2 
million members and online activists nationwide, served from offices in 
New York, Washington, Los Angeles and San Francisco.
    Mr. Chairman and esteemed members of this committee, as you know, 
U.S. energy policy needs to address three major challenges: reducing 
global warming pollution, providing affordable energy services that 
sustain a robust economy, and increasing our energy security. Renewable 
energy technologies in Outer Continental Shelf areas such as wind, wave 
and hydrokinetic energy can play a critical role in meeting these 
goals, and these technologies have the potential for dramatically 
increased deployment over the coming decades. These sources of energy 
can be used to produce electricity with little or no global warming 
pollution or local or regional air pollution, and they draw on domestic 
energy sources that are naturally replenished and do not vary in cost. 
By using these technologies we avoid burning fossil fuels, particularly 
coal and natural gas and to a lesser degree oil. The heat-trapping 
gases released when we bum these fuels make the power sector the 
largest single source of global warming pollution. These funds are also 
responsible for other significant environmental and public health 
impacts during mining, drilling, processing, and combustion, and they 
expose our economy to price volatility and energy insecurity.
    All energy technologies cause some environmental damage. Being 
better than fossil fuels is a necessary condition, but hardly 
sufficient. Independent research and development focused on the 
environmental characteristics of these technologies is critical to 
maintaining their positive impacts and avoiding, managing, and 
mitigating the negative ones. Good R&D on the environmental impacts is 
also critical to an open and transparent permitting process and in 
building a constructive relationship between regulators, the public, 
and the industry so that these technologies can be deployed in a manner 
that is quick, efficient and responsible.
                            general comments
    The environmental impacts of renewable technologies such as wind, 
wave and hydrokinetic energy must be considered in the context of the 
detrimental alternative outcomes if we choose to not actively deploy 
these technologies. Most of the traditional energy sources (e.g. coal, 
natural gas, oil) ensure a far different and potentially much more 
devastating environmental future. Meeting our energy service needs 
through improved energy efficiency is the fastest, cleanest, cheapest 
option, but even the most efficient technologies require some energy to 
operate. Outside of the transportation sector, if we're not using 
renewable energy then chances are we're using coal, natural gas, or 
nuclear power with some oil primarily for heating.
    The consequences of not moving away from these traditional fuels to 
energy efficiency and renewable energy are severe, and impact almost 
every aspect of the environment and public health. However, none of 
these consequences are ultimately more urgent than reducing global 
warming. The recent Intergovernmental Panel on Climate Change report 
concluded that there was at least a 90 percent chance that heat-
trapping pollution was the main cause of warming since 1950. The 
science is clear: global warming is real, it's already occurring, and 
we're responsible for it. We can avoid catastrophic damage, but only if 
we start reducing our rate of pollution seriously within the next 10 
years and achieve 60 to 80 percent reductions by 2050.
    This is where renewable energy technologies such as wind, wave, and 
hydrokinetic energy can be so beneficial. The heat-trapping gases 
emitted during combustion of fossil fuels makes the power sector the 
largest single source of global warming pollution. Developing wind, 
wave, and hydrokinetic energy, as part of a renewable energy portfolio, 
is a vital step towards replacing a significant amount of the fossil 
fuel-generated power. Moreover there is a domestic argument as well. 
The United States is the largest emitter of heat-trapping gases causing 
25 percent of global warming despite having just 4 percent of the world 
population. Wind, wave, and hydrokinetic energy are domestic renewable 
energy sources that can reduce our carbon footprint globally, and 
encourage other countries to do the same.
    Of course, no energy technology is without environmental impacts, 
and simply being better than fossil fuels is a little like being better 
than a poke in the eye, it's a necessary but not sufficient aspect of a 
truly sustainable energy mix. Studying the environmental 
characteristics of renewables serves two critical purposes: 1) it 
allows us to identify, avoid, manage, and mitigate the real 
environmental impacts of renewable energy technologies; and 2) it 
builds a constructive relationship between regulators, the public, and 
industry that focuses on the real impacts and not ``red herring'' 
issues that have limited impact and can obstruct the deployment of 
strong projects. Taken together these outcomes are needed to allow for 
the best public review and permitting process.
    Ocean energy is currently used to produce just a few megawatts of 
energy in spite of the fact that it could easily be producing tens of 
gigawatts within the next few decades. However, the relative infancy of 
this technology presents two important challenges. First to understand 
the real sustainability of this technology, it is insufficient to look 
at the impacts from a single project. We must also study the cumulative 
impact of this technology brought fully to scale, and lay out our 
vision of what we want the industry to ultimately become. Second, ocean 
technologies are particularly vulnerable to major setbacks that could 
stifle growth if early projects become notorious environmental 
failures.
    In the context of federal energy legislation, we should focus on 
two types of environmental risks to understand the cumulative impacts 
and avoid early public black-eyes. The first type of risk involves 
impacts that we can predict with increasing accuracy with greater 
experience and data collection. An example of this type of risk would 
be determining the chance of whales being hurt by the sounds of 
construction. The more we learn about whales' habits in the region of 
the project, the more we can quantify the probability of whales being 
present during construction. The more we learn about whales' habits in 
the region of the project, and what effective mitigation measures we 
can take to avoid and minimize impacts on whales, the more we can 
quantify the probability of whales being affected by project 
construction.
    The second type of risk is of impacts that we cannot predict 
because they result from new types of interaction that simply have 
never occurred before. An example would be how fish might adapt to 
underwater turbines in the ocean. These would be first-of-a-kind 
interactions and the probability of the possible impacts is 
fundamentally unknowable
    We can address the first kind of risk by building a detailed 
understanding of the baseline conditions in the area of a potential 
project. Unfortunately, given that many species may pass through a 
given part of the ocean during certain seasons, developing this 
database may significantly slow a proposed project. If, instead of 
studying the baselines on a project-by-project basis, we identified a 
few regions with high resource potential, and focused federal R&D 
dollars on building the necessary baseline data in those areas, we 
could facilitate the permitting of individual projects. This would help 
us develop a better understanding of what the cumulative impacts might 
be in a region where multiple projects are likely.
    Research and development dollars can also help narrow and bound the 
uncertainty associated with unknowable risks. For instance, if we were 
considering a certain type of ocean technology, previously collected 
baseline data would allow us to conclude that a project in that region 
of the ocean would have a very low chance of interacting with 
endangered or at-risk fish populations. Further study of similar 
equipment coupled with modeling the worst-case scenarios might allow us 
to conclude that even development of multiple projects would be very 
unlikely to have any significant impacts of the fish populations. In 
other words, even for unknowable risks associated with putting new 
technologies into new conditions, federal R&D can help build consensus 
around the issues of greatest potential concern and those that are very 
unlikely to impose significant restraints.
    Of course this type of work should be followed up with ``lessons 
learned'' studies to help avoid, manage, and mitigate future impacts 
and provide more information to help narrow and bound other unknowable 
risks. Indeed, given the much higher level of uncertainty surrounding 
these technologies, the lessons learned from each project during 
operation should be used to update the management of future projects, 
and the conditions of future permits, especially during the early 
development stage of the each industry. In particular these studies 
should be used to inform adaptive management requirements in permits. 
Adaptive management requirements establish a process for changing a 
project's operations and equipment configuration to avoid or reduce 
environmental impacts that are larger than anticipated. This is a 
critical tool for allowing projects to proceed when there is a level of 
uncertainty around impacts that would be unacceptable if the projects' 
management strategies are fixed over time.
    Further research on the potential environmental impacts associated 
with these nascent renewable technologies is needed to support adaptive 
management permitting requirements. Given the limits on our ability to 
establish baseline data and the unknowable risks associated with new 
technologies in new conditions, regulators must be able to require 
projects to adapt their management to address unacceptable levels of 
impacts (that may not appear at present). The baseline data and studies 
to narrow and bound unknowable risks will be critical to identifying 
unacceptable levels of impacts (e.g. is the line crossed at one bird or 
fish or one hundred?) and what alternative management options are 
possible.
    Making adaptive management work is not only important from the 
environmental perspective; it is also critical to making projects 
acceptable for private sector financing. Lenders and investors will not 
support projects that face potentially significant costs or lost 
capacity as a result of management being forced to avoid or manage an 
unforeseen impact. Developing a clear, transparent permitting process, 
that includes state and federal agency input in developing adaptive 
management requirements, will also help attract private funding.
    Indeed, given the importance of adaptive management to making some 
first-of-a-kind projects acceptable from ecological and public health 
risk perspective, and the challenge that some adaptive management 
options might pose to a project's financing, the federal government 
could play an important facilitating role in alternative energy 
development in Outer Continental Shelf areas. The government could 
create a fund that covers a portion of the costs associated with the 
most extreme and expensive changes in management that might be 
necessary for early projects.
                            recommendations

   Carve-out federal R&D dollars for independent studies of 
        environmental impacts to 1) understand the cumulative impacts 
        of large scale deployment of these ocean and marine energy 
        technologies, 2) avoid early black-eyes that will set the 
        industry back years, and 3) build consensus among regulators, 
        the public, and industry around the environmental benefits and 
        impacts of real concern.
   Look at regions with resources that have high energy 
        production potential and build baseline data on the nature of 
        the resource and the ecosystems in place that surround the 
        resources.
   Use the baseline data and analogous technologies to narrow 
        and bound unknowable potential environmental impacts.
   Focus ``lessons learned'' studies on the areas of greatest 
        environmental uncertainty.
   Use these studies to inform adaptive management strategies 
        so that projects can proceed in the face of the real 
        uncertainty surrounding some impacts and also still be eligible 
        for private sector financing.
   Consider a federal fund to support the more extensive 
        potential adaptive management options including removal for the 
        first few projects.
   Utilize early successes in this approach as test cases for 
        future, more large-scale deployment initiatives.
                     ocean and hydrokinetic energy
    There are three reasons that study of the environmental impacts of 
ocean and hydrokinetic energy is particularly important: 1) the 
technologies are in a nascent stage of development with only a few 
pilot scale projects in operation around the world; 2) due to the 
defuse nature of the energy resource in the ocean and moving water, 
this family of technologies necessarily requires many pieces of 
equipment spread out over great distances to capture traditional 
electric utility-scale amounts of electricity; 3) the oceans are prized 
for their open vistas, importance in the global ecosystem, and also 
particularly vulnerable to global warming.
    As recommended above, R&D looking at the environmental impacts of 
this family of technologies should focus on a few regions with 
especially high resource potential, ideally for multiple technologies. 
Studying the ecosystems of oceans and marine areas is obviously a 
complicated and time-consuming process. Furthermore because so much is 
unknown about the interaction of wildlife with the various technologies 
being developed to capture ocean and hydrokinetic energy, special 
effort should be made to find other man-made infrastructure that can 
give us insights into the potential impacts. The novelty of the 
technologies makes post-installation studies of impacts and adaptive 
management even more important.
    Of course the novelty of the technologies also creates 
understandable concerns from project developers about allowing 
scientists access to proprietary information regarding system design. 
However, these concerns should not be allowed to hinder pre- and post-
installation studies. Access for independent environmental research and 
develop should be a prerequisite for any federal support.
    The idea of cumulative impacts takes on even greater importance in 
the context of ocean and hydrokinetic technologies. Not only should 
studies consider the impacts associated with multiple projects, 
initially, they should develop an understanding of the cumulative 
impacts of the multiple pieces of equipment being installed within the 
bounds of one project. Utility scale projects are likely to require 
more than one hundred individual generators. In certain parts of the 
ocean, the cumulative impacts of this many pieces of equipment could be 
dramatically different than the impacts of just one or two generators.
    The only exception to the newness of this family of technologies is 
offshore wind energy. Given more mature nature of this technology it is 
appropriate that offshore wind is generally not included in the Marine 
Renewable Energy Research and Development Act of 2007. The only area 
where offshore wind should be explicitly included is in lessons learned 
studies and studies to build baseline data on regions with high ocean 
energy resources. Offshore wind energy projects could be an important 
source of information about energy project development and thus should 
be considered as part of post-construction studies of impacts. Also to 
the extent that regions are picked due to their having high resource 
value, the environmental effects of wind power should be considered in 
impact studies, as wind projects could contribute to the cumulative 
impacts concept described above.
    Lastly, federal R&D should recognize the unique nature of our 
oceans and marine areas. They provide unique ecosystem services, they 
are used differently than land from both a commercial and recreational 
perspective, and they are extremely vulnerable to global warming. As a 
result of these differences, the policies and procedures for access for 
renewable energy projects are still being developed. The Minerals 
Management Service has taken the important step of conducting a 
programmatic environmental impact statement on its developing offshore 
energy permitting process. The Federal Energy Regulatory Commission 
should work with state and federal natural resource management agencies 
to do the same with new hydrokinetic technologies. Ocean and 
hydrokinetic energy may be too new for studies to offer anything other 
than preliminary guidance, but that's an important first step and only 
highlights the need to get started with environmental impact R&D now.
                            recommendations
   Focus federal R&D dollars on studies of a few regions with 
        high resource potential, study other manmade installations in 
        oceans in order to anticipate impacts of ocean and hydrokinetic 
        technologies, and prioritize post-installation lessons' learned 
        studies.
   Require access for independent pre- and post-installation 
        environmental studies as part of eligibility for any federal 
        subsidies.
   Ensure that studies address the cumulative impact of 
        multiple projects and of multiple installations within one 
        project.
   Exclude offshore wind from the Marine Renewable Energy 
        Research and Development Act of 2007 except to study offshore 
        wind projects to learn lessons that may inform other projects 
        and as part of regional cumulative impact analyses.
   FERC should work with state and federal natural resource 
        management agencies to do a programmatic environmental impact 
        statement for the licensing of new hydrokinetic technologies.
   Regional studies should help build consensus around areas 
        that are best suited for early development and those that 
        should be avoided at least until the potential impacts of the 
        technologies are much better understood.
                                 ______
                                 
 Statement of Sean O'Neill, President, Ocean Renewable Energy Coalition
                                abstract
    Development of a robust offshore renewables industry can: reduce 
reliance on foreign oil; rely upon ocean terrain for power generation 
as opposed to onshore land resources; revitalize shipyards, coastal 
industrial parks and shuttered naval bases; create jobs in coastal 
communities; allow the U.S. to transfer technology to other countries, 
provide low cost power for niche or distributed uses like desalination 
plants, aquaculture, naval and military bases, powering stations for 
hybrid vehicles and for offshore oil and gas platforms; provide use for 
decommissioned oil platforms through ``rigs to reefs program''. and 
promote coastal planning that reflects the goals of bio-diversity that 
maximize best comprehensive use of resources and capitalizes on 
synergies between offshore industries.
    The industry needs funding for research and development, pilot and 
demonstration projects, resource assessments, and environmental 
studies, as well as an appropriate regulatory regime that embraces the 
concepts of adaptive management, proportionality, and common sense. 
Without a regulatory environment that provides some certainty the 
industry may not succeed. If subjected to dual regulatory regimes the 
industry will be subjected to unfair barriers to market entry. And 
without Federal Government support, the citizens of the United States, 
our environment, and our energy security will be deprived of the 
tremendous benefits that ocean renewable energy offers.
                              introduction
    Ocean Renewable Energy Coalition is the national trade association 
for marine and hydrokinetic renewable energy dedicated to promoting 
energy technologies from clean, renewable ocean resources. The 
coalition is working with industry leaders, academic scholars, and 
other interested NGO's to encourage ocean renewable technologies and 
raise awareness of their vast potential to help secure an affordable, 
reliable, environmentally friendly energy future.
    We seek a legislative and regulatory regime in the United States 
that fosters the development of ocean renewable technologies, their 
commercial development, and 0 in the race to capture the rich energy 
potential of our oceans. While other countries have already deployed 
viable, operating, power generating projects using the emission-free 
power of ocean waves, currents, and tidal forces, the U.S. is only 
beginning to acknowledge the importance these technologies.
    Ocean energy can play a significant role in our nation's renewable 
energy portfolio. With the right support, the United States ocean 
energy industry can be competitive internationally. With the right 
encouragement, ocean renewable energy technologies can help us reduce 
our reliance on foreign oil--fossil fuels, in general--and provide 
clean energy alternatives to conventional power generating systems. And 
with the right public awareness, our coastline communities can use 
ocean renewables as a springboard for coastal planning that reflects 
the principles of marine biodiversity. Today, OREC will address the 
steps that we must take to realize the promise and potential of ocean 
renewables.
    Is the resource there? Yes, and the resource is located near highly 
populated areas on the coast, placing fewer demands on already taxed 
transmission infrastructure.
    Is the resource cost competitive? Not yet, but indications suggest 
a much shorter time to commercial viability than experienced by many 
other renewable technologies.
    Is the resource environmentally friendly? Ocean renewables present 
some of the most potentially environmentally benign energy technologies 
available today--no air emissions, no fuel costs or associated mining 
or drilling effects, no fuel transportation costs or related 
environmental effects, and, with proper siting and technology, minimal 
marine or fisheries effects. Unfortunately, there is very little data 
to support this last claim, yet the data that does exist suggests 
minimal impacts with proper technology and siting.
                             i. background
A. Types of Technology
    Before we describe the benefits that ocean renewables offer, we 
take a step back and offer a description of the different technologies. 
Ocean energy refers to a range of technologies that utilize the oceans 
or ocean resources to generate electricity. Many ocean technologies are 
also adaptable to non-impoundment uses in other water bodies such as 
lakes or rivers. These technologies are can be separated into three 
main categories:
    Wave Energy Converters.--These systems extract the power of ocean 
waves and convert it into electricity. Typically, these systems use 
either a water column or some type of surface or just-below-surface 
buoy to capture the wave power. In addition to oceans, some lakes may 
offer sufficient wave activity to support wave energy converter 
technology.
    Tidal/Current.--These systems capture the energy of ocean currents 
below the wave surface and convert them into electricity. Typically, 
these systems rely on underwater turbines, either horizontal or 
vertical, which rotate in either the ocean current or changing tide 
(either one way or electricity.), almost like an underwater windmill. 
These technologies can be sized or adapted for ocean or for use in 
lakes or non-impounded river sites.
    Ocean Thermal Energy Conversion (OTEC).--OTEC generates electricity 
through the temperature differential in warmer surface water and colder 
deep water. Of ocean technologies, OTEC has the most limited 
applicability in the United States because it requires a 40-degree 
temperature differential that is typically available in locations like 
Hawaii and other more tropical climates.
    Offshore Wind.--Offshore wind projects take advantage of the vast 
wind resources available across oceans and large water bodies. Out at 
sea, winds blow freely, unobstructed by any buildings or other 
structures. Moreover, winds over oceans are stronger than most onshore, 
thus allowing for wind projects with capacity factors of as much as 65 
percent, in contrast to the 35-40 percent achieved onshore.
    Other.--Marine biomass to generate fuel from marine plants or other 
organic materials, hydrogen generated from a variety of ocean 
renewables and marine geothermal power. There are also opportunities 
for hybrid projects, such as combination offshore wind and wave or even 
wind and natural gas.
B. The Status of U.S. Wave, Current and Tidal Projects
    At present, prototype offshore renewable projects are moving 
forward in the United States. These include the following:

   New Jersey based Ocean Power Technologies (OPT) has operated 
        a test wave energy buoy off the coast of Hawaii for the U.S. 
        Navy. It has also operated a buoy off the coast of New Jersey 
        funded by Board of Public Utilities since 2005 and in July 
        2006, filed a preliminary permit for a commercial wave farm at 
        Reedsport, off the coast of Oregon.
   Finavera Renewables, Inc., has proposed a 1 MW pilot project 
        for the Makah Bay off the coast of Washington state. The 
        project is currently poised to complete a four-year permitting 
        process at the Federal Energy Regulatory Commission (FERC). 
        Most recently the Makah Bay Project received a finding of no 
        significant impact from FERC for their Makah Bay project.
   New York based Verdant Power, Inc. is undergoing licensing 
        at FERC and deployed six units of a tidal/current project 
        located in the East River of New York in December 2006. These 
        units have supplied reliable power to two commercial, yet non-
        paying due to FERC rules, customers on Roosevelt Island. 
        Continuous operation has yielded no fish strikes or adverse 
        marine impacts, to date.
   Australian based Energetech has formed a subsidiary in Rhode 
        Island which has received funding from the Massachusetts Trust 
        Collaborative and has planned a 750 kw project for Port Judith 
        Rhode Island. Permitting has not yet commenced.
   Ocean Renewable Power Company of North Miami, Florida 
        recently secured Preliminary FERC permits for two sites in 
        Alaska
   Multiple permits for sites in Maine, California, Oregon, 
        Alaska and Florida have been filed with the Federal Energy 
        Regulatory Commission.
   The Minerals Management Service (MMS) now has authority to 
        lease lands for offshore wind projects on the Outer Continental 
        Shelf. MMS has conducted environmental review of the proposed 
        420 MW Cape Wind Farm off the coast of Nantucket, MA and LIPA/
        FPL 100 MW project off the coast of Long Island, NY.
C. Overseas
    In Europe, projects are moving ahead. Europe has already installed 
587 MW of offshore wind in Denmark, Holland, Scotland, England and UK. 
See http://www.bwea.com/offshore/worldwide.html. Two near shore wave 
projects, are operating in Scotland and Isle of Azores. Pelamis of OPD 
in Scotland is deploying the world's first commercial wind farm off the 
coast of Portugal and Marine Current Turbines has operated a prototype 
tidal project for 2 years.
D. Commercial Viability of Ocean Renewables
    Offshore wind costs range from 3-8 cents per kWh compared to 2.5-7 
cents onshore. (World Renewable Energy Report 2002-2007, Renewable UK). 
These figures have been derived based on operating experiences in 
Europe and reflect operating experience. Costs for offshore wind 
increase as projects move further offshore, necessitating more costly 
mooring systems and larger turbines.
    As for wave and tidal, we have general parameters on cost, but they 
remain subject to further refinement. The World Renewable Energy Report 
estimates the cost of wave energy at an average of 9 cents/kWh and 
tidal and current an average of 8 cents/kWh.
    Recent EPRI reports have found that, presently, the cost of power 
from ocean technologies ranges from 7 cents to 16 cents/kw in a low 
case scenario. For tidal, the May 2006 EPRI report found that the cost 
is driven by the resource, a strong resource can yield power at prices 
as low as 6 cents/kwh. Plus, similarities between tidal and offshore 
wind bring costs down.
    And, the costs of offshore wind or wave are stable. Whereas natural 
gas and oil have fluctuated over the years (with natural gas now higher 
than ever), offshore wind and wave energy costs are stable, since the 
cost of renewable power sources like wind or wave are free. The analogy 
here is that renewable energy financing functions more like a fixed-
rate mortgage as opposed to a variable rate mortgage associated with 
the use of finite fossil fuel resources.
    Also, costs are expected to decline as the industry matures and as 
economies of scale make ocean projects less costly. To compare, back in 
1978 wind energy cost 25 cents/kwh to produce--but now costs between 
4.5 and 6 cents/kwh. Wave is already less costly than wind was in its 
early. Moreover, the EPRI report found that if wave had obtained the 
same government subsidies as wind, it would be a far more advanced 
technology than at present. As the offshore wind industry makes 
advancements on mooring systems, turbine durability and other issues 
that bear on the cost of marine projects, these advancements will help 
bring down the cost of ocean energy. In addition, if we can gain a 
better assessment of our resources, we can target the most powerful 
sites first and learn from our experience in these locations to bring 
costs down further.
    In addition, ocean renewable energy offers other economic benefits. 
Development of a robust offshore renewables industry can:

   Reduce reliance on foreign oil
   Rely upon ocean terrain for power generation as opposed to 
        onshore land resources
   Revitalize shipyards, coastal industrial parks and shuttered 
        naval bases
   Create jobs in coastal communities
   Allow the U.S. to transfer technology to other countries, 
        just as a country like Scotland is exporting its marine 
        renewables know-how
   Provide low cost power for niche or distributed uses like 
        desalination plants, aquaculture, naval and military bases, 
        powering stations for hybrid vehicles and for offshore oil and 
        gas platforms
   Provide use for decommissioned oil platforms through ``rigs 
        to reefs program''
   Promote coastal planning that reflects the goals of bio-
        diversity, that maximize best comprehensive use of resources 
        and capitalizes on synergies between offshore industries.
            ii. what the industry needs to achieve our goals
    What will it take for the ocean renewable industry to move from 
where it is now to achieve its potential? OREC recommends the following 
actions:
    More funding for R&D and technology development.--Wind energy has 
benefited from substantial government investment. Thirty years ago, 
wind cost 30 cents/kWH to generate; today, that cost stands at 3 to 7 
cents/kWH. And even today, DOE continues to invest in wind. Just a few 
months ago, DOE announced a $27 million partnership with GE to develop 
large-scale turbines and also issued a $750,000 SBIR to Northern Power 
for offshore wind technology development.
    Private developers have borne the costs of bringing the ocean 
energy technology forward for the past thirty years, but they need 
government support. Government funding will also give confidence to 
private investors and help attract private capital.
    Resource Assessment.--At present, we do not even know the full 
potential of offshore renewables, because no agency has ever mapped the 
resource comprehensively. The Energy Policy Act of 2005 directed the 
Secretary of DOE to inventory our renewable resources but that work has 
never been funded. And even as MMS moves forward with a rulemaking for 
offshore renewables on the OCS, it has not received appropriations to 
map the resource.
    Preliminary studies done by EPRI and private companies show that we 
have substantial ocean resources. But we will not know the full scope 
without further mapping and study.
    Incentives for Private Investment.--Offshore renewables are 
compatible with other large industries in our country, such as oil and 
maritime industry. These industries, with the right tax incentives, can 
provide substantial support to offshore renewable development. 
Incentives could include investment tax credits for investment in 
offshore renewables and incentive to use abandoned shipyards and 
decommissioned platforms for prototypes and demonstration projects.
    Incentives for coastal communities.--Coastal municipalities stand 
to gain tremendously from installation of offshore renewables. They 
need to be stakeholders in the process with a voice in development that 
takes place off their shores. Congress can support this by continuing 
to authorize Clean Renewable Energy Bonds (CREBS) and the Renewable 
Energy Portfolio Incentives (REPI) for coastal projects.
    Reduced regulatory barriers.--Until companies get projects in the 
water, we will not learn about the environmental impacts or true costs 
of offshore renewables. Unfortunately, developers face onerous barriers 
to siting small, experimental projects. We should establish streamlined 
regulation and permitting for offshore renewables, with maximum 
cooperation between state and federal agencies.
    A system to coordinate joint authorities could be established up 
front, either through MOUs, a Joint Office or liaison system, so there 
is one place that coordinates and integrates the lead agency process 
with other state and federal permits. Agencies will establish clear 
lines of responsibility and coordination and adhere to firm deadlines.
    To minimize duplication of effort and develop expertise with 
hydrokinetic and offshore renewable technologies, each agency could 
dedicate teams of responsible parties from their respective agency that 
can coordinate on applications. The same team can learn the new 
technology, the new permitting and licensing process, and can more 
efficiently process all applications.
    Another option is to create a Joint Hydrokinetic and Marine 
Renewables Office, staffed with key personnel from relevant agencies. 
Working through a joint office will increase accountability and enhance 
efficiency and information sharing. A Joint Renewables Office might 
require congressional authorization and funding as provided under 
section [need specifics]--whereby the Department of Interior has 
established a similar program.
                 iii. principles of adaptive management
    The concept of adaptive management allows for modification of 
project operation to accommodate newly discovered affects. For nascent 
technologies, adaptive management is preferable to a front loaded 
process, because it allows continued collection of data and ongoing 
monitoring after the project is deployed. Information gleaned from 
adaptive management is therefore, more accurate about affects than pre-
deployment studies and projections. Adaptive management also allows for 
proportionality--the actions taken should be proportional to the 
adverse impacts identified. This concept is critical to the development 
of this industry.
   iv. dual regulation stifles innovation, is anti-competitive, and 
                                wasteful
    OREC seeks resolution of any jurisdictional conflicts between MMS 
and FERC for projects on the OCS. Above all, OREC seeks to avoid 
duplicative regulation and potentially competing requirements by FERC 
and MMS. Duplicative regulation will burden marine renewable developers 
and unnecessarily waste taxpayer dollars. In addition, duplicative 
regulation or lack of coordination between FERC and MMS could result in 
marine energy developers paying annual charges associated with 
administration of the Federal Power Act under Section 10(e) and royalty 
payments required by Section 388 of the EPAct of 2005. OREC expresses 
no preference to which agency should govern on the OCS, so long as the 
eventual process adopted incorporates any other necessary procedures, 
allows for one coordinated, simultaneous process rather than disparate 
or consecutive procedures and above all, and does not create delays, 
overlap or the potential for conflicting conditions.
    To date, FERC and MMS have been negotiating a Memorandum of 
Understanding (MOU) which would govern regulation of marine renewables 
on the OCS, but an MOU has not yet issued. Consequently, some action is 
required to resolve the ongoing FERC-MMS dispute which is perpetuating 
regulatory uncertainty and stymieing development.
                       v. mms delay in rulemaking
    Section 388 of the Energy Policy Act of 2005 directed MMS to issue 
regulations for leasing lands on the OCS for alternate energy 
development within 270 days of enactment of the statute, or August 9, 
2005. The deadline for issuance of regulations has long passed. 
Offshore wind and wave energy developers are eager to explore the 
resources of the OCS and site test buoys or test towers to gather data, 
but in the absence of any rules--even interim rules--none of this 
testing can proceed. Since developers typically require at least one 
year of test data prior to commencing project development, MMS failure 
to enact rules has already set the industry back two years (both the 
year needed for tests and the year delay in issuing the rules). MMS 
must make provisions now to allow developers to proceed with test 
facilities.
                             vi. conclusion
    Both the Federal Energy Regulatory Commission and the Minerals 
Management Service were established decades ago with responsibility 
over large scale energy development. An ultimate siting decision would 
trigger, in many cases, a final approval to impact expansive tracts of 
land or marine terrain for energy production. With the resurgence of 
hydrokinetic and marine renewables, both of these agencies have 
undertaken the enormous task of interpreting their mission, as defined 
by law, in the regulation and permitting of these new and emerging 
technologies. I applaud their efforts and encourage them to achieve a 
timely, fair, and realistic approach.
    It is essential that a licensing process for new and emerging 
renewable technologies take into account the principles of 
proportionality and fairness while encouraging innovation to address 
our common environmental and energy goals.
    Is the resource there? Yes, and the resource is located near highly 
populated areas on the coast, placing fewer demands on already taxed 
transmission infrastructure.
    Is the resource cost competitive? Not yet, but indications suggest 
a much shorter time to commercial viability than experienced by many 
other renewable technologies.
    Is the resource environmentally friendly? Ocean renewables present 
some of the most potentially environmentally benign energy technologies 
available today--no air emissions, no fuel costs or associated mining 
or drilling effects, no fuel transportation costs or related 
environmental effects, and, with proper siting and technology, minimal 
marine or fisheries effects. Unfortunately, there is very little data 
to support this last claim, yet the data that does exist suggests 
minimal impacts with proper technology and siting.
    Ocean renewables can help diversify our energy portfolio and 
improve our environment. With the proper support, these resources will 
become a robust part of a reliable, affordable, clean electric supply 
portfolio.

                                    

      

```