U.S. GOVERNMENT PUBLISHING OFFICE

29–817 PDF WASHINGTON : 2019

LEGISLATION ADDRESSING LNG EXPORTS AND 

PURPA MODERNIZATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JANUARY 19, 2018 

Serial No. 115–94 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

GREG WALDEN, Oregon 

Chairman 

JOE BARTON, Texas 

Vice Chairman 

FRED UPTON, Michigan 

JOHN SHIMKUS, Illinois 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

LARRY BUCSHON, Indiana 

BILL FLORES, Texas 

SUSAN W. BROOKS, Indiana 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

CHRIS COLLINS, New York 

KEVIN CRAMER, North Dakota 

TIM WALBERG, Michigan 

MIMI WALTERS, California 

RYAN A. COSTELLO, Pennsylvania 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

JEFF DUNCAN, South Carolina 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

G.K. BUTTERFIELD, North Carolina 

DORIS O. MATSUI, California 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

PETER WELCH, Vermont 

BEN RAY LUJA ́ N, New Mexico 

PAUL TONKO, New York 

YVETTE D. CLARKE, New York 

DAVID LOEBSACK, Iowa 

KURT SCHRADER, Oregon 

JOSEPH P. KENNEDY, III, Massachusetts 

TONY CA ́ RDENAS, California 

RAUL RUIZ, California 

SCOTT H. PETERS, California 

DEBBIE DINGELL, Michigan7 

SUBCOMMITTEE ON ENERGY

FRED UPTON, Michigan 

Chairman 

PETE OLSON, Texas 

Vice Chairman 

JOE BARTON, Texas 

JOHN SHIMKUS, Illinois 

ROBERT E. LATTA, Ohio 

GREGG HARPER, Mississippi 

DAVID B. MCKINLEY, West Virginia 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

LARRY BUCSHON, Indiana 

BILL FLORES, Texas 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

KEVIN CRAMER, North Dakota 

TIM WALBERG, Michigan 

JEFF DUNCAN, South Carolina 

GREG WALDEN, Oregon (ex officio) 

BOBBY L. RUSH, Illinois 

Ranking Member 

JERRY MCNERNEY, California 

SCOTT H. PETERS, California 

GENE GREEN, Texas 

MICHAEL F. DOYLE, Pennsylvania 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

PETER WELCH, Vermont 

PAUL TONKO, New York 

DAVID LOEBSACK, Iowa 

KURT SCHRADER, Oregon 

JOSEPH P. KENNEDY, III, Massachusetts 

G.K. BUTTERFIELD, North Carolina 

FRANK PALLONE, JR., New Jersey (ex 

officio) 

(II) 

(III) 

C O N T E N T S 

Page 

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

opening statement ................................................................................................ 1 

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

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

opening statement ................................................................................................ 3 

Prepared statement .......................................................................................... 4 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 5 

Prepared statement .......................................................................................... 6 

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

New Jersey, opening statement .......................................................................... 7 

Prepared statement .......................................................................................... 8 

WITNESSES

Steven Winberg, Assistant Secretary for Fossil Energy, Department of Energy ........................................................................................................................ 10

Prepared statement .......................................................................................... 12 

Answers to submitted questions 1 ................................................................... 190 

James Danly, General Counsel, Federal Energy Regulatory Commission ......... 16 

Prepared statement .......................................................................................... 18 

Answers to submitted questions ...................................................................... 192 

Travis Kavulla, Vice Chairman, Montana Public Service Commission .............. 54 

Prepared statement .......................................................................................... 56 

Answers to submitted questions ...................................................................... 206 

Timothy J. Sparks, Vice President of Electric Grid Integration, Consumers 

Energy ................................................................................................................... 67 

Prepared statement .......................................................................................... 69 

Answers to submitted questions ...................................................................... 216 

Karl R. Ra ́bago, Executive Director, Pace Energy and Climate Center .............. 77 

Prepared statement .......................................................................................... 79 

Answers to submitted questions ...................................................................... 234 

Paul N. Cicio, President, Industrial Energy Consumers of America ................... 101 

Prepared statement .......................................................................................... 103 

Answers to submitted questions ...................................................................... 242 

Charlie Riedl, Executive Director, Center for Liquefied Natural Gas ................ 121 

Prepared statement .......................................................................................... 123 

SUBMITTED MATERIAL

H.R. 4476, the PURPA Modernization Act of 2017, submitted by Mr. Upton .... 146 

H.R. 4605, the Unlocking Our Domestic LNG Potential Act, submitted by 

Mr. Upton ............................................................................................................. 152 

H.R. 4606, the Ensuring Small Scale LNG Certainty and Access Act, submitted by Mr. Upton ............................................................................................ 155 

Letter of November 30, 2017, from Terry Kouba, Vice President Operations– 

Iowa, Alliant Energy, to Mr. Walberg, submitted by Mr. Olson ...................... 157 

Letter of December 6, 2017, from Susan N. Kelly, President and CEO, American Public Power Association, to Mr. Walberg, submitted by Mr. Olson ....... 159 

Letter of November 29, 2017, from Barbara Lockwood, Vice President of 

Regulation, Arizona Public Service, to Mr. Walberg, submitted by Mr. 

Olson ..................................................................................................................... 161 

1Mr. Winberg did not answer submitted questions for the record by the time of printing. 

Page

IV 

Letter of December 22, 2017, from Paul Sukut, CEO and General Manager, 

Basin Electric Power Cooperative, to Mr. Walberg, submitted by Mr. Olson . 163 

Letter of November 29, 2017, from Patrick Reiten, Senior Vice President, 

Berkshire Hathaway Energy, to Mr. Walberg, submitted by Mr. Olson ......... 165 

Letter of November 29, 2017, from Patricia K. Poppe, President and CEO, 

CMS Energy and Consumers Energy, to Mr. Walberg, submitted by Mr. 

Olson ..................................................................................................................... 167 

Letter of January 18, 2018, from Paula Soos, Vice President, Government 

Relations, Covanta, to Mr. Walberg, submitted by Mr. Olson ......................... 168 

Letter of November 29, 2017, from Gerard M. Anderson, Chairman and 

CEO, DTE Energy, to Mr. Walberg, submitted by Mr. Olson .......................... 170 

Letter of December 15, 2017, from Diane V. Denton, Managing Director, 

Federal Policy, Duke Energy, to Mr. Walberg, submitted by Mr. Olson ......... 171 

Letter of November 29, 2017, from Thomas R. Kuhn, President, Edison Electric Institute, to Mr. Walberg, submitted by Mr. Olson .................................... 172 

Letter of December 6, 2017, from John P. Hughes, President and Chief 

Executive Officer, Electricity Consumers Resource Council, to Mr. Walberg, 

submitted by Mr. Olson ....................................................................................... 174 

Letter of January 18, 2018, from the Environmental Law & Policy Center, 

et al., to Mr. Upton and Mr. Rush, submitted by Mr. Olson ............................ 175 

Letter of November 29, 2017, from Jeff Malmen, Senior Vice President, Public 

Affairs, Idaho Power Company, to Mr. Walberg submitted by Mr. Olson ...... 177 

Letter of January 19, 2018, from the Independent Power Producers Coalition 

of Michigan to Mr. Walberg, submitted by Mr. Olson ...................................... 180 

Letter of January 17, 2018, from Nina Plaushin, Vice President Regulatory, 

Federal Affairs, and Communications, ITC Holdings Corporation, to Mr. 

Walberg, submitted by Mr. Olson ....................................................................... 182 

Letter of December 19, 2017, from Greg White, Executive Director, National 

Association of Regulatory Utility Commissioners, to Mr. Walberg, submitted 

by Mr. Olson ......................................................................................................... 184 

Letter of November 29, 2017, from Jim Matheson, Chief Executive Officer, 

National Rural Electric Cooperative Association, to Mr. Walberg, submitted 

by Mr. Olson ......................................................................................................... 185 

Letter of November 29, 2017, from Paul Renfrow, Vice President, Corporate 

Affairs, OGE Energy Corporation, to Mr. Walberg, submitted by Mr. Olson . 187 

Letter of December 12, 2017, from Sania Radcliffe, Director of Government 

Affairs and Environmental Policy, Portland General Electric Company, to 

Mr. Walberg, submitted by Mr. Olson ................................................................ 188 

Letter of November 29, 2017, from Frank P. Prager, Vice President, Policy 

and Federal Affairs, Xcel Energy, to Mr. Walberg, submitted by Mr. Olson .. 189 

(1) 

LEGISLATION ADDRESSING LNG EXPORTS 

AND PURPA MODERNIZATION 

FRIDAY, JANUARY 19, 2018 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ENERGY, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 9:15 a.m., in room 

2322, Rayburn House Office Building, Hon. Fred Upton (chairman 

of the subcommittee) presiding. 

Members present: Representatives Upton, Olson, Barton, Shimkus, Latta, McKinley, Griffith, Johnson, Long, Bucshon, Flores, 

Mullin, Hudson, Cramer, Walberg, Duncan, Walden (ex officio), 

Rush, McNerney, Peters, Green, Tonko, Loebsack, Schrader, Kennedy, Pallone (ex officio). 

Staff present: Ray Baum, Staff Director; Allie Bury, Legislative 

Clerk, Energy/Environment; Wyatt Ellertson, Professional Staff 

Member, Energy/Environment; Margaret Tucker Fogarty, Staff Assistant; Adam Fromm, Director of Outreach and Coalitions; Jordan 

Haverly, Policy Coordinator, Environment; A.T. Johnston, Senior 

Policy Advisor, Energy; Ben Lieberman, Senior Counsel, Energy; 

Mary Martin, Chief Counsel, Energy/Environment; Katie McKeogh, 

Press Assistant; Brandon Mooney, Deputy Chief Counsel, Energy; 

Mark Ratner, Policy Coordinator; Annelise Rickert, Counsel, Energy; Dan Schneider, Press Secretary; Jason Stanek, Senior Counsel, Energy; Madeline Vey, Policy Coordinator, Digital Commerce 

and Consumer Protection; Hamlin Wade, Special Advisor for External Affairs; Andy Zach, Senior Professional Staff Member, Environment; Priscilla Barbour, Minority Energy Fellow; Evan Gilbert, Minority Press Assistant; Caitlin Haberman, Minority Professional 

Staff Member; Rick Kessler, Minority Senior Advisor and Staff Director, Energy and Environment; John Marshall, Minority Policy 

Coordinator; Alexander Ratner, Minority Policy Analyst; Tim Robinson, Minority Chief Counsel; and Tuley Wright, Minority Energy 

and Environment Policy Advisor. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Good morning. 

Today’s legislative hearing is going to focus on three bills: two bipartisan bills addressing LNG exports introduced by Mr. Johnson 

and a bill introduced by Mr. Walberg to modernize the Public Utility Regulatory Policies Act of 1978, also called PURPA. 

2 

I want to thank our witnesses for appearing before us today to 

give their views so that we could work to perfect these bills. 

On the first panel, we are going to hear testimony from the Department of Energy on two LNG bills, H.R. 4605, the Unlocking 

Our Domestic LNG Potential Act, and H.R. 4606, the Ensuring 

Small Scale LNG Certainty and Access Act. And we will also receive testimony from FERC on H.R. 4476, the PURPA Modernization Act. 

We also have a second panel of witnesses today so we can hear 

from industry and State regulators to better understand the impact 

of the legislation. 

As we consider this legislation, I am reflecting on our bipartisan 

codel to Puerto Rico and the Virgin Islands last month. It is hard 

to put into words the devastation and loss, and it is hard to fathom 

that it has been more than 100 days since the hurricane struck and 

yet hundreds of thousands of folks are still without power. 

As we learned on our trip, Puerto Rico’s grid was in a very rough 

shape to begin with, and many of their power plants were so outdated they were still burning petroleum. I believe there is a real 

potential for Puerto Rico to expand their use of natural gas in 

these bills, especially the Small Scale LNG bill can be part of that 

solution. 

So I think I speak for all those who joined with me on the codel 

when I say that we are going to continue to stay focused to ensure 

that the territories and the people receive the assistance that they 

deservedly need. 

With that, I would like to thank this panel of distinguished witnesses for appearing today. I look forward to your testimony. 

[The prepared statement of Mr. Upton follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

Today’s legislative hearing will focus on three bills—two bipartisan bills addressing LNG exports introduced by Mr. Johnson, and a bill introduced by Mr. Walberg 

to modernize the Public Utility Regulatory Policies Act of 1978. I want to thank our 

witnesses for appearing before us today to give their views so we can work to perfect 

the bills. 

On the first panel, we’ll hear testimony from the Department of Energy on the 

two LNG bills—H.R. 4605, the ‘‘Unlocking our Domestic LNG Potential Act’’ and 

H.R. 4606, the ‘‘Ensuring Small Scale LNG Certainty and Access Act.’’ We’ll also 

receive testimony from FERC on H.R. 4476, the ‘‘PURPA Modernization Act.’’ We 

also have a second panel of witnesses today, so we can hear from industry and State 

regulators to better understand the impact of the legislation. 

As we consider this legislation, I’m reflecting on our bipartisan CODEL to Puerto 

Rico and the Virgin Islands back in December. It is hard to put into words the devastation and loss, and it’s hard to fathom that it has been more than 100 days since 

the hurricane struck and hundreds of thousands of people are still without power. 

As we learned on our trip, Puerto Rico’s grid was in very rough shape to begin with 

and many of their power plants were so outdated they were still burning petroleum. 

I believe there is real potential for Puerto Rico to expand their use of natural gas, 

and these bills—especially the small-scale LNG bill—can be part of the solution. I 

think I speak for all those who joined me on the CODEL when I say that we will 

continue to stay focused to ensure that the territories and their people receive the 

assistance they need. 

With that, I’d like to thank this panel of distinguished witnesses for appearing 

today and I look forward to your testimony. 

Mr. UPTON. And I was going to yield to Mr. Walberg for a minute 

or so. 

3 

Mr. Walberg. 

Mr. WALBERG. Mr. Chairman, thank you for holding this hearing 

today. I want to also thank your staff for being a part of this process. They have been terrific to work with. 

I would like to quickly point out that this legislation that aims 

to bring a 40-year-old law into the 21st century is an important aspect to deal with. It is time that my constituents see the advancements made in the electricity sector reflected in their utility bill. 

H.R. 4476 aims to lower electricity bills for American families, to 

stop the gaming of a Federal law at the expense of my constituents. 

I am willing to work with all interested stakeholders moving forward to make changes to this legislation to ensure we bring real 

benefits to hardworking Michiganders and others all around the 

United States. 

I look forward to this hearing and yield back my time. 

Mr. UPTON. The gentleman yields back. 

I yield now to the ranking member of the Energy Subcommittee, 

Mr. Rush, for an opening statement. 

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

Mr. RUSH. I want to thank you, Mr. Chairman. 

Today we will be examining legislation addressing LNG exports 

and PURPA modernization. I must say, Mr. Chairman, and announce I do have concerns with all three bills that are before us 

today. It is my hope that the majority will work with our side to 

address each of these issues as we move through the committee 

process. 

To begin with, Mr. Chairman, H.R. 4476 would make sweeping 

changes to PURPA—changes, Mr. Chairman, that will fundamentally alter both its objective and its effectiveness. For the past 40 

years, this policy has helped to promote wholesale distribution of 

electric energy while increasing energy efficiency and ensuring that 

energy consumers receive fair retail rates. 

PURPA’s effectiveness, Mr. Chairman, has come from its unique 

role in facilitating competition in the electricity sector, and I am 

concerned that some of the proposed changes under H.R. 4476 will 

hamper the law’s ability to achieve its original objective. 

Specifically, section 4 of H.R. 4476 would essentially strip away 

PURPA’s requirement that utilities must purchase from certain 

qualified renewable energy projects, small power production, and 

cogeneration facilities. 

As you know, Mr. Chairman, under current law, there is already 

an exemption from must-buy provision if FERC determines that a 

qualifying facility has nondiscriminatory access to specific markedrelated conditions. 

However, H.R. 4476 would give certain utilities the ability to 

refuse to purchase energy from small power producers or provide 

services to a QF if that utility determines that it has no need to 

purchase such power or the utility secures long-term generation resources through a competitive process and uses integrated resource 

planning, or IRPs. 

Mr. Chairman, H.R. 4476 provides little to no insight for nonregulated electric utilities or for those operating in States that do 

4 

not require IRPs. My concern is that the changes in H.R. 4476 

would replace a system that currently works well in ensuring a 

competitive environment for smaller, privately owned energy producers with one that severely reduces competition. 

Mr. Chairman, if it ain’t broke, it don’t need a fix. 

Additionally, I also have concerns regarding both H.R. 4605 and 

H.R. 4606, both of which address the exportation of LNG, and neither of which is really, in the final analysis, necessary. 

While H.R. 4506 appears to be some sort of a sweetheart deal, 

my issues with H.R. 4605 surround its elimination of the section 

prohibiting the import or export of natural gas without prior DOE 

approval, while also removing longstanding consumer protections. 

So, Mr. Chairman, I look forward to today’s hearing, and I look 

forward to concentrating a very robust discussion around these important issues. 

And with that, I yield back the balance of my time. 

[The prepared statement of Mr. Rush follows:] 

PREPARED STATEMENT OF HON. BOBBY L. RUSH

Mr. Chairman, today we will be examining legislation addressing LNG exports 

and PURPA modernization. 

Mr. Chairman, I must say at the outset that I do have concerns with all three 

bills before us today. 

It is my hope that the majority will work with our side to address each of these 

issues as we move through the legislative process. 

To begin with, Mr. Chairman, H.R. 4476 would make sweeping changes to the 

Public Utility Regulatory Policies Act, or PURPA, that would fundamentally alter 

both its objective and effectiveness. 

For the past 40 years this policy has helped to promote the wholesale distribution 

of electric energy, while increasing energy efficiency, and ensuring that energy consumers receive fair retail rates. 

Mr. Chairman, PURPA’s effectiveness has come from its unique role in facilitating 

competition in the electricity sector and I am concerned that some of the proposed 

changes under H.R. 4476 would hamper the law’s ability to achieve its original objectives. 

Specifically, Section 4 of H.R. 4476 would essentially strip away PURPA’s requirement that utilities must purchase power from certain qualifying renewable energy 

projects, small power production, and cogeneration facilities. 

Mr. Chairman, as you know, under current law there is already an exemption 

from the must-buy provision if FERC determines that a qualifying facility, or QF, 

has ‘‘nondiscriminatory access to’’ specific market-related conditions. 

However, H.R. 4476 would give certain utilities the ability to refuse to purchase 

energy from small power producers or provide services to a QF if that utility determines it has no need to purchase such power or the utility procures long-term generation resources through a competitive process and uses integrated resource planning, or IRPs. 

Mr. Chairman, H.R. 4476 provides little to no oversight for non-regulated electric 

utilities or for those operating in States that do not require IRPs. 

My concern is that the changes in H.R. 4476 would replace a system that currently works well in ensuring a competitive environment for smaller, privately 

owned energy producers with one that severely reduces competition. 

Additionally, Mr. Chairman, I also have concerns regarding both H.R. 4605 and 

H.R. 4606, both of which address the exportation of LNG, and neither of which is 

really necessary. 

While H.R. 4506 appears to be some sort of sweetheart deal, my issues with H.R. 

4605 surround its elimination of the section prohibiting the import or export of natural gas without prior DOE approval, while also removing longstanding consumer 

protections. 

H.R. 4605 would also prevent DOE from ensuring that exports of LNG to nonFree Trade Agreement countries are consistent with the public interest. 

5 

Mr. Chairman, under this bill information regarding LNG exports would be concealed from the American people, denying them the opportunity to provide input or 

even know exactly which countries would be receiving this vital product. 

It remains unclear, Mr. Chairman, what effect this bill would have on our national security, our domestic natural gas consumers, our manufacturing competitiveness, or American jobs. 

So I look forward to engaging today’s witnesses to dig deeper on these important 

issues and with that I yield the balance of my time. 

Mr. UPTON. The gentleman yields back. 

The Chair would recognize the chair of the full committee, the 

gentleman from Oregon, Mr. Walden. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. I thank the gentleman from Michigan. I welcome 

our witnesses. 

Today the committee will examine legislation that will encourage 

and streamline the process for approving liquefied natural gas exports and modernize the Public Utility Regulatory Policies Act of 

1978, also known as PURPA. For some of us, 1978 doesn’t seem 

that far back. For others, it may seem like ancient history. 

Under my chairmanship, I have encouraged our Members to put 

consumers first and focus on ways to grow our economy. To do this 

effectively, we need to look to see where we can update our laws 

and regulatory policies for the 21st century. 

I want to thank Mr. Johnson and Mr. Walberg for their hard 

work on these bipartisan bills. I would also like to thank the witnesses for appearing before us today and providing their views on 

these two important pieces of legislation. 

You know, the United States is the world’s number one producer 

of oil and gas and our reserves are so large they are predicted to 

meet domestic demand for a century or more. Who would have 

thought? Up until the shale revolution, our supplies were dwindling. We were importing natural gas. As you would expect, our 

laws reflected that reality. 

However, we are in a completely different situation today, and 

for the first time ever we are net exporters of natural gas. Now, 

to capitalize on this incredible opportunity, we need to update our 

laws to remove unnecessary barriers to innovation and growth. 

As dozens of studies have shown, including those sponsored by 

the Department of Energy, LNG exports provide wide-ranging net 

benefits to consumers and the economy. 

Mr. Johnson’s legislation would remove unnecessary restrictions 

on these exports which date back to the 1930s. These changes 

would help create more open, transparent, and competitive markets 

for natural gas, encourage more production in the U.S., create 

thousands of jobs, and spur further economic development, all good 

things for America. 

It should not be overlooked that LNG exports also strengthen our 

diplomatic hand when dealing with countries like Russia that like 

to use their energy resources as weapons. Encouraging the use of 

clean-burning natural gas around the world also helps to reduce 

greenhouse gas emissions and improve the environment. Exports 

are truly a win-win for all sides in America. 

6 

Today we are also examining legislation to modernize PURPA. 

This is a law that was enacted to encourage the use of domestic 

energy in response to the Arab oil embargo. 

Since PURPA’s passage, the Nation’s power sector has undergone 

remarkable changes in the ways that electricity is supplied to consumers. So Mr. Walberg’s legislation recognizes these changes and 

updates a 40-year-old law to ensure that it serves the interests of 

consumers and power suppliers for years to come. 

Now, most notably, the PURPA modernization bill will address 

the concern that certain facility developers are successfully evading 

the intent of FERC’s One-Mile Rule. At last year’s oversight hearing on PURPA, we heard examples of project developers building 

power-producing facilities just far enough from each other so they 

could avoid PURPA’s 80-megawatt threshold, thus allowing them 

to receive the benefits that are intended for small power producers. 

H.R. 4476 offers a specific fix to address this concern, and I will 

be interested to hear FERC’s thoughts on this issue today. 

As I have said before, the Energy and Commerce Committee 

strives to focus on the needs and interests of American consumers. 

We are putting them first. 

With that, I look forward to our witnesses’ testimony and discussion among the committee members on the proposals to revise the 

LNG policies and to modernize PURPA for the 21st century. 

With that, Mr. Chairman, I am delighted you are chairing this 

hearing. I look forward to the testimony as we move this legislation 

forward. And I yield back the balance of my time. 

[The prepared statement of Mr. Walden follows:] 

PREPARED STATEMENT OF HON. GREG WALDEN

Today, the committee will examine legislation to encourage and streamline the 

process for approving liquefied natural gas exports and modernize the Public Utility 

Regulatory Policies Act of 1978 also known as PURPA. Under my chairmanship, I’ve 

encouraged our Members to put consumers first and focus on ways to grow our economy. To do this effectively, we need to look to see where we can update our laws 

and regulatory policies for the 21st Century. I want to thank Mr. Johnson and Mr. 

Walberg for their hard work on these bi-partisan bills. I’d also like to thank the witnesses for appearing before us today and providing their views on the legislation. 

The United States is the world’s number one producer of oil and gas and our reserves are so large that they are predicted to meet domestic demand for a century 

or more. Up until the shale revolution, our supplies were dwindling, and we were 

importing natural gas. As you would expect, our laws reflected that reality. However, we’re in a completely different situation today—for the first time ever, we are 

net exporters of natural gas. Now, to capitalize on this incredible opportunity, we 

need to update our laws to remove unnecessary barriers to innovation and growth. 

As dozens of studies have shown, including those sponsored by the Department 

of Energy, LNG exports provide wide-ranging net benefits to consumers and the 

economy. Mr. Johnson’s legislation would remove unnecessary restrictions on these 

exports—which date back to the 1930’s. These changes would help create more open, 

transparent, and competitive markets for natural gas, encouraging more production 

in the U.S., creating thousands of jobs, and spurring further economic development. 

It shouldn’t be overlooked that LNG exports also strengthen our diplomatic hand 

when dealing with countries like Russia that like to use energy resources as a weapon. Encouraging the use of clean burning natural gas around the world also helps 

to reduce GHG emissions and improve the environment. Exports are truly a winwin for all sides. 

Today, we’re also examining legislation to modernize PURPA, a law enacted to encourage the use of domestic energy in response to the Arab Oil Embargo. Since 

PURPA’s passage, the Nation’s power sector has undergone remarkable changes in 

the ways that electricity is supplied to consumers. Mr. Walberg’s legislation recognizes these changes and updates this 40-year-old law to ensure that it serves the 

7 

interests of consumers and power suppliers for years to come. Most notably, the 

PURPA modernization bill will address the concern that certain facility developers 

are successfully evading the intent of FERC’s ‘‘one-mile rule’’. At last year’s oversight hearing on PURPA, we heard examples of project developers building powerproducing facilities just far enough from each other, so they can avoid PURPA’s 80- 

megawatt threshold, thus allowing them to receive benefits that are intended for 

small power producers. H.R. 4476 offers a specific fix to address this concern and 

I’d be interested to hear FERC’s thoughts today. 

As I said before, the Energy and Commerce Committee strives to focus on the 

needs and interests of American consumers. With that, I look forward to our witness 

testimony and discussion on the proposals to revise our LNG policies and to modernize PURPA for the 21st century. 

Mr. UPTON. The gentleman yields back. 

The Chair would recognize the ranking member of the full committee, Mr. Pallone, for an opening statement, 

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

Mr. PALLONE. Thank you, Mr. Chairman. 

Today we will be examining legislation addressing natural gas 

exports and changes to the Public Utility Regulatory Policies Act, 

or PURPA. 

While I am pleased we are taking the time to examine these 

bills, I fail to see the need for almost any of the policy changes that 

they propose. 

First, we have H.R. 4605, the Unlocking Our Domestic LNG Potential Act. The bill does away with the Natural Gas Act’s prohibition on the import or export of natural gas without prior approval 

from the Department of Energy. It removes longstanding consumer 

protections and prevents DOE from ensuring exports of liquefied 

natural gas to nonfree trade agreement countries are consistent 

with the public interest. 

As a result, the public would not have an opportunity to know 

about or provide input on natural gas exports to any country at any 

level. 

Furthermore, we must have a mechanism for the Federal Government to know the source and destination of gas imports and exports, something that is critical for our natural security. 

DOE’s process for reviewing and approving gas export applications is working efficiently and effectively, so I fail to see a reason 

to alter it, let alone do away with it completely as proposed by this 

bill. I am particularly concerned that the unrestricted export policy 

included in this bill could significantly impact domestic natural gas 

prices and adversely affect American consumers and manufacturers. 

Furthermore, unfettered exports could be even worse for climate 

change. The policy incentivizes widespread fossil fuel extraction 

with virtually no environmental protections, adds more fossil fuels 

to the electricity mix rather than replacing dirtier sources, and artificially props up the coal industry. 

H.R. 4606 appears to be an attempt to codify the Trump administration’s recently proposed rule to expedite the approval of smallscale natural gas exports, and that rule would deem certain lower 

volume exports to non-FTA countries in the public interest so long 

8 

as DOE’s approval of the application does not require an environmental review under the National Environmental Policy Act. 

And I have concerns about this rule, but it is a model of restraint 

compared to this legislation, which would keep DOE’s volume limit 

but completely jettison the requirement that applications qualify 

for a categorical exclusion from NEPA. 

It speaks volumes that this bill has even fewer environmental 

safeguards than a Trump administration proposal. The bill also 

fails to prevent applicants from using this new process to evade the 

public interest determinations required for large-scale exports by 

segmenting a large volume gas export into a series of smaller proposals. 

Mr. Chairman, perhaps even more troubling is that, according to 

the Congressional Research Service, only one project currently 

meets the capacity requirements of the administration’s small-scale 

LNG rule but does not qualify for a categorical exclusion, and that 

is a project in development by Eagle LNG Partners in Jacksonville, 

Florida. 

Since the bill does not include a categorical exclusion provision, 

the Jacksonville facility would be the only project to benefit from 

this new expedited process. That sounds to me suspiciously like the 

kind of legislative earmark that I thought my Republican colleagues opposed. And I look forward to hearing my colleagues’ 

views on that matter and why this bill is even necessary at all. 

And finally there is H.R. 4476, the PURPA Modernization Act of 

2017, which significantly alters section 210 of PURPA. This provision has long ensured beneficial competition for generating resources, save consumers money, and further the growth of renewables and cogeneration. 

This committee, under the leadership of former Chairman Barton, struck the right balance when it significantly updated PURPA 

in the Energy Policy Act of 2005. In contrast, this bill lacks that 

balance, with two of the three main components of H.R. 4476 representing a direct assault on PURPA that would solidify the monopoly power of utilities in areas without competitive wholesale or 

retail markets. 

And having that said, I am not completely opposed to updating 

PURPA. The part of Mr. Walberg’s bill dealing with the so-called 

One-Mile Rule, which many claim has encouraged the segmentation of PURPA projects that would otherwise not qualify under the 

law, that merits attention. It is certainly a topic that we would be 

willing to try to address in a bipartisan fashion. But overall, these 

bills really are not in the public interest. 

So I thank you. And I yield back the balance of my time, Mr. 

Chairman. 

[The prepared statement of Mr. Pallone follows:] 

PREPARED STATEMENT OF HON. FRANK PALLONE, JR. 

Today we will be examining legislation addressing natural gas exports and 

changes to the Public Utilities Regulatory Policies Act (PURPA). While I am pleased 

we are taking the time to examine these bills, I fail to see the need for almost any 

of the policy changes they propose. 

First, we have H.R. 4605, the ‘‘Unlocking Our Domestic LNG Potential Act.’’ The 

bill does away with the Natural Gas Act’s prohibition on the import or export of 

natural gas without prior approval from the Department of Energy (DOE). It reVerDate Mar 15 2010 14:17 Jan 09, 2019 Jkt 037690 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 I:\115THCONGRESS\115X94LNGXPURPAAWAITWINBERGQFRR\115X94LNGXPURPAWO
9 

moves longstanding consumer protections, and prevents DOE from ensuring exports 

of liquefied natural gas (LNG) to non- Free Trade Agreement (FTA) countries are 

consistent with the public interest. As a result,the public would not have an opportunity to know about, or provide input on, natural gas exports to any country at 

any level. Furthermore, we must have a mechanism for the Federal Government to 

know the source and destination of gas imports and exports, something that is critical for our national security. 

DOE’s process for reviewing and approving gas export applications is working efficiently and effectively, so I fail to see a reason to alter it, let alone do away with 

it completely as proposed by this bill. I am particularly concerned that the unrestricted export policy included in this bill could significantly impact domestic natural gas prices and adversely affect American consumers and manufacturers. Furthermore, unfettered exports could be even worse for climate change. The policy 

incentivizes widespread fossil fuel extraction with virtually no environmental protections, adds more fossil fuels to the electricity mix rather than replacing dirtier 

sources, and artificially props up the coal industry. 

H.R. 4606 appears to be an attempt to codify the Trump administration’s recently 

proposed rule to expedite the approval of ‘‘small-scale natural gas exports.’’ That 

rule would deem certain lower volume exports to non-FTA countries in the public 

interest, so long as DOE’s approval of the application does not require an environmental review under the National Environmental Policy Act (NEPA). I have concerns about this rule, but it is a model of restraint compared to this legislation, 

which would keep DOE’s volume limit, but completely jettison the requirement that 

applications qualify for a categorical exclusion from NEPA. It speaks volumes that 

this bill has even fewer environmental safeguards than a Trump administration proposal. The bill also fails to prevent applicants from using this new process to evade 

the public interest determinations required for large-scale exports by segmenting a 

large volume gas export into a series of smaller proposals. 

Perhaps even more troubling is that, according to the Congressional Research 

Service, only one project currently meets the capacity requirements of the administration’s small-scale LNG rule but does not qualify for a categorical exclusion: a 

project in development by Eagle LNG Partners in Jacksonville, Florida. Since the 

bill does not include a categorical exclusion provision, the Jacksonville facility would 

be the only project to benefit from this newexpedited process. That sounds suspiciously like the kind of legislative earmark I thought my Republican colleagues 

opposed. I look forward to hearing my colleagues’ views on that matter, and why 

this bill is even necessary at all. 

Finally, there is H.R. 4476, the ‘‘PURPA Modernization Act of 2017,’’ which significantly alters section 210 of PURPA. This provision has long ensured beneficial 

competition for generating resources, saved consumers money, and furthered the 

growth of renewables and cogeneration. This committee, under the leadership of 

former Chairman Barton, struck the right balance when it significantly updated 

PURPA in the Energy Policy Act of 2005. In contrast, this bill lacks that balance, 

with two of the three main components of H.R. 4476 representing a direct assault 

on PURPA that would solidify the monopoly power of utilities in areas without competitive wholesale or retail markets. 

Having said that, I am not completely opposed to updating PURPA. The part of 

Mr. Walberg’s bill dealing with the so-called ‘‘one mile rule’’—which many claim has 

encouraged the segmentation of PURPA projects that would otherwise not qualify 

under the law— merits attention. It is certainly a topic that we would be willing 

to try to address in a bipartisan fashion. 

Thank you. I yield back the balance of my time. 

Mr. UPTON. The gentleman yields back. 

We are now prepared to hear the testimony from our first panel. 

We are joined by, first, Steven Winberg, the Assistant Secretary for 

Fossil Energy from the Department of Energy, and then Mr. James 

Danly, general counsel from FERC. 

So thank you. Your testimony is made part of the record. And we 

would like to give you 5 minutes now to summarize that, and then 

we will go into questions. 

Mr. Winberg, welcome to the subcommittee. 

10 

STATEMENTS OF STEVEN WINBERG, ASSISTANT SECRETARY 

FOR FOSSIL ENERGY, DEPARTMENT OF ENERGY; AND 

JAMES DANLY, GENERAL COUNSEL, FEDERAL ENERGY REGULATORY COMMISSION 

STATEMENT OF STEVEN WINBERG 

Mr. WINBERG. Chairman Upton, Ranking Member Rush, and 

members of the subcommittee, it is an honor to appear before you 

on behalf of the administration. I will provide technical comments 

on the two bills that pertain to the Department’s authority under 

the Natural Gas Act to regulate natural gas exports. 

DOE’s authority to regulate the export of natural gas arises 

under section 3 of the Natural Gas Act. This authority is vested in 

the Secretary of Energy and has been delegated to the assistant 

secretary for fossil energy. 

Section 3(a) of the Natural Gas Act sets forth the standard for 

revision of most LNG export applications. The Department interprets section 3(a) as creating a rebuttable presumption that a proposed export of natural gas is in the public interest. 

Under this provision, DOE performs a thorough public interest 

analysis before acting on applications to export natural gas to 

nonfree-trade agreement countries. 

In the Energy Policy Act of 1992, Congress introduced section 

3(c) to the NGA which created a different standard for free trade 

agreement countries that deems these applications to be consistent 

with the public interest and granted without modification or delay. 

Since January 2017, DOE has granted authority to export natural gas to two world-scale LNG projects, Golden Pass Products in 

Texas and Delfin LNG, which is proposed for offshore Louisiana. 

DOE has also granted authority to export to Eagle LNG’s smallscale Maxville, Florida, project as well as an additional capacity at 

the proposed Lake Charles LNG project. 

In total, DOE has authorized 21.35 billion cubic feet per day of 

natural gas under section 3(a) for export to anywhere in the world 

not prohibited by U.S. law or policy. 

This morning I will provide technical comments on both H.R. 

4605, the Unlocking Our Domestic LNG Potential Act, and H.R. 

4606, the Ensuring Small Scale LNG Certainty and Access Act. 

H.R. 4605 would remove DOE’s authority in regulating natural 

gas trade for the United States. Currently under the NGA, DOE 

has authority over imports and exports of natural gas. The Federal 

Energy Regulatory Commission has authority over the siting, construction, and operation of interstate natural gas pipelines and 

LNG terminals. The bill appears to make no modification to 

FERC’s jurisdiction under the NGA. 

Under current law, LNG export project sponsors submit applications to both FERC and DOE, and most projects require the completion of an environmental impact statement under the provisions 

of the National Environmental Policy Act. In these cases, FERC is 

the lead agency in preparing the EIS and DOE is the cooperating 

agency. Separate from the FERC reviews, DOE conducts a public 

interest review under section 3(a) of the Natural Gas Act. 

Regarding H.R. 4606, all exports of natural gas, regardless of 

quantity, are subject to review and approval by DOE through its 

11 

regulatory authority under the Natural Gas Act. Regarding 4606, 

all exports of natural gas, regardless of quantity, are subject to review and approval by DOE under its regulatory authority under 

the Natural Gas Act. 

H.R. 4606 would amend section 3(c) to expedite approval of imports and exports of small volumes of natural gas. The effect of this 

bill would be to have qualifying applications granted without modification or delay. 

This bill appears to be similar to the volume criteria DOE laid 

out in its recent DOE notice of proposed rulemaking concerning 

small-scale natural gas exports, published on September 1 of 2017, 

which offered that natural gas export applications to nonfree-trade 

agreement countries that propose to export up to and including 

0.14 billion cubic feet per day would be deemed to be consistent 

with the public interest. 

So in conclusion, I note that the United States has become the 

world’s largest combined producer of oil and natural gas, resulting 

in an abundance of reliable and affordable energy resources. In 

2017, the United States was a net exporter of natural gas for the 

first time on an annual basis since 1957. Overall, the Energy Information Administration forecasts net natural gas exports to average 

2.3 billion cubic feet per day in 2018 and 4.6 billion cubic feet in 

2019. 

The Department appreciates the ongoing bipartisan efforts to address our Nation’s energy challenges and looks forward to working 

with the committee on the legislation on today’s agenda and on any 

future legislation. 

Thank you for the opportunity to be here today, and I look forward to your questions. 

[The prepared statement of Mr. Winberg follows:] 

12 


Testimony of Assistant Secretary Steven Winberg 

U.S. Department of Energy 

Before the 

U.S. House of Representatives Committee on Energy and Commerce, 

Subcommittee on Energy 

January 19, 2018 

Introduction 

Chairman Upton, Ranking Member Rush, and Members of the Subcommittee, it is 

an honor to appear before you on behalf of the Administration. This is my first 

opportunity to testifY before Congress as the Assistant Secretary for Fossil Energy, 

and I appreciate the opportunity to share the Department's views on natural gas 

exports from the United States. Today, I will provide general and technical 

comments on two bills that pertain to the Department's authority under the Natural 

Gas Act to regulate natural gas exports. 

DOE's Statutory Authority 

DOE's authority to regulate the export of natural gas arises under section 3 of the 

Natural Gas Act (NGA), 15 U.S.C. § 717b. This authority is vested in the 

Secretary of Energy and has been delegated to the Assistant Secretary for Fossil 

Energy. 

Section 3(a) of the NGA sets forth the standard for review of most LNG export 

applications: 

[N]o person shall export any natural gas from the United States to a foreign 

country or import any natural gas from a foreign country without first having 

secured an order of the [Secretary of Energy] authorizing it to do so. The 

[Secretary] shall issue such order upon application, unless after opportunity for 

hearing, [he] finds that the proposed exportation or importation will not be 

consistent with the public interest. The [Secretary) may by [the Secretary's] order 

grant such application, in whole or part, with such modification and upon such 

terms and conditions as the [Secretary] may find necessary or appropriate. 

The Department has consistently interpreted Section 3(a) as creating a rebuttable 

presumption that a proposed export of natural gas is in the public interest. Under 

this provision, DOE performs a thorough public interest analysis before acting on 

applications to export natural gas to non-free trade agreement countries. 

1 
13 


In the Energy Policy Act of 1992, Congress introduced section 3( c) to the NGA. 

Section 3( c) created a different standard of review for applications to export 

natural gas to those countries with which the United States has in effect a free trade 

agreement requiring national treatment for trade in natural gas. Section 3( c) 

requires such applications to be deemed consistent with the public interest and 

granted without modification or delay. 

DOE Authorizations to Export Natural Gas 

Since January 2017, DOE has granted authority to export natural gas to two worldscale liquefied natural gas (LNG) projects - Golden Pass Products in Texas and 

Delfin LNG, which is proposed for offshore Louisiana- as well as Eagle LNG's 

small-scale Maxville, Florida project and additional capacity at the proposed Lake 

Charles LNG project. In total, DOE has authorized 21.35 billion cubic feet per day 

of natural gas under section 3(a) for export to anywhere in the world not prohibited 

by U.S. law or policy. 

Approximately 10 billion cubic feet per day of LNG export capacity is in various 

states of construction and operation across six large LNG export projects in Texas, 

Louisiana, Georgia, and Maryland. One facility in the lower-48 States, Cheniere 

Energy's Sabine Pass facility, has been exporting LNG since February 2016. Over 

700 billion cubic feet of U.S. natural gas has been exported as LNG from Sabine 

Pass since it began operations. U.S. LNG exports have already had a global reach, 

and cargos have landed in Europe, Asia, Africa, the Middle East, South America, 

North America, and the Caribbean- 26 different countries in all. 

HR. 4605 Unlocking Our Domestic LNG Potential Act 

Through amendments to section 3 of the NGA, this bill would remove DOE's 

authority in regulating natural gas trade for the United States. Currently under the 

NGA, DOE has authority over imports and exports of natural gas as a commodity. 

The Federal Energy Regulatory Commission (FERC) has authority over the siting, 

construction, and operation of interstate natural gas pipelines and LNG terminals. 

The bill appears to make no modifications to FERC's jurisdiction under the NGA. 

Under current law, LNG export project sponsors submit applications to both FERC 

and DOE, and most projects require the completion of an environmental impact 

statement (EIS) under the provisions of the National Environmental Policy Act. In 

these cases, FERC is the lead agency for preparing the EIS and DOE is a 

cooperating agency. Separate from the FERC reviews, DOE conducts a public 

2 
14 


interest review under section 3(a) of the NGA to evaluate whether the proposed 

export is inconsistent with the public interest. 

The bill would also add language to the NGA identifYing the President's 

authorities under a number of statutes to restrict trade based on certain criteria. 

This text appears to be similar to section 101 (c) of the Consolidated 

Appropriations Act, 2016, regarding crude oil exports. 

H.R. 4606 Ensuring Small Scale LNG Certainty and Access Act 

As discussed above, all exports of natural gas, regardless of quantity, are subject to 

review and approval by DOE through its regulatory authority under the NGA. 

This bill amends Section 3( c) to expedite approval of imports and exports of small 

volumes of natural gas. The effect of this bill would be to have qualifYing 

applications granted without modification or delay, saving several months of 

review time at a minimum. 

This bill appears to be similar to the volume criteria DOE laid out in a recent DOE 

Notice of Proposed Rulemaking (NOPR) concerning small-scale natural gas 

exports published on September 1, 2017. The NOPR sought to revise DOE's 

regulations in 10 CFR 590 concerning its role in administering the NGA. DOE's 

NOPR proposed that natural gas export applications to non-free trade agreement 

countries that proposed to export up to and including 0.14 billion cubic feet per day 

(or 51.75 billion cubic feet per year) would be deemed to be consistent with the 

public interest. 

Conclusion 

When it comes to fossil fuels, the United States has become the world's largest 

combined producer of oil and natural gas, resulting in an abundance of reliable and 

affordable energy resources available for domestic use and for export. In 2017, the 

United States was a net exporter of natural gas for the first time on an annual basis 

since 1957, with net exports averaging 0.4 billion cubic feet per day. Overall, the 

Energy Information Administration forecasts net natural gas exports to average 2.3 

billion cubic feet per day in 2018 and 4.6 billion cubic feet per day in 2019. We 

continue to support expeditious approval of natural gas exports, which provide 

both economic and strategic benefits to the United States and our allies. 

3 
15 


The Department appreciates the ongoing bipartisan efforts to address our nation's 

energy challenges, and looks forward to working with the Committee on the 

legislation on today's agenda and any future legislation. 

Thank you again for the opportunity to be here today, and I look forward to your 

questions. 

4 
16 

Mr. UPTON. Thank you. 

Mr. Danly, welcome to the subcommittee. 

STATEMENT OF JAMES DANLY 

Mr. DANLY. Mr. Chairman, Ranking Member Rush, members of 

the subcommittee, I appreciate the opportunity to come here and 

testify today. My name is James Danly, and I am the general counsel of the Federal Energy Regulatory Commission. 

Before I begin with my opening remarks, I want to mention that 

I am appearing here today as a staff witness, and my opinions are 

not those of the Commission or of any individual commissioner. 

I have been asked to testify about a bill that amends the Public 

Utility Regulatory Policy Act of 1978, PURPA. That bill, H.R. 4476, 

has three provisions in it, and I will discuss briefly the effect of 

each one in turn. 

The first of the provisions, section 2, has to do with the so-called 

One-Mile Rule. PURPA defines small power production facilities as 

any power production facility which, when taken with the other facilities at the same site—that determination is made by FERC—is 

less than 80 megawatts. And it is worth pausing for a second to 

mention that the small power production facility is one of the two 

types of qualifying facilities under PURPA, the other being combined heat and power, cogeneration. 

The regulations that were promulgated by FERC pursuant to 

PURPA provide that generation facilities are considered to be at 

the same sight if they are within 1 mile of each other, if they share 

the same energy resource, and if they are owned by the same person or an affiliate of that person. 

The proposed bill would convert the Commission’s current bright 

line One-Mile Rule to a rebuttable presumption that could be overcome by a number of specified statutory factors, for example, were 

the facilities that were more than 1 mile apart purchased with the 

same financing, do they share interconnection points, such factors 

like that. 

The second provision, which is section 3 of H.R. 4476, has to do 

with nondiscriminatory access. The heart of PURPA is the mandatory purchase obligation. That is the mechanism that really drives 

PURPA’s effect. This provision requires utilities to purchase the 

electric power of the qualifying facilities that operate within their 

service territory. This is regardless of whether or not the utility requires that power and whether or not the QF participated in the 

procurement process of that utility. 

Under PURPA, the power is to be purchased from those QFs on 

a mandatory basis at the avoided cost rate that is established by 

the State instrumentality responsible for regulating those utilities. 

In recognition of the changing landscape of the American power 

industry, in 2005, Congress passed EPACT 2005, which had a provision that allowed for the termination of this mandatory purchase 

obligation when the Commission makes a finding that a QF enjoys 

nondiscriminatory access to an electric market. 

In implementing that provision of EPACT 2005, FERC promulgated regulations which established a threshold of 20 megawatts 

above which it would be rebuttably presumed that the QF did have 

nondiscriminatory access to the market and below which there is 

17 

a rebuttable presumption that it did not. This was based on the 

basic premise that the larger the QF’s capacity, the more likely it 

is to be a sophisticated party and the more likely it would have 

nondiscriminatory access. 

The proposed bill leaves the basic mechanics of this threshold in 

place, simply lowers the threshold from 20 megawatts down to 2.5. 

And then the last provision, section 4 of 4476, has to do with the 

State and local determinations of need. As I explained a moment 

ago, the heart of PURPA is that mandatory purchase obligation, 

and it is fundamental to the way PURPA works currently. 

In response to the 1970s energy crisis, PURPA was passed in 

order to establish a nationwide policy which is explicitly stated in 

the statute to encourage the development of cogeneration and small 

power production facilities. That policy objective was largely 

achieved by this mandatory purchase obligation. 

And as drafted, the bill would alter PURPA so as to replace the 

nationwide policy advancing those interests through the mandatory 

purchase obligation to a State-by-State regime that would allow 

State agencies to relieve their utilities of the obligation to 

mandatorily purchase power from qualifying facilities if the State 

agency certifies to FERC either that there is no need for their regulated utilities to purchase the power that the QFs produce or that 

the utility employs some type of a competitive procurement process. 

This represents a fundamental change to the mechanism of how 

PURPA operates and, as such, as the agency that is charged with 

implementing PURPA, the subcommittee and Congress are in a far 

better position to determine whether or not that advances the policy goals of PURPA. 

With that, I have no more remarks to start with. I would just 

like to thank you all for the opportunity to give my thoughts on 

these bills. I look forward to your questions. 

[The prepared statement of Mr. Danly follows:] 

18 


Introduction 

Testimony of James Danly 

General Counsel 

Federal Energy Regulatory Commission 

Before the Committee on Energy and Commerce 

Subcommittee on Energy 

United States House of Representatives 

January 19, 2018 

My name is James Danly, and I am the General Counsel of the Federal Energy 

Regulatory Commission (FERC or the Commission). I appear before you as a staff 

witness, and the views I present are not necessarily those of the Commission or any 

individual Commissioner. 

I have been asked to testify on three bills that, between them, would amend both 

the Natural Gas Act and the Public Utility Regulatory Policies Act of 1978 (PURPA). 

H.R.4476 

The One-Mile Rule. PURPA defines a small power production facility as a facility 

which has a power production capacity which, together with any other facilities located 

at the same site (as determined by the Commission}, is not greater than 80 MW. FERC's 

PURPA regulations provide that qualifying small power production facilities (QFs) are 

considered to be at the same site if they are located within one mile of each other, share 

the same energy resource, and are owned by the same person(s) or its affiliates. The 

proposed bill would convert the Commission's rule to a rebuttable presumption. 

Non-Discriminatory Access. The Energy Policy Act of 2005 allowed the 

termination of the "mandatory purchase obligation" enjoyed by QFs if the Commission 

finds that the QF has nondiscriminatory access to the market. In implementing EPACT 

2005, the Commission determined that larger QFs typically have better access to markets 

than smaller QFs and established a rebuttable presumption that QFs with a net capacity 

above 20MW have non-discriminatory access. The proposed bill would reduce the size 

threshold to which that principle applies to 2.5MW. 

State or Local Determinations of Need. PURP A established a nationwide policy 

that electric utilities be required to purchase electric energy from QFs at rates set by state 

regulatory agencies. The proposed bill would eliminate the nationwide policy and 

replace it with a state-by state regime in which state agencies can relieve utilities of their 

obligation to purchase electric power from QFs upon certifying to FERC that there is no 

need for the QFs' electric power. This bill would fundamentally alter PURPA and is a 

question properly assigned to the consideration of Congress. 
19 


H.R. 4605 & 4606 

H.R. 4605 and 4606 primarily concern the authorities of the Department of 

Energy. The DOE has delegated to FERC the responsibility for authorizing and 

overseeing construction and operation of on-shore and near-shore LNG terminals. The 

DOE has retained the responsibility for authorizing the import or export of natural gas. 

H.R. 4605 would remove that responsibility from the DOE. H.R. 4606 also primarily 

concerns the DOE, establishing a threshold quantity of natural gas export below which 

the export is to be deemed by the DOE to be in the public interest. 

Thank you for the opportunity to appear before the subcommittee to offer my 

thoughts on these bills. I look forward to answering any questions you may have and to 

working with the subcommittee going forward. 
20 


Introduction 

Testimony of James Danly 

General Counsel 

Federal Energy Regulatory Commission 

Before the Committee on Energy and Commerce 

Subcommittee on Energy 

United States House of Representatives 

January 19, 2018 

Mr. Chairman, Ranking Member Rush, and members of the Subcommittee: 

Thank you for inviting me to testify today. My name is James Danly, and I am the 

General Counsel of the Federal Energy Regulatory Commission (FERC or the 

Commission). I appear before you as a staff witness, and the views I present are not 

necessarily those of the Commission or any individual Commissioner. 

I have been asked to testify on three bills that, between them, would amend both 

the Natural Gas Act and the Public Utility Regulatory Policies Act of 1978 (PURP A) and 

also direct the Commission to publish in the Federal Register a final rule amending its 

regulations implementing section 3(17)(A)(ii) of the Federal Power Act. 

H.R.4476 

Section 2: One-Mile Rule 

Section 3 of the Federal Power Act, as amended by PURPA, defines a small power 

production facility as a facility which has a power production capacity which, together 
21 


Prepared Testimony of James Danly 

with any other facilities located at the same site (as determined by the Commission), is 

not greater than 80 MW. 1 Implementing that provision, section 292.204(a) of the 

Commission's PURP A regulations provides that qualifying small power production 

facilities (QFs) are considered to be at the same site if they are located within one mile of 

each other, share the same energy resource, and are owned by the same person(s) or its 

affiliates.2 This regulatory provision is commonly referred to as "the one-mile rule," and 

is used to calculate the size of a small power production facility and thus to distinguish 

one facility from a separate facility. The Commission has stated that the one-mile rule 

for determining whether small power production facilities are "at the same site" is a rule, 

that is, an irrebuttable presumption, that facilities within one mile are "at the same site" 

and that facilities more than a mile apart are not. 3 

H.R. 4476 would direct the Commission, within 180 days, to issue a Final Rule 

providing that the one-mile rule is a rebuttable presumption that any person has the 

opportunity to rebut. 4 

1 16 U.S.C § 796(17)(A)(ii) (2012). 

2 18 C.F.R. § 292.204(a) (2017). 

3 Northern Laramie Range Alliance, 139 FERC, 61,190, at PP 22-24 (2012). 

4 I note that certification of QFs is vested exclusively with the Commission, and 

the Commission receives thousands of certification requests each year. Changing the 

one-mile rule from a rule to a rebuttable presumption could greatly increase the amount 

of litigation at the Commission and would require a greater commitment of resources by 

the Commission. 

2 
22 


Prepared Testimony of James Danly 

At a technical conference held in June 2016 addressing various aspects of the 

Commission's implementation ofPURPA, and in subsequent written comments, the 

Commission received input on the one-mile rule from all segments of the electric 

industry. Broadly speaking, while QFs generally supported retention of the one-mile rule 

as it provides regulatory certainty, electric utilities generally opposed the rule as arbitrary 

and not necessarily the right measure alone to determine whether generating facilities 

were separate QFs or together constituted a single QF. Many of the factors discussed at 

the technical conference appear in H.R. 4476, in the list of factors the Commission is to 

consider in determining if facilities are located at the same site. 

The one-mile rule is a matter that the Commission has the authority to change, as 

it is a Commission-adopted rule. While the technical conference gave the Commission a 

head-start as to how it might be changed, including identification of factors that might be 

considered, the Commission could further flesh out what factors should be considered in 

a Notice of Proposed Rulemaking, which would likely generate comments from across 

the electric industry, allowing the Commission to further refine its thinking before issuing 

any Final Rule. 

That being said, Congressional guidance as to what changes, if any, that Congress 

believes the Commission should make to the one-mile rule would be helpful. 

3 
23 


Prepared Testimony of James Danly 

Section 3: Nondiscriminatory Access 

In 2005, in the Energy Policy Act of 2005, 5 Congress added subsection (m) to 

section 210 ofPURPA. 6 Subsection (m) allowed the termination of the otherwiseapplicable requirement that an electric utility must purchase electric energy from QFs 

(often referred to as the "mandatory purchase obligation") if the Commission finds that 

the QF has nondiscriminatory access to one of three categories of markets defined in 

section 210(m)(l) ofPURPA. In 2006, in response to EPAct 2005, the Commission 

issued Order No. 688,7 in which the Commission revised its regulations to implement 

section 21 O(m). The regulations promulgated in Order No. 688 established a process for 

determining whether a QF has nondiscriminatory access to the markets identified in 

section 21 O(m), and thus whether a QF has access to a power sales market that provides 

meaningful opportunities to sell its output.8 Of relevance here, the Commission adopted 

rebuttable presumptions that, broadly speaking, larger QFs have nondiscriminatory 

access to robust competitive markets and smaller QFs would not have nondiscriminatory 

5 Pub. L. No. 109-58, 119 Stat. 594 (2005) (EP Act 2005). 

6 16 U.S.C. § 824a-3(m) (2012). 

7 New PURPA Section 210(m) Regulations Applicable to Small Power Production 

and Cogeneration Facilities, Order No. 688, 71 Fed. Reg. 64342 (Nov. 1, 2006), FERC 

Stats. & Regs., 31,233 (2006), order on reh 'g, Order No. 688-A, FERC Stats. & Regs., 

31,250 (2007), aff'd sub nom. American Forest and Paper Association v. FERC, 550 

F.3d 1179 (D.C. Cir. 2008). 

8 18 C.F.R. § 292.309(a)(l)(e) (2017). 

4 
24 


Prepared Testimony of James Danly 

access to such markets, notwithstanding the availability of transmission service under an 

OATT. The Commission determined that a reasonable definition of smaller QFs were 

those with a net capacity equal to or less than 20 MW. 

For QFs with net capacity above 20 MW, the rebuttable presumption that such 

QFs have nondiscriminatory access to the relevant markets sufficient to warrant 

termination of the mandatory purchase obligation effectively means that QFs objecting to 

the lifting of the mandatory purchase obligation have the burden of demonstrating that, in 

fact, they do not have such access. While the regulations permit a utility to seek relief 

from the mandatory purchase obligation even for those QFs with net capacity equal to or 

less than 20 MWs, there is a rebuttable presumption that such QFs do not have 

nondiscriminatory access to the relevant markets and thus the burden is on the utility to 

demonstrate that such QFs do indeed have nondiscriminatory access to the relevant 

markets. 

The Commission's identification of a threshold- currently set at 20 MWrecognizes that, in practice, it is likely that a smaller QF will have greater difficulty 

obtaining nondiscriminatory access to markets due to the tendency for smaller QFs to be 

interconnected to lower voltage radial lines, and the need to overcome potential obstacles 

to nondiscriminatory access, such as local distribution access rules (rules that are not 

within the Commission's jurisdiction, and that may not provide for open access), 

pancaked delivery rates and additional administrative burdens to obtain access. The 

Commission set this threshold line at 20 MW reflecting its understanding of 

5 
25 


Prepared Testimony of James Danly 

interconnection practices and of the relative capabilities of smaller QFs. 

H.R. 4476 amends section 210(m) with respect to qualifying small power 

production facilities and not qualifying cogeneration facilities. H.R. 4476 changes the 

current 20 MW threshold to 2.5 MW for qualifying small power production facilities, 

which would shift the rebuttable presumption such that those qualifying small power 

production facilities above 2.5 MW would be presumed to have such access (where, 

before, the presumption has been that QFs above 20 MW have such access), and the 

burden would be on the small power production facility above 2.5 MW to demonstrate 

that, in fact, it does not have such access (where, before, the burden was on QFs above 20 

MW to demonstrate that they had no such access). 

Section 4: State or Local Determinations of Need 

PURPA adopted, nationwide, a requirement that electric utilities purchase electric 

energy from QFs, with the actual rates set by the relevant state regulatory agency (or by 

the electric utility itself, if the electric utility is not subject to state regulation) considering 

the factors identified by the Commission. 

Similar to Section 3, H.R. 4476 changes the mandatory purchase obligation for 

qualifying small power production facilities and not for qualifying cogeneration facilities. 

H.R. 4476 proposes to amend section 210(m) ofPURPA to provide that no electric utility 

shall be required to enter into a new contract or obligation to purchase electric energy 

from a qualifying small power production facility ifthe appropriate state regulatory 

6 
26 


Prepared Testimony of James Danly 

agency or non-regulated electric utility finds, and submits to the Commission a written 

determination, that: (1) the electric utility has no need to purchase electric energy from 

such qualifying small power production facility in the amounts to be offered within the 

timeframe proposed by the qualifying small power production facility, consistent with the 

needs for electric energy and the timeframe for those needs as specified in an electric 

utility's integrated resource plan; or (2) the electric utility employs integrated resource 

planning and conducts a competitive resource procurement process for long-term energy 

resources that provides an opportunity for qualifying small power production facilities to 

supply electric energy to the electric utility in accordance with the integrated resource 

plan of the electric utility. 

In contrast to the two proposals discussed above which focus on Commission 

implementation ofPURPA, this proposal fundamentally changes PURPA from a national 

energy program to, essentially, a state-by-state energy program with a likelihood of 

substantially varying potential outcomes state-by-state. The proposal would, in effect, 

eliminate PURP A's directive of mandatory purchases by electric utilities of electric 

energy produced by qualifying small power production facilities, as it would leave it up 

to each relevant state regulatory agency or non-regulated electric utility to determine if 

there is a need for QF power and thus whether utility must purchase from a qualifying 

small power production facility. This fundamental change in PURP A is decidedly a 

matter beyond the Commission's authority under PURP A, and one more appropriate for 

Congressional consideration and action, as Congress deems appropriate. 

7 
27 


Prepared Testimony of James Danly 

H.R. 4605 & 4606 

Because the Subcommittee today is also considering two bills related to 

exportation of liquefied natural gas (LNG), I also would like to comment briefly on the 

Commission's role with respect to that subject. 

DOE has delegated to the Commission responsibility for authorizing and 

overseeing the construction and operation of on-shore and near-shore LNG terminals. 

The Commission does not authorize the import or the export of natural gas, including 

LNG, as a commodity. Instead, DOE has retained that responsibility. Accordingly, 

applications for authority to import or export the commodity of natural gas must be 

submitted to the DOE, while applications for the construction and operation of the 

facilities necessary to perform such imports or exports must be submitted to the 

Commission. 

HR 4605 would change DOE's authorities under the Natural Gas Act by removing 

any requirement for a commodity authorization. 

Notably, the bill as drafted would delete section 3(a) which includes a public 

interest standard for judging whether to approve LNG terminals. Congress may wish to 

reintroducing such a standard as it considers this bill. If it would be of assistance to the 

Committee, Commission staff would be happy to provide technical assistance as you 

move forward. 

8 
28 


Prepared Testimony of James Danly 

Thank you for the opportunity to appear before the subcommittee to offer my 

thoughts on these bills. I look forward to answering any questions you may have and to 

working with the subcommittee going forward. 

9 
29 

Mr. UPTON. Well, thank you very much. 

Mr. Danly, back in 2015, Senator Murkowski and I wrote to 

FERC regarding the state of PURPA in the face of changes that the 

electricity markets have undergone in the last number of years. 

And in that letter, we asked FERC to take a comprehensive look 

at PURPA and its regulations. I know that you held a 1-day conference to discuss those concerns. 

Can you tell us what FERC has been doing to update the regs 

and policies since that letter went? 

Mr. DANLY. Certainly. Yes. 

The Commission has kept PURPA in mind for years. It is one of 

the main statutes we administrate, and the technical conference 

was convened. 

After the presentations and submissions in the technical conference were reviewed by staff, further comments were solicited on 

a number of questions that were thought would be valuable to amplify the positions of the people who appeared and submitted the 

initial round of comments. 

Those were received, I believe in November of 2017 or thereabouts, and the issue is still pending before the Commission today 

for consideration. 

Mr. UPTON. Do you have some guess as to when they will come 

to a conclusion or make some finding to go forward? 

Mr. DANLY. I do not know when that will happen. It is certainly 

one of the subjects that the Commission has actively—that it is actively pursuing. 

Mr. UPTON. Mr. Winberg, we are all grateful that the U.S. is now 

the largest producer and exporter of LNG. A number of us on this 

panel have gone places overseas to look at the need and the requests for additional LNG exports to those countries. 

In the past, there has been a pretty big backlog of requests by 

companies to be able to export LNG. Can you tell us what that list 

may look like today in terms of requests for approvals by the Department of Energy? 

Mr. WINBERG. Yes. Thank you, Chairman Upton. 

There are actually 54 applications that have been filed. There 

are 29 that have gone through final approval and there is 1 that 

is conditionally approved. So out of the remaining 24, they are in 

various stages of the approval process. A lot of them are going 

through the NEPA process, which I am sure, as you know, can be 

a very lengthy process. So that is the status. 

I can tell you that in 2017 there were three that were approved, 

Golden Pass, I mentioned in my testimony, Delfin, and then Lake 

Charles. That was an amendment to an existing one. And then the 

Eagle Maxville LNG, which is the small-scale facility. 

Mr. UPTON. And as I recall, each of these projects as they go forward, if they are approved, could mean as much as $100 million 

in terms of infrastructure construction. Is that still about the right 

number, the dollar amount? 

Mr. WINBERG. I think that is a probably a good number. And a 

fair amount of investment needed to get through the NEPA process, because you have to do a front-end engineering and design 

study, and that is quite expensive as well. So, yes. 

30 

Mr. UPTON. Well, I would just like to say that as these two bills 

begin to move forward through the process, we look forward to your 

engagement and commitment to work with us to help us make improvements to that legislation. 

Mr. WINBERG. Happy to do so. 

Mr. UPTON. With that, I will yield to the ranking member of the 

subcommittee, Mr. Rush. 

Mr. RUSH. I want to thank you, Mr. Chairman. 

Mr. Danly, I really want you to clear up something for me. I am 

somewhat confused in terms of your opening statement. 

Are you here as a witness for FERC or are you a witness for the 

staff? 

Mr. DANLY. I am sorry. I didn’t understand the question. Could 

you say it again? 

Mr. RUSH. All right. You said in your opening statement that you 

were not representing the commissioners, but you were representing the staff. 

Mr. DANLY. Yes. That is correct. 

Mr. RUSH. Explain that to me. 

Mr. DANLY. I am the general counsel. I am not one of the commissioners. The Commission is a multimember independent agency. The Commission as an agency can only speak through its orders, which are issued by the votes of the commissioners. I am not 

only unable to predict what they are going to do at a specific time. 

I am actually restricted by our regulations from making predictions 

about what they are going to do and when. 

Mr. RUSH. All right. 

Mr. Chairman, is that sufficient for this committee. 

Mr. UPTON. Yes. Yes. 

We would like you to help us with the Senate. Are you able to 

do that? 

Mr. DANLY. I am happy to try. 

Mr. RUSH. All right. Thank you, Mr. Chairman. 

All right, Mr. Danly, in your testimony, you noted that H.R. 4605 

would delete section 3(a) of the Natural Gas Act, which includes a 

public interest standard for judging whether or not to approve LNG 

terminals. 

What is the significance of omitting the public interest determination? And why do you suggest that this committee should consider reintroducing such a standard as this bill moves through the 

committee process? 

Mr. DANLY. Thank you for the question. 

I offered that thought in my testimony for really only one purpose. Because it appeared to me that the purpose of the two bills 

was to make alterations to what was squarely within the DOE’s jurisdiction, I thought that perhaps there was an unintended consequence of removing that public interest standard on the basis of 

which FERC is charged with overseeing the siting, construction, 

and operation of LNG terminals. And I wouldn’t want the committee to unintentionally remove the public interest standard that 

applies to FERC’s role in LNG terminal approvals as opposed to 

the DOE’s. 

Mr. RUSH. Mr. Winberg, under current law the DOE is responsible for conducting the public interest review under section 3(a) of 

31 

the Natural Gas Act. So I would like to hear from you your 

thoughts on the significance of vetting this section. 

Mr. WINBERG. Thank you for the question. 

The administration has not taken a position on either of these 

bills. Congress gave authority to the Department of Energy to perform the public interest review. We certainly look forward to working with this committee to review the bills in more detail and to 

understand the implications that they have. But ultimately—— 

Mr. RUSH. I certainly want to pick that up. My time is running 

out—I think it is pretty clear. 

I want to ask Mr. Danly and yourself, Mr. Winberg, do FERC or 

DOE have any concerns over hastily approving significant amounts 

of LNG for exports and how that might impact prices for domestic 

natural gas customers or manufacturing competitiveness or jobs 

here in the U.S. 

As well, we already just witnessed natural gas price spikes during the most recent cold snap. Are either of you concerned about 

unintended consequences if we start basically approving any and 

all requests for LNG exports willy-nilly or without a public interest 

review? 

Mr. DANLY. I can give a very quick answer. FERC does not have 

anything to do with the public interest analysis for exports, and I 

don’t have any opinions on the subject. 

Mr. WINBERG. To date, DOE has approved just a little over 21 

BCF per day for LNG exports. Currently there are only about 3 billion cubic feet per day being exported, so there is plenty of room 

within what has been authorized and how much we are exporting. 

And the studies that we have done, the most recent study suggests that we could have exports up to 28 billion cubic feet per day 

with no negative economic benefits or no detriment to the price of 

gas in the United States or our economy. 

To your point on the recent deep freeze, bomb cyclone, and the 

high prices, I would suggest to you that that is probably more a 

function of inadequate pipelines than it is the resource base. The 

price of natural gas in Dominion South and down in Texas went 

up slightly. The price in New England, of course, was up at about 

$150. And that spread was mostly due to inability to get gas up 

into the Northeast during that deep freeze. 

Mr. RUSH. I yield back, Mr. Chairman. 

Mr. UPTON. Thank you. 

Mr. Walden. 

Mr. WALDEN. Thank you very much, Mr. Chairman. 

Again, thanks to our witnesses for your testimony today. 

Mr. Danly, as you know, QF developers can skirt the intent of 

FERC’s One-Mile Rule by breaking a large project into smaller 

projects to bypass the FERC’s size limitation. H.R. 4476 directs 

FERC to investigate a list of factors if somebody challenges a QF 

developer’s application. 

My question is, can FERC implement these changes to the OneMile Rule without H.R. 4476 becoming law? 

Mr. DANLY. Yes. That is something that we can pass regulation— 

we can probably get a regulation for. 

32 

Mr. WALDEN. Well, that would appear to be a pretty easy fix for 

FERC to make to its regulations. I don’t know if you can answer 

this or not, but is that something FERC has on its mind to do? 

Mr. DANLY. I do not know what the commissioners have on their 

mind. I know that—— 

Mr. WALDEN. Do you know what they have on their agenda? 

Mr. DANLY. I do know what they have on their agenda. And 

among other comments that were submitted, both orally and in 

writing, to our tech conference, suggestions along the lines of the 

provisions of H.R. 4476 were included. It is under active consideration among all the other comments. 

Mr. WALDEN. So you are limited on what you can predict? 

Mr. DANLY. Yes. 

Mr. WALDEN. Got it. 

Mr. Winberg, in 2010 and 2012, the Obama administration Department of Energy commissioned studies on the macroeconomic 

impacts of LNG exports. The major findings in the LNG exports 

would benefit the entire economy, not just the oil and gas producers. 

Could you walk me through some of those findings and answer 

this question: Does the Department of Energy plan on updating the 

study since the last one appears to be from 2012? 

Mr. WINBERG. At this point, we don’t have immediate plans to 

update the study. As I mentioned, the last macroeconomic analysis 

that we did, we evaluated 28 billion cubic feet per day as a number 

that we could live underneath that umbrella. I also mentioned earlier, I believe, that currently we are only exporting 3 billion cubic 

feet per day. 

So there is a good deal of headroom between where we are and 

where we think we can go and still provide a lot of economic value 

to the country through construction jobs and operation and maintenance jobs on these LNG facilities. 

I do not have any specific numbers for you relative to the economic impact. I am happy to get those for you, though. 

Mr. WALDEN. Yes, I think that would be helpful. There is a big 

debate out there about the importance and effects of LNG exports 

and jobs and effect on greenhouse gas emissions. 

Can you talk at all about what happens when it leaves the country and kind of the fuel switching that may or may not take place, 

where it goes, LNG? 

Mr. WINBERG. That is a big part of—a component of our public 

interest review, to understand where the LNG is going. 

Having come out of the natural gas business, and especially in 

seaborne trade, I can tell you it becomes very difficult to start chasing molecules that are in ships. It is just the way the seaborne 

trade operates. So it isn’t easy to track those molecules necessarily. 

However, on LNG tankers, if they are going from port to port, 

we know where the fuel is being delivered. But at any point in 

time, some of those tankers can be diverted. 

Mr. WALDEN. OK. 

All right. I guess that is all I have. 

Mr. Chairman, I yield back. 

Mr. UPTON. Mr. McNerney. 

33 

Mr. MCNERNEY. Well, I thank the Chair, and I thank the witnesses. 

Mr. Danly, what forms of generation is 4476 aimed at specifically? 

Mr. DANLY. Do you mean which category of QF? That is the 

small power production facilities. 

Mr. MCNERNEY. Well, I mean, are they aimed at wind or—— 

Mr. DANLY. The types of power production facilities that can 

qualify as a QF under that part of the regime are renewables, 

waste, facilities powered by waste, and—— 

Mr. MCNERNEY. What would be the most impacted? What form 

of generation would be the most impacted? 

Mr. DANLY. I would think probably renewables would be, but I 

am not certain. I haven’t thought about that specifically, but that 

seems to be logical. 

Mr. MCNERNEY. Well, does H.R. 4606 benefit more than one corporation? 

Mr. DANLY. I am sorry, 4606 or 4476? 

Mr. MCNERNEY. 4606. I have changed the subject. 

Mr. DANLY. Oh, OK. I am sorry. I apologize. 

Could you say that good question again, because that threw me? 

Mr. MCNERNEY. Does that benefit more than one corporation? 

Mr. DANLY. I don’t know. I would presume—you know what? I 

do not know the answer to that. I can’t tell you. I am sorry. 

Mr. MCNERNEY. Do you have an answer, Mr. Winberg? 

Mr. WINBERG. I think 4606, as I understand it, is intended to 

allow expedited permitting of small export and import facilities. As 

was noted earlier, there is only one right now, but that is not to 

say that there won’t be more applications. 

Mr. MCNERNEY. So there is only one right now. So, basically, we 

are considering a bill that is essentially an earmark, which are currently prohibited by House rules. 

Mr. Winberg, moving on, how do you determine whether granting 

the exports is in the public interest? 

Mr. WINBERG. There are a number of factors that we evaluate. 

We look at economic impacts, international impacts, security, and 

natural gas supply, and environmental impacts, among others. But 

those are the four chief factors that we evaluate with the public interest regime. 

Mr. MCNERNEY. So you examine the impact of LNG imports on 

domestic supply of natural gas and the international impacts of 

LNG exports. Is that right? 

Mr. WINBERG. Yes, sir. 

Mr. MCNERNEY. Do you think that the DOE process is valuable 

for ensuring that U.S. LNG exports are strengthening the energy 

sector of our allies and not benefiting those who seek to harm us? 

Mr. WINBERG. Yes, sir, I do. 

Mr. MCNERNEY. Well, good. I think we should be mindful of the 

effects of removing DOE from the LNG export approval process. 

Shouldn’t we be careful before we green light exports, unlimited 

LNG exports, without consideration of our national security interests? 

Mr. WINBERG. I think that is up to the Congress to decide. But 

whatever Congress decides, we will implement it. 

34 

Mr. MCNERNEY. OK. Thank you. 

Mr. Chairman, I yield back. 

Mr. UPTON. Mr. Barton. 

Mr. BARTON. Thank you, Mr. Chairman, and thank our witnesses 

on this panel. 

I have a comment since I didn’t give an opening statement. I 

have got a question or two. 

Some of the comments I heard in the opening statements and 

some of the questions from the minority on the question period remind me of the debate that we had 3 or 4 years ago on exporting 

oil, crude oil. 

We were prohibited, we as a country, from exporting crude oil. 

And because of hydraulic fracturing and horizontal drilling in their 

shale formations, there became a fairly substantial price disparity 

between the domestic price of crude oil and the international price. 

The Arab oil cartel, or the OPEC oil cartel, artificially elevated the 

world price. 

And when we introduced my bill to repeal that, that Mr. Cramer 

was a big part of and Mr. Flores and a number of other people in 

this committee, Mr. Cuellar on the Democratic side, we heard these 

complaints about national security and things of this sort. 

Well, what happened? We repealed the crude oil ban. As I speak 

today, we are exporting about 2 million barrels of oil per day. The 

U.S. domestic producer is now in the driver’s seat. Supply and demand set the price and the price on average is about half what it 

was from 3 years ago. It is coming up a little bit. It is a little bit between $55 and $60 a barrel, but it has been as low as $23. But it is darn sure not over 

$100 a barrel like it used to be. 

American free markets are determining the price of oil in the 

world, and we are creating trillions of economic benefit every year 

in the U.S. and overseas. So it has been an unmitigated success. 

Now, let’s look at natural gas. We literally have more natural gas 

production capability in the United States than we know what to 

do with. We really don’t know what the resource base is, but we 

know it is extremely large. 

By any normal economic assumption, we have enough natural 

gas, if we never found anymore, to handle the expected demand of 

the United States for the 100 to 200 years. 

So Mr. Johnson and I think Mr. Latta and a few others have introduced these two bills, 4605 and 4606, and they have the intention of doing for the natural gas markets what the crude oil export 

repeal ban did for oil markets. I don’t think there is any downside 

to that at all. 

So I just want to put this in context. This country has been so 

blessed with natural resources, and then doubly blessed with an 

economic system based on freedom and free markets and free market capitalism, that we are literally the envy of the world. We are 

the dominant energy producer in the world, and we are going to 

be. 

And Mr. Johnson’s bill is simply an acknowledgment of that and 

says let’s use this economic resource that we have to benefit the 

rest of the world and create more economic benefit here in the 

United States. 

35 

Now, I have one question to Mr. Winberg. The bill, 4605, as currently constructed, only deals with LNG, liquefied natural gas. I 

am sure that the Department of Energy and the FERC too are 

aware that there are other natural gas liquids that can be produced and can be exported. 

And I have asked Mr. Johnson to consider making a modification 

that his legislation would apply not only to pure liquefied natural 

gas, but to other natural gas liquids also. 

Mr. Winberg, do you believe that, if you support the bill, that we 

should make that modification so that we create a level playing 

field for all types of liquefied natural gas products? 

Mr. WINBERG. The Department of Energy has responsibility for 

public interest review for liquids also, as well as LNG. I think it 

is not my place to suggest to Congress as to whether they ought 

to modify or expand the modification of 4605. 

Mr. BARTON. Well, let me rephrase it. Do you believe the Department would officially oppose creating a level playing field for natural gas products to be exported? 

And the answer is, no, we do not oppose it. 

Mr. WINBERG. Congressman Barton, what I know is that we have 

an abundance of oil and natural gas in this country. Your statement, I absolutely agree with. And I share the statement about the 

resource base as well, the reserves and the resource base in the 

United States. And our opportunity to become a continued longterm net exporter of natural gas, natural gas liquids and oil, is 

something that is in the interest of the United States. 

Mr. BARTON. My time has expired. 

I appreciate the generosity of the chairman. 

Mr. UPTON. Mr. Peters. 

Mr. PETERS. Thank you, Mr. Chairman. 

Just thinking about Mr. Barton’s characterization of the abundance of energy, which I think we all agree on, and he knows better than anyone, this isn’t your issue, but the rush to drill for oil 

off the coast seems incredibly ill-timed given that abundance—I 

guess except in Florida, which the Federal Government seems to 

think is the only costal State with tourism. But that is not your 

issue. 

I guess the issue I wanted to ask you about, Mr. Winberg, is the 

nature of the public interest discussion, I think, clearly one concern 

when that law was passed was supply, and I think that that has 

been fairly well established. That is not so much a concern of ours 

if we have enough energy for the next two centuries. 

Mr. McNerney also talked about the national security interests 

that may come up in the movement of natural gas. 

But the third was, we mentioned, and I just want to explore a 

little bit, was the environmental interests. 

Can you describe for me what the nature of the analysis is 

around environmental concerns when you are talking about making this public interest determination? 

Mr. WINBERG. Actually, the environmental assessment for LNG 

under the Natural Gas Act falls to FERC, so we are a supporting 

agency. So they do the vast majority of the NEPA review. 

So I apologize. I can’t speak to detail. 

Mr. PETERS. Right. I may be confused then. 

36 

Mr. Danly, maybe you can answer this. Is this environmental 

analysis going to be eliminated as part of the proposed bill? 

Mr. DANLY. No. The process by which the siting and construction 

operation is conducted is still going to have certain coordination between different agencies for approval. So, for example, for these 

marine gas terminals, we would have coordination with the Coast 

Guard, Department of Transportation. 

Mr. PETERS. No, I understand that. I am talking now about the 

movement of natural gas. Because my understanding was that 

there was an analysis in Mr. Winberg’s section on the environmental impacts associated with the import and export of natural 

gas. Is that not right? Am I reading that wrong? Maybe I misheard. 

Mr. WINBERG. That is correct, but it is a joint effort between 

FERC and DOE. 

Mr. PETERS. OK. So if the bill passes, and I want to understand 

what it would do, it would be to eliminate this public interest analysis associated with the movement of natural gas, whether you did 

it or FERC did it. Isn’t that right? 

Mr. WINBERG. Well, our read of 4605 is that it does not appear 

to affect FERC’s requirements under the Natural Gas Act. 

Mr. PETERS. The first requirements are associated with the siting 

of a facility, not with the movement of the natural gas. Is that correct? 

Mr. DANLY. That is correct. 

Mr. PETERS. Is there today an analysis of the environmental effects associated with the movement of natural gas, import or export, that would be eliminated by virtue of this bill? 

Mr. WINBERG. Potentially, yes. 

Mr. PETERS. I think so. 

So what I want to know is, what are the components of that 

analysis which we would be giving up? What are the things that 

you are looking at as an assessment of the environmental impacts 

of the import or export of natural gas? 

Mr. WINBERG. I don’t know the specific components of the environmental impacts portion. I certainly can get that over to your office. 

Mr. PETERS. I would love to see that. I think we ought to know 

kind of what we are giving up. In particular, I am a little concerned—I think natural gas offers a lot of potential. I think we all 

understand it burns cleaner than coal. But in my other subcommittee we had Mr. Pruitt in, and he didn’t seem to be as convinced about the need to control fugitive methane emissions as I 

think some of us are. 

And fugitive methane emissions can really surrender the benefit 

of natural gas from a climate perspective even though it burns 

cleaner than coal. If you are losing a lot of it to the atmosphere in 

terms of extraction or distribution, we are losing that benefit, and 

I think we would like to know that. I think that might be part of 

the analysis that we want to look at and associated with import 

and export. 

So I would like to have that information and appreciate your 

sending it over. 

Mr. WINBERG. I would be happy to do so. 

Mr. PETERS. Thank you, Mr. Chairman. I yield back. 

37 

Mr. UPTON. Mr. Shimkus. 

Mr. SHIMKUS. Thank you, Mr. Chairman. Great hearing. 

Thanks for being here. 

Would our clerk put on the—and members on the committee 

have seen this photo before numerous times, some may have not, 

import terminal. And I point to the front. I am not a Navy guy, so 

what is the front? The bow? The bow. 

And on the front of the blue terminal, which is really a ship, on 

the bow you see in English the word ‘‘independence.’’ Can anyone 

guess where that is located? 

It would give you an idea that it might be a North Americanplaced vessel or a vessel placed in England, an English-speaking 

country, but that is actually an import terminal in Lithuania. And 

I note that because it addresses this issue about the importance to 

national security of LNG imports and exports for those of us. 

So the public interest, I think, Mr. Winberg, as we talk about 

this vague term, and then you kind of define down, part of it is the 

public interest to our strength with our allies and friends. Lithuania and the Baltic countries, I spent a lot of time dealing with 

their interests, a former captive nation, a former Eastern European 

country, that has been part of a concerted extortion by the Russians using the tool of energy. 

This has allowed them to free themselves from the shackles of 

Russian energy extortion. And so it talks about the great ability. 

Now, they have been crying for U.S. LNG, and I think they finally first—this has been up for about 18 months now. And I think 

they have now recently signed a contract with Chevron for, quote/ 

unquote, like you said, the molecules are molecules. The world 

market is the world market. That is what I keep trying to preach 

to them. 

But U.S. LNG, they want U.S. natural gas into their port. So 

that is going to happen. And it is a sign of, for them, freedom and 

democracy, strength, and alliance with the West. So that is why a 

lot of us are just so excited. 

You just look at the Eastern European, the former captive nations, just go from the Baltic Sea down to the Black Sea, and you 

see the turmoil, and you still see the stress that other countries 

have. Hence the discussion that we are having about smaller LNG 

terminals in this debate. It has been a good hearing in that. 

For this terminal, in that region of the world, there are smaller 

LNG terminals being debated and planned for up the Baltic Sea 

into Finland and those areas which will not have a need for a larger terminal or may have difficulty with ice where a smaller terminal can provide the access. 

Now, a lot of us had a chance to—well, not a lot of us, but some 

of us had a chance to go down to see Puerto Rico during—in a hurricane. And we are talking about, really, energy security for them. 

A smaller LNG terminal would be great for them. It would be part 

of the all-the-above energy strategy if you want to help Puerto Rico 

free themselves from kind of their—the capture they have, because 

they are an island nation and have a failed electric system. 

And there is a lot of this debate. 

So I wouldn’t be so quick to rush judgment on the importance of 

incentivizing smaller LNG facilities, or at least freeing it up and 

38 

giving some more access for expedited permitting, because there is, 

I believe, a pent-up demand from that worldwide. And I think now 

with the current hurricanes that have gone through, the signal has 

been sent that even our own citizens of our country were probably 

benefited by that. 

So, Mr. Winberg, in my 18 seconds left, just can you confirm that 

the public interest in national security is part of the public interest 

debate? 

Mr. WINBERG. Yes, absolutely, I can confirm that. And our DOE 

proposed rule for small facilities is exactly targeted to a large degree at Caribbean nations, island nations, and on islands that truly 

do need LNG in small quantities. 

Mr. SHIMKUS. And I would just end by saying an LNG terminal 

is probably not $100 million. It is probably in the $2 billion to $3 

billion or the $4 billion in construction and economic benefits. 

And I will I yield back. 

Mr. UPTON. Mr. Tonko. 

Mr. TONKO. Thank you, Mr. Chair. 

And thank you to our witnesses for joining us today. 

Mr. Danly, am I correct that under PURPA, qualified facilities 

must have a capacity less than 80 megawatts? 

Mr. DANLY. Not entirely. There is a nuance that I should point 

out, which is that cogeneration facilities, which are also qualifying 

facilities, can have larger than 80-megawatt capacities. 

Mr. TONKO. OK. And is that threshold listed, stated in PURPA 

statute? 

Mr. DANLY. Yes. It is a statutory threshold of 80 megawatts. 

Mr. TONKO. OK. Thank you. 

The current existing presumption is that qualified facilities with 

a net capacity above 20 megawatts have nondiscriminatory access 

to interconnection services and markets. What types of barriers 

exist for small producers that may hinder their ability to get their 

market access? 

Mr. DANLY. The presumption that that threshold is based on is 

that the much, much smaller qualifying facilities are simply less 

sophisticated parties that don’t have the resources and personnel 

or experience interacting with the market that larger energy companies that might be making the larger QFs would have. 

So it comes down to technical expertise, experience in having 

their power provided to markets in others contexts, things like 

that. 

Mr. TONKO. And transmission services or interconnection ability? 

Mr. DANLY. Sure. Everything from the process of getting connected to actually ensuring that they get dispatched. 

Mr. TONKO. OK, thank you. And is this threshold for presumption of nondiscriminatory access in the PURPA statute or was it established by FERC? 

Mr. DANLY. FERC established the 20-megawatt limit. 

Mr. TONKO. Was that after the EPA Act of 2005? 

Mr. DANLY. Yes, that is correct. Yes. 

Mr. TONKO. So in 2006, FERC conducted an extensive proceeding 

and established a presumption that all facilities larger than 20 

megawatts have nondiscriminatory access to market. What was the 

reason behind the 20-megawatt threshold 12 years ago? 

39 

Mr. DANLY. In part, the 20-megawatt number is used in other 

parts of FERC’s regulations. For example, it is the dividing line between the large interconnection and small interconnection agreements that we have in other contexts. For creating a rebuttable 

presumption, a line has to be drawn somewhere, and it accorded 

with other parts of FERC’s regulatory regime. 

Mr. TONKO. And what is your understanding of the significance— 

section 3, let me first state, section 3 of H.R. 4476 would lower that 

threshold to 2.5 megawatts. 

Mr. DANLY. Yes. 

Mr. TONKO. So what is your understanding of the significance of 

that threshold? 

Mr. DANLY. Of the 2.5-megawatt threshold? 

Mr. TONKO. Yes. 

Mr. DANLY. That presumably this would be enacted, because the 

judgment of the subcommittee in the House is that the times have 

changed such that even smaller qualified facilities have sufficient 

sophistication to get access to the markets on a nondiscriminatory 

basis. I assume that that would be the intent of the bill. 

Mr. TONKO. I have heard concerns from a number of industrial 

energy users. Apparently, some industrial qualified facilities are 

certified as small power producers. Can you explain how or why 

this happens? 

Mr. DANLY. Do you mean as opposed to being cogeneration facilities? 

Mr. TONKO. Right. 

Mr. DANLY. I am not sure about the specific facts of the case. Do 

you have any more information about that? 

Mr. TONKO. Not offhand. But I am just wondering if you have 

any sense of understanding the significance for that threshold. 

Mr. DANLY. I would imagine that in the ordinary course of business, because cogenerators are not limited to 80 megawatts, they 

would typically choose to be designated as a cogenerator. So nothing springs to mind immediately as to why they would make that 

decision. 

Mr. TONKO. Well, to clarify, not all industrial qualified facilities 

would be exempt from this legislation. 

Mr. DANLY. No. 

Mr. TONKO. OK. Thank you, Mr. Danly. 

Well, Mr. Winberg, you had earlier explained the factors of DOE 

using factors to determine whether an LNG export project is in the 

publicinterest. And, obviously, our Nation’s energy use and needs 

change over time. 

So I, for one, believe that this is a feature of the system that 

these projects are evaluated and that someone is assessing the consequences for American consumers and manufacturers as well as 

our energy and national security. 

So I think that is important to bear in mind as we go forward 

with some of the bills that are introduced and the changes that 

would be produced. 

And with that, I yield back, Mr. Chair. 

Mr. UPTON. Mr. Latta. 

Mr. LATTA. Well, thanks for being here. 

And thank you very much, Mr. Chairman. 

40 

And if I could follow up a little bit where my friend from Illinois 

was with his discussion on the LNG exports going into the Baltic 

nations. 

Mr. Winberg, DOE has recently issued a proposed rule for smallscale LNG exports. Small-scale LNG projects could serve markets 

in Latin America and the Caribbean, but these job-creating projects 

are bogged down with a lot of unnecessary red tape. 

Where do you see the greatest potential for small-scale LNG 

projects are right now for U.S. producers? 

Mr. WINBERG. As we talked about earlier, I think primarily the 

Caribbean, Central America, and South America, possibly some European countries as well. But for those small loads on seaboard 

trade, distance becomes an issue if you have got—— 

Mr. LATTA. Right. And besides, when we are talking about Lithuania and Latvia and Estonia, when you are talking about other 

European countries, who would you have in mind on that? Because 

I know that some of us were over to see some of the LNG ports 

out around in the Iberian Peninsula. Where else would you see? 

Mr. WINBERG. DOE doesn’t take a position on where LNG ought 

to be traded. We have free trade agreement countries and nonfree 

trade agreement countries. 

So as we get in the applications, we review them, based on 

whether it is FTA or non-FTA, but we don’t take a position on 

where LNG should be traded. 

Mr. LATTA. OK. And under the H.R. 4606, how would this improve the process for permitting these small-scale facilities? 

Mr. WINBERG. Our read of 4606 is that any small export or import would be granted without modification or delay. So it would 

be, in effect, the same procedure that we would use with FTA countries. 

Mr. LATTA. Let me follow up. There was a little bit of discussion 

when we were talking about Puerto Rico. As we all know, that 

Puerto Rico’s grid was devastated by Hurricane Maria, and here we 

are more than 100 days out and power restoration is still not completed. 

What role could a small-scale LNG play in Puerto Rico’s grid 

modernization? 

Mr. WINBERG. I think the role that LNG would play would not 

be so much in the grid modernization, but perhaps in the electricity 

production modernization, which arguably is a part of it. They burn 

a significant amount of oil. Also, there are opportunities for LNG 

to be brought into Puerto Rico to displace oil, lower-emission, higher-efficiency units. So there are some significant advantages. 

Mr. LATTA. Thank you very much. 

Mr. Chairman, I yield back. 

Mr. UPTON. Mr. Loebsack. 

Mr. LOEBSACK. Thank you, Mr. Chair. Great discussion today, as 

always. I always learn a lot in this committee, and we have great 

witnesses and great questions from my fellow Members. 

Once again, I have to brag about Iowa and wind power. 

Mr. UPTON. Time has expired. 

Mr. LOEBSACK. Too bad. 

41 

Look, Iowa is a success story when it comes to wind energy. 

Texas is as well. Texas produces more wind energy than Iowa, 

but—— 

Mr. BARTON. Give him more time, Mr. Chairman. 

Mr. LOEBSACK. For the size of our State, we are doing great. And 

the fact of the matter is over a third of our electricity in Iowa 

comes from wind, and it has just been a great story. It is good-paying jobs, plays a critical role in our economy. In 2016, Iowa produced about 20 million megawatts of wind energy, and by 2020, I 

think we are going to get to 40 percent of our electricity is going 

to come from wind. 

So, obviously, when we move forward on PURPA, I think it is 

really, really important that we ensure that wind energy is deployed in the most cost-effective manner for my constituents, and 

also ensure that the Federal Government continues to play a role 

in promoting renewable energy. I think that is absolutely critical 

going forward and I think we can get some good bipartisan agreement on that. 

I really just have a question for Mr. Danly. There are concerns, 

of course, about this, qualified facility developers who have been 

developing some large wind farms, and they intentionally 

disaggregate and place portions of the project more than a mile 

apart to ensure that it doesn’t exceed the PURPA megawatt 

threshold. 

How will this legislation, Mr. Danly, going forward, ensure that 

qualified projects are not subdivided to take advantage of higher 

PURPA prices? 

Mr. DANLY. The intent of the legislation is to allow the presumption of that One-Mile Rule, which is the bright line rule currently 

established by FERC regulation. That at the moment is an absolute 

rule. 

It would convert that to a rebuttable presumption. And it can be 

rebutted by a series of statutory listed factors: whether they share 

common financing, if the land comes from the same purchase, if 

they share an interconnection, if they use the same resources, have 

the same people on it. That would be the list of the various factors. 

And if the presumption is rebutted, then having crossed that 80- 

megawatt threshold, they would not qualify for the other benefits 

that come with being a qualified facility, most importantly the 

mandatory purchase obligation. 

Mr. LOEBSACK. So that is how you see it. It is implemented in 

that sense, in what FERC will do to implement this. 

Mr. DANLY. Say that again, please. 

Mr. LOEBSACK. So that is how you see the implementation going 

forward. 

Mr. DANLY. FERC will implement it by, when asked, presumably 

conducting a review on the fact-based statutory factors. 

Right now, qualifying facilities are certified by one of two ways, 

primarily through self-certification or by having a FERC review 

process. So it may have an impact on that second of the two ways 

of being certified, which is really a minority of QFs get certified 

that way. 

And then for the others, presumably people who have an interest 

that is adverse to that determination or that self-certification 

42 

would bring a petition for FERC to review it. That is my presumption—I am not sure, of course—based on what the bill currently 

reads. 

Mr. LOEBSACK. Because it is a big issue, there is no question 

about that, and I am sure not just in Iowa. 

In your opinion, also, does it make sense to allow States to require QFs to participate in a competitive solicitation process to ensure that renewable energy is deployed in the most cost-effective 

manner? 

Mr. DANLY. To the extent that the subcommittee and Congress 

do not want to advance PURPA’s goals under the current mechanisms that PURPA has, then having a competitive process is another viable alternative. 

Mr. LOEBSACK. OK. Thank you. 

Thank you. I yield back, Mr. Chair. 

Mr. UPTON. Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chair. I appreciate it. 

And thank you, gentlemen, for joining us today. 

Mr. Winberg, LNG exports and PURPA reforms are two issues 

very, very worthy of our committee’s consideration, especially as it 

relates to bringing our energy policy into the 21st century. 

I am encouraged by this administration’s effort to find sensible 

ways to unleash America’s energy. Secretary Perry and the DOE 

have carried out that approach through their continued approval of 

LNG export permits and through the agency’s work on small-scale 

LNG exports. 

But DOE can only do so much, as the current law pertaining to 

LNG exports was written at a time when our energy landscape was 

very different than it is today. The bills we are discussing today 

reflect the realities of our energy abundance, with over 2 trillion 

cubic feet of recoverable natural gas beneath our feet. 

Congress, and this committee in particular, have done a lot of 

work to advance bipartisan bills that encourage LNG exports. Last 

Congress, LNG export bills advanced not only in the House, but 

through the Senate as well, always with bipartisan support. 

So I think I have heard you say it before this morning, Mr. 

Winberg, but because these are my bills that we are talking about 

today I will sleep better if I hear you say it again. Will you help 

continue that work by working with the committee and me on 

these bipartisan bills that we are discussing to advance LNG exports? 

Mr. WINBERG. Yes, absolutely, we would be delighted to help. 

Mr. JOHNSON. OK, good. Do you know if the DOE has plans to 

further its work on expediting and reforming LNG export, the process, the permitting process? 

Mr. WINBERG. We do through our latest notice of proposed rule, 

which we came out with on September 1 of last year, and that specifically addresses the small-scale exports. 

And so we have received comments on that. It is not finalized. 

It hasn’t been published in the Federal Register. But we are reviewing the comments and we plan to publish shortly. It is fairly 

closely in line with 4606. 

Mr. JOHNSON. OK. All right. 

43 

My colleague Mr. Shimkus touched on this a little bit. You know, 

for too long we have seen countries like Russia use energy as a 

weapon. They have a stranglehold on Europe’s energy supply. But 

with our LNG exports, that has already started to change. 

How, in your opinion, have U.S. exports of natural gas helped 

our allies and strengthened our hand diplomatically on the global 

stage? 

Mr. WINBERG. I think the access or the production of U.S. fossil 

energy resources, whether coal, oil, or natural gas, have had a profoundly positive impact with our allies in helping them to ensure 

energy security and, therefore, security in general, much as it has 

here in the United States. 

Mr. JOHNSON. Well, Russia gets about—and experts differ on the 

exact number—but somewhere on the order of about 50 percent of 

their revenue comes from the sale of oil and gas. About 80 percent 

of that resource runs under pipelines that go across the Ukraine. 

Seventy percent, I have heard, of their oil and gas sales are to our 

friends and allies in the region. And they have been known to turn 

the switch off when things weren’t going their way in the past. 

I believe that this gives the administration, especially in light of 

the events going on in the world and the temperature of our relationship with the Russians, in particular, today, a new and different kind of leverage than we have had in the past. Would you 

agree with that? 

Mr. WINBERG. Absolutely. 

Mr. JOHNSON. OK. All right. 

Mr. Chairman, I yield back. 

Mr. UPTON. Mr. Schrader. 

Mr. SCHRADER. Thank you, Mr. Chairman. Good hearing, I agree. 

Mr. Danly, you indicated that or seemed to indicate that very few 

self-certifying applications come through the system. And I have 

got a pretty extensive list of folks that do self-certify in my State. 

We got over 2,000 megawatts here in just a little over a year and 

a half. Could you comment on that? 

Mr. DANLY. I think I may have been misunderstood. We get 

about 2,000, roughly 2,000 self-certification requests a year, and 

just a handful of the FERC certifications in which the agency does 

the certification on behalf of the entity. 

Mr. SCHRADER. OK. Because there clearly is a ton of it going on. 

And we sent you all a letter, many members of the committee, 

including myself, back in June, talking about the gaming of the 

system. I have got a couple of great examples here where Fresh Air 

Energy in Jefferson County, Oregon, has three different applications that were approved for 79.66 megawatts, just under that 80. 

And then again in Klamath County, again, Fresh Air Energy had 

five successful sitings for 80 megawatts. 

So, clearly, we need to be doing something with the system to 

prevent that gaming. 

From your technical review hearing, what is the current state of 

play from the Commission with regard to solving some of these 

problems and dealing with that one by one? 

Mr. DANLY. So the Commission was in receipt of the oral presentations at the technical conference and the postconference submissions, and it is currently under review before the Commission. 

44 

Mr. SCHRADER. OK. In your testimony, you comment about the 

rebuttable presumption, and you have elaborated here about the 

conditions that might be used to deal with some of these instances. 

But you also talk about resources. 

Without having that clear bright line, what sort of resources is 

the Commission going to need to be able to adequately get through 

the application process, as you now have? 

Mr. DANLY. It is difficult to predict the number of people that 

might challenge a self-certification. If challenges come up, then it 

is going to require a fact-intensive review in some mechanism. I 

can’t imagine what the mechanism would be yet; we haven’t dealt 

with it. 

But there would have to be some mechanism to review the facts 

that are under the statutory factors. And it would require a significant amount of personnel time if we find ourselves facing—— 

Mr. SCHRADER. You would need more resources than you currently have? 

Mr. DANLY. I am not sure that is true. I just know that it is 

going to require us to devote time and manpower to a subject that 

we have never had to deal with before. 

Mr. SCHRADER. OK. So either you have a lot of extra employees 

right now or you can easily—or you need more people to deal with 

the process. 

Mr. DANLY. Presumably. But depending upon the shape of the 

final bills that are passed, we could find ourselves having less work 

to do on other subjects. 

Mr. SCHRADER. OK. OK. Very good. Very good. 

Talk a little bit about the State-by-State determinations rather 

than having FERC do it. How would that, to your point a moment 

ago, affect your workload? 

Mr. DANLY. Do you mean the State-by-State determinations as to 

whether there is need or a competitive solicitation process? It 

would not directly have much of an impact on FERC staff time. 

That would really have more to do with whether or not the QFs 

are even able to participate. 

So that really is an issue of whether or not the subcommittee 

wants to abandon this national policy. It is not a resources question for us. 

Mr. SCHRADER. How would that affect the industries themselves 

or the partners, our energy partners? 

Mr. DANLY. Well, depending upon what decision each State 

makes, the effect could be that there are less incentives for qualifying facilities of different types to put forth the effort and the risk 

of trying to develop a generation facility. It could be that that has 

a stultifying effect. But in other areas where there are competitive 

markets, it may not. 

It is difficult to predict in the laboratory of democracy the different possible outcomes. This is one of the great problems with 

PURPA, is how complicated it is with all the different State regimes for avoided cost calculations and the like. 

Mr. SCHRADER. Shifting gears a little bit, we haven’t talked a 

whole lot about the industrial qualified facilities. What degree of 

problems with the gaming issue are presented by these facilities 

compared to the others? 

45 

Mr. DANLY. When you say the industrial ones, I took—— 

Mr. SCHRADER. Cogeneration. 

Mr. DANLY. OK, cogeneration. Right. 

Cogenerators are in a really different category from the small 

power producers. They are very often in industrial facilities that 

are, in fact, themselves net consumers of electricity. They are either using the heat that is produced for industrial processes to generate electricity after the process is over beforehand, and this is 

simply a way to make money and be more efficient in the use of 

the generation. 

Mr. SCHRADER. They are not part of the problem? 

Mr. DANLY. When it comes to gaming? 

Mr. SCHRADER. Yes. 

Mr. DANLY. No. 

Mr. SCHRADER. I yield back. Thank you. 

Mr. UPTON. Mr. McKinley. 

Mr. MCKINLEY. Thank you, Mr. Chairman. 

I applaud Bill Johnson’s legislation on LNG. I think this is something we have needed for some time, and he has addressed a problem that is starting to emerge or issue of how we might be able 

to help out with that. 

Our districts are right opposite each other. The only thing that 

separates his congressional district from mine is the Ohio River, 

and that is just a line on the map. 

So we are in the middle of the Marcellus and the Utica Shale 

gasses formations, and we are seeing this resurgence as this country is pivoting away from fossil fuels or coal in a way that we have 

an opportunity to take an advantage of the Marcellus and Utica 

Shale gasses that are there. 

It has had a profound effect on our valley, improving the morale 

and the hope that we are going to see in this country some positive 

things happen with that. 

We are now at a point between our two districts that with the 

Marcellus and Utica, we are producing 50 percent of all the shale 

gas in this country, 50 percent. That is incredible, the opportunities 

then that come with that. 

So, again, I thank Congressman Johnson for that. 

From what I can gather, talking to EIA, is that this shale gas, 

the potential that we have from these two formations, could provide all the gas for this country for 58 years. Fifty-eight years. 

That is only with 50 percent. Remember, the rest of the country, 

down in Texas and elsewhere, they have got shale gas formations 

there coming. But just from the Marcellus and the Utica, we could 

provide all the gas in America for 58 years. 

So it really is opening up a new opportunity for us, and what we 

have to do is get this bill passed and continue to do this. 

Some of the critics say that if we export our LNG, it is going to 

raise prices. That has not been proven to be true. It is not accurate 

at all. It is just unimaginable opportunities that we have if we can 

pursue this. 

And what the impact is for my district in West Virginia, there 

is a study out done by the Fraser Institute that ranks around the 

world about 97 different jurisdictions, States, countries, about 

46 

where would you put your investment in fossil fuels? Where would 

you invest in energy? 

Two years ago, West Virginia ranked 22nd in the world where 

they should invest. Last year we ranked fifth, fifth best place in the 

world to invest, because of what this formation, what it is going, 

the opportunity we have in creating that. 

So we are seeing as a result of that, we are seeing now that we 

have the second-fastest growing GDP in America, in West Virginia. 

We are seeing Cheniere over in China investing $84 billion in West 

Virginia, is trying to explore and use this gas to try to help create 

jobs for people with this. 

So I see just a series of things, but yet we hear pushback from 

some people: We don’t want to do this. We want to leave that gas 

in the ground. 

So I am saying, what I don’t understand—I will start with you, 

Steve—excuse me, Mr. Winberg, you and I have known each other 

for too many years—why would people want to stop something, this 

momentum that is recreating wealth, opportunity, and an economy 

and strong families and keeping them? Why would people stop 

that? 

Mr. WINBERG. Sir, I really can’t answer that question on why 

people would want to stop it. But to your point in the Marcellus 

and Utica area, there are numerous opportunities. There is an 

LNG opportunity. 

We need more pipeline capacity to remove that rich resource that 

you have in your State and in surrounding States and move it into 

LNG terminals, for example, at Cove Point, to take advantage of 

the liquids in the Marcellus Shale for ethane production, which 

then goes into chemical production, the opportunity to move that 

gas up into the Northeast, where it was so badly needed just a couple of weeks ago. 

So numerous opportunities there. You can articulate them much 

better than I can. 

Mr. MCKINLEY. I think the ethane storage, you and I have had 

meetings about that, instead of sending it elsewhere, if we will be 

able to use that here in our area, that is positive. 

But I also want to emphasize to you again, Mr. Winberg, I am 

not trying to go away from coal. I just think we can have a dual 

track in energy dominance. 

And this is an opportunity. We just have to continue to explore 

it and put more money into research and how we might be able to 

have clean coal technology as well as we are developing this petrochemical industry in other than the Gulf Coast. 

Not that I don’t support my friends in the Gulf Coast. I think as 

a safety valve, we should have someplace else as well. 

So, with that, I yield back my time. 

Mr. UPTON. Mr. Green. 

Mr. GREEN. I do represent the Gulf Coast. 

I want to thank the chair and the ranking member for this hearing today. 

Both PURPA and LNG exports are issues that in our area I care 

deeply about. And to follow my friend from West Virginia, when 

folks at my meetings come up and say, we want to leave it in the 

47 

ground, I say, that is not a Texas value, if we can sell it to someone 

or build a plant. 

And I have to admit on the export of LNG, I was concerned, because the upper Texas coast—well, literally, most of the Texas 

coast, from Corpus Christi over in Louisiana, is huge petrochemical 

complexes. And with the reasonable-priced LNG, we have seen 

huge numbers of expansion and new chemical plants, just because 

of the availability of the natural gas and the different molecules 

that you get from there. 

I was concerned that we may price ourselves out of the market, 

but I haven’t seen that. We have Cheniere there in Louisiana. I 

mean, we have a number of ports along Texas that have permits 

in the process, and they are not small ones. They are very large. 

And, in fact, I had a joke a few years ago that if you had a 5-foot 

ditch that ran from the Gulf of Mexico into it Texas land, they 

wanted an export permit for LNG. And if you do the small ones, 

you may end up making that truthful. 

But one of my concerns is I have always been a very big supporter of NEPA, but smaller plants may not have that issue. But 

I am concerned about the exemption of that for these smaller 

plants, because it wouldn’t be unusual for maybe a company to 

build five export facilities that was just below the level so they 

could get past the NEPA review. So I think our committee needs 

to look at that. 

Mr. Winberg, the small volumes, like I said, is important. Under 

the DOE proposed rulemaking, how many companies would qualify 

for the streamlined process for quick expedition? Do you have any 

idea how many companies that would qualify for the streamlined 

process? 

Mr. WINBERG. Yes, sir. If you are asking about the current applications that we have—— 

Mr. GREEN. Either the current applications or ones that have 

been built. 

Mr. WINBERG. At present, there is only one that would qualify, 

and that is the Eagle Maxville LNG small-scale facility. 

I do not know how many other developers or potential LNG exporters might be considering small facilities. We have heard there 

are a couple people out there that are interested in this, but we 

haven’t gotten any applications, and so I can’t comment on it specifically. 

Mr. GREEN. OK. Do you have an estimate on what the daily volumes increase would be under such a rule, if it became final? 

Mr. WINBERG. I don’t have an estimate, but the limit that we 

would have for the small-scale facilities would be 0.14 billion cubic 

feet per day for a facility. But, again, not having an estimate on 

how many might try and avail themselves of this small-scale opportunity, I can’t give you a total number. 

Mr. GREEN. DOE in its proposed rulemaking required a smallvolume exporter to meet categorical exclusions critical under NEPA 

to be approved. 

Can you tell me why the DOE felt it was important to include 

NEPA protections under this rule? 

Mr. WINBERG. Yes, I can. It is because the small-scale facilities, 

based on what we have seen, the primary markets would be the 

48 

Caribbean, Central America, and South America. And without a 

small rule exclusion or a small facility exclusion, the cost to build 

a large facility for that many potential end use points we believe 

would be prohibitively expensive. 

Mr. GREEN. OK. One of the concerns I have is when FERC does 

it, does FERC also require a NEPA review? 

Mr. DANLY. For the siting construction, yes. 

Mr. GREEN. OK. So is there any duplication between what DOE 

does and what FERC does for the NEPA review? Is there any—— 

Mr. DANLY. In fact, in our review—you are a cooperating agency, 

correct? 

Mr. WINBERG. Right. 

Mr. DANLY. So, yes, there would be no overlap. 

Mr. GREEN. So there is no dual regulations or oversight? 

Mr. DANLY. The statutory regime neatly divides the responsibility into two different buckets: FERC for siting, construction, operation, and DOE for export. 

Mr. GREEN. I am out of time, but one of my concerns is that the 

bill today would take away what the DOE has done on the rule, 

and I have a concern on that. 

Mr. Chairman, obviously, I have a lot of questions, and I will 

submit them. 

Mr. UPTON. Great. Thank you. 

Mr. Flores. 

Mr. FLORES. Thank you, Mr. Chairman. 

I appreciate the panel for joining us today on these important 

pieces of legislation. 

Mr. Danly, I have two quick questions for you. The backdrop for 

the first question is this. Under the current framework for the Natural Gas Act, FERC has delegated authority over LNG export facilities. And in your testimony, you have stated that H.R. 4605 primarily concerns the authorities of the DOE. The DOE witness 

seems to agree with that, because he stated the bill makes no 

modification to FERC’s jurisdiction. 

And so we need to make sure we get this on the record clearly, 

and so the question is this. Does H.R. 4605 affect or expand 

FERC’s jurisdiction in any way? 

Mr. DANLY. Upon my reading of it, no. But if you have a specific 

idea, I am happy to talk more about it. 

Mr. FLORES. No. I mean, I read it the same way you do. And so 

we just need to get that into the record so that some of the other 

comments that have been made here today are rebutted by the testimony of our expert witnesses. 

The next question is, as you are probably aware, there are new 

technologies to transport natural gas and natural gas liquids other 

than in an LNG form. And so, because of that, they can be transported either in vehicles or in vessels that are not LNG vessels, 

and also in ways other than pipelines. And so I understand that 

DOE has determined that imports and exports of these mixtures 

should be regulated under the Natural Gas Act. 

Since the export facilities for these different types of products are 

not LNG terminals and they are not connected to interstate gas 

pipelines, FERC doesn’t appear to have any apparent authority 

over siting and construction. So if H.R. 4606 were to become law, 

49 

would FERC take that same position, that they do not have jurisdiction over the export of these products since it is not LNG and 

not connected to pipeline? 

Mr. DANLY. I cannot predict what the Commission will determine 

as far as what its jurisdiction is, but the way I read it here, it 

would remain the same. There is no jurisdiction. 

Mr. FLORES. OK. I think you have read it correctly. 

Thank you. I yield back the balance of my time. 

Mr. UPTON. The gentleman yields back. 

I would note that votes have started on the House floor. We are 

going to do Mr. Kennedy, and then we are going to take a recess 

until we come back after votes. 

So Mr. Kennedy is recognized. 

Mr. KENNEDY. I promise I will be brief, with the eyes of everybody in this room now upon me now to be so. 

I want to thank the witnesses for coming. I want to thank the 

chairman and ranking member for an important hearing, very 

helpful on a number of issues. 

Mr. Danly, it is a pleasure to meet you. We have not had a 

chance to meet personally yet, but I appreciate your presence here. 

As you might be aware, our office has worked very closely with a 

number of folks at FERC, including your predecessor, on a couple 

pieces of legislation. I know you are not here to talk about one of 

them today, but I did want to try to clarify a couple of things. 

You testified over in the Senate back in October about one of 

those bills, the Fair RATES Act, that has passed unanimously by 

this body already this Congress and passed unanimously out of the 

House of Representatives, again, last Congress as well. 

We worked very closely with FERC in the drafting of that legislation. Your predecessor had testified as well, largely in support of 

that. I gather from your testimony on the Senate side that you 

have some reservations there. 

Candidly, looking at some of the testimony, I am not entirely certain I understand what those reservations are. I don’t want to put 

you on the spot, given that you are not here today to speak about 

that. 

Mr. DANLY. I am happy to answer questions about it. 

Mr. KENNEDY. So the point of the legislation is to try to make 

sure that consumers always have at least some knowledge as to 

and a voice in some of the decisions that are being done by FERC. 

What happened, the legislation itself was in response to essentially a forward capacity auction, FCA 8, several years ago, where 

forward capacity prices, because of a shortfall, went from a billion 

dollars before to $3 billion to then $4 billion to $3 billion, so $10 

billion over the course of 3 years, and in that specific auction deadlocked two-two. 

Now, what was interesting also about that deadlock is a Democrat and Republican appointee was on one side and a Democrat 

and Republican appointee was on the other. Because there was a 

two-two tie, because of a gap, in my view, of the way that the statute was drawn, a two-two tie becomes, in effect, an approval by operation of law. 

Mr. DANLY. That is correct. 

50 

Mr. KENNEDY. And there is no way for consumers to then appeal 

it. What this legislation seeks to do is to say a two-two tie should 

enter as a decision so that that can be appealed. 

The mission of FERC—I believe I have it right—or part of the 

mission is to, quote, assist consumers in obtaining reliable, efficient, sustainable energy services at a reasonable cost through appropriate regulatory market means. 

Obviously, putting them in a circumstance where you have this 

tripling and then quadrupling of these capacity rates without any 

measure then to get a rehearing or justification for that, particularly given the unique circumstances that surrounded Forward Capacity Auction No. 8, seemed ripe for a fix to that statute. 

Clearly, the House of Representatives agreed. It was a bipartisan 

bill. Again, it passed actually on the first day of the Trump administration. 

So I understand your reservations. I also am cognizant of the fact 

that I promised the chairman here I would be quick. All I am asking for is some engagement with you and your office to try to understand in a bit more detail what your concerns here are, as I believe that the bill was meant to address that concern. 

Mr. DANLY. I would be delighted to work with you. Do you want 

me to express the reservations I did before? 

Mr. KENNEDY. To keep my friendship with Mr. Upton, no. 

Mr. UPTON. We budgeted 2 minutes. It has been 4 now. 

Mr. KENNEDY. We will follow up. 

Mr. UPTON. All right. Thank you very much. 

We are going to have to come back. I know Mr. Walberg has 

questions that he wants to ask. I think it will be pretty quick. We 

are told that we have three votes on the House floor, so we will 

do that and then we will come back. 

[Recess.] 

Mr. OLSON [presiding]. The hearing will come back to order, and 

we will proceed as before with the Members asking questions from 

the witnesses. The next question will come from the gentleman 

from Michigan, Mr. Walberg, for 5 minutes. 

Mr. WALBERG. Thank you, Mr. Chairman. I appreciate the opportunity to get well on my way to 10,000 steps. 

Mr. Danly, thank you for being here. And we appreciate the work 

of your staff in assisting us, getting us information as we have developed our legislation to this point. So I appreciate that. 

State utility commissions set avoided cost rates. They have the 

authority to do a number of things, appropriate length of PURPA 

contracts. It seems to me that they have significant authority in 

implementing PURPA. 

I noticed in your testimony you stated granting PURPA exemption findings to the States would create a State-by-State energy 

program. Essentially, I view this as providing State regulators with 

the tools to help each of them meet their State’s electricity needs 

at the lowest cost to the ratepayers. 

Couldn’t one argue that extending FERC’s waiver authority is 

keeping in line with State implementation, coupled by strong Federal oversight? 

Mr. DANLY. So, yes, you make a point here, which is that there 

is already some degree of balkanization in the way that PURPA is 

51 

implemented, because the actual recovery under the mandatory 

purchase obligation is set at the rate that is established by the 

State utility commissions. There is no doubt about that. 

And this would be a further step in the direction of allowing the 

States to act independently of one another, based upon their own 

either political or policy goals. The only difference is if a QF is capable of being guaranteed a recovery of some amount that is based 

upon an avoided cost rate, that is a thing that is different in kind, 

I think not degree, from whether the rate is X or X plus 5 percent. 

Mr. WALBERG. It would still allow strong Federal oversight if we 

move that direction still further? 

Mr. DANLY. Yes. There would be Federal oversight of the utilities, as there already is, but there would be a different way that 

QFs would be functioning in the market in the States, based upon 

what the State legislature—rather, the regulatory commission 

wants. 

Mr. WALBERG. Since PURPA was signed into law back in 1978, 

transmission access has become open to competitive generators, organized markets have been developed, and even bilateral markets. 

There is robust trading in those markets with independent generators. 

Given that the electricity sector has changed drastically, do you 

believe that the implementation of PURPA has fully kept pace? 

Mr. DANLY. I agree with your point that there have been big 

changes, and, in fact, Congress recognized this in 2005, with the 

passage of EPACT 2005, where it allowed the States to get out 

from under—or, rather, the utilities to get out from under the mandatory purchase obligation in the areas with organized markets. 

I do not wish to opine on whether or not PURPA has kept pace. 

There are definitely changes going on in the market, and it is properly the role of Congress to decide how to respond to those changes. 

Mr. WALBERG. OK. Well, let me then add to that or put it this 

way. Do you believe the current law represents the maturity of 

competitive markets, State renewable energy portfolio standards, 

investment tax credits, production tax credits, zero emission credits, reduced cost in renewables, and greater access to markets for 

smaller power producers? 

Mr. DANLY. OK. 

Mr. WALBERG. Put it all in there. 

Mr. DANLY. Yes, yes. 

So the answer is that there are a huge number of different policy 

vehicles available to the State governments and the Federal Government to achieve policy goals, and PURPA is but one of those 

tools that is used to achieve a goal. 

Some people say that it is abusively used and creates market distortions, and others say that it is a necessary requirement in order 

to promote this congressional mandate to encourage QFs being developed. That, as I say, is a question for your consideration. 

Mr. WALBERG. I appreciate that. I won’t ask the followup questions then on that basis. 

I am a believer in an all-of-the-above energy approach. I believe 

a diversified electricity portfolio is crucial. 

With that being said, I fear PURPA is inhibiting my constituents 

from benefiting from the lowest-cost source of renewable electricity. 

52 

What FERC policies would need to be modified to ensure the best 

deal for customers in moving forward? Could I get—I would get a 

smile. 

Mr. DANLY. I hate to say this, but I can’t speak on behalf of the 

Commission or predict its actions. Right now, the Commission is 

reviewing the comments that came out of the tech conference, and 

we are actively working, as you are well aware, with members of 

the subcommittee here to talk about possible legislative reform. 

Mr. WALBERG. Well, thank you. I appreciate it. 

My time has expired. 

Mr. OLSON. The gentleman yields back. 

The Chair now calls upon himself for 5 minutes. 

First of all, thank you and welcome to all the witnesses. 

As many of my colleagues mentioned, U.S. shale has made America number one in the world for natural gas, and that fact has allowed America to make our world safer, more secure, with cleaner 

air and cleaner water. 

Mother Russia has used their natural gas dominance to force 

Eastern European nations to cower instead of seeking freedom. Our 

LNG exports have changed that forever. 

As Chairman Shimkus said about Lithuania, I want to point out 

what has happened in Poland. Poland was part of the Iron Curtain. 

The first shots in World War II happened in Poland. Russia came 

in to counteract Germany. They were in that curtain until 1989 

and beyond. 

They are a member of NATO. They broke away from Russian 

dominance led by a worker from a shipyard, Lech Walesa. But they 

had an Achilles’ heel: Mr. Putin still controlled their energy, their 

natural gas. 

This past summer, guess what happened? A large LNG tanker, 

American tanker from Cheniere, in Sabine Pass, docked in Poland. 

It docked in Gdansk, Mr. Walesa’s hometown. That simple act said: 

Good-bye, Mr. Putin. Hello Uncle Sam. And that same story is happening in other nations we care about, like Japan, South Korea, 

and India. 

And I will be honest with you, too, this energy boom has been 

great for my home State of Texas. 

My first question is for you, Secretary Winberg. Can you talk 

about the administration’s views on energy exports as a national 

security matter? Is there coordination between DOE, Department 

of State, Defense, USTR, Commerce, Ag, all the people involved in 

trade, are they working together to make sure this happens? 

Because natural gas is not just fuel and power. Also big for agriculture. Their crops, their stock, their fertilizers come from natural 

gas. 

And so are you guys looking with all those other guys to make 

sure we seize this opportunity? Any questions, any comments about 

that? 

Mr. WINBERG. Yes, we are. And I agree with your assessment of 

the value that U.S. energy has brought to our friends and allies 

around the world. We are working with other agencies, other departments to continue that growth in U.S. energy dominance and 

our ability to export to, again, our friends and allies. 

53 

Mr. OLSON. So, again, just to confirm, you see this as an important part of our national security going forward, U.S. exports of oil 

and natural gas? 

Mr. WINBERG. And coal. 

Mr. OLSON. And coal, you betcha, you betcha. 

The next one is to you, Mr. Danly. As you know, Texans like to 

brag we are big oil and gas, number one in America for over half 

a century. That has not changed. But what has changed the last 

10 years? Wind power. Texas is number one in America, by far and 

away, for wind power. And we are concerned about the One-Mile 

Rule with wind power. As you said, FERC determines that wind 

production is at the same site based on the One-Mile Rule. 

Can you talk about how FERC decided that standard and whether it has been reconsidered over the years? Because people are concerned about that back home, one-mile standard towards wind production. 

Mr. DANLY. Certainly. So the one-mile standard was implemented by Federal Energy Regulatory Commission regulation and 

it is based upon a simple measurement of the distance from one of 

the facilities to another. There is nothing complicated about the 

specific site points of the location. 

It can become complicated when there are multiple generating 

facilities in propinquity with each other, but it is basically a fairly 

straightforward locational distance requirement. 

Wind and solar, which have larger footprints, are open to more 

difficult analysis, because you can say, at what point, at what part 

of the, let’s say, the PV array do you measure the 1 mile from or 

how far apart do the individual turbines have to be. And so that 

is a consideration in an interest in reforming the One-Mile Rule. 

Mr. OLSON. OK. I am out of time. One final question. It is very 

important for people back home. Are you both happy the Houston 

Astros are now the World Series champions, yes or no? 

Mr. Winberg? 

Mr. WINBERG. Coming from Pittsburgh, that is a very difficult 

question to answer. 

Mr. DANLY. I am happy that you are happy. 

Mr. OLSON. Well played, running for office. 

Again, we are done with the questions from Members. I want to 

thank all the panelists. I apologize for the votes. This panel is adjourned. We are going to recess for what, for a couple minutes, just 

to get the second panel set up. But thank you, thank you, thank 

you. 

[Recess.] 

Mr. OLSON. Welcome to our second panel. And I apologize. 

Today, as you know, in DC is kind of a unique day, having some 

things happen on both sides of the Hill that are very important. 

And I just want to read you something from our whip: ‘‘Members 

are reminded to remain flexible, as additional votes may be possible.’’ 

So I just want to apologize before. We will try to get this done 

as quickly as possible. And I am so thankful you guys are here. 

And I will start out with the first questions and stick to the 5- 

minute rule. Oh, yes, opening statements. I apologize. No questions 

about the Houston Astros. We will just go from my left to my right. 

54 

And, Mr. Kavulla, you are recognized. 

STATEMENTS OF TRAVIS KAVULLA, VICE CHAIRMAN, MONTANA PUBLIC SERVICE COMMISSION; TIMOTHY J. SPARKS, 

VICE PRESIDENT OF ELECTRIC GRID INTEGRATION, CONSUMERS ENERGY; KARL R. RA ́ BAGO, EXECUTIVE DIRECTOR, 

PACE ENERGY AND CLIMATE CENTER; PAUL N. CICIO, 

PRESIDENT, INDUSTRIAL ENERGY CONSUMERS OF AMERICA; AND CHARLIE RIEDL, EXECUTIVE DIRECTOR, CENTER 

FOR LIQUEFIED NATURAL GAS 

STATEMENT OF TRAVIS KAVULLA 

Mr. KAVULLA. Thank you, Vice Chairman. And Vice Chairman 

Olson, Ranking Member Rush, it is great to be back before you 

today and in front of all the members who are here of the Subcommittee on Energy. Thank you for the opportunity. 

My remarks today address only H.R. 4476, the PURPA Modernization Act of 2017. 

I am the vice chairman of the Montana Public Service Commission. Today, I am also here on behalf of the National Association 

of Regulatory Utility Commissioners, or NARUC. 

NARUC is a nonprofit organization founded in 1889, and our 

members are the public utility commissions in all 50 States, the 

District of Columbia, and U.S. territories. It is our members who 

are primarily responsible, as Congressman Walberg has already 

pointed out, for implementing PURPA. 

I would like to thank him for his efforts in working on this legislation as well as his staff. And on behalf of NARUC, I would like 

to express our support for it unreservedly. 

PURPA is nearly four decades old at today’s point, and it reflects 

the reality of another era when renewables were scarce, demand 

was booming, and the country looked for ways to diversify its energy portfolio and shield itself from overreliance on foreign sources 

of supply. 

Today, the world has changed dramatically. The U.S. Energy Information Administration reports that nearly half of utility-scale 

capacity installed in 2017 came from renewable resources. 

More than half of States, including my own, have their own renewable energy mandates, and even those which do not, such as 

Iowa, have shown substantial additions in renewable capacity, not 

because of PURPA, but because of the falling cost curve of renewable technologies, such as solar and wind. 

A revision of PURPA, in other words, does not have to be antirenewables, and this bill we do not consider to be anti-renewables. 

To the degree that PURPA was enacted at a time when renewable technologies were not the norm, that norm has changed profoundly. 

And there has been another significant transition too. Nearly all 

States today require power generation to be procured through competitive means. Even in States that do not have consumer choice 

or are restructured, monopoly utilities are nonetheless typically required to procure resources through competitive solicitations. 

In short, other events have transpired that have accomplished 

PURPA’s twin goals of advancing QF technologies and introducing 

55 

competition into the sector, rendering PURPA itself largely needless. 

PURPA mandates that power sales be at the utility’s avoided 

cost, which on its face sounds unobjectionable. Conceptually, it 

means that consumers would pay no more or no less for PURPA 

resources than they would pay for non-PURPA alternatives. 

However, FERC has long held that PURPA requires that States 

forecast the utility’s avoided cost into the future for the purpose of 

offering QFs a long-term contract at administratively determined 

rates. This type of administrative pricing essentially requires 

States to guess at future market prices, allowing QFs to lock in 

rates that often substantially overstate the actual avoided cost. 

This approach is fundamentally different when compared to procurements that use competitive mechanisms, like auctions or requests for proposals, to discover the least-cost resources. 

And, indeed, courts have recently determined that competitive 

programs that attempt to implement PURPA are at odds legally 

with the law. Even California, which has done probably more than 

any other State to implement pro-renewable policies, has found 

that its PURPA program compliance is not in compliance with the 

law, according to a recent court ruling. 

It is almost universally acknowledged that a competitive process 

is optimal, more optimal than administrative pricing, because generators there with a profit motive can vie against one another for 

the business of the Nation’s consumers, and that this is a best 

practice, compared with prices set by a State commission through 

a trial-like proceeding where the cost-reducing aspect of competition is absent. 

Subsection 4B forthrightly acknowledges this and would allow 

competitive solicitations to substitute for administrative pricing regimes. 

In addition to the flaws underlying the so-called avoided cost 

pricing, PURPA’s mandatory purchase obligation is a poor match 

to the relatively flat and sometimes even declining customer demand for electricity seen in many parts of the United States. 

In many parts of the country, new power plants of simply any 

kind may not be needed, a testament, in large part, to the increasing energy efficiency seen in the market, and yet unneeded power 

plants are in some places nevertheless being brought online, due to 

PURPA’s mandatory purchase obligation. 

In sum, PURPA’s flawed approach to administrative pricing and 

its mandatory purchase obligation is harming consumers. Ironically, it is even at odds with the values of competition and conservation that are at the heart of PURPA itself. 

Again, I would like to express NARUC’s thanks to Congressman 

Walberg and the subcommittee members for considering this piece 

of legislation. Thank you. 

[The prepared statement of Mr. Kavulla follows:] 

56 


Testimony on behalf of the 

National Association of Regulatory Utility Commissioners (NARUC) 

by 

The Honorable Travis Kavulla 

Vice Chairman, Montana Public Service Commission 

before the 

United States House of Representatives 

Committee on Energy & Commerce 

Subcommittee on Energy 

hearing entitled 

"Legislation Addressing LNG Exports and PURPA 

Modernization" 

January 19, 2018 

National Association of Regulatory Utility Commissioners 

1101 Vermont Ave, N.W., Suite 200 

Washington, D.C. 20005 

Telephone (202) 898-2207, Facsimile (202) 898-2213 

Internet Home Page http://www.naruc.org 
57 


Summary for Testimony of the Honorable Travis Kavulla 

On Behalf of 

The National Association of Regulatory Utility Commissioners (NARUC) 

On 

H.R. 4476, the "PURPA Modernization Act of2017" 

• NARUC supports H.R. 4476 the "PURPA Modernization Act of2017," as currently 

drafted. 

• The provisions in Section 4 are of greatest importance to NARUC. 

o Subsection 4(B) straightforwardly acknowledges that a competitive process 

should be allowed to substitute for PURPA's mandatory purchase obligation 

using administrative-forecast pricing. 

o QFs would be protected because the provision's applicability is tied specifically 

to a requirement for such competitive processes to be open to PURP A resources. 

o Consumers would be protected by only having to pay for resources that had 

offered the least cost, or the greatest value. 

o Subsection 4(A) acknowledges situations of flat or declining demand- when 

utilities have greater supply than demand - conforming to PURP A's original 

principle of conservation by not requiring consumers to pay for the construction 

of new power plants that simply are not needed. 

• Section 3 ofH.R. 4476 provides necessary changes to the nondiscriminatory access 

provisions of PURP A by limiting the exemption for nondiscriminatory access to 2.5 

MWs. This exemption is more in line with the realities of modern power generation than 

is the current exemption of20 MWs and fairly provides a threshold which protects 

smaller QFs while encouraging competition among larger projects. 

• NARUC is pleased that H.R. 4476, in Section 2, addresses PURPA's current 

disaggregation problem by reforming the "one-mile rule." Some QF developers have 

been able to work around the FERC small renewable QF criteria by disaggregating their 

projects into multiple smaller projects, thereby availing themselves of more advantageous 

avoided cost calculations to the detriment of retail ratepayers. 

1 
58 


Good morning, Chairman Upton, Ranking Member Rush, and members of the 

Subcommittee on Energy. Thank you for the opportunity to testifY today on 

H.R. 4476, the "PURPA Modernization Act of2017." My name is Travis Kavulla 

and I am Vice Chairman of the Montana Public Service Commission. I am here 

today on behalf of the National Association of Regulatory Utility Commissioners 

(NARUC), where I served as the President in 2016 and am currently a member of 

the Executive Committee. 

NARUC is a non-profit organization founded in 1889. Our members are the public 

utility commissions in all 50 States, the District of Columbia, and the U.S. 

territories. NARUC's mission is to serve the public interest by improving the 

quality and effectiveness of public utility regulation. Our members regulate the 

retail rates and services of electric, gas, water, and telecommunications utilities. 

We are obligated under the laws of our respective States to assure the 

establishment and maintenance of essential utility services as required by public 

convenience and necessity and to ensure that these services are provided under 

rates, terms, and conditions of service that are just, reasonable, and nondiscriminatory. 

I would like to commend Congressman Walberg and his staff on their efforts to 

update and reform the Public Utility Regulatory Policies Act of 1978 (PURP A), 

which have culminated in the introduction ofH.R. 4476, the "PURPA 

Modernization Act of2017." On behalf ofNARUC, I would like to express our 

support for this legislation and the legislative effort to address concerns we have 

with PURPA as it pertains to today's electricity sector. 

2 
59 


In 1978, Congress enacted PURP A in response to a national energy crisis. 

PURPA's purpose was to promote the development of renewable energy and 

cogeneration technologies, as competitive alternatives to oil and other scarce 

sources of fuel. To do this, PURP A required electric utilities to purchase power 

produced by qualifying facilities (QFs), a requirement referred to as the mandatory 

purchase obligation. 

PURPA mandated these power sales at a utility's avoided cost, which conceptually 

meant consumers would pay no more and no less for PURP A resources than they 

would for non-PURPA alternatives. However, FERC has long held that PURPA 

requires that States forecast a utility's avoided cost into the future for the purpose 

of offering QFs a long-term contract at administratively determined rates. 1 This 

type of administrative pricing essentially requires States to guess at future market 

prices, allowing QFs to lock in rates that often substantially overstate the actual 

avoided cost.2 This approach is fundamentally different when compared to 

procurements that use competitive mechanisms like auctions or requests for 

proposals to discover the least-cost resource.3 It is almost universally 

acknowledged that a competitive process, where generators with a profit motive 

1 Final Rule Regarding the Implementation of Section 210 of the Public Utility Regulatory 

Policies Act of 1978, Order No. 69,45 Fed. Reg. 12,214, 12,218, 12,224 (Feb. 25, 1980); FERC 

Stats. & Regs. , 30,128, order on reh 'g, Order No. 69-A, FERC Stats. & Regs. , 30,160 (1980), 

aff'd in part & vacated in part sub nom. Am. Elec. Power Serv. Corp. v. FERC, 675 F.2d 1226 

(D.C. Cir. 1982), rev 'din part sub nom. Am. Paper Inst. v. Am. Elec. Power Serv. Corp., 461 

u.s. 402 (1983). 2 See Exhibits A and B to this testimony, for examples from Idaho and Montana of how 

administratively forecast avoided-cost rates have dramatically overstated the actual market price 

of electricity. 3 State attempts to use competitive processes to comply with PURP A have been found unlawful. 

Most recently, California's use of a reverse-auction process to identify avoided-cost, awarding 

the lowest-bidders contracts, was declared invalid by a federal district court. Winding Creek 

Solar LLC v. Michael Peevey, et al., Case 3:13-cv-04934-JD (N.D. Cal.) at 14 (Dec. 6, 2017). 

3 
60 


vie against one another for the business ofthe nation's consumers, is a best 

practice when compared with prices set by a State commission through a trial-like 

proceeding where the cost-reducing aspect of competition is absent. 

In addition to the flaws underlying so-called avoided-cost pricing, PURPA's 

mandatory purchase obligation is a poor match for the relatively flat, and 

sometimes even declining, customer demand for electricity. In many parts of the 

United States, new power plants of any kind may simply not be needed-a 

testament in large part to the increasing efficiency of residential and commercial 

appliances that previously drove demand. Yet unneeded power plants are in some 

places nevertheless being brought online due to PURP A's mandatory purchase 

obligation, a legal provision which suggests that utilities must buy from QFs even 

when their consumers do not need additional energy supply. As one utility noted in 

a filing to the Wyoming Public Service Commission, QFs had requested pricing for 

4,563 MWs of supply even while its integrated resource plan indicated "no need 

for any system resource until 2028."4 In sum, PURP A's flawed approach to 

administrative pricing and its mandatory purchase obligation is harming 

consumers; ironically, it is at odds with the values of competition and conservation 

that are at the heart ofPURPA itself. 

PURP A is nearly four decades old, and it reflects the reality of another era when 

renewables were scarce, demand was booming, and the country looked for ways to 

4 Application, In the Matter of Rocky Mountain Power for Modification of Contract Term of 

PURP A Power Purchase Agreements with QualifYing Facilities, (Aug. 26, 2015), Wyoming PSC 

Docket No. 20000-481-EA-15, p. 9. 

In December 2017, Rocky Mountain Power filed an update reporting that more than 

1,600 MWs of QFs had proposed online dates in 2018, 2019, and 2020. "Semi-Annual 

Qualifying Facility Queue Compliance Report," (Dec. 27, 2017), Wyoming PSC Docket No. 

20000-481-EA-15. 

4 
61 


diversifY its energy portfolio and shield itself from overreliance on foreign sources 

of supply. Today, the world has changed dramatically. The U.S. Energy 

Information Administration reports that nearly half of utility-scale capacity 

installed in 2017 came from renewable resources.5 More than half of States, 

including Montana, have their own renewable mandates, and even those which do 

not have shown substantial additions in renewables, not because ofPURP A, but 

because of the falling cost curve of renewable technologies such as solar and 

wind.6 

PURPA qualifying facilities (1980-2015) 

percent of !Dial renewable capacity 

100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

1980 1985 1990 1995 2000 2005 2010 2015 

To the degree that PURP A was enacted at a time when renewable technologies 

were not the norm, that norm has changed profoundly. There has been another 

significant transition, too: Nearly all States today require power generation to be 

procured through competitive means. Even in States that do not have consumer 

5 U.S. Energy Information Administration, Nearly half of utility-scale capacity installed in 2017 

came from renewables, "Today in Energy (Jan. 10, 2018)," (Form EIA-860M, Preliminary 

Monthly Electric Generator Inventory), available online at: 

https://www.eia.gov/todayinenergy/detail.php?id=344 72. 6 U.S. Energy Information Administration, PURP A qualifying facilities as a percentage of total 

renewable capacity (1980-2015), "Today in Energy (Aug. 23, 2015)," available online at: 

https:l/www.eia.gov/todayinenergy/detail.php?id=27632. 

5 
62 


choice, monopoly utilities are typically required to procure resources through 

competitive solicitation. In short, other events have transpired that have 

accomplished PURP A's twin goals of advancing QF technologies and introducing 

competition into the sector, rendering PURP A itself largely needless. 

Congress has previously recognized that as the sector changes, so too must 

PURP A. 7 Since its last revision of PURP A more than a decade ago, the electric 

industry has undergone an arguably more profound transition than it did from the 

time ofPURP A's enactment to the Energy Policy Act of 2005 (EPAct '05). That is 

why the moment is ripe for your consideration ofH.R. 4476, which builds on the 

successes ofEPAct '05 by encouraging competition as a means toward renewable 

development. 

The provisions in Section 4 are of greatest importance to NARUC. Subsection 4(B) 

straightforwardly acknowledges that a competitive process should be allowed to 

substitute for PURPA's mandatory purchase obligation using administrativeforecast pricing. QFs would be protected, because the provision's applicability is 

tied specifically to a requirement for such competitive processes to be open to 

PURP A resources. Consumers, meanwhile, would be protected by only having to 

pay for resources that had offered the least cost, or the greatest value. Similarly, 

Subsection 4(A) acknowledges those occasions, caused by flat or declining 

demand, when utilities have greater supply than demand. This provision hews to 

7 See Energy Policy Act of2005 § 1253, 16 U.S.C.A. § 824a-3(m) (2017). These statutory 

changes, together with FERC's implementing regulations, recognized that the emergence of 

regional transmission organizations (RTOs) that ran competitive wholesale auctions was 

achieving PURPA's goals through more efficient means. 

6 
63 


PURPA's original principle of conservation by not requiring consumers to pay for 

the construction of new power plants that simply are not needed. 

H.R. 4476 also assists State commissions by modernizing the nondiscriminatory 

access provisions ofPURPA in Section 3 of the bill. Very small resources may not 

have the ability, because of either market rules or because of the transaction costs 

associated with participating in such markets, to sell their energy and capacity 

efficiently into the existing competitive markets. However, the current exemption 

of20 MWs badly overstates the size threshold.8 A provision limiting the 

exemption to 2.5 MWs is more in line with the realities of modem power 

generation, where smaller resources are being developed and encouraged to 

participate in competitive wholesale markets. Seemingly all such markets have size 

thresholds smaller than 2.5 MWs, so such a size conservatively and fairly provides 

a threshold which protects smaller QFs while encouraging competition among 

larger projects.9 

NARUC is also pleased that the legislation addresses, in Section 2, an enduring 

problem where a single developer strategically disaggregates a project into 

multiple QFs. Larger projects might have to participate in a competitive 

solicitation, because they are larger than the 80 MWs that PURPA defines as the 

maximum capacity for a QF, so developers sometimes will break such projects into 

several QFs in order to avail each of the mandatory purchase obligation at an 

administrative-forecast rate. Similarly, a developer might break one larger project 

8 18 CFR § 292.309(d)(l) (2017). 9 "Considerations for Minimum Resource Size Threshold in the Capacity Market," (July 2017), 

Alberta Electric System Operator, citing to CAISO, NEISO, NYISO, and PJM size thresholds at 

p.3. Available online at: https://www.aeso.ca/assets/Uploads/20 170704-Eiigibilitv-Session-3-

Minimum-Resource-Size-Presentation.pdf. 

7 
64 


into several small QFs so to enter into standard-offer contracts available only to 

smaller QFs, which tend to be more lucrative. This regulatory arbitrage is a form of 

gaming that ultimately disadvantages consumers. It represents an attempt by 

certain QFs to avoid competition by safe-harboring themselves in what has been 

called the "one-mile rule," as PERC's determination that a bright-line of one mile's 

distance qualifies projects as separate QFs. 10 This legislation would allow a factdependent investigation by FERC to police such abuse. 

In closing, on behalf ofNARUC, I would again like to thank Congressman 

Walberg and his staff for taking up the challenge of reforming PURP A. Much has 

changed since PURP A was originally enacted in the late 1970s and State 

commissions need new tools to deal with the current issues. Although we have 

reached out to our FERC colleagues on some of these issues, this legislation is an 

important and significant leap forward in providing us with the ability to secure a 

reliable and affordable energy future for the nation. We look forward to working 

with this Committee to reform PURP A. Thank you for the opportunity to appear 

before you today and I look forward to your questions. 

10 18 C.F.R. § 292.204(a)(2) (2017). 

8 
65 


Exhibit A 

Idaho PUC's administrative-forecast avoided cost for Idaho Power Company 

compared to actual and settled future prices of the Mid-Columbia wholesale 

electricity price (20 15) 

Excerpted from Testimony of R. Allphin, Idaho Power 

Co., Exh. No. 10; Averace PURPA Price vs. MldC Index 

case No. iPC-E-15.01, Idaho Public Utilities Commission 

i 

!ssr-~~~~r-~~----~~~~~~~~~~~--~~~~~----r--

2802 298<1 1006 1801 2810 1011 lOU 1016 lOll 1020 lOU 1014 2026 2118 10)1 lOU 1014 

-MitiOistorkil -1'\JRPAifstGiitil 

-- PU!PAForwwdl'fk:tellfl«aioM -- MidCfutumSftWM:ts 

9 
66 


Exhibit B 

Montana PSC's administrative-forecast avoided cost for NorthWestern Energy (in 

black solid line and dotted line, for wind and solar respectively) compared to actual 

prices of the Mid-Columbia wholesale electricity price (2017) 

.... 110 

j NorthWestern Energy Long-term Supply Sources! ..... 

""DO 

....... A 

I A 1-----,----, ,- ------------.. ...... I I 

I J \ /! ~ : 

r ..... 1r ~ 1\ '--' l i ...... v \ ~~ \fvl A ....... ~ (\ $!10.110 

u \ fY\ (VV u \1\ I\/ !.-

..._.. vv \ v \/ , \ ..... """'""'' :::;:; .. ..... ..,. ~,: """""""' ....,,.... -... .. - """' ...... -. .... 02001.12.1"4 020W.S D2011i.S.W ..... ~~~~ii!lil~~~~~ii~iiili~iiiiiJijiiiiliiiili~iii 

-StorldardRato(Wind) - - Stondord .... (Solo<) -MidC(monthly.w) 

10 
67 

Mr. OLSON. Thank you, Mr. Kavulla. 

The Chair now calls upon Mr. Sparks, who is the vice president 

of Electric Grid Integration with CMS Energy. Five minutes, sir. 

STATEMENT OF TIMOTHY J. SPARKS 

Mr. SPARKS. Vice Chairman Olson, Ranking Member Rush, Representative Walberg, and distinguished members of the subcommittee, thank you for the opportunity to testify regarding H.R. 

4476, the PURPA Modernization Act of 2017. My name is Tim 

Sparks, and I am vice president of Electric Grid Integration for 

Consumers Energy, referred to throughout this testimony as CE. 

CE is the principal subsidiary of CMS Energy and is Michigan’s 

largest energy provider, serving natural gas and electricity to 6.7 

million of the State’s 10 million residents. CE and parent company 

CMS Energy were recently honored as the top performer for Michigan companies by Newsweek in its annual green rankings. 

Recent activities include helping our customers save over a billion dollars through energy efficiency, producing 10 percent of our 

customers’ energy from renewables, reducing our waste use for 

electric generation by 17 percent, removing 1 million cubic yards of 

landfill space in 2017, closing 7 of the company’s 12 coal-fired 

power plants, opening two community solar power plants with a 

third on deck for 2018. We have learned that we can increase renewable generation and keep costs low for our customers. 

Enacted 40 years ago, PURPA mandates that electric utilities 

purchase power from qualifying generating facilities at forecasted 

prices set by State public service commissions. 

Now, four decades later, America’s energy landscape looks nothing like it did in the 1970s, and it is therefore imperative that 

PURPA be modernized. H.R. 4476 takes a modest but important 

step in this direction. 

First, the bill provides clarification to stop abuse of the One-Mile 

Rule. H.R. 4476 allows a challenge to be pursued should QFs not 

properly adhere to the criteria for calculating capacity and avoid 

gaming the system. 

Second, the bill recognizes the QFs between 2.5 megawatts and 

20 megawatts already have nondiscriminatory access to markets in 

those parts of the country with organized regional transmission organizations, or RTOs. 

RTOs assure unbiased open access to the electric transmission 

system within their footprints. Many of the QFs within which Consumers Energy was obligated to contract over 30 years ago now 

have access to the transmission system as an independent power 

producer. 

Without recognizing this access to the electric transmission system and electric market, Consumers Energy estimates its customers will pay approximately $18 million annually above market 

prices to QFs larger than 2.5 megawatts. This increased cost of our 

customers is formulated by the State-calculated avoided cost rate 

and applied to the QF’s output. 

Recently, the Michigan Public Service Commission announced a 

new avoided cost rate for Consumers Energy. While we appreciate 

their steadfastness in doing their due diligence as mandated by 

Federal law, the rate still remains well above market. 

68 

To illustrate this point, in 2017 Consumers Energy received 683 

applications from new independent generators looking to interconnect to our electric system as potential PURPA QFs. The 5-year 

average prior to the new MPSC rate order was just shy of 200 applications per year. 

The existing and potentially new PURPA contracts greater than 

2.5 megawatts could cost our customers an estimated $35 million 

annually above market over the next 5 years. 

The third provision in the legislation recognizes the critical role 

State public service commissions play in keeping energy costs low 

for customers. The bill would allow greater flexibility to suspend 

the mandatory purchase obligation when additional electric capacity is not needed by the utility’s customers. 

I want to be clear on one thing: Consumers Energy is not advocating for less renewables in our energy mix. In fact, since 2005 we 

have increased our renewable portfolio from 3 percent to 10 percent 

and will meet Michigan’s new renewable requirement of 15 percent 

by the end of 2020. We have accomplished this through competitively bid renewable contracts and company-developed assets 

unaided by any expansion of higher cost PURPA QFs. 

In closing, PURPA served its original intended purpose of expanding renewables. However, as shown, the law is simply outdated and our customers are bearing the price. Between 2006 and 

2015, Consumers Energy customers paid 300 million above market 

prices for electricity from PURPA generators less than 20 

megawatts. It is time for this law to be updated, which is why we 

strongly urge the passage of H.R. 4476. 

I thank you for your time today. 

[The prepared statement of Mr. Sparks follows:] 

69 


Executive Summary of 

Timothy J Sparks, Consumers Energy 

Written Testimony 

• Consumers Energy (CE) is the principal subsidiary of CMS Energy and is Michigan's largest energy 

provider serving 6. 7 million of the state's 10 million residents. 

• Named a 2017 top performer for Michigan companies by Newsweek in its annual "Green Rankings", 

CE has taken numerous steps to reduce our environmental footprint to leave the planet better than 

we found it, including meeting a state Renewable Portfolio Standard of 15% by the end of 2020. 

o We believe it is possible to increase renewable generation while still keeping costs low 

for customers. 

• Enacted over 40 years ago, PURPA is simply outdated and forcing our customers to pay well above 

market prices for energy, including renewable energy. H.R. 4476 modernizes PURPA to better 

reflect today's market conditions. 

• H.R. 4476 provides recourse to challenge whether a QF is actually in violation of PURPAs "one mile" 

rule. 

• Second, the bill recognizes the existence of non-discriminatory access to markets in those parts of 

the country with organized Regional Transmission Organizations by reducing the size of a covered 

QF to 2.5 megawatts (MW) from 20 MW. 

o Two of CE's current PURPA-based contracts are with facilities that are already connected to 

MISO's transmission system. 

o Over the next 5 years, CE customers are estimated to pay approximately $21 million 

annually above market for power from existing contracted PURPA facilities; $18 million of 

this $21 million will be paid to QFs above 2.5 MW. 

o Over the next 5 years, CE customers could pay as much as $35 million annually above 

market rates to existing and potential new PURPA QFs above 2.5 MW. 

• The third provision in the legislation would allow greater flexibility for state utility commissions to 

suspend the mandatory purchase obligation should they find additional electrical capacity is not 

needed. 

o This language supports activities in Michigan, and recent legislation passed by the Michigan 

Legislature that requires regulated utilities file an Integrated Resource Plan with the MPSC 

on a regular basis beginning no later than April20, 2019. 

• Between the years 2006-2015, CE customers paid $300 million above market for electricity from 

qualifying PURPA generators less than 20 MW. The 40 year old law desperately needs updating and 

H.R. 4476 accomplishes this in a modest but important way. 
70 


Written Testimony ofTimothy J. Sparks 

Vice President of Electric Grid Integration 

Consumers Energy, a CMS Energy Company 

Hearing on "Legislation Addressing LNG Exports and PURPA Modernization" 

Testimony on "H.R. 4476, the PURPA Modernization Act of 2017" 

Before the Committee on Energy and Commerce 

Subcommittee on Energy 

United States House of Representatives 

January 19, 2018 
71 


Chairman Upton, Ranking Member Rush, Representative Walberg, and distinguished members of the 

Subcommittee, thank you for the opportunity to testify regarding H.R. 4476, the "PURPA Modernization 

Act of 2017." 

My name is Tim Sparks and I am the Vice President of Electric Grid Integration for Consumers Energy, 

referred to throughout this testimony as "CE." 

CE is the principal subsidiary of CMS Energy and is Michigan's largest energy provider- serving natural 

gas and/or electricity to 6.7 million of the state's 10 million residents in all68lower Peninsula counties. 

CE has a workforce consisting of approximately 15,000 employees and contractors and owns 

approximately 5,885 megawatts of generating capacity. We started in Jackson, Michigan in 1886 and are 

headquartered there today. Our corporate purpose guides our actions- World Class Performance 

Delivering Hometown Service- and we measure our success through a triple bottom line: People, 

Planet, and Prosperity. 

As Vice President of Electric Grid Integration, my responsibilities include, in part, overall oversight of 

CE's long-term and short-term electric supply planning, investments and strategy. My role directly 

impacts our commitment to the Planet as it relates to investing in clean and renewable energy. While 

proud of the success we've seen in this area, we recognize our work is far from done. 

CE and parent company CMS Energy have taken several recent actions to leave our planet better than 

we found it, and just last month, we were honored as the top performer for Michigan companies by 

Newsweek in its annual "Green Rankings." Recent activities include: 
72 


Closing seven coal-fired power plants in 2016- a higher percentage of our coal 

generation than any other investor-owned utility in the U.S. 

• Obtaining over 10 percent of the electricity our Michigan customers use from renewable 

sources such as wind, solar and hydroelectric power- and working toward increasing this to 

15 percent by 2021. 

Opening two solar power plants in Grand Rapids and Kalamazoo; CMS Energy will install 

another in Lansing in 2018. 

• Helping Michigan homes and businesses save over $1 billion on bills through energy 

efficiency since 2009. 

Reducing water used to generate electricity by 17 percent in 2017- and expecting to reach 

a 20 percent reduction by 2018, saving over 100 million gallons of water per year. 

• Committing to a cumulative waste reduction goal of one million cubic yards of landfill space 

avoided by 2019- a goal we met two years early {in 2017). 

In addition to our commitment to increase renewable generation and sustainability, we are also 

committed to keeping costs low for our customers- not only as a direct benefit for customers, but also 

to attract new business and grow Michigan's economy. We believe it is possible to do both, and H.R. 

4476 will help make that possible. 

Enacted 40 years ago, the Public Utility Regulatory Policies Act of 1978 {PURPA) mandates that electric 

utilities purchase power from certain qualifying generating facilities (QFs) at forecasted prices set by the 

state public service commission at inception of the contract term, in hopes of promoting increased 

energy conservation, efficiency and the growth of renewable energy. Now, four decades later, America's 
73 


energy landscape looks nothing like it did in the 1970s. The transformation of the energy industry has 

been revolutionary and includes: 

open access to electric transmission for power producers and standardized interconnection 

standards for smaller generators; 

• various state and federal policies that have augmented energy efficiency practices and 

renewable energy development; and 

• drastically lowered costs for clean and renewable energy. 

Simply put, the 1978 PURPA law is outdated and forcing our customers to pay well above market prices 

for energy, including renewable energy, that they could otherwise get at a much lower rate. This is why 

Consumers Energy is supportive of H.R. 4476. The narrowly crafted bill does what it says it will domodernize PURPA in a modest but important way. 

First, the bill provides clarification to stop abuses of the "one-mile" rule. FERC regulations provide that 

for purposes of calculating a QF's net capacity, generating facilities are considered together as a single 

QF if they are located within one mile of each other, use the same energy resource and are owned by 

the same persons or their affiliates. H.R. 4476 provides recourse for a challenge to be pursued should 

QFs not properly adhere to the criteria for purposes of calculating capacity. Thus far in Michigan, we 

have not seen the egregious circumvention of this provision by certain small power producers as other 

utilities around the nation have experienced. Should the existing regulation remain intact, the 

opportunity to violate the intent of the PURPA one-mile rule will always exist, and our customers have 

no recourse to challenge this "gaming of the system." 
74 


Second, the bill recognizes the existence of non-discriminatory access to markets in those parts of the 

country with organized Regional Transmission Organizations by reducing the size of a covered QF to 2.5 

megawatts (MW) from 20 MW. Organized in 2001, the Midcontinent Independent System Operator 

(MISO) manages the electric transmission reliability and grid functions for 15 states, including Michigan, 

and the Canadian province of Manitoba. CE has been a member since 2002. Most importantly, MISO 

assures unbiased, open access to the electric transmission system under its jurisdiction. Many of the QFs 

with which we were obligated to contract over 30 years ago now have the option to interconnect to the 

MISO transmission system as an independent power producer. Two of CE's current PURPA-based 

contracts are with facilities that are already connected to MISO's transmission system; one facility is 

owned by a privately held group of companies that operate 58 projects in 15 states and two countries, 

the other facility is owned by an investor-owned group of international companies with annual revenue 

in excess of €66 billion euro. Clearly, these power producers should not be considered "small power 

producers" under PURPA. Unless the existing law is changed in accordance with H.R. 4476, CE's 

customers will continue to be burdened with paying above-market rates to facilities like these. 

While this option to connect to the transmission system operated by MISO did not exist in 1978, it does 

exist now. However, many of these QFs receive a much greater financial benefit by producing power as 

a PURPA facility under today's law, and thus do not avail themselves of the opportunity to participate in 

the competitive market. This is costing our customers money. Over the next five years, CE's customers 

are estimated to pay approximately $21 million annually above market for power from contracted 

PURPA facilities; $18 million of this $21 million will be paid to QFs above 2.5 MW. 

This increased cost to our customers is formulated by the state-calculated avoided cost rate and applied 

to the QF's output. The avoided cost rate is the incremental costs to an electric utility of electric energy 
75 


or capacity (or both) which, but for the purchase from a QF, the utility would generate itself or purchase 

from another source. Following a lengthy and complicated stakeholder process, the Michigan Public 

Service Commission (MPSC) recently announced a new avoided cost rate forCE. While we appreciate 

their steadfastness in doing their due diligence as mandated by federal law, the rate still remains well 

above market. This is illustrated by the dramatic increase in requests CE is receiving from new 

independent generators looking to interconnect to our electric system as potential PURPA QFs. 

From 2012 through 2016, we averaged 197 applications per year for PURPA-eligible facilities to access 

the grid. In 2017, we received 683 applications. All of these applicants represent facilities at less than 20 

MW. Some, but not all of these applicants, have indicated they will be seeking PURPA supply contracts 

with us. This inflow of PURPA contracts means that in one year we have received enough interest from 

PURPA contracts to expand to five times the installed capacity of contracts that we have in place from 

the last 40 years. Combined with existing PURPA contracts, these potential new QFs, greater than 2.5 

MW, could wind up costing CE customers an estimated $35 million annually above market over the next 

five years. 

The third provision in the legislation recognizes the critical role state public service commissions play in 

keeping energy costs low for customers. The bill would further support state commissions in this role by 

allowing greater flexibility to suspend the mandatory purchase obligation should they find additional 

electrical capacity is not needed by the utility's customers as determined by integrated resource plans or 

a competitive resource procurement program that provides an opportunity for QFs to participate in 

wholesale markets. This language supports activities in Michigan, and recent legislation passed by the 

Michigan Legislature that requires regulated utilities file an Integrated Resource Plan with the MPSC on 

a regular basis beginning no later than April 20, 2019. 
76 


I want to be clear on one thing- CE is not advocating for less renewables in our energy mix. In fact, since 

2005, we have increased our renewable portfolio from 3% to 10% in 2015 and will meet the state's 

requirement of expanding our renewable generation to 15% by the end of 2020. These increases in 

competitively bid renewable generation will be and have been accomplished through renewable 

contracts and company-developed assets, unaided by any expansion of PURPA QFs. 

In closing, the current PURPA law must be updated. Certain QFs from which we're required by law to 

purchase capacity and energy do have access to the MISO market, thereby running afoul of PURPA's 

intent and our customers are paying the price. CE customers between the years 2006-2015 paid $300 

million above market for electricity from qualifying PURPA generators less than 20 MW. This 40 year 

law has succeeded in its mission- to promote the growth of renewable energy- but desperately needs 

updating. 

Supported not only by Consumers Energy, but also by the Edison Electric Institute, the National Rural 

Electric Cooperative Association, and the American Public Power Association, along with a number of 

other businesses across the nation, we strongly urge the passage of H.R. 4476. 
77 

Mr. OLSON. Thank you, Mr. Sparks. 

The Chair now calls upon Mr. Karl Ra ́bago. Karl is the executive 

director of Pace Energy and Climate Center. 

Sir, you have 5 minutes, opening statement. 

STATEMENT OF KARL R. RA ́ BAGO 

Mr. RA ́ BAGO. Thank you, Chair Olson, Ranking Member Rush, 

members of the committee. 

[Continuing after audio error] against market abuse and improper discrimination. 

My name is Karl Ra ́bago. I am appearing actually in my capacity 

as a principal of Ra ́bago Energy LLC. I worked in the electricity 

sector for about 30 years, after spending 12 years as a cavalry and 

JAG officer in the United States Army. I have been a public utility 

commissioner in the State of Texas, a Deputy Assistant Secretary 

at U.S. DOE, a utility executive, and a frequent expert witness in 

State proceedings. 

I am also the executive director of the Pace Energy and Climate 

Center at Pace University in New York. I am not appearing before 

you in that capacity, but I do bring greetings from one of my office 

mates, former Congressman Richard Ottinger, who founded the 

center where I work and who codrafted and sponsored PURPA 

when he sat in this body 40 years ago. 

The first thing I am going to do is describe some very serious 

concerns with H.R. 4476. Second, I am going to share with you 

some general thoughts about PURPA. 

H.R. 4476 should be rejected by this body in favor of a more 

measured and competition friendly approach. Section 2 would 

eliminate FERC’s One-Mile Rule and instead mandates a rebuttable presumption, inviting utilities to use FERC litigation as an 

anticompetitive tool. 

The result would make project financing more expensive or even 

impossible for private sector small power producers who, unlike 

monopoly utilities, cannot pass their litigation costs onto captive 

ratepayers. 

Section 3 would create a presumption that all facilities 2.5 

megawatts or greater in size have nondiscriminatory market access, but the record does not support that presumption. Section 3 

would expose many small power producers to market access discrimination and would stifle competition. 

Section 4 puts the utility fox in charge of the power sector hen 

house. Under the bill, the monopoly utility can almost unilaterally 

determine competitors’ market opportunities. It would take the 

small power sector back 40 years to the days when utilities ran 

their markets like cartels and consumers paid the price. 

In sum, PURPA modernization, as proposed in the bill, tilts the 

law so steeply in favor of monopoly utilities that it would frustrate 

Congress’ long history of efforts to grow and improve competitive 

markets in the electricity sector. 

Now just a few general issues. 

PURPA is 40 years old, but we still do not have truly competitive 

and nondiscriminatory markets for qualifying small power producers and cogenerators. There are still many States where utilities, and even some of their regulators, perpetuate the very probVerDate Mar 15 2010 14:17 Jan 09, 2019 Jkt 037690 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 I:\115THCONGRESS\115X94LNGXPURPAAWAITWINBERGQFRR\115X94LNGXPURPAWO
78 

lems that led to PURPA. The real problem today is the need for 

modernization of a utility business model that is now more than 

100 years old. 

Second, PURPA is working well in many places. The Michigan 

Public Service Commission recently concluded a case involving 

Consumers Energy and all the utilities in Michigan, demonstrating 

that it was ready, willing, and able to address questions like how 

to use IRP processes to inform avoided cost calculations, how to account for and keep up with market changes, and how to chart a 

course for future improvements in avoided cost methodologies. 

Third, there is a competitively significant difference between how 

utilities want to treat qualifying facilities and how they treat themselves. Utilities’ shareholders would never build power plants based 

on a 2-year contract. They would never limit their earnings to marginal cost-driven market prices. They can’t even keep their existing 

generators running with those prices today. And utilities would 

never wait until there was an energy or capacity shortage crisis to 

begin planning for or building a new power plant. 

Fourth, market prices and competitive solicitations can inform 

but cannot replace the avoided cost determinations under PURPA. 

Market prices are the result of bidding strategies and a system designed to generate lowest short run prices for energy and capacity, 

not build power plants. Competitive bids tell you the lowest bid 

anyone is willing to offer, but that does not tell you what anything 

is worth. 

To establish full and fair avoided cost, more work does need to 

be done by State regulators. That work increasingly includes evaluating distribution level costs that are avoided by small generators, 

values that FERC rules and procedures may actually not fully assess. 

So, finally—well, I will just stop there and say thank you very 

much for the opportunity to address this committee, to address 

these important issues, and I look forward to standing for your 

questions. 

[The prepared statement of Mr. Ra ́bago follows:] 

79 


House Energy & Commerce Committee, Subcommittee on Energy 

Hearing on Legislation Addressing PURP A Modernization 19 January 2018 

SUMMARY OF TESTIMONY BY KARL R. RABAGO, RABAGO ENERGY LLC 

PURP A and its implementing regulations have special significance to the emerging, jobcreating small renewable power producer sector. As important today as ever, PURP A acts as a 

bulwark against monopoly utilities' market power abuse and improper discrimination against 

these private-sector power producers. FERC and states have the authority they need to keep it so. 

The "PURPA Modernization Act of2017," H.R. 4476, proposes three significant and 

problematic changes to PURP A and should be rejected in favor a more measured and 

competition-friendly approach to addressing perceived concerns about electricity markets. 

H.R. 4476, Section 2 would eliminate the FERC's 1-mile rule and instead mandates a 

rebuttable presumption, inviting utilities to use FERC litigation as a tool for discouraging and 

discriminating against small power producers. The resulting uncertainties would make project 

financing more expensive or impossible for private-sector small power competitors that, unlike 

monopoly utilities, cannot pass their litigation costs onto captive ratepayers. 

H.R. 4476, Section 3 would create a presumption that all facilities 2.5 MW or greater in 

size have non-discriminatory access to transmission and interconnection services and wholesale 

markets. H.R. 4476 would burden an important segment of the small power production sector 

with market access discrimination, stifle competition, and harm the public. 

H.R. 4476, Section 4 is about putting the utility fox in charge of the small power sector 

henhouse. Rather than maintaining proven FERC and state PURP A implementation processes, 

H.R. 4476 would empower utilities to effectively eliminate PURPA's competitive market. Under 

H.R. 4476, the monopoly utility can unilaterally determine the size of its competitors' market, 

particularly in states with no competitive procurement requirements. Section 4 would also 

provide no opportunity for FERC or states to combat a utility's uncompetitive actions. 
80 


re 

RABAGO ENERGY LLC 

Testimony of 

Karl R. Rabago 

Rabago Energy, LLC 

Before The 

United States House of Representatives 

Committee on Energy and Commerce 

Subcommittee on Energy 

Hearing Entitled: 

62 Prospect Street 

White Plains, NY 1o6o6 

karl@rabagoenergy.com 

c/SMS: 512.g68.7543 

rabagoenergy.com 

"Legislation Addressing LNG Exports and PURP A Modernization." 

19 January 2018 
81 


House Energy & Commerce Committee 

Subcommittee on Energy 

Hearing on LNG & PURPA Legislation 

INTRODUCTION 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

Thank you, Chair Upton, Ranking Member Rush, and Members of the Subcommittee. 

For nearly 40 years, Section 210 of the Public Utility Regulatory Policies Act, commonly 

referred to as PURP A, has served as a critical foundation and backstop in Congress' drive to 

increase reliance on competitive market forces in the electricity generation sector. Today, 

PURP A and its implementing regulations have special significance to the emerging market for 

privately owned small renewable energy power producers. This emerging market is driving job 

growth in the United States-these smaller facilities create more local jobs per MW than utilityscale fossil fuel plants. Small, privately owned power producers enjoy more siting flexibility, 

thus enabling their contributions to grid resilience, reliability, and cost reductions. PURPA also 

ensures that homes and small businesses can take advantage of solar energy, for example, by 

ensuring that solar generation receives compensation at the avoided cost rate, and that the 

charges for consumed energy at the home or business are reasonable, by ensuring a reasonable 

opportunity to interconnect to the grid, and the right to not be charged unfair charges by utilities. 1 

Today, PURP A operates in a context of competitive wholesale markets-markets that 

PURPA helped to establish and grow. PURPA's signature provision, the requirement that 

utilities must buy energy and capacity under contract terms based upon and not to exceed their 

avoided costs, remains vital as electricity markets develop for small, privately owned renewable 

power producers and cogenerators. Thanks to thoughtful and evolving regulatory implementation 

by the Federal Energy Regulatory Commission ("FERC") and the state regulatory authorities, 

1 See 18 C.F.R. § 292.304-.306. 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

PURP A, as currently implemented, continues to act as a bulwark against market power abuse 

and improper discrimination by monopoly utilities against small, privately owned renewable 

power producers and cogenerators. In short, PURP A is as important today as it has been for 

nearly 40 years. The FERC and states have the authority to make changes, and the heavy hand of 

Congress should be tempered. 

The "PURPA Modernization Act of2017" proposes three significant and problematic 

changes to PURP A implementation. I urge you to reject the changes proposed in H.R. 4476 in 

favor a more measured and competition-friendly approach that invites FERC and the states to 

address the perceived concerns motivating that legislation. 

H.R. 4476, Section 2 would eliminate the FERC's 1-mile rule for determining whether 

proximate power producers meet the definition of"small." In place of the rule, the bill would 

mandate a rebuttable presumption that would empower utilities to use FERC litigation as a tool 

for discouraging and discriminating against small, privately owned renewable power producers. 

The resulting uncertainties would make project financing more expensive for privately owned 

small power competitors that, unlike monopoly utilities, cannot pass their litigation costs onto 

captive ratepayers. 

H.R. 4476, Section 3 would create another presumption that would work against small 

privately-owned power competitors-a presumption that all facilities 2.5 MW or greater in size 

have non-discriminatory access to transmission and interconnection services and wholesale 

markets. The FERC established a similar presumption at the 20 MW level under FERC Order 

688, issued in 2006, based on an extensive record and regulatory proceeding. There is no 

comparable factual or analytical congressional record to support the change in the presumption 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

threshold proposed in H.R. 4476, Section 3. The change proposed in H.R. 4476 would burden 

the bourgeoning the small power production sector with market access discrimination that still 

exists and stifle the growth of this competitive sector. 

H.R. 4476, Section 4 is about putting the monopoly utility "fox" in charge of their small, 

privately owned production competitor's "henhouse." Rather than maintaining the current FERC 

and state PURP A framework, which has been developed, adapted, and approved over the past 

nearly 40 years, section 4 ofH.R. 4476 would effectively eliminate the must-buy provisions of 

PURPA. In place of that requirement, which currently works well to ensure a competitive 

opportunity for small, privately power producers, H.R. 4476 would grant utilities full control to 

determine the size or existence of their competitors' market. Under H.R. 4476, a utility could 

refuse to purchase energy or capacity from a qualifying small power facility if the utility 

unilaterally determines it has "no need" for the energy or capacity in an Integrated Resource 

Planning ("IRP") process that the utility controls and was not designed to serve as a resource 

procurement process. H.R. 4476 provides for only limited state regulatory oversight, and no 

oversight at all for non-regulated electric utilities or those operating in states that do not require 

IRPs. 

H.R. 4476 is not only unnecessary, but it would cripple competitive opportunities by 

qualifying small privately-owned power producers. The statutory changes proposed in H.R. 4476 

take aim at problems that, in fact, are not problems to anyone but monopolist utilities. H.R. 4476 

would take market opportunities for these generators back more than 40 years, to a time when 

utility anti-competitive behavior necessitated the passage of PURP A. 

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House Energy & Commerce Committee 

Subcommittee on Energy 

Hearing on LNG & PURPA Legislation 

BACKGROUND 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

I am currently the Executive Director of the Pace Energy and Climate Center at the Pace 

University Elisabeth Haub School of Law in White Plains, but I appear before you today in my 

capacity as principal of Rabago Energy LLC, a consulting business that I own and operate in 

New York. I bring you greetings from one of my colleagues and the founder of the Pace Energy 

and Climate Center, former Congressman Richard (Dick) Ottinger, who represented Westchester 

County in this body, and who helped draft and co-sponsored PURPA some 40 years ago. In the 

past 30 years, I have worked in the electricity sector in the United States and around the world. 

That involvement has included service as a public utility commissioner in Texas, a deputy 

assistant secretary at the U.S. Department of Energy, a regulatory affairs director with a multinational power company, a utility executive, an advocate, and a law professor. 

My experience includes hundreds of on-the-record decisions as a commissioner, research 

and development management, renewable energy development practice, advocacy on behalf of 

not-for-profit organizations, testimony in several PURP A and avoided cost cases around the 

country, and years of practice in electricity market development. 

ASSESSING THE NEED FOR PURPA "MODERNIZATION" 

This testimony will address some key points that I believe you should keep in mind when 

considering whether changes are needed to modernize PURP A. PURP A plays a vital and unique 

role in facilitating competition in the electricity sector. Indeed, it is the only federal statute that 

requires competition in the electricity sector. Changes to the statute that would weaken this role 

are unnecessary and inappropriate. Changes that grant preferential status or advantage to 

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House Energy & Commerce Committee 

Subcommittee on Energy 

Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

monopoly utilities are anti-competitive. Changes that unnecessarily and unjustifiably displace the 

careful and balanced regulatory processes in FERC and in the state utility regulatory 

commissions risk frustrating PURP As goals of advancing competition in electric markets. 

The States' Role in Setting Avoided Costs -As a former state utility regulator, member of 

development teams, and utility executive, and in my current role of frequent expert witness in 

regulatory proceedings, I have the greatest respect for the process of cooperative federalism that 

drives the implementation of PURP A in our nation. FERC honors Congressional intent through 

regulations and adjudications, evolving the PURP A regime based on facts in real cases and 

rulemaking in which parties and advocates have full and fair opportunities to make their cases 

and state their views. The states play a major role in implementing PURPA, reflecting the special 

and diverse concerns of their legislatures and regulatory environments through the process of 

establishing just and reasonable avoided cost rates. All this has resulted in a body oflaw and 

practice--and an electricity market-that is more competitive, more affordable, and more 

balanced than would have been the case without PURP A. 

I can cite no stronger example of the wisdom of the PURPA system oflaws and 

regulations than we have recently experienced in Michigan. I was pleased to serve as an expert 

witness on behalf of the Environmental Law and Policy Center ("ELPC") in those cases, 

advocating for the Commission's adoption of state-level PURP A avoided cost determination 

processes that would advance competition through improved non-discriminatory access to 

markets for qualified small power producers. 

Two extracts from the Michigan Public Service Commission's ("MPSC") Opinion and 

Order in the Case No. U-18090, establishing the method and avoided cost calculation for 

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House Energy & Commerce Committee 

Subcommittee on Energy 

Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

Consumers Energy Company, entered on November 21, 2017, 2 reflect the careful and reasoned 

way in which state commissions approach their responsibilities under and ensure compliance 

with PURPA. The proceeding took 18 months and involved hundreds of pages of testimony, 

hearings, and pleadings by several parties, including the utility, power producers, consumer 

representatives, and advocates like ELPC. In its Opinion and Order, the MPSC documented how 

the state process under PURP A has stayed abreast of market changes: 

The Commission also acknowledges the difficulty associated with setting new avoided 

costs and the need to monitor the development of PURP A projects going forward, given 

potential changes in capacity needs, fuel costs, and technology and construction costs. It 

has been 40 years since P URP A was enacted into law, and much has changed during that 

time-wholesale markets and retail competition have developed, stagnant load growth 

makes it more difficult to absorb costs without putting pressure on utility rates, and 

economic forces and technological advancement have driven the shift from electricity 

generated using coal to natural gas and renewables. Although the world has changed 

dramatically, PURPA has historically used conventional, fossil-fueled generating plants 

as a proxy for a utility's avoided cost, even though it may be more expensive than how 

the utility would actually secure equivalent amounts of incremental energy and capacity 

needed to meet customer demand. 3 

2 Mich. Pub. Svc. Com'n., "In the matter, on the Commission's own motion, establishing the 

method and avoided cost calculation for Consumers Energy Company to fully comply with the 

Public Utility Regulatory Policies Act of 1978, 16 USC 2601 et seq.," Case No. U-18090, 

Opinion and Order of Nov. 21, 2017. 3 ld. at pp. 29-30. 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

The MPSC also addressed an issue germane to this hearing, the relationship between 

state-level utility IRP processes and the assessment of need for energy and/or capacity: 

Going forward, the Commission believes that PURP A avoided costs should be integrated 

with capacity demonstration and IRP proceedings in order to more accurately assess 

capacity needs. The IRP proceedings are conducive to updating avoided costs, because 

the Commission will already be evaluating, in detail, utility-specific plans for any 

incremental generation or purchases along with their associated costs. 

Michigan also adopted a 2-year cycle of avoided cost review, as is also the practice in 

North Carolina, for example. Frequent updating of avoided costs protects utility customers and 

small power producers from the negative effects of regulatory lag. The record in Michigan, and 

similar proceedings in many states confirms that the state regulatory commissions can be 

counted on to play a vital role in keeping PURPA "modem" and markets fair. 

The Role of Market Prices in Informing PURP A Avoided Costs- It is frequently asserted that the 

case for PURP A modernization is established by the fact of organized wholesale markets. 

Indeed, the successful operation of the markets and independent transmission organizations 

justified major changes in the PURP A in 2005. The argument against the continuation of 

PURPA's must-buy provisions goes too far, however, when it is applied to qualifying small 

power producers, and when it is suggested that market prices are equal to utility avoided costs. 

Prices are not the same as costs. Prices are an artifact of a wide range of issues, including costs, 

but also bidding strategies, contracting obligations, and the operation of tax credits and other 

factors impacting operational economics. 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

Further, the price set in day-ahead and short-term capacity markets like MISO or PJM do 

not accurately capture the value of the power provided because most or all of the market 

participants are regulated utilities who do not rely on that same market to recover its costs. In a 

traditional market, market participants recover their costs and earn a profit through the revenues 

they earn in the market. In contrast, utilities are guaranteed cost recovery and profits from their 

ratepayers--not from the market. As a result, the market pressures that exist in a traditional 

market are not the same when the market is composed of utilities. Asserting that qualifying small 

power producers should only be paid market prices, and not full avoided costs, means that these 

competitors can only enter the market under terms that incumbent utilities do not even apply to 

themselves. 

An illustration of the above phenomena can be found in Michigan's recent update to its 

PURPA implementation policies. The MPSC Staff rejected a utility's argument that its avoided 

costs are the same as MISO market prices and stated: 

Under the utility cost recovery framework in Michigan, the utility does not rely on 

market cost recovery. At the lower Tiers (1 and 2), Consumers proposed method 

does discriminate in that the Company is proposing to compensate [qualifYing 

small, privately owned power producers} in a manner that is inconsistent with the 

way it recovers capacity costs for its own generation plants ... 

Consumers and other utilities in the MJSO footprint forecast capacity needs well 

into the future and build or enter into long-term contracts to meet these capacity 

requirements. The P RA was established for balancing functions to make up small 

zonal resource credit (ZRC) shortfalls in the upcoming or following year and is 

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House Energy & Commerce Committee 

Subcommittee on Energy 

Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

not intended to support resource investment decisions. It would be prudent for a 

regulated utility to plan to build a plant should a large capacity need be required, 

not purchase this capacity shortfall from the P RA. The P RA prices tend to be 

especially low compared to the cost of adding new capacity given that over 85% 

of the utilities in the MISO footprint are rate-regulated and are able to recover 

generation plant costs through traditional rate making. The P RA was never 

intended for an unregulated market as a mechanism for generation plants to 

recover capacity costs. Due to these market characteristics, the P RA does not 

function as a "true" market as it will likely never produce price signals that 

prompt capacity build-outs. The utility itself would never utilize the PRA as the 

sole source of capacity cost recovery for long-lived generation plant investments 

absent traditional regulated cost recovery. 4 

(Original citations omitted.) 

Procedures to Address Distribution-Level Avoided Costs- There is a need for 

modernization ofPURPA application in the states in assessing how qualifYing small power 

production facilities avoid distribution-level utility costs. 

PURPA operates on a cooperative federalism framework where the Federal Energy 

Regulatory Commission ("FERC") promulgates regulations and states implement them. 

Recognizing that electricity regulation and policy priorities vary state-by-state, PURPA put states 

4 Revised Direct Testimony of Jesse J. Harlow, Public Utilities Engineer in the Renewable 

Energy Section of the Electric Reliability Division at the Michigan Public Service Commission, 

Case No. 18090, Testimony at 6-7 (Nov. 18, 2016). 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

in the driver's seat to experiment and craft implementation plans that take into consideration 

their specific needs. 

In this country, a small but exciting new market for small, privately owned distributed 

energy resources is emerging. PURP A plays a major role in several states in supporting the 

emergence of this market, alongside of but distinct from integrated resource planning processes 

and utility project development initiatives. As already described, some states, through their 

expert regulatory commissions, are beginning to revise their PURP A-related avoided cost 

methodologies and calculations in an effort to create non-discriminatory opportunities for this 

new market. 

These small-scale resources, especially small solar plants, small wind farms, and 

biomass-based generation plants, create important benefits for local economies--especially new 

jobs and increased private investment. Industry experts recognize that these facilities avoid a 

wide range of costs. These avoided costs, often a feature of the specific location in which the 

generation is sited, include time-specific benefits associated with utility operations, avoided 

marginal costs associated with peak demand and the infrastructure required to serve it, reduced 

marginal line losses that increase with peak demand, and avoided marginal pollution emissions 

that also increase with peak demand, among others. For example, Value of Solar and Value of 

Distributed Energy Resource studies conducted or under way in several states are beginning to 

quantify these benefits. Integrating these values into avoided cost calculations is the next major 

step required. 

The electricity industry in the United States still varies quite significantly from state to 

state, therefore this modernization should be addressed by the state regulatory commissions with 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

jurisdiction over utility resource development and acquisition. Given the jurisdictional division 

of authority between states and the federal government in electricity regulation, these local and 

distributed avoided costs are difficult to capture through federal law and regulation. The 

cooperative federalism model in which PURPA operates appropriately puts the states in the 

driver's seat for addressing these kinds of local, distribution-level issues. 

I recommend that this Subcommittee ask the Department of Energy to establish a 

program to work with state commissions to assist them in developing processes for assessing, 

quantifying, and internalizing distribution-level avoided costs. Such work would accomplish 

much needed modernization in state-level PURP A practice and support the growth of a vital 

market and the jobs that go with it. 

COMMENTS ON SELECTED PURPA ISSUES 

Given the broad reach of the Committee's charge in evaluating the status of and practice 

under PURPA, this testimony overviews a number of key PURPA-related issues. Issues relating 

to H.R. 4476, already introduced, are also addressed in this section of these comments. 

I. The Must-Buy Provision- A frequent complaint by opponents ofPURPA is that it 

requires utilities to buy energy and capacity from small renewable power producers. The mustbuy provision of PURP A is critical to its effectiveness. This complaint, however, ignores a 

fundamental reality of PURP A and FERC practice: No utility can be required to buy energy or 

capacity from a small qualifying facility at a price higher than the utility's avoided cost. PURPA 

forces utilities to buy resources that cost less, and it always has. It still needs to do that. As 

already explained, setting purchase rates based on avoided costs puts qualifying small power 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

producers on an even footing with monopoly utilities in regard to the costs incurred for energy 

and capacity, and is categorically different from short-run marginal prices revealed in organized 

markets. 

2. Utility Self-Build Incentives- Complaints about the must-buy provisions ofPURPA raise 

another important point. One might ask: Why would a utility ever want to build and operate its 

own more expensive power plant, when it could instead procure energy and capacity from a 

small qualifying facility for less than or equal to its own actual avoided cost? The answer, of 

course, is related to shareholder profits and market power. 

Utilities pass qualifying facility-related costs through rates to customers as an expense, 

but utility power plant investments are recovered on a cost-plus-profit basis. Utilities have a 

strong financial bias toward building and owning their own power plants. This was a major 

problem that led to the adoption ofPURPA, and the utility desire to build and operate their own 

more expensive plants, and it continues today, even where organized markets operate. 

The problem of utility discrimination against small non-utility power producers and the 

utility preference for self-build options remains today. In Michigan, DTE Energy has 

simultaneously told the MPSC that they need no new capacity for purposes ofPURPA 

compliance, and that they want to build a brand new I, I 00 MW natural gas-fired power plant. It 

is worth also noting that DTE Energy does not propose for itself or its shareholders that it will 

limit its revenue requirement recovery for the plant to what it can earn in wholesale markets; 

rather, the utility seeks rate-base treatment and utility rate of return on the investment. 

3. Renewable Energy Market Growth- Opponents ofPURPA often cite remarkable year 

over year growth in the renewable energy sector as a justification for change. Renewable energy 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

growth must be seen in the right light, however. First, the largest sectors of growth are in the 

development of large-scale renewable energy by utilities, by the unregulated affiliates of utility 

companies, and by other large-scale renewable energy developers. This growth is not PURPA 

growth. 

Second, the growth of renewable energy has been dramatic in percentage terms. But 

observers should beware the law of small numbers: Even dramatic growth of a very small 

fraction of total energy supply mix is still a very small portion of the total energy mix. The right 

focus on market scale is even more important when the discussion is about small qualifying 

facilities. Solar qualifying facilities, for example, average about 8-10 MW in size, as compared 

with utility-scale solar farms that are 100 MW or more in size. The Energy Subcommittee 

received competent evidence that that total solar energy represents about 1% of total US 

electrical energy. The growth in small scale renewable energy development has not reached the 

point that it justifies a finding that small renewables have non-discriminatory access to markets. 

4. Non-Discriminatory Access to Markets- Ensuring non-discriminatory access to markets 

for small qualifying facilities is a key component of PURP A and has been since its creation. 

Many monopoly utilities complain that the must-buy requirements of PURP A interfere with how 

they prefer to procure renewable energy. Utilities typically take the position that they should be 

able to privately negotiate with small renewable facilities over contract terms, and/or use 

Integrated Resource Planning processes as the mechanism for determining when and how they 

will procure more energy and capacity. Some utilities even claim that they cannot manage the 

integration of small scale renewable energy generation and an integrated resource planning 

process at the same time. 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

We need to be clear what this position really is: It is the argument by a non-competitive 

monopolist that they should be able to exercise what is called market power, and have complete 

control over the negotiations with much smaller renewable energy generators, or use IRP 

processes that are non-binding planning-not procurement--exercises almost entirely in the 

control of these same monopolists. To tell small non-utility renewable energy generators that 

they can always negotiate one on one with a behemoth monopoly or make their case in the IRP is 

the equivalent of saying to these small would-be competitors that they can just eat cake. 

4. Integrated Resource Planning processes and Small Generation- Opponents ofPURP A 

and proponents of section 4 ofH.R. 4476 take the position that state-level IRP and IRP-related 

competitive procurement processes are an effective substitute for the must-buy requirement 

indexed to utility avoided costs. This position is wrong. First, the must-buy provision overcomes 

the severe economic and financial disadvantages that small qualifying facilities face in 

negotiating with monopoly utilities. Utilities have almost complete control over their integrated 

resource planning and procurement processes. Regulatory approval of utility planning processes 

does not entail approval of procurement decisions. Regulators do not prescribe or review utility 

competitive procurement and selection terms and processes. 

Second, utility resource planning processes are designed for and around large-scale 

resource evaluation, and not even resource procurement. That is, IRPs do have something to 

offer the overall PURP A process in informing large-resource avoided costs. But the electricity 

industry is only beginning to develop planning processes that capture the comparative costs and 

benefits of small scale electricity resources. The Distribution System Implementation Plans 

process in New York, a leading example, is still only emerging. The complex and expensive 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

computer models used by most utilities, for example, have not be modified to fairly value and 

evaluate small scale renewable energy resources. 

Third, IRP is not even the law in some 10 states, and there is no regulatory oversight of 

non-regulated electric utilities, like cooperatives and federal power authorities. 

Fourth, there is a wide variation among states in IRP requirements and practice. IRPs do 

not seek or obtain regulatory approvals for specific resource acquisitions. Most states do not 

require regulatory approval of the IRP, or even submission of a plan at all. The timing cycle for 

IRP submission and review is set at intervals as long as five years in some states, guaranteeing 

that IRPs in these states will be stale on not representative of actual market conditions. 5 

5. The Problem of Capacity Requirements Gaming- When the utility builds a plant, its 

capacity will typically be in excess of any immediate needs due to the lumpiness of their 

preferred technologies. The utility will then have a capacity surplus for a number of years and 

could claim that they have no need for capacity from PURP A qualifying facilities. Then, when 

capacity is once again needed the Company will again build excess capacity beyond immediate 

needs and the cycle will be repeated. This process would change if, on the next occasion when a 

utility needed capacity, it sourced the annual increment of capacity needed through a truly 

competitive bidding process-not just a non-committal IRP-and then continued to do that 

annually going forward. Improved competitive procurement processes that provide nondiscriminatory market opportunities to small generators could serve as a state level alternative to 

5 For a summary ofiRP approaches among the states, see Rachel Wilson & Bruce Biewald, 

"Best Practices in Electric Utility Integrated Resource Planning," Regulatory Assistance Project 

(Jun. 2013). 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

PURP A must-buy contracting, but until fully developed, must be backed by the PURP A mustbuy contract at avoided costs. 

6. Project Finance and Operational Footing- Small qualifying facilities do not yet stand 

on an equivalent financial and operating footing as large monopolistic utilities. Utilities enjoy 

ratepayer supported debt-to-equity ratios, Constitutional protections on capital investment 

recovery, franchised market share and service territory, and close operational relationships with 

regulators. PURPA-related contract provisions for small qualifying facilities, including longterm planning periods, standard contract terms, long-term contracts, and other provisions are 

necessary to put these small would-be competitors on a non-discriminatory footing with utilities. 

7. State Regulatory Experience with PURPA- Since the last utility challenge to PURPA 

was resolved almost 35 years ago, state regulatory commissions and state legislatures have fully 

come to terms with PURP A and its requirements. There is no state regulatory crisis justifying 

PURPA repeal or elimination of the must-buy requirement. 

8. FERC has the Expertise and Experience to Continue Federal Oversight of PURP A and 

Effectuation of Congressional Intent- FERC has used its regulatory authority to ensure that 

Congressional intent to advance generation market competition. As described by the FERC in 

Northern Laramie Range Alliance Pioneer Wind Park, 139 FERC 61190 (June 8, 2012), 

Title II of PURP A-section 201 of PURP A, which provides rules for certification ofQFs 

and is codified in the Federal Power Act (FPA) at sections 3(17) through 3(22), and 

section 210 ofPURP A, in which Congress required the Commission to prescribe rules as 

the Commission determined necessary to encourage cogeneration and small power 

production, including rules requiring electric utilities to offer to purchase electric power 

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House Energy & Commerce Committee 

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Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

from and sell electric power to QFs- was intended to encourage "the development of 

cogeneration and small power production facilities and thus to reduce American 

dependence on fossil fuels by promoting increased energy efficiency. " Prior to the 

enactment of PURP A. a cogenerator or small power producer seeking to establish 

interconnected operation with a utility faced three major obstacles. First, utilities 

generally were not willing to purchase their electric output or were not willing to pay an 

appropriate rate for that output. Second, utilities generally charged discriminatorily high 

rates for back-up service to cogenerators and small power producers. Third, a 

co generator or small power producer providing electricity to a utility's grid was treated 

as a public utility and subjected to extensive federal and state regulation. The 

Commission enacted its regulations against this background. 

(a) FERC's ]-mile Rule- FERC adopted the !-mile rule under 18 CFR § 292.204(a)(2)(i) 

in 1980, establishing a rule for determining whether a facility was entitled to be certified as a 

"qualifying small power production facility. That rule provides that: 

§ 29 2. 204 Criteria for qualifying small power production facilities. 

(a)Size of the facility-

(1) Maximum size. Except as provided in paragraph (a)(4) of this section, the 

power production capacity of a facility for which qualification is sought, together with 

the power production capacity of any other small power production facilities that use the 

same energy resource, are owned by the same person(s) or its affiliates, and are located 

at the same site, may not exceed 80 megawatts. 

(2) Method of calculation. 

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House Energy & Commerce Committee 

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Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

(i) For purposes of this paragraph, facilities are considered to be located 

at the same site as the facility for which qualification is sought if they are located within 

one mile of the facility for which qualification is sought and, for hydroelectric facilities, if 

they use water from the same impoundment for power generation. 

(ii) For purposes of making the determination in clause (i), the distance 

between facilities shall be measured from the electrical generating equipment of a 

facility. 

(3) Waiver. The Commission may modifY the application of paragraph (a)(2) of 

this section, for good cause. 

FERC has rejected efforts by utilities to interpret the rule as a rebuttable presumption, or 

to otherwise modify the rule. FERC's approach to the rule is sound and fair. Market participants 

have a clear, objective, and predictable standard in the rule, critical to financing small qualifying 

facility projects. A facility seeking status as a qualifying small power production facility must 

submit such facts as to meet the criteria of the rule, and then to build the facility in accordance 

with approved plans. 

PURPA opponents cite the example of two financially affiliated wind farm projects 

located more than one mile apart as an example of so-called gaming of the system.6 

Notwithstanding that the fact that the developers in that case met the clear and unambiguous 

terms of the FERC rule, the utility opponent maintained that the developers were "gaming" the 

rule. A critical element of the utility argument was that the two facilities shared the same 

6 Northern Laramie Range Alliance Pioneer Wind Park 1, LLC and Pioneer Wind Park II, LLC, 

139 FERC 61190 (Jun. 8, 2012). 

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House Energy & Commerce Committee 

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Hearing on LNG & PURP A Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

interconnection equipment and facilities. The fact that two generation facilities, whether 

affiliated or not, chose to economize on interconnection investments does not, of course, indicate 

the presence of gaming or that the two facilities are a single entity. Both the FERC rule and the 

FERC decision rightly reflect that result. 

Unwisely and unfairly, HR 4476 proposes to eliminate the objective and clear rule with a 

rebuttable presumption proceeding that would require FERC to make determinations based on 

seven different factors, and a case-specific interpretation of"affiliation," association," and 

"control." Instead of promoting competition in electricity markets through a time-tested, 

objective rule, H.R. 4476 would favor the litigious, and, in particular, utilities who can recover 

regulatory expenses from ratepayers. Small power producers do not stand on an equal footing 

with utilities in their ability to use FERC litigation for competitive advantage. 

Finally, even if the pattern and practice under the FERC !-mile rule revealed actual 

abusive behavior, the FERC has all the authority it needs to fix the practice and the rule. Inviting 

litigious and cost-insensitive utility protests to clog FERC's already crowded docket and add cost 

and risk to small facility developer plans is not a wise or economic solution. 

(b) Presumption of Non-Discriminatory Access- FERC performed its regulatory duty in 

response to Congressional direction reflected in PURPA § 210(m) in Order 688, establishing 

regulations applicable to small power production and cogeneration facilities. In particular, the 

regulations codified in 18 CFR § 292.309 establishing a rebuttable presumption that qualifying 

small power production facilities lack non-discriminatory access to transmission and 

interconnection services and wholesale markets. The regulations reflect careful consideration of 

market conditions, the characteristics of small power producers, impairments to nonPage 20 
100 


House Energy & Commerce Committee 

Subcommittee on Energy 

Hearing on LNG & PURPA Legislation 

Testimony of Karl R. Rabago 

Rabago Energy LLC 

19 January 2018 

discriminatory access, and the arguments of a wide range of parties. The rule in 18 CFR § 

292.309 stands as a fair balance of Congressional guidance to promote competitive markets, 

protect consumers, and treat utilities fairly. 

H.R. 4476 section 3 would establish a presumption that all facilities equal to or larger 

than 2.5 MW have such non-discriminatory access to markets. As previously discussed, small 

power producers remain a small part of the generation landscape. The record is inadequate to 

support a legislative finding of non-discriminatory market access. Congress should continue to 

rely upon the regulatory expertise and experience of the FERC to evaluate market conditions and 

the appropriate threshold for any rebuttable presumption relating to non-discriminatory access. 

SUMMARY 

Now in its 401

h year, the Public Utility Regulatory Policy Act and FERC's regulations 

implementing that law have demonstrated remarkable resiliency and effectiveness in realizing 

Congress' goal of facilitating competition and consumer savings in the electricity generation 

sector. FERC, today as in the past, has the expertise and experience to ensure that its rules adapt 

to the times and to evolving market conditions. State regulators are not facing a PURP A crisis; 

consumers are not being required to pay for any generation from small power producers at rates 

higher than utility avoided costs; and market conditions support PURPAs requirements and 

FERCs rulemaking authority today as they have in the past. This is not the time to grant 

advantage to incumbent monopoly utilities through legislation. This is not the time to repeal 

PURP A, in fact, or in effect. 

Thank you for the opportunity to participate in this hearing on this important topic. 

Page 21 
101 

Mr. OLSON. Thank you, Mr. Ra ́bago. And thank you also for your 

service to our Army. Please pass on to Chairman Shimkus, I just 

want to say congratulations, congratulations. In 16 years your 

Army has beaten my Navy twice, but two in a row, so well done. 

Mr. RA ́ BAGO. As a former professor at West Point, I have to tell 

you, it felt good this year. But that doesn’t cover all of the problems. 

Mr. OLSON. Well said. 

Our next witness is Paul Cicio. And Paul is the president of the 

Industrial Energy Consumers of America. 

Welcome back. You have 5 minutes, Mr. Cicio. 

STATEMENT OF PAUL N. CICIO 

Mr. CICIO. Thank you, Vice Chairman Olson and Ranking Member Rush and subcommittee members. Thank you for this privilege. 

Regarding H.R. 4476, the PURPA bill, we extend a thank you to 

Representative Walberg for exempting manufacturing cogeneration 

from the proposed changes to PURPA. The exemption recognizes 

that manufacturing companies are not in the business of generating and selling power and are not creating market problems. 

However, it is very important that the bill also exempt manufacturing company PURPA facilities that are classified at FERC as 

small power producers. To not do so would negatively impact their 

ability to produce low-cost power thereby reducing competitiveness 

and jobs. Congress should not pull the rug out from underneath 

these capital investments that were made with PURPA regulatory 

assurances. 

Also, manufacturing companies who have installed wind and 

solar units inside their fence line or intend to do so in the future 

for purposes of reducing electricity costs or reducing greenhouse 

gas emissions would be negatively impacted. We do not believe that 

that was the intent of Mr. Walberg. We look forward to working 

with him to exempt this class of QF facilities. 

Regarding LNG exports and H.R. 4605, IECA is strongly opposed 

to this legislation. The bill presents Members of Congress with a 

decision: Either to vote for the bill and support the oil and gas industry or oppose the bill and support your voters back home who 

risk higher natural gas and electricity costs long-term. 

DOE’s own LNG study that is entitled ‘‘Macroeconomic Impacts 

of Increased LNG Exports From the United States’’ illustrates that 

the net economic benefits of LNG exports almost exclusively serve 

the oil and gas industry and the public is impacted economically. 

The report concludes, quote, ‘‘Expansion of LNG exports has two 

major effects on income. It raises energy costs and, in the process, 

depresses both real wages and the return on capital for all other 

industries,’’ that is ‘‘all other industries,’’ unquote. 

Raising energy costs, depressing real wages, and the reduction of 

the return on capital on U.S. industries, one would conclude that 

increasing LNG exports cannot possibly be in the public interest. 

These impacts are exactly what happened in Australia. 

The bill is anti-consumer and removes the Natural Gas Act public interest test, which Congress put in place, which you put in 

place wisely. 

102 

Importantly, the legislation is actually not needed. Volumes already approved by the Department of Energy for nonfree trade and 

free trade agreement countries is equal to 71 percent of 2016 demand. That is 53 billion cubic feet a day. 

The excessive volume approved by the Department of Energy is 

a legal issue. Exporting 71 percent of U.S. demand cannot possibly 

be in the public interest. It is a violation of the Natural Gas Act. 

The DOE has failed to implement its regulatory responsibilities 

under the Natural Gas Act. It has not acted to protect the U.S. 

economy and the consumers from excessive future LNG exports. 

Congress is responsible for assuring implementation of the Natural 

Gas Act and safeguarding the American public with affordable and 

reliable natural gas. 

The Natural Gas Act is the law of the land. We urge the subcommittee to act to provide oversight of DOE-approved volumes 

and make remedy to protect the public interest. This is particularly 

important given that the 2017 AEO demand forecast indicates that 

56 percent of the lower 48 natural gas resources would be consumed by 2050. 

I look forward to your questions. 

[The prepared statement of Mr. Cicio follows:] 

103 


LEGISLATION ADDRESSING LNG EXPORTS AND PURPA 

MODERNIZATION 

HOUSE SUBCOMMITTEE ON ENERGY 

JANUARY 19,2018 

TESTIMONY 

OF 

PAUL N. CICIO 

PRESIDENT 

INDUSTRIAL ENERGY CONSUMERS OF AMERICA 

1776 K STREET, NW, SUITE 720 

WASHINGTON, DC 20006 

WWW .IECA-US.ORG 
104 


H.R. 4476, PURPA Modernization Act of 2017: It is essential for manufacturing to preserve the ability to 

self-generate power and steam to support competitiveness and jobs. Manufacturing PURPA qualifying 

facilities (QFs) are not in the business of generating and selling power and must be exempted from 

changes to PURPA proposed by H.R. 4476. The legislation does not exempt a category of QFs called 

"small power producers." Manufacturing QFs are not causing market problems, but support grid stability. 

H.R. 4605, Unlocking Our Domestic LNG Potential Act: This bill is anti-consumer by removing the Natural 

Gas Act (NGA) public interest determination, which was wisely put in place by Congress to ensure that 

LNG export volumes do not damage the economy and jobs. A reasoned volume of LNG exports is good 

for the economy, but excessive LNG exports will severely damage manufacturing competitiveness longterm and threaten capital investment that is now occurring due to low natural gas prices. 

The global LNG market is not a "free-market" and can unduly discriminate against domestic consumers 

of natural gas. The primary buyers are state-owned enterprises (SOEs) and regulated gas and electric 

utilities of countries that are not price sensitive, and with automatic cost pass-throughs, and whose 

highest demand is during the winter, when U.S. demand is at its greatest, thereby increasing the 

potential for spiking winter prices (see figures 7, 8, & 9). 

• The 2017-18 winter demand is a warning. If LNG export terminals now under construction had been 

operating, the U.S. inventories of natural gas would have been insufficient to meet demand. 

H.R. 4605 is not needed. Excessive volumes have already been approved by the DOE. The U.S. 

Department of Energy (DOE) has given final approval to both NFTA and FTA countries equal to 71.2 

percent of 2016 U.S. natural gas demand (or 53 billion cubic feet/day (Bcf/d). If this amount were 

exported, it would have a crushing impact on the U.S. economy. 

• The 100-year supply of natural gas is a myth. The 2017 Energy Information Administration's (EIA) Annual 

Energy Outlook (AEO) demand forecast indicates that 56 percent of all U.S. lower 48 states' technically 

recoverable natural gas resources will be consumed by 2050, only 33 years. Importantly, the AEO 2017 

forecast includes only 12.1 Bcf/d of LNG demand. 

Exporting LNG is not a large job creator as compared to manufacturing and threatens jobs long-term. 

From 2010 to 2016, the entire oil and gas industry created only 21 thousand jobs. During that same time, 

the manufacturing sector created 820 thousand jobs. Manufacturing can create eight times more jobs 

using natural gas, rather than exporting it (see figure 4). 

EIA already attributes higher natural gas prices to LNG exports. EIA is forecasting NYMEX natural gas 

prices to rise 80 percent by 2020 as compared to 2016. The price rise is in large part due to several LNG 

export terminals becoming operational. 

Natural gas resources should serve the public good/public interest by maximizing job creation, not the 

interests of the oil and gas industry. DOE studies illustrate that the net economic benefits of LNG 

exports almost exclusively serve the oil and gas industry and the public loses (see figure 6). 

H.R. 4605 is inconsistent with "America First" policy. Excessive LNG export approvals by the DOE to nonfree trade agreement (NFTA) countries is inconsistent with President Trump's "America First" and fairtrade policies, and poses a significant long-term threat to energy-intensive trade-exposed (EITE) 

industries' competitiveness and jobs. 

• Excessive LNG exports creates 12 winner states and 38 states who will lose. States that produce natural 

gas are big winners and all other states are not (see figure 11). 
105 


WRITTEN TESTIMONY 

Chairman Upton, Ranking Member Rush, members of the Subcommittee, thank you for the 

opportunity to testify before you on two important energy consumer issues: LNG exports and the Public 

Utility Regulatory Policies Act (PURPA). 

The Industrial Energy Consumers of America is a nonpartisan association of leading 

manufacturing companies with $1.0 trillion in annual sales and with more than 1.7 million employees. It 

is an organization created to promote the interests of manufacturing companies through advocacy and 

collaboration for which the availability, use and cost of energy, power or feedstock play a significant role 

in their ability to compete in domestic and world markets. 

IECA membership represents a diverse set of EITE industries including: chemicals, plastics, steel, 

iron ore, aluminum, paper, food processing, fertilizer, insulation, glass, industrial gases, pharmaceutical, 

building products, automotive, brewing, independent oil refining, and cement. 

H.R. 4476, PURPA MODERNIZATION ACT OF 2017 

It is essential for manufacturing to preserve the ability to self-generate power and steam to 

support competitiveness and jobs. Manufacturing PURPA QFs are not in the business of generating and 

selling power and must be exempted from changes to PURPA proposed by H.R. 4476. The legislation 

does not exempt a category of QFs called "small power producers." Manufacturing QFs are not causing 

market problems, but instead support grid stability. 

H.R. 4605, UNLOCKING OUR DOMESTIC LNG POTENTIAL ACT 

What is economically dangerous and unique about LNG export policy is that decisions being 

made today will not be felt for several years. The DOE has already approved excessive LNG export 

volumes. Once a terminal has been approved, there is no putting the genie back in the bottle. Congress 

is responsible for assuring implementation of the Natural Gas Act (NGA), and safe-guarding the public 
106 


and economy with affordable and reliable natural gas. It is the law of the land. Unfortunately, Congress 

has failed to provide the necessary oversight of DOE approval volumes. We urge you to do so. 

1. H.R. 4605 is anti-consumer by removing the Natural Gas Act's public interest determination that 

was wisely put in place by Congress to ensure that LNG export volumes do not damage the 

economy and jobs. 

A reasoned volume of LNG exports is good for the economy, but excessive LNG exports will 

damage manufacturing competitiveness long-term and threaten capital investment that is now 

occurring due to low natural gas prices and trillions of dollars of existing manufacturing assets. 

2. The legislation is not needed to increase exports. Excessive volumes have already been approved 

by the DOE. 

The DOE has given final approval to both NFTA and FTA countries equal to 71.2 percent of 2016 

U.S. natural gas demand {or 53 Bcf/d). If this amount were exported, it would have a crushing impact on 

the U.S. economy. 

3. The 100-year supply of natural gas is a myth. 

The oil and gas industry touts that the U.S. is the largest producer of natural gas in the world, 

but neglects to acknowledge that the U.S. is also the largest consumer in the world. And, we are 

increasing our dependency to grow manufacturing jobs, investments, and increased consumption by the 

power sector. 

Using EIA AEO 2017 demand, which includes net exports of natural gas, the U.S. has only a 9.5-

year supply of proved resources and a 53-year supply of resources that are classified as technically 

recoverable. Technically recoverable resources does not mean they are economically recoverable. In 

fact, table 9.2 in the EIA assumptions to the AEO 2016,1 the resource for the cited data on page 132 it 

1 Annual Energy Outlook 2016, https://www.eia.gov/outlooks/aeo/assumptions/pdf/0554(2016).pdf 
107 


states, "Estimates of TRR (Technical Recoverable Resources) are highly uncertain, particularly in 

emerging plays where few wells have been drilled." This uncertainty regarding how much of the 

natural gas can be economically recovered is of critical importance. 

Figure 1: EIA-Technically Recoverable U.S. Natural Gas Resources (Billion Cubic Feet/Day) 

Total Techntcally Proved Reserves Unproved Reserves R bl R ecovera e esources 

Lower 48 (Onshore) 882.7 4,243.6 5,126.3 

Lower 48 (Offshore) 23.8 866.3 890.1 

TOTAL 906.5 5,109.9 6,016.4 

Source: Technically recoverable U.S. dry natural gas resources as of January 1, 2014, Energy Information 

Administration (EtA) https:Uwww.eia.gov/outlooks/aeo/assumptions/pdf/oilgas.pdf 

Note: Data does not include Alaska (onshore and offshore}. 

A scenario using the EIA AEO 2017 forecast of only 12.1 Bcf/d would consume 56 percent of all natural 

gas. 

The figure below tells the story as to why the DOE should NOT approve more LNG export 

terminals. The 2017 EIA AEO demand forecast indicates that 56 percent of all U.S. lower 48 states' 

technically recoverable natural gas resources will be consumed by 2050, only 33 years. Importantly, the 

AEO 2017 forecast includes only a peak demand of 12.1 Bcf/d of LNG demand. The DOE has already 

approved 53 Bcf/d of exports. 

Figure 2: U.S. Natural Gas- EIA AEO 2017 Base Case (Billion Cubic Feet/Day) 

Dry " us EIA LNG Net Exports Net Exports I Total Year Productron* ~ Consumptwn Exports"'* to Mexrco to Canada i Consumption 

2014 71.0 72.9 -0.1 1.9 -5.2 69.5 

2015 74.2 74.8 -0.2 3.0 -5.2 72.4 

2016 72.6 75.3 0.2 3.8 -5.8 73.5 

2017 76.4 76.3 1.4 3.3 -5.2 75.8 

2018 79.7 77.0 2.7 4.4 -4.9 79.2 

2019 82.5 76.3 4.9 4.7 -4.1 81.8 

2020 84.4 74.8 7.9 4.9 -3.6 84.0 

2021 84.9 74.5 8.2 4.9 -3.3 84.3 

2022 85.8 74.5 8.5 4.7 -2.7 85.0 

2023 87.1 75.1 9.0 4.7 -2.5 86.3 

2024 88.8 76.2 9.6 4.9 -2.2 88.5 

2025 90.7 77.5 9.9 4.9 -2.2 90.1 

2026 92.1 78.6 10.4 4.9 -1.9 92.0 

2027 93.2 =r 78.9 10.7 4.9 -1.6 92.9 

2028 94.0 79.5 11.0 4.9 -1.6 93.8 

' ' 
108 


Dry ~ us EIA LNG Net Exports Net Exports Total Ye;:n I 

Production* ~ ConsurnptJOn Exports"'* to Mextco to Canada 1 Con~umpt1on 

2029 95.1 80.3 11.0 4.7 -1.1 94.9 

2030 95.6 80.8 11.0 4.7 -1.1 95.4 

2031 95.9 80.5 11.2 4.7 -1.1 95.3 

2032 96.7 81.4 11.5 4.7 -1.1 96.5 

2033 97.3 81.6 11.8 4.7 -0.8 97.3 

2034 98.6 82.7 11.8 4.4 -0.8 98.1 

2035 100.0 84.1 12.1 4.4 -0.5 100.1 

2036 100.5 84.4 12.1 4.4 -0.5 100.4 

2037 101.6 85.5 12.1 4.4 -0.5 101.5 

2038 102.5 86.3 12.1 4.4 -0.5 102.3 

2039 103.0 86.8 12.1 4.4 -0.5 102.8 

2040 103.3 87.4 12.1 4.1 -0.5 103.1 

2041 104.1 88.2 12.1 4.1 -0.5 103.9 

2042 104.7 88.8 12.1 4.1 -0.5 104.5 

2043 104.9 89.3 12.1 4.1 -0.5 105.0 

2044 105.8 90.1 12.1 4.1 -0.5 105.8 

2045 106.6 91.0 12.1 3.8 -0.5 106.4 

2046 107.1 91.8 12.1 3.8 -0.5 107.2 

2047 107.9 92.6 12.1 3.8 -0.5 108.0 

2048 108.5 93.2 12.1 3.8 -0.5 108.6 

2049 109.0 93.7 12.1 3.8 -0.5 109.1 

2050 110.4 94.8 12.1 3.6 -0.5 110.0 

Total 3,516.5 3,057.5 356.0 157.8 -66.0 3,505.3 Consumption 

.. Source: Energy lnformotlon Admm1strot1on (£/A), A£0 2017 

*The process of producing consumer-grade natural gas. Natural gas withdrawn from reservoirs is reduced by 

volumes used at the production (lease) site and by processing losses. Volumes used at the production site include 

(1) the volume returned to reservoirs in cycling, repressuring of oil reservoirs, and conservation operations; and (2) 

gas vented and flared. Processing losses include (1) non hydrocarbon gases (e.g., water vapor, carbon dioxide, 

helium, hydrogen sulfide, and nitrogen) removed from the gas stream; and (2) gas converted to liquid form, such 

as lease condensate and plant liquids. Volumes of dry gas withdrawn from gas storage reservoirs are not 

considered part of production. Dry natural gas production equals marketed production less extraction loss. 

**Net LNG exports includes the Sabine Pass, Dominion, Cameron, Freeport, and Cheniere terminals, already 

approved and under construction. 

A scenario using all DOE approved export volumes would consume 80 percent of all natural gas. 

IECA presents below a second scenario to examine the resource adequacy which includes all 

DOE approved LNG exports for shipments. Adding the EIA AEO 2017 cumulative volumes from 2016 to 

2050, and 41.9 Bcf/d volumes equal to approved applications of 54 Bcf/d, starting five years {time to 

build new export capacity) from now to 2050 combined, would consume 80 percent of all technically 
109 


recoverable resources by 2050. These bookend scenarios expose the seriousness of the implications to 

the U.S. economy and manufacturing jobs that cannot be understated. 
110 


Source: Energy Information Administration (EIA}, AEO 2017 

*The process of producing consumer-grade natural gas. Natural gas withdrawn from reservoirs is reduced by 

volumes used at the production (lease) site and by processing losses. Volumes used at the production site include 

(1) the volume returned to reservoirs in cycling, repressuring of oil reservoirs, and conservation operations; and (2) 

gas vented and flared. Processing losses include (1) non hydrocarbon gases (e.g., water vapor, carbon dioxide, 

helium, hydrogen sulfide, and nitrogen) removed from the gas stream; and (2) gas converted to liquid form, such 

as lease condensate and plant liquids. Volumes of dry gas withdrawn from gas storage reservoirs are not 

considered part of production. Dry natural gas production equals marketed production less extraction loss. 

**Net LNG exports includes the Sabine Pass, Dominion, Cameron, Freeport, and Cheniere terminals, already 

approved and under construction. 

***Net LNG exports includes already approved to FTA countries in the amount of 33.4 Bcf/d and to NFTA countries 

in the amount of 20.6 Bcf/d, for a total of 54.0 Bcf/d. Starting in 2020, each year there is an increase at a 

cumulative rate of 1.58 Bcf/d, until it peaks at 54.0 Bcf/d. 1.58 Bcf/d is equal to the average annual forecasted rate 

of LNG exports forecasted by the EIA from 2016 to 2020. 

The EIA AEO 2017 forecast would consume shale gas up to $20 mcf. 

It is also important to consider the higher LNG export demand on the availability of economically 

recoverable shale natural gas resources. Shale gas resources are usually referred to as the lowest cost 

resources. Figure 7 is from page B-20 of the DOE report "The Macroeconomic Impact of Increasing U.S. 

LNG Exports."2 DOE used this report to justify the approval of applications to export to NFTA countries. 

The chart below illustrates the shale breakeven cost curves for the U.S., Canada, and Mexico. 

Using the EIA AEO 2017 net U.S. demand 2016 to 2050, a cumulative volume of 1,227 Tcf of natural gas, 

and comparing this volume of natural gas to the breakeven cost to produce gas, and without additional 

LNG exports above the EIA AEO 2017 prediction, would require U.S. shale natural gas supply with a 

breakeven cost of up to $20 mcf. Importantly, this exercise assumes the EIA prediction of only 4.4 Tcf 

per year of LNG net exports. The obvious point is that LNG exports greatly speed up the consumption of 

our lowest cost natural gas. 

2 "The Macroeconomic Impacts of Increasing U.S. LNG Exports," U.S. Department of Energy, October 29, 2015, 

http://energy.gov/sites/prod/files/201S/12/f27/20151113 macro impact of lng exports O.pdf. 
111 


fl&ure B7. Shale Breakeven CUrves for North America by Country 

"""" $lO 

su 

Sill 

... 

$lf 

$15 

... 

SIJ 

su 

$11 

$10 

SJ 

$1 

$1 

" $$ 

ss " •• '" .. 0 

4. Exporting LNG is not a large job creator as compared to manufacturing and threatens jobs longterm. 

From 2010 to 2016, the entire oil and gas industry created only 21 thousand jobs. During that 

same time, the manufacturing sector created 820 thousand jobs. Manufacturing can create eight times 

more jobs using natural gas, rather than exporting it. 

Figure 4: U.S. Employment 

Year Manufactunng Oil & Gas Extraction 

(thousands) (thousands) 

2010 11,528 158.7 

2011 11,726 172.0 

2012 11,927 187.4 

2013 12,020 193.5 

2014 12,185 197.7 

2015 12,336 193.4 

2016 12,348 180.0 

Jobs Added 820 21.3 
112 


Figure 5: Stated Future Employment by LNG Export Terminals 

Export Facil1ty Permanent Jobs 

Sabine Pass liquefaction 580 

Freeport LNG Expansion and FLNG liquefaction 300 

lake Charles Exports 250 

Dominion Cove Point 175 

I Jordan Cove Energy 150 

I Cameron LNG 185 

I Gulf Coast LNG Export 250 

5. Sound natural gas and industrial policy should emphasize using natural gas to maximize job 

creation, not LNG exports. Long-term, you cannot have both. 

A study by Charles River Associates3 compared the economic benefit of using natural gas in 

manufacturing versus exporting it (see figure 6). The study concludes that using natural gas in 

manufacturing creates eight times more jobs, twice the direct value added per year and 4.5 times the 

direct construction employment than exporting the natural gas. In contrast, if excessive LNG exports 

increase domestic natural gas prices long-term, it will result in manufacturing job destruction. This is 

what happened from 2001 to 2008 when natural gas prices increased and manufacturing jobs 

decreased. 

Low-cost natural gas is the driver behind the 264 chemical industry-related projects that 

represent over $161 billion in new investment announced since 2010. According to the American 

Chemistry Council, the projects are estimated to create 426,000 high paying jobs and $301 billion in 

economic output.• This can continue long-term, but not without low-cost globally competitive natural 

gas. 

3 Charles River Associates: "US Manufacturing and LNG Exports: Economic Contributions to the US Economy and 

Impacts on US Natural Gas Prices", February 25, 2013 

http:Uwww.crai.com/sites/default/files/publications/CRA LNG Studv.pdf 4 American Chemistry Council, 2016, "Economic Impact of Shale Gas Investments and the Chemical Industry" 
113 


6. The global LNG market is not a "free-market" and can unduly discriminates against domestic 

consumers of natural gas. The primary buyers are state-owned enterprises {SOEs) and regulated 

gas and electric utilities of countries that are not price sensitive, and with automatic cost passthroughs whose highest demand is during the winter, when U.S. demand is greatest, thereby 

increasing the potential for spiking winter prices. 

SOE entities that buy LNG do so with the financial backing of their government. If the LNG 

market were tight, they would be able to buy-away U.S. gas from the domestic consumer. 

Both production and consumption oflNG globally is largely controlled by SOEs. And, LNG 

exporters continue to meet and discuss cartel topics. Figure 91ists exporters of natural gas of which the 

vast majority are SOEs. IECA has begun to assemble lists of SOE LNG buyers and SOE utilities (see figures 

7&8). 

The LNG cartel continues to meet. The 4'h Gas Summit of the Gas Exporting Countries Forum 

convened in Santa Cruz, Bolivia on November 24, 2017. The Gas Exporting Countries Forum (GECF)5 is a 

gathering of the world's leading gas producers and was set up as an international governmental 

s Homepage, Gas Exporting Countries Forum (GECF), https://www.gecf.org/ 
114 


organization with the objective to increase the level of coordination and strengthen the collaboration 

among member countries. Members include: Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, libya, 

Nigeria, Qatar, Russia, Trinidad and Tobago, United Arab Emirates and Venezuela. Azerbaijan, Iraq, 

Kazakhstan, the Netherlands, Norway, Oman, and Peru. The GECF's potential rests on the enormous 

natural gas reserves of the member countries all together accumulating 67% of the world proven natural 

gas reserves. 

Figure 7: Natural Gas- SOE producers and buyers of natural gas 

Country State-Owned Enterpnse (SOE) 

Algeria Sonatrach 

Argentina YPF 

Bangladesh Oil, Gas and Mineral Corporation (Petrobangla) 

Bangladesh Petroleum Corporation (BPC) 

Brazil Petrobras 

China Jereh Group 

China Kunlun Energy Company 

China National Offshore Oil Corporation (CNOOC) 

China National Petroleum Corporation (CNPC) 

China PetroChina 

China Sinochem 

China Sinopec 

Colombia Ecopetrol 

Egypt Natural Gas Holding Company (EGAS) 

Georgia Oil and Gas Corporation (GOGC) 

Ghana Ghana Oil Company 

Ghana National Petroleum Corporation (GNPC) 

Greece Energean Oil & Gas 

India Bharat Petroleum Corporation 

India Gujarat State Petroleum Corporation 

India Hindustan Petroleum Corporation Ltd. 

India Oil and Natural Gas Corporation 

India ONGC Videsh Ltd. (OVL) 

Indonesia Perusahaan Gas Negara (PGN) 

Iran National Oil Company 

Iran Pars Oil and Gas Company 

Iran Petropars Ltd. 

Iraq Kuwait Petroleum Corporation 

Iraq North Oil and Gas Company 

Kazakhstan KazTransGas 

Kenya National Oil Corporation of Kenya 

Lithuania Klaipedos nafta 

Malaysia Petroliam Nasional Bhd. (PETRONAS) 

Mexico Pemex 
115 


Country State-Owned Enterprise (SOE) 

Nigeria Nigerian National Petroleum Corporation 

Norway Statoil 

Pakistan State Oil (PSO) 

Papua New Guinea Oil Search ltd. 

Philippines National Oil Company 

Poland PGNiG 

Qatar Qatar Petroleum 

Romania Romgaz 

Russia Gazprom 

Russia Lukoi! 

Russia Rosneft PJSC 

South Africa PetroSA 

Saudi Arabia Oil Corporation {Aramco) 

South Korea Gas Corporation 

Syria Syrian Petroleum Company 

Thailand PTT Public Company ltd. 

Turkmenistan Turkmenistan Natural Gas Company 

UK Oil and Gas Authority 

Ukraine Naftogaz 

Uruguay AN CAP 

Venezuela PDVSA 

Vietnam Petrolimex 

Vietnam Petrovietnam 

Figure 8: Government Controlled Natural Gas & Electric Utilities 

Country 

Algeria Sonelgaz 

Australia Power and Water Corporation 

Azerbaijan Azerenerji 

Bulgaria Bulgarian Energy Holding 

Bulgaria NEKEAD 

Canada BC Hydro 

Canada Yukon Energy 

Denmark Orsted 

France ~lectricite de France 

France ENGlE 

Ghana Volta River Authority 

India NHPC Limited 

India North Eastern Electric Power Corporation 

India NTPC 

India SJVN limited 

Indonesia PT Perusahaan Listrik Negara 

Israel Electric Corporation 

Italy Edison 

Jamaica Public Service (JPS) 

Kenya Kenya Electricity Generating Company 

Malaysia Sabah Electricity 
116 


Country 

Malaysia Tenaga Nasional 

Nigeria Power Holding Company of Nigeria 

Norway Stat Kraft 

Pakistan K-Eiectric 

Pakistan National Electric Power Regulatory Authority 

Pakistan Punjab Thermal Power ltd. 

Poland Polska Grupa Energetyczna 

Qatar General Electricity and Water Corporation 

Russia Inter RAO 

Russia OGK-2 

Russia Rosseti 

Tanzania TANESCO 

Thailand Electricity Generating Authority of Thailand 

Uruguay Administration of Power & Electrical Trans. 

Venezuela Electricidad de Caracas 

Vietnam Vietnam Electricity 

Figure 9: Net Exporters of Natural Gas, 2016 

Net Exporters B1lhon CubiC Meters %of Total 

*Russia 205 23.6 

*Qatar 117 13.5 

*Norway 115 13.2 

Canada 61 7.0 

*Algeria 54 6.2 

*Turkmenistan 53 6.1 

Australia 41 4.7 

*Indonesia 34 3.9 

*Malaysia 24 2.8 

*Nigeria 23 2.6 

Others 142 16.3 

Total 869 100.0 

Total SOEs 625 71.9 

Note: Net exports and net 1mports mclude p1pelme gas and LNG. 

Source: International Energy Agency (lEA) 

7. EIA already attributes higher natural gas prices to LNG exports. 

EIA is forecasting NYMEX natural gas prices will rise 80 percent by 2020 from 2016. The price 

rise is in large part due to several LNG export terminals becoming operational. 

8. Natural gas resources should serve the public good/public interest by maximizing job creation, not 

the interests of the oil and gas industry. 
117 


The NERA study entitled, "Macroeconomic Impacts of Increased LNG Exports from the United 

States" illustrates that the net economic benefits of LNG exports almost exclusively serve the oil and gas 

industry and the public loses. 

The report said that there was net economic benefit, but that net economic gain was only $20 

billion by 2020 at its peak, and would decline every year. Given that the U.S. is a $19 trillion economy, a 

$20 billion gain is less than one hour of GOP work and is within error of the model's capability. It also 

said that the gains were concentrated in the oil and gas industry. 

The NERA report concludes that "expansion of LNG exports has two major effects on income: it 

raises energy costs and, in the process, depresses both real wages and the return on capital in all other 

industries."6 

Depressing real wages on the total U.S. population and a reduction of return on capital on all 

U.S. industries would conclude that increasing LNG exports cannot possibly be in the public interest. 

Also, the study used outdated information on EITE industries, the largest consumers of natural gas, our 

contribution to GOP, and how many people we employ. Because of this, the study underreported the 

negative impacts to the economy and jobs. 

9. H.R. 4605 is inconsistent with "America First" policy. 

Excessive LNG export approvals by the DOE to NFTA countries is inconsistent with President 

Trump's "America First" and fair-trade policies, and poses a significant long-term threat to EITE 

industries' competitiveness and jobs. 

Shipping LNG to countries that do not have a free trade agreement undermines our ability to 

secure a bilateral fair-trade agreement with countries that would result in a level playing field for 

• NERA: Macroeconomic Impacts of Increased LNG Exports from the United States 
118 


manufacturing goods. From February 2016 to October 2017, 51.7 percent of U.S. LNG was shipped to 

countries that do not have a free trade agreement with the U.S. (see figure 10). 

The U.S. should never agree to ship LNG to countries that subsidize their manufacturing sectors 

and power plants. 

Figure 10: U.S. Shipments to NFTA and FTA Countries (Feb. 2016-0ct.2017) 

NFTA c N b f C Volume Exported %of Total U.S. LNG 

ountry um er o argos (Bcf/d) Exports 

10. Creates 12 winner states and 38 states who lose. 

States that produce natural gas are big winners and all other states are not. 
119 


Figure 11: State Natural Gas Use, 2016 

State Dry Production (MMcf) Total Consumptton {MMcf) Balance 

California 193,872 2,177,467 -1,983,595 

Florida 496 1,381,502 -1,381,006 

New York 13,446 1,300,377 -1,286,931 

Illinois 2,141 1,024,788 -1,022,647 

Michigan 99,149 891,798 -792,649 

New Jersey 0 764,699 -764,699 

Indiana 6,205 738,142 -731,937 

Georgia 0 707,299 -707,299 

Alabama 159,816 697,763 -537,947 

North Carolina 0 522,349 -522,349 

Mississippi 48,244 546,870 -498,626 

Wisconsin 0 481,987 -481,987 

Minnesota 0 450,276 -450,276 

Massachusetts 0 433,439 -433,439 

Virginia 120,241 541,620 -421,379 

Arizona 47 358,355 -358,308 

Iowa 0 329,505 -329,505 

Tennessee 3,328 329,380 -326,052 

Washington 0 305,071 -305,071 

Nevada 3 303,221 -303,218 

South Carolina 0 275,392 -275,392 

Missouri 1 265,866 -265,865 

Connecticut 0 247,175 -247,175 

Oregon 937 235,980 -235,043 

Maryland 34 218,683 -218,649 

Kentucky 86,393 276,415 -190,022 

Nebraska 531 163,909 -163,378 

Delaware 0 108,333 -108,333 

Idaho 4,440 106,970 -102,530 

Rhode Island 0 86,429 -86,429 

South Dakota 469 81,223 -80,754 

New Hampshire 0 57,817 -57,817 

Maine 0 53,177 -53,177 

Kansas 225,557 268,917 -43,360 

Montana 46,283 76,957 -30,674 

Vermont 0 12,093 -12,093 

Alaska 320,472 324,579 -4,107 

Hawaii 0 3,040 -3,040 

Utah 351,833 239,101 112,732 

Louisiana 1,700,320 1,571,640 128,680 

North Dakota 409,813 100,555 309,258 

Ohio 1,369,454 930,253 439,201 

Arkansas 822,812 310,828 511,984 

New Mexico 1,160,988 249,841 911,147 

West Virginia 1,276,033 171,100 1,104,933 

Colorado 1,586,078 473,751 1,112,327 
120 


State Dry Product1on (MMcf) Total Consumption (MMcf) 

Wyoming 1,607,513 124,122 

Oklahoma 2,294,087 701,366 

Texas 6,374,847 4,029,949 

Pennsylvania 5,245,581 1,309,598 

Tqtals 25,531,464 27,360,967 

Source: Natural Gas, Energy Information Admm1strat1on (EIA), https:/lwww.e1a.gov/naturalgas/ 

Thank you for the opportunity to testify and I look forward to your questions. 

Sincerely, 

Paul N. Cicio 

President 

Balance 

1,483,391 

1,592,721 

2,344,898 

3,935,983 

-1,829,503 
121 

Mr. UPTON [presiding]. Thank you. 

Mr. Riedl. 

STATEMENT OF CHARLIE RIEDL 

Mr. RIEDL. Good afternoon, Subcommittee Chairman Upton, Subcommittee Ranking Member Rush, and members of the committee. 

Thank you for the opportunity to testify today. My name is Charlie 

Riedl. I am the executive director of the Center for Liquefied Natural Gas. 

CLNG represents the full LNG value chain, providing it with 

unique insights on the benefits LNG brings to the U.S. and global 

economies. CLNG operates within the Natural Gas Supply Association, a national trade association that has represented the U.S. 

natural gas industry for more than 50 years. This gives us a deep 

understanding of the entire U.S. natural gas supply portfolio. 

I am pleased to be here today in support of Congressman Johnson’s efforts to improve the liquefied natural gas permitting process 

and encourage members of the committee to support his legislation. 

Representative Johnson has been steadfast in spearheading legislative solutions to improve the permitting process for liquefied natural gas facilities. 

And the time for action is now. As Representative Johnson has 

said himself, the window of opportunity for LNG exports will not 

remain open indefinitely. The U.S. is awash with affordable natural gas. And as other countries look to enjoy these same benefits 

the United States enjoys, we are in a unique position to meet the 

growing demand globally. 

However, there is a tight window to capture the market share, 

and providing regulatory and legislative certainty will help U.S. exporters claim our share of the global market. By allowing the 

United States to export natural gas after completing the FERC review process, as proposed in H.R. 4605, the Unlocking Our Domestic LNG Potential Act, a more certain and consistent regulatory environment would be created to unlock that future potential. 

The length of time for DOE permitting has varied widely to date. 

The first six LNG projects had delayed an average of 2.6 to complete the permitting process. That period of review is unnecessarily 

long, and we can and should do better. 

The LNG export opportunity, the very reason we are able to have 

this conversation today, is because of our vast supply of natural 

gas. It is the supply that is growing by the year that underpins the 

economic and environment benefits we can achieve with exports. 

Technological breakthroughs in the oil and natural gas industry 

have unleashed an energy renaissance, establishing the United 

States as the world’s largest natural gas producer. 

As I speak today, the U.S. natural gas resource has reached an 

all-time high. According to the U.S. Potential Gas Committee, these 

numbers continue to increase, up 68 percent since 2005, according 

to the U.S. EIA. 

This alone is impressive, but consider this: During that same 

time, our total natural gas resource estimates also continued to increase. 

New domestic supplies of affordable natural gas have created 

competitive advantage for U.S. manufacturers, leading to greater 

122 

investment in industry, investment in jobs, and creation of additional workforce. Experts forecast additional industrial investment 

of $135 billion to build 59 new manufacturing projects and expand 

11 additional projects in the next 5 years. 

There are those who suggest we must choose between exports 

and our domestic manufacturing sector, but study after study tells 

us otherwise. According to a study from the Department of Energy, 

exports will not compete with our manufacturing sector for supply. 

And it is important to note that additional exports will be met by 

new production of natural gas. 

What we are finding is that LNG exports can and will react to 

both the global marketplace and domestic demand. Less than 2 

weeks ago, the Northeast was hit by the bomb cyclone, one of the 

coldest weather systems to reach our shores in years, and natural 

gas met record-setting levels of demand admirably. As the bomb cyclone moved along the East Coast, the import customers of the 

Cove Point facility in Maryland responded to price signals and delivered LNG gas to meet domestic consumer demand, demonstrating the flexibility of LNG at a time of increased demand. 

In-depth research by DOE in 2015 found that exports are a net 

benefit to the U.S. economy. The DOE study determined that increased production will drive investment to revitalize economically 

depressed regions of the U.S. and bring thousands of jobs to those 

areas. In fact, the September 2017 study by ICF showed that exports could generate more than 450,000 jobs and more than $73 

billion for the economy by 2035. 

LNG exports do more than just provide jobs and investment. 

They offer an opportunity for also strengthening America’s foreign 

policy interests abroad. LNG exports are already supporting our 

national security interests by strengthening the energy security 

and weakening those nations who look to use natural gas for political leverage. 

So in conclusion, the promise of more LNG facilities in the 

United States brings a promise of a new era benefiting the U.S. 

economy and our global allies. Our enormous natural gas resource 

base ideally positions the U.S. to compete on a global level for the 

market share. 

Free and open trade of U.S. LNG sends the important signal of 

unencumbered exports to the market. Artificially limiting LNG exports could undermine commitments to free and open markets as 

well as lead to complaints in international trade cases in the future. 

In closing, we commend Representative Johnson for his leadership and steadfastness in championing LNG over the course of the 

last several years. His legislation would ensure that consistency in 

the review process without sacrificing the rigor and thoroughness 

or our review. 

I thank you for your time today and look forward to answering 

your questions. 

[The prepared statement of Mr. Riedl follows:] 

123 


Testimony of Charlie Riedl, Executive Director of the Center for Liquefied Natural Gas, before 

the U. S. House Committee on Energy and Commerce 

Subcommittee on Energy 

LEGISLATION ADDRESSING LNG EXPORTS AND PURPA MODERNIZATION 

January 19, 2018 

Good morning Subcommittee Chairman Upton, Subcommittee Ranking Member Rush, Chairman 

Walden, Ranking Member Pallone, and Members of the Committee. Thank you for the opportunity to 

testify today. My name is Charlie Riedl, I am the Executive Directorfor the Center for Liquefied Natural 

Gas orCLNG. 

CLNG represents the full LNG value chain, including LNG producers, shippers, terminal operators and 

developers, providing it with unique insight into the ways this abundant and versatile fuel can realize its 

vast potential, to the benefit of the U.S. economy and global energy security. 

We appreciate the hard work of Rep. Johnson and his co-sponsors and encourage members of the 

Committee to support his legislation to improve the liquefied natural gas permitting process. Rep. 

Johnson has been steadfast in spearheading legislative solutions to improve the permitting process and 

the time for action is now. As Rep. Johnson has said himself, "The window of opportunity for LNG exports 

will not remain open indefinitely. "1 Advancing this legislation will provide greater certainty in the 

permitting process for LNG facilities, thereby accelerating America's rise as a world-class exporter of 

natural gas, creating U.S. jobs, growing our economy, significantly strengthening global energy security 

all while reducing emissions and pollution. 

CLNG advocates for public policies that advance the use of LNG in the United States, and its export 

internationally. The focus of my testimony will be on LNG and the incredible opportunity we have before 

us. However, I believe it is critically important to first understand the current and projected supply of 

natural gas here in the U.S. before speaking further about LNG and LNG exports. CLNG has a deep 

understanding of the entire U.S. natural gas supply portfolio and rising demand for natural gas both in 

domestic markets and abroad because of our position as a committee of the Natural Gas Supply 

Association, a national trade association that has represented top producers and marketers of U.S. 

natural gas for more than 50 years. 

Abundant supply of natural gas 

Underpinning the economic, security and environmental benefits we can achieve with exports is our 

abundant supply of natural gas. Technological breakthroughs in the oil and natural gas industry have 

unleashed an energy renaissance, establishing the United States as the world's largest natural gas 

producer- and domestic production continues to grow. We have enough natural gas to supply 

affordable energy domestically for the foreseeable future as well as to significantly increase U.S. 

participation in the global market for LNG. 

1 Rep. Bill Johnson, The Congressional Record, 1-28-15 

1 
124 


Natural gas companies understand that with this opportunity comes the responsibility to be dedicated 

stewards of local land, air and water. We are committed to responsible development to help ensure that 

natural resources are protected, while maximizing this great opportunity before us. 

As I speak today, U.S. natural gas resources have reached an all-time high, according to the U.S. 

Potential Gas Committee.' Even as U.S. natural gas production continues to grow year over year, our 

total natural gas resource estimates continue growing as well, due to improvements in our ability to 

detect and extract natural gas. 

In fact, if the Potential Gas Committee's 1966 estimate of 600 trillion cubic feet (Tcf) had remained 

static, the U.S. would have run out of natural gas in the 1990s. Instead, estimates doubled by 2002, to 

more than 1,200 Tcf, and by 2017 had exceeded 2,800 Tcf.' 

Figure 1 

U.S. Dry Natural Gas Production 

Million Cubic Feet 

- u.s. Dry Natural Gas Production 

~ Source: U.S. Energy Information Administration 

2 U.S. Potential Gas Committee, Biennial Estimate of North American Natural Gas Resource Base, July 2017. 

'U.S. Potential Gas Committee, Biennial Estimate of North American Natural Gas Resource Base July 2017. 

2 
125 


Concurrent with this nearly five-fold increase in the total resource base, U.S. natural gas production has 

increased by 68 percent since 200S, according to the U.S. Energy Information Administration (EIA}. And 

EIA projects production to continue to grow well through 203S, driven by the shale revolution. 

Figure 2 

Natural Gas: Production: Dry Gas Production 

Case: Reference case without Clean Power Plan 

Tcf 

so------

4.~-----------------------------------------_-_--_-_--_-_~-~-..--

------ -------- -----

2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 e'fci\ Source: U.S. Energy Information Administration 

Because our supply of natural gas is so abundant, exports and export capacity are helping provide 

stability to the market. In some regions of the country, gas production has exceeded demand and 

exports offer an Important market for surplus gas, providing the incentive that helps to keep natural gas 

production steady and predictable. In fact, growth in exports sends market signals to incentivize 

domestic production, which benefits consumers here at home and benefits industries involved in the 

natural gas supply chain such as construction and manufacturing, spurring even more economic growth. 

3 
126 


Figure 3 

-

-

Comparison of Commodities Shows Stability of N~tural Gas 

Changes in CME monthy settlement prices Jan 2007-Pment 

COif 

Soybeans 

Silver 

Copper 

Whoat 

Com 

eru<~eon 

NGSA10l1 

For example, this dramatic increase in natural gas supply has occurred even as natural gas has enabled 

an industrial renaissance in the manufacturing sector, with demand for natural gas from that sector 

projected to reach an all-time high this winter.4 New domestic supplies of more affordable natural gas 

and natural gas liquids (NGls) have created a competitive advantage for U.S. chemical manufacturers, 

leading to greater investment, industry growth, and new jobs. Companies from around the world are 

investing in new projects to build or expand their shale-advantaged capacity in the United States. Fortyeight new industrial projects in the petrochemical, fertilizer, steel and gas-to-liquids sectors were 

completed between 2010 and 2015, representing an investment of $28 billion. Experts forecast 

additional industrial investment of $135 billion to build 59 new projects and 11 expansions between 

2017 and 2022. 5 

Perhaps counterintuitively, export facilities have already proven their value in relieving domestic supply 

constraints in peak demand periods including extreme weather events, where domestic natural gas 

pipeline capacity has not yet caught up with growing supply and demand. let me explain how that 

worked. 

less than two weeks ago, the Northeast was hit by the "Bomb Cyclone," one of the coldest weather 

systems to reach our shores in years. Americans from Maine to Georgia cranked up their thermostats in 

response and several regions in the mid-Atlantic and Northeast reported record-breaking demand for 

natural gas. And natural gas met record-setting levels of demand admirably. 

4 Energy Ventures Analysis, Inc., 2017-2018 Winter Outlaokfar Natural Gas, 2017. 5 Energy Ventures Analysis, Inc., 2017-2018 Winter Outlook far Natural Gas, 2017. 

4 
127 


As the Bomb Cyclone moved along the East Coast, the import customers of the Cove Point facility in 

Maryland responded to price signals and delivered LNG gas to meet domestic consumer demand, 

demonstrating the flexibility of LNG during a time of increased demand. 

Only in the Northeast were there brief price spikes, due to a regional lack of sufficient infrastructure. 

Abundant Pennsylvania shale gas flows all over the country but is bottlenecked from reaching 

neighboring states in the Northeast due to a lack of pipelines in New York and New England. Even in 

the Northeast, although natural gas spot prices temporarily spiked, the price increases were short in 

duration with limited impact on household and business energy bills. 

As you can see, the U.S. is awash with affordable natural gas and as countries look to utilize the many 

benefits of natural gas, the United States is in a unique position to capitalize on abundant reserves and 

our excess supply. 

There is a limited window of opportunity for the U.S. to realize its potential as a major international 

gas supplier. Worldwide demand for LNG is approximately 37 billion cubic feet per day today, and it is 

projected to increase to around 60 billion cubic feet per day between 2020 and 2025.6 Numerous 

countries are vying to serve the LNG market and it is critical that the United States be positioned to 

com pete on a level playing field for that market. 

Figure 4 

UNDER CONSTRUCTION LNG EXPORT CAPACITY 

Malaysia 

.2 

Indonesia 

.s 

.2 

Soun:e: EVA Quarterly LNG Outlook 

6 American Petroleum Institute, U.S. Liquefied Natural Gas Exports. 

5 

Total: 

13.2 Bcf/d 
128 


Domestic gas supply can support increases across all sectors, with LNG exports and manufacturing 

living harmoniously. Because of our enormous domestic natural gas resource base, the U.S. is uniquely 

positioned to compete on a global level for LNG markets, while still providing an affordable and 

environmentally-advantageous fuel source for American manufacturers. 

FigureS 

Tcf 

45 

40 

35 

30 

25 

20 

15 

10 

5 

0 

LNG EXPORTS RELATIVE TO TOTAL US CONSUMPTION 

• Consumption • Production •LNG Exports 

2017 2020 2030 2040 

Source: EIAAnnual Energy0utlook2017 Ynr 

39.7 

2050 

As study after study has shown, exports drive economic growth here at home, particularly In naturalgas producing regions. Most recently, in-depth research by the U.S. Department of Energy (DOE) in 

2015 found that exports are a net benefit to the U.S. economy. The DOE study determined that 

increased natural gas demand from exports will spur increased investment in domestic natural gas 

production, driving job growth in areas where production grows. This is an important point. Export 

demand will not be met by existing production but rather be met almost entirely by additional 

production. That increased production will drive investment in natural-gas producing regions and 

support thousands of additional jobs.7 

7 DOE. The Macroeconomic Impact of Increasing LNG Exports. October 2015 

6 
129 


More recently, a study from this past September conducted by ICF for the American Petroleum Institute 

showed that exports could generate more than 450,000 jobs and more than $73 billion for the economy 

by 2035.8 

Finally, DOE's study showed that exports will result in an increase in U.S. households' real income and 

welfare that exceeds any potential impact that could come from marginally higher natural gas prices? 

Exports also represent a tremendous geopolitical opportunity for the United States. LNG exports are 

already supporting our national security interests by strengthening the energy security of our allies and 

weakening those nations who use natural gas exports as geopolitical leverage. For example, Europe 

remains highly dependent on Russia for natural gas, which supplies 34% of its total natural gas imports. 

For countries in Central and Eastern Europe (like Czech Republic, Hungary, Bulgaria, Greece), that share 

is much higher. Russia has demonstrated its willingness to use energy as a political tool, cutting off 

natural gas supplies to European consumers several times over the last decade, with Eastern European 

countries most harmed by Russian manipulations. 

Fortunately, U.S. LNG exports provide an opportunity to diversify our allies' supply choices and expand 

the global natural gas market. Lithuania and Poland, for example, have already signed deals to import 

U.S. LNG. As Lithuanian President Dalia Grybauskaite wrote recently, "U.S. gas imports to lithuania and 

other European countries is a game changer in the European gas market. This is an opportunity for 

Europe to end its addiction to Russian gas and ensure a secure, competitive and diversified supply."10 

Figure 6 

Shipments of domestically produced LNG delivered 

{Cumulative starting from Feb. 2016 through Jan. 2018) 

8 http://www.apl.orst~/media!FIIes!Policy!LNG-Exports!API-LNG-Update-Report-20171003.pdf 

9 DOE. The Macroeconomic Impact of Increasing LNG Exports. October 2015 

10 Agnia Grigas, Foreign Affairs Magazine, "U.S. Natural Gas Arrives in Lithuania." September 12, 2017 

7 
130 


Furthermore, exports reinforce our commitment to open trade. By allowing the open trade of U.S. 

LNG, we are sending an important signal to other commodity exporters. A commitment to 

unencumbered exports promotes U.S. leverage in trade negotiations, particularly with other 

commodities.llln contrast, artificially limiting LNG exports could undermine this commitment and the 

establishment of open, competitive markets. For an example of the unintended consequences of 

imposing artificial export limits, we have only to look to 2010, when China imposed strict rare earth 

mineral export quotas. Prices of these essential commodities soared by several hundred percent. The 

United States, the European Union and Japan brought a case in front of the World Trade Organization 

and won. Choosing to artificially limit U.S. LNG exports under the guise of protecting U.S. manufacturers 

and consumers would be grounds for precisely the type of trade case against the U.S. that we brought 

against China in 2010. 

LNG exports offer clear environmental benefits to overseas consumers. A 2014 study conducted by 

DOE found that LNG exports could reduce global greenhouse gas emissions by displacing more carbon 

intensive fuels in importing nations.U 

This was the conclusion of a study conducted by DOE in 2014 and current events support that finding. 

Today China has overtaken South Korea as the world's second largest LNG importer and U.S. LNG 

cargoes are already making their way to Chinese import terminals. As the Chinese aim to reduce their 

reliance on other fossil fuels, they are rapidly expanding their use of natural gas. 

When President Trump visited China this fall, LNG took center stage in trade negotiations and a deal was 

signed between China Petrochemical Corp, China Investment Corporation, Bank of China, the State of 

Alaska and the Alaska Gasoline Development Corporation for the development of LNG export capacity in 

Alaska. The three state-owned Chinese companies would invest $43 billion into the project. 

India too wants to ramp up its use of natural gas. U.S. export cargoes have already made their way to 

India and the first commercial cargo from Dominion Energy's Cove Point facility in Maryland is expected 

to be taken early this year by GAIL India Ltd, the country's largest natural gas utility. 

Greater use of natural gas in importing nations will help reduce carbon emissions but it will also help 

reduce traditional pollutants as well- burning natural gas creates little to no emissions of sulfur dioxide, 

nitrogen oxides or particulate matter that can lead to smog." Providing our trade partners with access 

to a cleaner-burning energy alternative reinforces our commitment to environmental progress. 

LNG is Cutting Emissions in the Transportation Sector. 

LNG has further benefits to the United States. The expanded use of natural gas as a transportation fuel, 

whether in the form of LNG (or CNG), can help reduce air pollution and carbon emissions from the 

transportation sector, whether in the marine industry or in cars and fleet vehicles. 

11 Michael levi, A Strategy for U.S. Natural Gas Exports. Council of Foreign Relations. 

12 Department of Energy, National Energy Technology Laboratory, Ufecycle Greenhouse Gas Perspective Report on Exporting 

LNG from the United States, 2014. 13 Leidos, Inc., A Comparison of Emissions from Major Fuels Used to Generate Electricity in the U.S. 2016. 

8 
131 


In the maritime sector, for example, strict new emissions standards for ships, in addition to the low cost 

of natural gas compared to more conventional fuels, have encouraged the use of LNG as a fuel by the 

shipping industry in recent years. This growth is expected to continue since LNG emits significantly lower 

levels of nitrogen oxide, sulfur oxides, particulate matter and carbon dioxide compared to oil-based 

alternatives currently used for marine fuel.l' 

As a result of LNG's comparatively low emissions, the U.S. is projected to almost double its current fleet 

of LNG-fueled tankers from 2016 to 201915, led by shipping investments made by Harvey Gulf and Tote, 

according to the U.S. Energy Information Administration. Worldwide, the global fleet of LNG-powered 

ships is expected to grow more than 40-fold to almost 1,800 vessels by 2020, according to DNV Gl.16 

On a well-to-wheellifecycle basis, vehicles powered by natural gas emit between 13 and 21 

percent fewer greenhouse gas emissions compared to gasoline and diesel-powered vehicles17• Natural 

gas powered vehicles can also improve local air quality as they emit approximately and 50 percent less 

NOx gas and other pollutants. According to the Alternative Fuels Data Center16, there are more than 

130 LNG stations for heavy duty trucks in operation or under construction and another SO planned. 

Continued growth in the use of natural gas as a vehicle fuel- the number of natural gas vehicles around 

the world increased by an estimated 300 percent between 2006 and 201419 - will help improve air 

quality and reduce carbon emissions. And more rapid growth is expected. 

The situation is urgent, and legislation is needed. 

LNG projects are multiyear, multi-billion dollar efforts- investments of this magnitude shouldn't be held 

hostage by changing politics. There's a tight window to capture market share; providing regulatory and 

legislative certainly will help U.S. exporters claim our share of the global market from competitors. We 

are competing with other exporting nations for investment, and if we don't provide regulatory certainty 

and streamline our approval process, investment will go to other nations that will. 

While LNG export terminals take years to develop and build, many planned facilities have already 

advanced detailed engineering plans and started negotiations toward long-term sales agreements with 

international consumers. These agreements are essential for project developers to secure the financing 

they need to construct LNG terminals. It is extremely difficult for projects to make final investment 

decisions and arrange funding when the approval process for a project's export application could change 

at a moment's notice. The LNG industry is ready to create jobs and help supply global demand for 

natural gas, but it needs regulatory certainty and a clear timeline for action on exports applications to do 

so. 

14 U.S. Dept. of Transportation Maritime Administration, Liquefied Natural Gas Bunkering Study. 2014 15 LNG World News, "EIA: LNG Fueled Vessels on the Rise in the U.S." 2016. 

"DNV GL, "In Focus -LNG As A Ship Fuel," 2015 17 NGV America, Environmental Benefits of Natural Gas Vehicles 2018. 

18U.S. Dept. of Energy, Alternative Fuels Data Center 19 U.S. Dept. of Energy, Clean Cities Webinar Presentation. 2014. 

9 
132 


Figure 7 

PROPOSED NEW I..NG CAPACITY (GLOBAl.) 

Qatar 

Source: EVA Quarterly LNG Outlook 

Total Proposed: 

111.5 Bcf/d 

We know exports are in the national interest. Further DOE approval of export applications is 

unnecessary. 

Under current law, exporting natural gas requires authorizations from the Department of Energy's Office 

of Fossil Energy and from the Federal Energy Regulatory Commission (FER C). 

Generally, DOE has been tasked with deciding whether an LNG export application would be consistent 

with the public interest, while FERC is responsible for authorizing the siting and construction of LNG 

facilities, and preparing environmental assessment or impact statements for proposed LNG facilities. 

DOE automatically deems exports to Free Trade Agreement (FTA) countries to be consistent with the 

public interest. The U.S. currently has FTAs with 20 countries. However, applications to export LNG to 

non-FTA (NFTA) countries require an additional step: case-by-case certification from DOE that exports 

are in the public interest. 

Until recently, it has been unnecessarily difficult for DOE to grant NFTA export permits. DOE has also 

been inconsistent in the time taken to grant NFTA export permits to applicants, some of whom have 

spent millions of dollars and waited hundreds of days for DOE to act. While this situation has improved 

somewhat, without legislation, the permitting process remains vulnerable to changes in personnel and 

the political views of future Administrations. 

10 
133 


Unfortunately, there is a history of regulatory uncertainty. The NFTA permit review procedure has 

changed three times in two years, and, without legislation, could well be changed again: 

1) August 2012: DOE conditionally approved Cheniere Energy's application to export LNG to 

non free-trade agreement (NFTA) countries, pending the completion of Federal Energy 

Regulatory Commission {FERC)'s review of the project's compliance with the National 

Environmental Policy Act {NEPA).[2] 

2) December 2012: DOE announced that it would review applications on a case by case basis, 

in the order they were received and only after they had pre-filed with FERC. [3] Department 

of Energy, LNG Export Study, 12-S-12. 

3) August 2014: DOE once again amended the process, this time stating that it would act on 

applications only after FERC's NEPA review had been completed. [4] Federal Register, Vol. 

79, No. 158, 8-15-14. 

As a further case in point, from 2011-2016, DOE paused approvals while it conducted macroeconomic 

analyses of LNG exports twice- with both studies ultimately determining that LNG exports would 

benefit the U.S. economy. 

legislation is needed to address these concerns, thereby improving regulatory certainty and 

encouraging project development of LNG export facilities. 

To that end, we support Rep. Johnson's H.R. 4605 and 4606. Allowing the United States to export 

natural gas after completing the FERC review process, as proposed in H.R. 4605, the Unlocking Our 

Domestic LNG Potential Act, creates a more certain regulatory process and accelerates the realization of 

important benef1ts for the U.S. This enables projects to avoid waiting unnecessarily for DOE's additional 

stamp of approval, while projects would still undergo FERC's rigorous multi-year project review. 

H.R. 4605, the Unlocking Our Domestic LNG Potential Act makes the review process more consistent and 

predictable. The length of time for the DOE review process has varied widely. A full107 days elapsed 

between the FERC approval and the DOE approval for Freeport LNG's proposed terminal in Freeport, 

Texas20 -compared to 220 days for Dominion's terminal in Cove Point, Maryland.21 Even more 

egregiously, the first six approved projects had to wait an average of 2.6 years to complete the 

permitting process." 

Additionally, Rep. Johnson's Small Scale LNG Act helps to smooth the exports of smaller volumes of 

natural gas, a boon to small locales in the Caribbean, Central America and South America who look to us 

to meet their natural gas needs. 

We desperately need legislation to ensure that LNG applications are processed in a timely manner to 

provide project developers with a degree of certainty before they invest billions of dollars in the U.S. 

economy . 

. zo FERC records, FERC approved July 31, 2014; Department of Energy approval of Freeport LNG. November 14, 2014 21 FERC records. FERC approved September 29, 2014;Department of Energy approval of Cove Point LNG, May 7, 2015 

" FERC and DOE records 

11 
134 


Legislation providing greater regulatory certainty would also allow the U.S. to capture a unique window 

of opportunity to export LNG internationally and it would send a strong signal to our trading partners 

that the U.S. is committed to its role as a global energy leader. 

Conclusion 

The promise of more LNG facilities in the United States also brings the promise of a new era benefiting 

the U.S. economy and our global allies. Our enormous natural gas resource base ideally positions the 

United States to compete on a global level for LNG market share while still providing an affordable and 

environmentally advantageous fuel source for U.S. customers. 

Free and open trade of U.S. LNG sends the important signal of unencumbered exports to the global 

market. Artificially limiting LNG exports could undermine commitments to free and open markets as well 

as lead to complaints in international trade cases in the future. 

A legislative solution to the situation would give companies awaiting an export permit greater regulatory 

certainty and a clear timetable for moving forward with capital intensive projects- resulting in a boost 

to the American economy. A concrete regulatory process also signals to the rest of the world that the 

United States is ready to meet the growing demand for natural gas in the comings months and years. 

The United States enjoys an enormous domestic natural gas resource base, and is uniquely positioned to 

compete on a global level for LNG markets, while still providing an affordable and environmentallyadvantageous fuel source for American manufacturers, businesses and individual consumers. 

Streamlining the approval process for LNG export applications from the United States can create tens of 

thousands of American jobs and reduce global greenhouse gas emissions, while preserving a 

competitive advantage for American manufacturers and benefiting the U.S. economy. 

In closing, we commend Rep. Johnson for his leadership and steadfastness in championing LNG 

legislation over the course of several years. His legislation would ensure consistency and timeliness in 

the review process without sacrificing rigor or thoroughness, all to the benefit of the U.S. and our allies. 

Thank you for the opportunity to testify on behalf of CLNG and NGSA and our members. We are 

committed to helping to find solutions to address our energy needs and look forward to working with 

the Committee on securing passage of this important legislation. 

12 
135 

Mr. UPTON. Thank you. Thanks all for your testimony. 

Since I was a little late coming back, we will start with Mr. 

Olson for questions. 

Mr. OLSON. I thank the chairman. 

Again, welcome to our five panelists. 

My first question is for you, Mr. Riedl. 

As you heard in the first panel, I was pretty strong about LNG 

exports, that they are a national security matter for our country. 

We mentioned some countries like Lithuania, Poland, South Korea, 

India, Japan. Can you talk about some countries like that or other 

countries where our gas has been shipped, can be shipped, and 

about what upcoming projects might we send overseas, how can we 

expand that market? 

Mr. RIEDL. I can answer the question, and thank you for it. 

So a couple of things. You touched on some of the countries that 

we are already sending gas to. To date, we have got one facility operating in the lower 48 that is exporting natural gas, a second that 

is going to come online very soon. That single project that is exporting right now out of the U.S., Sabine Pass Cheniere project, has exported to over 25 countries. 

That is expected to continue to increase. And I think that, as you 

continue to see additional cargoes of LNG moving into Europe, as 

they start to see the reliability of U.S. LNG coming there, other 

countries are going to look to come online. Germany just opened an 

LNG import facility in the Port of Hamburg. So I would expect 

there is another opportunity for U.S. LNG to start being delivered 

to Germany. 

But I think the other area that we didn’t talk about is in South 

America, in Latin America. There are enormous opportunities there 

that we haven’t necessarily fully exploited yet. 

Mr. OLSON. And do you agree, if we don’t export our LNG and 

don’t sell it to overseas, that market will be swamped by other 

countries, other entities, that we will drop the ball, let them control 

these nations or have influence with them that we should grab 

right now? Can we do that? And can you confirm that that is a benefit of exporting our liquefied natural gas? 

Mr. RIEDL. Absolutely. Yes. The timeframe, as I said in my testimony, is limited for this opportunity for U.S. LNG. You think about 

the length of time that contracts are typically signed, 15- to 20- 

year-length contracts. So right now countries are looking to purchase LNG, and if we don’t capitalize on it, there are other exporting countries that absolutely will. 

Mr. OLSON. On our trip with our Chairman Upton and Chairman 

Walden to Asia a couple years ago, we went to Japan, China, and 

South Korea. All those nations, especially Japan and South Korea, 

were just craving our exports of our oil and natural gas. They are 

tired of being strung out by Russia and OPEC. They want that 

freedom, that independence, and right now we can do that. Thank 

you. 

My final question for you is I kind of want to make you—I am 

not going to ask you guys, ‘‘Do you like the Houston Astros being 

the world champs?’’ But they have a player named Jose ́ Altuve, 

MVP of the American League, a little man about 5 foot 5 tall, but 

a great power hitter. 

136 

I will make you Jose ́ Altuve. I am going to throw a big, fat pitch 

right down the middle for you to knock out of the park. My question is, what are some of the benefits to a State like my State of 

Texas from increased exports of LNG? 

Cream that pitch. 

Mr. RIEDL. Happy to. 

There are a couple. One is obviously the job creation that comes 

along with it here domestically. 

The other major opportunity that I would point to is the obvious, 

is the geopolitical impact. You mentioned some of those countries 

that are craving U.S. LNG. 

The third is the environmental impact that we could have in 

helping other countries meet some of their environmental standards. And you look to a country like China, for instance, and Beijing. Last quarter they reported a 54 percent reduction in CO2 

emissions. Greenpeace actually reported that. So you start to see 

the impact of switching from other fuels to natural gas and the environmental impacts that would happen there. 

So those are the three that I would point to. 

Mr. OLSON. And obviously jobs back home. A little town called 

Beasley, Texas, there is a company there called Hudson Products. 

They make the compressor blades for these LNG bundled shares to 

be passed to the top of those trains you see that—they probably 

sold 5,000 units, and more are coming. So that is big for Texas, 

small little towns thriving because of our export of liquefied natural gas. 

My final is for you, Vice Chairman Kavulla. 

We are in a very different world than we were when PURPA was 

passed a long time ago. And as you know, as I mentioned, my 

State, number one for wind power in America. In fact, it is the fastest growing job sector in our State. And there have been hours the 

past year where wind has supplied over 50 percent of our statewide 

power—50 percent. 

If we make changes to PURPA, do you think it would change the 

investment decision to keep building wind turbines in a State like 

mine? 

Mr. KAVULLA. Vice Chairman Olson, no, I do not. I think renewables have been deployed throughout the country in response to 

price signals that clear through open markets and competitive solicitations issued by individual utilities and overseen by State commissions. 

And if you look at my testimony, you will see that that is how 

the vast majority of renewables are being brought online; in contrast to renewables that come to State commissions and litigate in 

front of them asking for us to play crystal ball reader about what 

future market prices are. 

Mr. OLSON. Thank you. 

My time has expired. I yield back. 

Mr. UPTON. Mr. Rush. 

Mr. RUSH. I want to thank you, Mr. Chairman. 

Mr. Cicio, as you may have heard during the first panel, I asked 

both representatives from FERC and DOE if they had any concern 

with hastily approving LNG exports and impact that might have 

137 

on domestic natural gas consumers, manufacturing competitors, 

and American jobs. 

Were you satisfied with their answers? 

Mr. CICIO. Thank you for that question. 

No, not at all. You know, we have examined all of the DOE studies that were due, that were completed, to justify the approval of 

nonfree trade agreement LNG exports. And we find them woefully 

inadequate to establish whether or not it is in the benefit of the 

country and satisfies the public interest. 

Where we are today is that a total of around 53, 54 BCF a day 

of LNG exports for free trade and nonfree trade have been given 

final approval. That is 70 percent of U.S. demand in 2016. Shipping 

that volume cannot possibly be in the public interest. 

So we are unsatisfied with that. We think that they have not fulfilled the Natural Gas Act and the regulatory responsibility to protect the consumer long-term. 

This is not a short-term concern. This is a long-term. But we are 

making decisions today as to whether these terminals get approved 

and then will be built later on. So this is why we have to be careful 

not to overcommit legally on approving these applications today for 

the future demand that will happen. 

Mr. RUSH. Sir, I want to thank you. 

Mr. Ra ́bago, in your testimony you note that H.R. 4476 will grant 

utilities full control to determine the size of their competitors’ market. Additionally, under this bill, a utility could refuse to purchase 

energy or capacity from a qualified small power facility if the utility unilaterally determined that it has no need for energy or capacity in an IRP process. 

Why is this problematic? And what impact might this provision 

have? Who would be responsible for oversight under this section of 

the bill as it is currently drafted? 

Mr. RA ́ BAGO. Thank you, Ranking Member Rush, for that question. 

In order to answer it, we have to understand that there is IRPs 

and then there is IRPs. We have only 40 States in this country, as 

I believe, or roughly 40 States in this country that even have IRPs. 

The level of regulatory oversight by State commissions of those 

IRPs varies dramatically, the time period that those IRPs are 

meant to address varies dramatically, and the authority of the regulators to actually dig into the details of these integrated resource 

plans varies dramatically. 

In some places, basically the utility puts together their set of assumptions, their set of evaluations about resource needs, and then 

basically sends it over to the Commission. And the Commission 

may or may not even have authority to read it, much less question 

it or approve it. 

So what we are really doing is saying that in a planning process, 

which isn’t even focused on procurement under section 4(a) and (b) 

in the proposed bill, that a utility can use that to definitely exclude 

a competitive offer of energy without any real regulatory oversight. 

As you heard earlier on, even FERC is unsure the extent to 

which they have any authority to look at the use of these IRP-type 

decisions as a subterfuge for basically undermining competition. 

My concern, therefore, is that section 4(a) and (b) essentially puts 

138 

the utility in the driver’s seat and a lot more qualifying facilities 

will be denied access to markets as a result. 

Mr. RUSH. Thank you, Mr. Chairman. I yield back. 

Mr. UPTON. Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Mr. Riedl, thank you for your kind words. We have been working 

for a long time on the LNG issue and the ability to put America 

into the LNG markets globally. 

You know, my district in eastern and southeastern Ohio that sit 

on top of the Utica and the Marcellus Shale is no stranger to the 

economic benefits of the shale energy boom and the vast amount 

of gas at our disposal. 

With the Sabine Pass facility already exporting LNG and with 

more export facilities under construction, new job opportunities 

have simultaneously emerged in my district, a part of the country 

that has been impoverished over a number of years. 

As pipeline infrastructure is laid, combined-cycle power plants 

are being built, while ethane crackers and ethane storage possibilities begin to take shape or are already under construction. 

In many cases, local budgets of counties and townships have also 

been saved from oil and gas tax revenues that have increased their 

coffers. In fact, the top six shale counties in my district have collected more than $43.7 million in real estate property taxes from 

2010 to 2015. That is a lot of money for Appalachia. The median 

income within those counties has also risen over a similar period. 

So, Mr. Riedl, the Appalachian region has clearly benefited from 

the use of natural gas in various ways. Do you expect this trend 

to continue as more export facilities come online? 

Mr. RIEDL. I think the short answer is, absolutely, we do. We 

would expect that, I think, if you look at sort of the number of jobs 

that the oil and gas industry already supports, 10.3 million jobs, 

if you look at where we are projected to go. We have, like I said, 

one facility operational, one set to become operational very soon, 

and another four that are under construction. I would expect that 

there would be somewhere in the neighborhood of 10 facilities operational in the next 5 to 7 years. 

And if you look at sort of the amount of opportunity that those 

facilities represent, roughly 10 BCF a day projection of exports, it 

only is going to mean that there is more opportunity for those 

States that are producing the gas and need to then get that gas 

to the facilities to have opportunities for additional demand. 

And as I mentioned in my testimony, it is all new production 

that is going to meet that demand from these LNG facilities, which 

means additional jobs, because there are going to be additional rigs 

running. And that ripple effect on down the line in the support opportunities, the jobs that would come out of that as well, is one 

that obviously becomes a multiplier pretty quickly. 

Mr. JOHNSON. OK. Well, thank you. 

Facing competition from other countries, and we know there is 

competition out there, I understand, as you mentioned, that our 

window of opportunity to export LNG is limited. 

What is a realistic outlook for global LNG demand over the next 

20 years? And what does that outlook mean for companies wishing 

to build LNG export facilities here in the U.S.? 

139 

Mr. RIEDL. I think that that answer, if you look at sort of the 

current demand today, roughly 35 BCF a day is the current demand, there are projections that would show that doubling in the 

next 20 years. And if you look at sort of where we are from a production of LNG globally, we are expected to start having a shortfall 

pretty quickly with coming demand in the mid-20s, depending upon 

which academic study you would look at. 

But that means is the opportunity for U.S. natural gas, and LNG 

exports in particular, those long-term contracts that are going to 

start popping up here in the next few years, U.S. LNG is going to 

be competing on a global level for those contracts. 

And so if we look at potential doubling of LNG demand in the 

next 20 years, our opportunity to look at some of the projects that 

are currently awaiting approval, we don’t have a lot of time to wait 

before they are going to need to start making investment decisions 

to build those facilities to meet that coming demand. 

Mr. JOHNSON. Do you think there is going to be any market pressure to allow only so many LNG facilities to be built? 

Mr. RIEDL. Sure. So if you look at the projections of where total 

demand is, how contracts are already set up with other countries 

that are exporting LNG, yes, EIA projects that out through 2050 

roughly 12 BCF of LNG exports, which account for a much smaller 

percentage of our overall production of close to 40 BCF. So, absolutely, the market is going to limit how much export we will be 

able to capitalize on. 

Mr. JOHNSON. OK. One final question, and different experts give 

different opinions of this. But what is your realistic projection of 

what our U.S. natural gas supplies are? What do you think? 

Mr. RIEDL. Well, I think that it depends upon—EIA is typically 

where I would point to as far as the potential opportunity, and a 

number that I continue to hear is somewhere in the neighborhood 

of 2 to 3 TCF. 

Mr. JOHNSON. OK. 

Mr. CHAIRMAN. I yield back. Thank you. 

Mr. UPTON. Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I don’t know if you all were here earlier. I am kind of torn 

because I am from Texas. But I also have an area that has chemical plants, and we have seen just a huge number of expansion of 

those plants in east Harris County and along the Texas Gulf Coast. 

My colleague from Texas knows that we have some ice cream in 

Texas, Blue Bell ice cream, and their slogan is that we eat all we 

can and we sell the rest. 

That is where I come from. I want to be able to use that for relatively small, cheaper utilities, so we can bring manufacturing 

even more in. But also for, in our area, my manufacturing, refineries, and chemical plants. And I don’t mind selling the rest. I just 

want to make sure we can still continue the growth in our area. 

Mr. Riedl, can you talk a little bit about how the LNG market 

is evolving from a potential market with facilities waiting for approval? And what are we learning now we are finally up and running some of those facilities? 

Mr. RIEDL. Great question and I appreciate the opportunity to 

share some thoughts on that. 

140 

I think the big thing that we continue to focus on is the longterm opportunity for LNG. And where we look at it here in the 

United States, as I was talking to Congressman Johnson’s question, we are still talking about an excess of gas. 

So we are meeting all of our needs for gas. EIA has projected 

that we are going to meet all of our needs for gas in the future as 

well. And we are going to have a surplus of gas. 

And when you look at what EIA projects, dry gas production increasing year over year for the next few years, what that gives us 

is an opportunity, looking out to 2019, even, we are talking about 

5.5 BCF a day of exports. And so when we talk about a total production number close to 80 BCF a day, we have an enormous opportunity to still capitalize and room to grow, as mentioned in the 

first panel. 

Mr. GREEN. OK. A question I have, and for are the entire panel, 

how big is our natural gas supply in the U.S., looking in that crystal ball in the future? Can we support both a huge domestic demand as coal plants continue to close and a large LNG export footprint? 

Why don’t we start at this end of the table. Do you think those 

projections where we can have our ice cream and eat it and sell it 

too? 

Mr. KAVULLA. You are putting me on the spot. But since PURPA 

is my MO, but I will say, in eastern Montana, western North Dakota, we have still had a big problem with flaring natural gas because we can’t make productive use of it coming off of the oil patch. 

Mr. GREEN. I will respond. I go through south Texas a lot, and 

there is still a lot of flaring in Eagle Ford that, if I was a royalty 

owner there, I would be upset about that. You are putting that 

product into the air that we could sell to somebody. 

Mr. Sparks. 

Mr. SPARKS. Yes. Part of my responsibility at Consumers Energy 

is fuel for generation, which includes natural gas. And everything 

that I have seen shows that there is an abundance of natural gas 

going forward. And I would say that probably the limiting thing 

more is pipeline capacity, to get it from the production to facilities, 

than it is the actual natural gas itself. 

Mr. GREEN. And a comment too. I know West Virginia and Ohio 

have trouble getting those pipelines up to the Northeast where 

they really do need the natural gas. 

Mr. RA ́ BAGO. This is not my field of expertise, but living in the 

Northeast and looking at the reliability assessments that are produced by NERC for our region, I would share Mr. Sparks’ statement that up there our issue is transport. 

We don’t make a lot of it directly there. We are concerned about 

the pipes. And from Texas, you will remember once upon a time 

when Mr. Wyatt realized that, at a certain price, it is cheaper to 

send lawyers down the pipeline than gas. 

Mr. GREEN. Having known Oscar Wyatt for most of my life, I understand. 

Mr. CICIO. The only independent source of how much natural resources we have is EIA. And we have used their AEO 2017 demand 

to 2050, 33 years away. 

141 

And when we look at domestic consumption, LNG exports that 

they have forecasted and pipeline exports that they have forecasted 

to Mexico on a net basis, so it is fair, it consumes 56 percent of 

all of our lower 48 natural gas technically recoverable resources. 

Technically recoverable does not mean than it is economically recoverable. So 56 percent. 

If we put in that scenario, and it is in my testimony, that we can 

assume that all that has been approved is in that 33 years, you use 

up 80 percent of all the natural gas resources. 

Mr. GREEN. Mr. Riedl. 

Mr. RIEDL. So I think that I would say, the short answer is, yes, 

we can. We are not necessarily supply constrained. We are demand 

constrained. That is, we are needing to find markets for this gas, 

which is why we are talking about LNG exports, which is why, 10 

years ago, we were talking about imports and now talking about 

exports, because we found so much gas. 

Mr. GREEN. Mr. Chairman, thank you. 

I have a concern, no crystal ball, because when we put something 

in the law and take away oversight, I would be more concerned, not 

maybe a hard hand of oversight, but somebody minding the store 

to make sure that we are not raising our utility costs. Because I 

remember when the price of natural gas in the North Sea was 

cheaper than it was from Louisiana and Texas, and we lost chemical jobs over to Rotterdam. And I don’t want to get to that point. 

So that is why I think the bill we need to look at, to see somebody can go in, whether it be Department of Energy, and say this 

is a national security issue. 

So, Mr. Chairman, I thank you for the time. 

Mr. UPTON. Mr. Flores. 

Mr. FLORES. Thank you, Mr. Chairman. 

I want to assure my friend from Texas on the other side that, 

as a former member of the oil and gas business for years, we have 

got plenty to eat what we want and sell the rest for decades, if not 

centuries. 

Let’s talk about PURPA first, if we can. 

Mr. Kavulla, you heard from your neighbor there at the table the 

impact that these PURPA contracts are having on their company. 

My local community is powered by a muni. And so we have smaller 

electricity utilities out there, munis, co-ops, and so forth. 

What is the impact on those folks? They don’t have a shareholder 

base, if you will, to spread the economic damage of these PURPA 

contracts. What happens to the munis and the co-ops? 

Mr. KAVULLA. In my view, the smaller the consumer base of the 

utility, the greater the potential magnitude of erroneous price forecasting from the regulator would be. In the case of a municipality, 

they are likely, I assume in Texas, self-regulated by their city council. These are people who are probably even in less of a good position than I am to try to guess about the future market prices of 

energy for the purpose of establishing a rate that should be—— 

Mr. FLORES. Well, kind of let’s cut right to the chase. Who gets 

hurt? 

Mr. KAVULLA. The consumers. 

142 

Mr. FLORES. Exactly. Yes. There we go. OK. And I am sorry. I 

wasn’t trying to cut you off. I have just got some other things that 

we need to talk about. 

Mr. Riedl, I appreciate your testimony today. And I have been 

fascinated by your neighbor at the table and some of the things he 

said. And as somebody who is an expert in this field, I do have a 

good feel for the supply of natural gas in this country and the huge 

impact it has had not only on our economy, but also geopolitically. 

How do you respond to his claim that our energy abundance is 

a myth? 

Mr. RIEDL. It is a great question, and I appreciate the opportunity to talk a little bit about that. 

I think that there are a couple of points that I would point to. 

One, if you look at—Congressman Johnson stepped away—but the 

State of Ohio alone in 2016 added 5 TCF of natural gas proven reserves. 

So I think that there is some miscommunication here or mix-up 

here in what we are talking about with proved reserves and technically recoverable reserves. And how the market will actually dictate demand will dictate how we recover those reserves and at 

what price point we recover them. 

So when we talk about a supply situation, it is driven by market 

demand. And so as market demand continues to increase, we are 

able to respond to that with supply. And we have seen it happen 

time and time again since the discovery of the shale gas in the 

early 2000s. 

Mr. FLORES. Well, the other thing that fascinating too is that 

technology continues to change the paradigm, and it is happening 

at an incredibly rapid rate. If you could have told me you would 

get oil and gas out of some things we are getting it out of today, 

if you had told me that 15 years ago, I would have thought you 

were smoking some bad dope. But it is really interesting. I guess 

I got to be careful of my record here, don’t I? 

I want to talk about the impact on jobs and economy a little bit. 

The oil and gas industry was one of the bright spots at a time 

when our labor markets were struggling. Particularly if you look at 

the 2008–2016 time period, there were some times during that time 

period, if we hadn’t had the increase in oil and gas jobs, that that 

job growth would have been negative. 

And so it has been a hugely positive factor for economic opportunity for what I would consider the working class Americans in 

this country, stable jobs, great incomes, great benefits. 

And so I want to drill in on a more of a micro basis. How many 

jobs are typically created by the construction, first, and then the 

operation of an LNG facility? 

Mr. RIEDL. So construction, and if you look at the sort of timeframe of construction projects, one of the fastest moving projects 

that we have going right now is the Cove Point project, which is 

set to begin operation. And that is somewhere in the neighbor of 

40 months of construction time. 

And that creates somewhere between the neighborhood of 4,000 

to 7,000 job at each one of these facilities. And so if you talk about 

we are building four more, you can pretty quickly do the math on 

143 

how many construction jobs that that supports over a number of 

years. 

And then if you think about sort of from an operational standpoint directly at a facility, it is not an enormous number of jobs, 

but we are still talking about adding real wages and real jobs to 

each one of those facilities in the neighborhood of a few thousand 

employees for each one of those facilities. 

Mr. FLORES. OK. And those jobs are not paid in crumbs, right? 

They are good, well-paying jobs. 

Mr. RIEDL. No. The average salary is well over six figures in 

those jobs. 

Mr. FLORES. OK. Well, six figures, right? 

Mr. RIEDL. Yes, sir. 

Mr. FLORES. OK. Great. 

Thank you, Mr. Chairman. I yield back. 

Mr. OLSON [presiding]. The gentleman yields back. 

The Chair now calls upon the pastor, Mr. Walberg from Michigan, for 5 minutes. 

Mr. WALBERG. Thank you, my son. 

Mr. OLSON. Amen. 

Mr. WALBERG. Go, Cubs. 

Thank you to each of the panel for being here. 

And in relationship to PURPA, our design is to make sure that 

the consumer is benefited. And we are certainly open, we are open 

to discussing better ways of doing things. But in the end, we want 

the consumer to be king and have utilities that can succeed in such 

a way to make the consumer king. 

So I appreciate you being here today. 

Mr. Sparks, before I get to my question, I want to thank you for 

being here. I am greatly appreciative of what CMS does in my district, being headquartered there, and all of the impact. 

And the fact that—you know, we have talked about a lot of 

things, and it is an absolute truth that you are ahead of the curve 

and ahead of the game of even what our State is mandating as far 

as renewables. And you are leading the way on those things. And 

it comes not because you are being forced, but it is a better way 

when it works. And so I appreciate that. 

You gave your comments early on, and I am sure you have listened as other things have been said. So I want to give, before I 

ask my questions, an opportunity for you to comment on any things 

that you heard and would like to add to the mix here. 

Mr. SPARKS. Yes. Thank you, Mr. Walberg, for that. 

Two things I would say. One is, at least for Michigan anyway, 

Michigan has a very robust IRP process. We have been going 

through stakeholder meetings over the last year, we are now having public meetings, to talk about the whole process of integrated 

resource planning. 

All of the utilities in Michigan have to file integrated resource 

plans by, I believe, it is April of 2019. Our company will be filing 

one before June of 2018. 

So I would just say that lots of opportunity for all stakeholders 

to participate in that process in Michigan. 

The other thing I think I would just mention is that I believe 

that H.R. 4476 actually promotes competition. I don’t understand 

144 

how forcing customers to buy from renewable resources that are 

priced higher than other renewable opportunities, or other generation resources for that matter, could ever promote competition. So 

by lowering that threshold, in my view, it actually promotes competition. 

Mr. WALBERG. Well, add to that a bit. One of my questions was 

going to be, is it fair to say that Consumers Energy is being forced 

to purchase power they don’t need at above-market prices? 

Mr. SPARKS. Absolutely. Our company right now has 650 

megawatts of wind resources that we either own or we contract for. 

We just brought online 44 megawatts of wind this past December, 

$45 per megawatt hour. Another third party that we contract with 

brought on 100 megawatts of wind this past November, less than 

$45 per megawatt hour that our customers are paying. 

So when we look at the avoided costs that have been established 

for Consumers Energy for renewables, it is much higher than that, 

sometimes twice the cost of what I just quoted. And we have plans 

to put more megawatts from wind on our system, again in that 

mid-$40 range. 

Mr. WALBERG. Drilling down a little bit further. If H.R. 4476 

were signed into law, would it save your customers money? And if 

not, what will they overpay? 

Mr. SPARKS. It absolutely would save our customers money. Dollar for dollar, our power supply costs are a direct pass-through to 

our customers. So any dollar that we can save in power supply 

costs will go directly to our customers. 

In my opening remarks, I commented about customers paying 

about $35 million, we predict, more than what they otherwise 

would pay from other options from all of the PURPA contracts that 

we have been asked to sign. That was as of last week when I was 

preparing my materials. I looked yesterday. We are up to about 

$53 million now. 

Mr. WALBERG. OK. 

Finally, I understand Consumers is taking steps to expand your 

renewable generation portfolio, as you mentioned. This is an effort 

I applaud, but want to know if PURPA is actually hindering consumers from building more renewable generation at lower cost to 

your customers. 

Mr. SPARKS. It certainly could in the future if enough PURPA 

generators come onto our system. We obviously have to look at that 

supply-demand balance. And we wouldn’t want to have more generation available than what our constituents, our customers, would 

consume. So is could affect that, yes. 

Mr. WALBERG. Mr. Chairman, without objection, I would like to 

submit letters from 17 different entities in support of this for the 

record. 

Mr. OLSON. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. WALBERG. Thank you. I yield back. 

Mr. OLSON. The gentleman yields back. 

It appears that we have no further Members seeking to ask some 

questions. So on behalf of the entire subcommittee, thank you, 

thank you, thank you for your patience. 

145 

I will remind you all Members have 10 days to submit questions 

for the record, legislative days, and our guests have 10 days to respond to those questions after receiving them. 

Before we close, I would like to enter 21 letters for the record. 

A letter from Alliant Energy. A letter from American Public 

Power Association. A letter from the Arizona Public Service. A letter from the Basin Electric Power. A letter from Berkshire Hathaway Energy. A letter from Consumers Energy. A letter from 

Covanta. A letter from DTE Energy. A letter from Duke Energy. 

A letter from Edison Electric Institute. A letter from Electricity 

Consumers Resource Council. 

Whoa, boy. 

A letter from the Environmental Law Policy Center, Natural Resources Defense Council, Solar Energy Industries Association, 

Southern Environmental Law Center, and Vote Solar, all collectively. 

A letter from the Idaho Power Corporation. A letter from the 

Independent Power Producers Coalition of Michigan. A letter from 

the Industrial Energy Consumers of America. A letter from ITC 

Holdings Corporation. A letter from National Association of Regulatory Utility Commissioners. A letter from the National Rural 

Electric Cooperative Association. A letter from OG Electrical Corporation. A letter from Portland General Electric Company. A letter from Xcel Energy. 

Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. OLSON. Again, thank you, thank you. This hearing is adjourned. 

[Whereupon, at 1:04 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

146 


115TH CONGRESS H R 4476 1ST SESSION • • 

To modernize the Puhlie Utility Regulatory Policies Aet of 197R, and for 

other purvoses. 

IN THE HOUSE OF REPI~ESENTATIVES 

NOVE:i\IBER 29, 2017 

Mr. WAI,BERG (for himself and Mr. BLUM) introduced the following hill; which 

was referred to the Committee on Energy and Commerce 

A BILL 

'l'o modernize the Public Utility Regulatory Policies Act of 

1978, and for other purposes. 

1 Be it enacted by the Senate and Hottse of Re:presenta2 tives ofthe United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may he cited as the "PURP A Modernization 

5 Act of 2017". 

6 SEC. 2. LOCATION OF SMALL POWER PRODUCTION FACILI· 

7 TIES. 

8 (a) REBUTTABLE PRI<JSUMPTION.-The l,,ederal En9 ergy Regulatory Commission shall, not later than 180 

10 days after the date of enactment of this Act, publish in 
147 


2 

1 the .B-,ederal Register a final rule amending its regulations 

2 implementing section 3(17)(A)(ii) of the Federal Power 

3 Act (16 U.S.C. 796(17)(A)(ii)), regarding the method for 

4 detennining whether facilities are considered to be located 

5 at the same site as the facility for which qualification is 

6 sought for the purpose of calculating power production ca7 pacity, to provide a rebuttable presumption that8 (1) facilities located one mile or more away 

9 from each other are not located at the same site; 

10 and 

11 (2) facilities located within one mile of each 

12 other are located at the same site. 

13 (b) OVERCOMING THE PRESUMPTION.-

14 (1) PERSONS WHO lVIAY REBUT THE PRESUMP15 TION.-The Commission shall allow any person (as 

16 defined in section 385.102 of title 18, Code of Fed17 era! Regulations, as in effect on the date of cnact18 mcnt of this Act) to rebut the presumption described 

19 in subsection (a). 

20 (2) FACTORS TO BE CONSIDERED.-ln deter21 mining whether a faeility is considered to be located 

22 at the same site as the facility for which qualifica23 tion is sought, the Commission shall take into ac24 count, to the extent practicable, the follm:ving fac25 tors: 

•HR 4476 1H 
148 


1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

3 

(A) The extent to which the owners or operators of the facilities are affiliated or associated with each other, or are nnder the control 

of the same company or person. 

(B) The extent to which the owners or operators of the facilities have treated the facilities as a single project for purposes of other 

regulatory filings or applications. 

(C) Whether the facilities use the same energy resource. 

(D) \Vhether the facilities have a common 

generator lead line or connect at the same or 

nearby interconnection points or substations. 

(E) The extent to which the owners or operators of the facilities have a common land 

lease or land rights with rcspcet to land on 

which the facilities arc located. 

(F) The extent to which the owners or operators of the facilities have common financing 

with respect to the facilities. 

(G) The extent to whieh the faeilities are 

part of a common development plan or permitting effort, even if the interconnection of the facilities occurs at separate points. 

•HR 4476 m 
149 


4 

1 (c) AFFILIATION lu'\TD AsSOCIATIOX.-The Commis2 sion shall consider the owners or operators of facilities to 

3 be affiliated or associated for purposes of this section if 

4 they arc affiliates or associate companies within the meanS ing of those terms as defined in section 1262 of the Public 

6 Utility Holding Company Aet of 2005 (42 U.S.C. 16451). 

7 (d) CONTROIJ.-The Commission shall consider the 

8 owner or operator of a facility to be under the control of 

9 a company or person for purposes of this section if10 (1) the eompany or person directly or indirectly 

11 owns, controls, or holds, with power to vote, 10 per12 cent or more of the outstanding voting securities of 

13 the owner or operator; or 

14 (2) the Commission determines, after notice 

15 and opportunity for hearing, that the company or 

16 person exercises, directly or indirectly (either alone 

17 or pursuant to an arrangement or understanding 

18 with one or more companies or persons), a control19 ling influence over the management of the owner or 

20 operator. 

21 SEC. 3. NONDISCRIMINATORY ACCESS. 

22 Section 210(m) of the Public Utility Regulatory Poli23 cics Act of 197R (16 U.S.C. R24a-3(m)) is amended hy 

24 adding at the end the following: 

•HR 4476 IH 
150 


5 

1 "(8) NONDISCRIMINA'rORY ACCESS.-For pur2 poses of this subsection, a qualifYing small power 

3 production facility with an installed generation ca4 pacity of 2.5 megawatts or greater is presumed to 

5 have nondiscriminatory access to transmission and 

6 interconnection services and wholesale markets de7 scribed in subparagraphs (A), (B), or (C) of para8 graph (1).". 

9 SEC. 4. RECOGNITION OF STATE OR LOCAL DETERMINA10 TIONS. 

11 Section 210(m) of the Public Utility Regulatory Poli12 cies Act of 1978 (16 U.S.C. 824a-3(m)), as amended by 

13 section 3, is further amended by adding at the end the 

14 following: 

15 "(9) S'l'ATE OR LOCAL DETERMINATION.-After 

16 the date of enactment of this paragraph, no electric 

17 utility shall he required to enter into a new contract 

18 or obligation to purchase electric energy from a 

19 qualifYing small power production facility under this 

20 section if the appropriate State regulatory agency or 

21 non-regulated electric utility finds, and submits to 

22 the Commission a written determination, that23 "(A) the electric utility has no need to pur24 chase electric energy from such qualifYing small 

25 power production facility in the amounts to be 

•HR 4478 IH 
151 


1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

6 

offered ·within the timeframe proposed by the 

qualifying small power production facility, consistent with the needs for electric energy and 

the timeframe for those needs as specified in an 

electric utility's integrated resource plan, in 

order to meet its obligation to serve customers; 

or 

"(B) the electric utility employs integrated 

resource planning and conducts a competitive 

resource procurement process for long-term energy resources that provides an opportunity for 

qualifying small power production facilities to 

supply electric energy to the electric utility in 

accordance with the integrated resource plan of 

the electric utility.". 

0 

•HR 4476 m 
152 


AUTHENTICATED~ US. OOVEA:NMJ!N'f 

INFORMATION 

OPO 

115TH CONGRESS H R 4605 1ST SESSION 

• • 

To repeal restrictions on the export and import of natural gas. 

IN THE HOUSE O:P REPRiiJSEN'l'A'l'IVES 

DECEMBER 11, 2017 

Mr. ,JOHXSON of Ohio (for himself, Mr. LATTA, Mr. CRAMER, Mr. FLORES, 

Mr. CUEI,I.AR, and Mr. RYAN of Ohio) introduced the following bill; 

which was referred to the Committee on Energy and Commerce 

A BILL 

To repeal restrictions on the export and import of natural 

gas. 

1 Be it enacted by the Senate and Hottse of Representa2 tives of the United States r~f America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may he cited as the "Unlocking Our Domes5 tic LNG Potential Act". 

6 SEC. 2. IMPORT AND EXPORT OF NATURAL GAS. 

7 Section 3 of the Natural Gas Act (15 U.S.O. 717b) 

8 is amended9 (1) by striking subsections (a) through (c); 
153 


2 

1 (2) by redesignating subsections (e) and (f) as 

2 subsections (a) and (b), respectively; 

3 (3) by redesignating subsection (d) as sub4 section (e), and moving such subsection after sub5 section (h), as so redesignated; 

6 (4) in subsection (a), as so redesignated, by 

7 amending paragTaph (1) to read as follows: "(1) The 

8 Commission shall have the exclusiYe authority to ap9 prove or deny an application for the siting, construe-

} 0 tion, expansion, or operation of a facility to export 

11 natural gas from the United States to a foreign 

12 country or import natural gas from a foreign coun13 try, including an lJNG terminal. Except as specifi14 cally prm'.ided in this Act, nothing in this Act is in15 tended to affect otherwise applicable lavv relaterl to 

16 any I•~edcral agency's authorities or responsibilities 

17 related to facilities to import, or export natural gas, 

18 including l1NG terminals."; and 

19 (5) by adding at the end the following new sub20 section: 

21 "(d) Nothing in this Act limits the authority of the 

22 President under the Constitution, the International Emer23 gency Economic Powers Act (50 U.S.C. 1701 et seq.), the 

24 National Emergencies Act (50 U.S.C. 1601 et seq.), part 

25 B of title II of the Energy Policy and Conservation Act 

•HR 4605 IH 
154 


3 

1 (42 U.S.C. 6271 et seq.), the Trading With the Enemy 

2 Act (50 U.S.C. App. 1 et seq.), or any other provision 

3 of law that imposes sanctions on a foreign person or for4 cign government (including any prmision of law that proS hibits or restricts United States persons from engaging 

6 in a transaction with a sanctioned person or government), 

7 including a foreign government that is designated as a 

8 state sponsor of terrorism, to prohibit imports or ex9 ports.". 

0 

•HR 4605 IH 
155 


US 

AUTHI<NT!CATE~ GOVERNMENT 

tNFORMAT!ON 

CPO 

115THCONGRESS H R 4606 1ST SESSION • • 

To provide that applications under the Natural Gas Act for the importation 

or exportation of small volumes of natural gas shall be granted without 

modification or delay. 

IN THE HOUSE OF REPRESENTATIVES 

DECEMBER 11, 2017 

Mr. ,JOHXSON of Ohio (for himself, Mr. LATTA, Mr. CRAMER, Mr. FJ,ORES, 

and Mr. CUELI.<AR) introduced the follm.-ing bill; which was referred to 

the Committee on Energy and Comnwrcc 

A BILL 

To provide that applications under the Natural Gas Act 

for the importation or exportation of small volumes of 

natural gas shall be granted without modification or 

delay. 

1 Be it enacted by the Senate and House of Representa2 tives ofthe United States ofArnerica ·in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the "Ensuring Small Scale 

5 I_~NG Certainty and Access Act". 
156 


2 

1 SEC. 2. SMALL SCALE EXPORTATION OR IMPORTATION OF 

2 NATURAL GAS. 

3 Section 3(e) of the Natural Gas Act (15 U.S.C. 

4 717b(e)) is amended5 (1) hy striking "subsection (h), or" and insert6 ing "subsection (h),"; and 

7 (2) by inserting ", or the importation or expor8 tation of a volume of natural gas that does not ex9 ceed 0.14 billion eubie feet per day" after "national 

10 treatment for trade in natural gas". 

0 

•HR 4606 m 
157 


The Honorable Tim Walberg 

Member of Congress 

November 30, 2017 

2436 Rayburn House Office Building 

Washington, DC 20515 

Dear Congressman Walberg: 

On behalf of the 1.4 million customers we are privileged to serve, I write in strong support of 

H.R. 4476 the PURPA Modernization Act of2017. This timely legislation seeks to modernize 

the Public Utility Regulatory Policies Act of1978 (PURP A) to ensure the efficient, market-based 

dispatch of large scale renewable energy across the country, and lower energy costs for all 

Americans. 

As you are well aware, the operating environment in which Congress originally enacted PURP A 

in 1978 is vastly different from the ways in which energy is produced and used 

today. Improvements in technology have lowered the cost of installing wind and solar 

energy. Additionally, state-level policies such as Renewable Portfolio Standards, changing 

customer expectations, and societal demands have all helped create a new energy 

environment. As a result of these changes, generation from renewable energy resources, such as 

wind and solar, has increased substantially since PURPA was enacted, and that trend shows no 

sign of slowing. In 1978, robust energy markets like the Midcontinent Independent System 

Operator (MISO) did not exist. Now, about half of newly constructed renewable generation 

capacity in the United States participates in wholesale energy markets that provide clear and 

cost-competitive price signals. 

Iowa is a national leader in wind energy deployment, deriving 36 percent of the state's electricity 

from wind, a statistic to which Alliant Energy is a proud contributor. Our commitment to 

deploying cost-effective renewable resources is strong: we currently contract for more than 1,000 

MW s of wind capacity from existing wind farms via competitive purchase power agreements, 

and are in the midst of executing a plan to install up to an additional gigawatt of wind resources 

-an investment of approximately $1.8 billion. By 2030, we intend to reduce our fossil-fueled 

generation carbon dioxide (C02) emissions by 40 percent from 2005 levels. Renewable energy 

investments will play a significant role in our generating fleet's transformation given the 

declining costs of renewable resources and preferences of our customers. 

PURP A, as currently implemented, is an outdated law that has the potential to financially harm 

customers and impact the reliability of the grid. While states across the country - in organized 

and unorganized markets- are able to competitively solicit renewable energy, electric utilities 

are still subject to PURP A's outdated mandatory purchase obligation. The price paid for this 

energy is administratively determined, and project locations are chosen for the benefit of the 
158 


investor of the qualified facility (QF) not the customer. These QFs violate the intent ofPURPA 

by structuring their projects into separate corporate entities to bypass the Federal Energy 

Regulatory Commission's (FERC) regulations imposing a 20 MW size cap in organized markets. 

This abuse has led to increased electricity costs for our Iowa customers. 

H.R.4476 will help bring large scale renewable energy deployment into the 21st century by 

allowing energy companies to challenge abuses ofFERC's one-mile rule. The burden imposed 

by FERC's one-mile rule makes it difficult for utilities to challenge QF developers' actions that 

disaggregate projects into individual, smaller entities in order to avoid participating in markets 

competitively. Utilities should be provided the opportunity to demonstrate that these types of QF 

projects should not qualify as small power production sites under PURPA. Reforming FERC's 

one-mile rule is a critical component in stopping abuse ofPURPA regulations. 

Your legislation will also take important steps reforming PURPA's mandatory purchase 

obligation if a state regulatory commission finds that (I) the utility's customers do not need the 

additional power to meet their customers' needs; or, (2) the utility employs integrated resource 

planning and conducts a competitive resource procurement process that provides an opportunity 

for QFs to participate in wholesale markets. 

Both of the above-mentioned reforms will help reinforce the spirit and intent of the original 1978 

law, while reducing costs to customers. Our customers are currently paying $20 million in 

additional costs under PURP A. Without the reforms your legislation envisions, our customers 

could potentially pay up to a 50 percent price premium for future QF-generated wind energy in 

Iowa. 

Reform is necessary to ensure customers do not pay more for cost-effective renewable energy. 

Your introduction ofH.R. 4476 allows Congress to take meaningful steps to improve PURPA's 

implementation, mitigate negative impacts on customers and the grid, and better reflect current 

market conditions by modernizing the law. 

Thank you for your leadership in advocating for this timely measure, and we stand ready to assist 

you in seeing that this legislation becomes law. 

CC: Chairman Greg Walden 

Terry Kouba 

Vice President Operations - Iowa 

Alliant Energy 

Energy Subcommittee Chairman Fred Upton 
159 


AMERICAN 

PUBLIC 

POWERTM ASSOCIATION 

Powering Strong Communities 

December 6, 2017 

The Honorable Tim Walberg 

2436 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Representative Walberg: 

2451 Crystal Drive 

Suite 1000 

Arlington, VA 22202-4804 

202-467-2900 

www.PublicPower.org 

On behalf of the American Public Power Association (APPA or Association), I am writing to express 

our support for H.R. 4476, the PURPA Modernization Act of2017. APPA is the national service 

organization representing the interests of over 2,000 community-owned, not-for-profit electric utilities. 

These utilities include state public power agencies, municipal electric utilities, and special utility districts 

that provide low-cost, reliable electricity and other services to over 49 million Americans. 

The Public Utility Regulatory Policies Act of 1978 was enacted following the energy crisis of the 

1970s to encourage cogeneration and renewable resources and promote competition for electric 

generation, as well as the conservation of electric energy. Much has changed in the 40 years since the 

enactment of the act, including the development of organized wholesale electricity markets and the 

adoption of policies at the Federal Energy Regulatory Commission (FERC) to promote open access 

transmission policies. Further, state and federal incentives have been adopted to promote generation from 

wind and solar resources, such as state renewable portfolio standards and the federal Investment and 

Production Tax Credits. Today, 15 percent of electric generation is from these resources versus virtually 

none in 1978. 

APPA has increasingly heard from its members that PURPA's mandatory purchase obligation has 

forced them to buy power from qualifying facilities (QFs) they do not need and many times at rates that 

are higher than what can be obtained from the market. Load growth at many public power utilities has 

remained flat or decreased since 2008. For public power utilities that are under contract with joint action 

agencies for all of their power needs, this obligation to buy power from QFs may interfere with their 

power supply contracts. In enacting PURP A, we do not believe Congress ever intended for utilities to 

have to buy power they do not need, at rates typically higher than what is available in the market. 

The Association is pleased you have introduced this legislation to make some needed reforms to 

PURPA's mandatory purchase obligation provisions. We support the directive to FERC to provide a 

rebuttable presumption to its one-mile regulations. This will provide utilities and other stakeholders with 

potential redress when a renewable developer splits a larger project into smaller ones located just over a 

mile apart to meet PURPA's SO-megawatt QF capacity limit as implemented in FERC's regulations. We 

also support and appreciate the inclusion of language in the bill to allow self-regulated public power 

utilities to override the mandatory purchase obligation when they do not need electricity to meet load or 

have a competitive process for procuring power that QFs can bid for. 
160 


Walberg Letter on H.R. 4476 

Page 2 

December 6, 2017 

Thank you for your leadership on this important issue affecting electric utilities. I hope you will feel 

free to contact me or the APPA government relations staff with any questions. 

Sincerely, 

Susan N. Kelly 

President & CEO 

SNKIDW 

cc: The Honorable Greg Walden 

The Honorable Frank Pallone 

The Honorable Fred Upton 

The Honorable Bobby Rush 
161 


Oaps 

November 29,2017 

The Honorable Tim Walberg 

U.S. House of Representatives 

2436 Rayburn House Office Building 

Washington, DC 20515 

Dear Congressman Walberg: 

Barbara Lockwood 

VIce President 

Regulation 

Mall Station 9910 

PO Box 53999 

Phoenix, Arizona 85072·3999 

Tei60Z•250-3361 

Barbara.Lockwood@aps.eom 

We strongly support the PURPA Modernization Act of 2017 (HR 4476). This legislation will 

make necessary reforms to our nation's energy policy enabling electric utilities to meet our 

customers' needs in an evolving marketplace. 

APS is Arizona's largest and longest serving electric utility. We provide service to about half 

of all Arizonans through a diverse generation fleet with more than 6,200 MW of capacity, 

about SO% of which is carbon free. 

The PURPA mandate to purchase energy from Qualifying Facilities (QFs) is no longer 

necessary. The original purpose of PURPA was to spur the creation of a market for 

independent generators and renewable energy resources. These key drivers have been 

satisfied by a combination of technology advancements and regulatory and market 

conditions. Low costs and state renewable mandates eliminate the need for PURPA's must 

take approach to renewable energy projects. 

The current approach embedded in the PURPA continues to exacerbate operational 

challenges and drive up costs for our customers. The "duck curve" is a resource challenge in 

the Western United States and is becoming more prevalent in Arizona where large amounts 

of solar generation produce more energy than is needed midday. Those same solar resources 

are not available when Arizona electric consumers need energy the most during the early 

evening hours. As a result, there is a need to have more flexible resources available that can 

quickly be brought on-line to meet the energy needs in those early evening hours and ensure 

a reliable system. 
162 


Oaps 

Barbara Lockwood 

VIce President 

Regulation 

Mall StatiOn 9910 

PO Box 53999 

Phoenlx1 Arizona 85072~3999 

Tel 602·250·3361 

Barbara.Lockwood@aps.com 

As we add more renewable resources in Arizona, it must be done in a coordinated 

manner through careful planning. PURPA inhibits this process. State regulations require APS 

to plan for future generation resources through a comprehensive and transparent planning 

process known as an Integrated Resource Plan (IRP). APS's IRP shows the need for flexible 

and dispatchable resources not must take renewable energy resources mandated by PURPA. 

APS also uses a competitive solicitation process into which QF developers can bid. This 

results in an efficient and reliable resource mix at a lower cost for our customers. 

The PURPA Modernization Act improves the existing process in ways that can help to reduce 

costs for our customers and ensure resource decisions are consistent with our customers' 

needs. One example of this is a provision that expands the flexibility of state utility 

commissions to suspend the mandatory purchase requirement in the following situations: 

when an electric utility does not need additional QF power to meet customer's needs or if a 

utility participates in long-term integrated resource planning combined with a competitive. 

procurement process. Both ofthese provisions ensure that resources acquired through the 

PURPA process are needed by our customers and are acquired at the lowest possible price. 

PURPA reform is long over-due a{ld we applaud your efforts to make these necessary reforms 

to benefit electric consumers. This legislation will clear the way for utilities to better respond 

to customers' needs and a changing market place. 

Sincerely, 

Barbara Lockwood 

Vice President of Regulation 

cc: The Honorable Greg Walden 

Chairman, House Energy and Commerce Committee 

Robbie S. Aiken 

Vice President, Federal Affairs, Pinnacle West Capital Corporation/Arizona Public 

Service 
163 


Bl BASIN ELECTRIC 

POWER COOPERATIVE 

A Touchstone Energy• Coopemtive @ 

December 22, 2017 

The Honorable Tim Walberg 

2436 Rayburn House Office Building 

Washington, DC 20515 

Dear Representative Walberg, 

On behalf of Basin Electric Power Cooperative, I write in support of H.R. 4476, the 

PURPA Modernization Act of 2017, and to thank you for your leadership in authoring 

this legislation. Basin Electric is a generation and transmission cooperative based in 

Bismarck, North Dakota, serving approximately three million consumers through 141 

rural electric cooperatives across nine states. 

The Public Utility Regulatory Policies Act of 1978 (PURPA) was designed to assist in 

the development and promotion of alternative energy sources, particularly renewable 

resources. In the 40 years since its enactment, we believe that PURPA has largely 

served its purpose and is long overdue for reform. Basin Electric has voluntarily moved 

forward with developing renewable energy, which now accounts for over 25 percent of 

Basin Electric's generating capacity. Many of the provisions contained within PURPA, 

particularly the qualified purchase mandate, are simply outdated or not workable in an 

organized, wholesale power market. 

Basin Electric believes that a utility, particularly member-owned cooperatives, should 

not be required to purchase power it does not need from an electric generator simply 

because It is a renewable source, especially if the generator would operate within the 

same open market as the utility and has equal access to that market. Further, we are 

concerned that wind energy developers seek to abuse PURPA and the "one-mile" rule 

to disaggregate large-scale wind farms into smaller units, and thereby receive special 

rate and regulatory treatment that a large-scale wind farm would otherwise be ineligible 

for under PURPA. This is an issue that has and continues to impact Basin Electric and 

its members. 

H.R. 4476 contains many helpful reforms to address these issues and make PURPA a 

better fit for today's organized electric markets and utility models. Basin Electric 

believes this legislation will result in more effective deployment of renewable energy 

generation at a lower cost to electric consumers. We urge the House of Representatives 

to quickly move forward with this bill. 

1717 East Interstate Avenue 1 Bismarck. NO 58503 I 701.223.0441 I Fa~ 701.557.5336 j bas1nelectnc.com 

Equal Employmeot Opponuony Employer 
164 


December 22,2017 

Page2 

Thank you again for your leadership and support on this important issue. 

Paul Sukut 

CEO & General Manager 

cc: The Honorable Greg Walden 

The Honorable Frank Pallone 

The Honorable Fred Upton 

The Honorable Bobby Rush 

The Honorable Kevin Cramer 

The Honorable Kristl Noem 

The Honorable Greg Gianforte 

The Honorable Liz Cheney 

The Honorable Tim Walz 

The Honorable Collin Peterson 

The Honorable Erik Paulsen 

The Honorable Tom Emmer 

The Honorable Rick Nolan 

The Honorable Rod Blum 

The Honorable David loebsack 

The Honorable David Young 

The Honorable Steve King 
165 


November 29, 2017 

The Honorable Tim Walberg 

2436 Rayburn House Office Building 

Washington, D.C. 20510 

Dear Representative Walberg: 

Thank you for your leadership in introducing legislation to modernize the Public Utility Regulatory Policies 

Act of 1978. The reforms proposed in the legislation would continue to preserve an important role for 

renewable resources, while minimizing opportunities for gaming the law in ways that raise costs for 

customers. With our roots in renewable energy, Berkshire Hathaway Energy is an $85 billion portfolio of 

locally managed businesses that share a vision for the energy future. These businesses deliver affordable, 

safe and reliable service each day to more than 11.6 million electric and gas customers and end-users 

around the world and consistently rank high among energy companies in customer satisfaction. We 

support this legislation in furtherance of those goals and continued provision of service to our customers. 

Since PURPA was passed nearly 40 years ago, the energy landscape has changed dramatically: 

independent generators have open access to transmission, renewable resources are on the rise due to 

state requirements and customer requests, and flattening load and decreasing energy prices require 

utilities to carefully plan to meet their long-term energy supply needs in a manner that is cost-effective 

for customers. 

Given these changes, it is essential that PURPA be modernized to continue to serve the public interest. 

Obsolete methods of measuring a qualifying facility based on a one-mile distance apart in rural areas has 

led to developers gaming the system to derive the highest revenues at the expense of customers. The 

result ofthe current system is that our utilities are forced to negotiate contracts and integrate significant 

volumes of renewable energy resources outside of a need-based analysis and without a competitive 

solicitation to ensure the lowest costs for our customers. A few recent examples at our utilities illustrate 

this concern. 

• A developer requested three 80 MW qualifying facility contracts for a 240 megawatt wind facility 

in Montana that share a common transmission line they are building into Wyoming· to secure 

Wyoming avoided cost prices. 

• A developer requested fourteen 80 MW qualifying facility contracts for a combined over 1,100 

megawatt solar facility in central Utah that would utilize the same transmission line and connect 

to a single point of delivery on PacifiCorp's transmission system. 

• This year PacifiCorp executed four identical80 megawatt qualifying facility contracts (with project 

companies of a common developer) for a combined 320 megawatt wind facility in Wyoming that 

will interconnect by a common generation tie-line to a single point of delivery on PacifiCorp's 

transmission system. 

1800 M STREET, W¥ • SUITE 330N • WASHINGTON, DC 20036-5844 • 202-821>-1378 • FAX: 202-828-1380 
166 


Similarly, the proposed legislation recognizes the important role of state regulatory processes to plan a 

cost-effective generation supply for the benefit of customers. Currently, our utilities engage in integrated 

resource planning to forecast load and make plans for generation to meet that load 20 years in advance 

as acknowledged by the state public utility commissions. For instance, the 20171ntegrated Resource Plan 

for PacifiCorp identifies the need for at least 1,100 MW of new wind resources to cost-effectively meet 

customer needs. In response to a request for proposals issued to solicit competitive proposals for these 

new wind facilities, PacifiCorp received bids for more than 5,000 MW of new wind resource capacity. In 

contrast, qualifying small power production facilities can simply invoke a mandatory purchase obligation 

without any consideration of resource need as established in the integrated resource planning process 

and without participation in a competitive solicitation process that is critical to ensure that resource needs 

are met cost effectively. We support changes to PURPA that acknowledge the role of state regulatory 

commissions in encouraging the cost-effective procurement of renewable resources. 

Together, the changes will modernize PURPA as applied to qualifying small power production facilities 

on a prospective basis. Altogether, PacifiCorp is currently facing costs of $1.5 billion over the next ten 

years in excess of projected market prices, as a result of contracts mandated under PURPA. While the 

proposed statutory changes cannot impact existing contracts, it is important that Congress begin the 

necessary process of modernizing PURPA so that further onerous contracts, and their costs to 

customers, do not continue to grow. 

As the bill is considered in the House of Representatives, please know that we appreciate your efforts and 

stand ready to provide you with any assistance necessary to support this much-needed proposal. 

Sincerely, 

Patrick Reiten 

Senior Vice President 

Berkshire Hathaway Energy 

Cc: Greg Walden, Chair, House Energy and Commerce Committee 

Fred Upton, Chair, House Energy and Commerce Committee, Subcommittee on Energy 

-IIA1HAWAYEIIIRGY 

1800 M STREET, r-NV • SUITE 330N • WASHINGTON, DC 200:J6.5844 • 202-828-1378 • FAX: 202-828-1380 
167 


c,.,.,. e.ey 

Count onus 

A CMS Energy Company 

Nov. 29, 2017 

The Honorable Tim Walberg 

U.S. House of Representatives 

Washington, DC 20515 

Dear Congressman Walberg: 

fts President and CEO of Michigan's largest utility, I am pleased to support the PURPA Modernization Act of 

2017 to reform the Public Utility Regulatory Policies Act of 1978 (PURPA). Consumers Energy is committed to 

providing safe, affordable, reliable and clean energy to our customers - and the legislation you've proposed will 

aid us in meeting that commitment. 

The PURPA Modernization Act recognizes that today's energy landscape is vastly different than that of 1978, 

and the challenges PURPA sought to solve no longer exist. Open access to transmission and competitive 

wholesale electric markets, state renewable portfolio standards and technology improvements to drive energy 

efficiency have helped address PURPA's original missive of promoting energy conservation and diversifying 

domestic energy resources, including renewables. Consumers Energy takes these principles to heart - we fully 

participate in the Midccntinent Independent System Operator's (MISO) electric market and have made 

renewable energy a key part of our environmental commitment by investing in hydros, wind, solar and biomass. 

In fact, we've met Michigan's requirement to have 10 percent of our energy supply generated from renewable 

sources, and are well on our way to meeting the new requirement of 15 percent by 2021. In addition, our 

energy efficiency efforts have saved customers more than $1 billion since 2009. 

PURPA is an outdated policy that is causing our customers to pay around 30-50% over market value for energy 

provided by QFs. In fact, over 10 years, Consumers Energy customers subsidized PURPA facilities to the tune of 

$300 million above market price. 

We take very seriously our commitment to keeping energy costs affordable for our customers while ensuring a 

clean energy future. We believe these goals can be achieved together with the help of your Act, and that it will 

have an added bonus of attracting new jobs and businesses to our great state. 

If there is anything we can do to provide additional support for this legislation, please feel free to contact me. 

Sincerely, 

Patricia K. Poppe 

President and CEO, CMS Energy and Consumers Energy 

cc: The Honorable Greg Walden 

The Honorable Fred Upton 

One Energy Plaza • Jackson, Ml 49201 • {800) 4 77¥5050 • www.ConsumersEnergy.com 
168 


COVINTA 

January 18, 2018 

The Honorable Tim Walberg 

United States House of Representatives 

Washington, DC 20510 

Dear Mr. Walberg: 

PaulaSoos 

Vice President 

Government RelaNons 

Covanta 

445 South Street 

Morristown, NJ 07960 

Phone: (862) 345-5348 

Cell (201) 513-6574 

Email: psoos@covanta.com 

Website www.covanta.com 

Covanta partners with local governments who have made both a public policy and financial 

investment in municipal infrastructure to meet its public requirement to manage its 

constituents' wastes. The infrastructure they have invested in, waste-to-energy (WTE) facilities, 

provides a second and critical public good- baseload renewable energy generation. 

Approximately half of these facilities are owned by local governments, and provide greenhouse 

gas mitigating, resilient, fuel diverse power close to both load centers and demand, eliminating 

the need for long distance transmission and fuel supply chains. 

Under full Public Utility Regulatory Policy Act (PURPA) provisions, local governments across the 

country utilized the policy to develop WTE infrastructure to sustainably provide a public service. 

The critical element that sets this municipal infrastructure apart from other infrastructure like 

waste water treatment facilities or prisons, is the need for these facilities to generate electricity 

as part of its cost structure. While not a pure-play energy provider, the viability of this 

infrastructure requires the ability to obtain reasonable, consistent and longer term pricing for 

the power it produces and the benefits it provides. 

For a variety of reasons, including the evolution of PURPA, variable applicability and 

implementation of PURPA and other policies at the state and federal levels, it is increasingly 

difficult if not impossible to remain competitive in energy markets. Local governments have 

limited or no access to other energy customers, including other infrastructure they themselves 

own. The result is that this infrastructure has and will continue to face premature closure, and 

the risk of stranding assets. 

Covanta supports the committee's efforts to identify and evaluate aspects of PURPA which may 

need to be modified, modernized or restructured. And while PURPA's evolution may not be in 

sync with the evolution of the energy sectors and markets, Covanta believes that there are 

critical elements of PURPA which must be preserved and improved, with regard to municipal 

infrastructure. 
169 


The Honorable Tim Walberg 

United States House of Representatives 

January 18, 2018 

Page 2 

We look forward to the continuing dialogue regarding PURPA policy reform, and welcome an 

opportunity to seek solutions to the challenges facing this unique municipal infrastructure in 

order to prevent unintentionally undermining this valuable local government investment. 

Thank you for the opportunity to provide comment. 

Paula Soos 

cc: Representative Walden 

Representative Rush 

Representative Upton 

Representative Pallone 
170 


.., DTE Energy· 

November 29, 2017 

The Honorable Tim Walberg 

2436 Rayburn House Office Building 

Washington, DC 20515 

Gerard M. Anderson Chairman and CEO 

DTE Energy is committed to doing what is best for our customers, and that includes supporting public policies that 

benefit our customers. This is particularly true when public policies directly impact our ability to meet their electric 

reliability needs In a way that optimizes affordabillty and environmental impact. In this light, refonm of the Public Utility 

Regulatory Policies Act of 1978 (PURPA) is Clitically important. 

As DTE transfonms its generation fleet we will reduce carbon emissions by 80% by 2050. While we are decarbonizing 

our fleet, affordability and reliability are top of mind. To achieve this transfonmation and the resulting environmental 

benefits without significantly impacting affordability and reliability requires thoughtful and deliberate planning on our 

part. PURPA, however, incentivizes parallel generation planning processes that undercut our ability to plan and 

create both retiability and affordability challenges for our customers. 

PURPA was enacted during the oil crisis to encourage conservation, reliability, and efficiency In the delivery and 

generation of electricity, and to do so with equnable retail rates for electric consumers. Since the 1970's energy 

markets, regulatory structures, efficiency, the cost of renewable technology, and the Integration of both independent 

and utility renewable generation have changed significentiy. Going forward, tha application of PURPA should 

consider its original Intent and context for enactment. 

DTE seeks PURPA refonms that protect affordability for our customers and avoid the addition of unnecessary 

generation supply. H.R. 4476 will reestablish a framework consistent with PURPA's original purpose and ensure we 

can effectively meet our customers' reliabilzy and affordabillty demands - ali while dramatically reducing emissions. 

We thank you for your leadership on this important refonm. 

Sincerely, 

cc: The Honorable Greg Walden, Chainman, House Energy and Commerce Committee 

The Honorable Fred Upton, Chainman, Subcommittee on Energy 

One Energy Piazd, Detro[~ MI4S226-1221 dtee,,ergy.com 

D[rect 313.235.8880 

Fax 313.235.0537 

gerry.anderson@dteenergy.c.om 
171 


e('-)DUKE 

--e ENERGY. 

Dec. 15,2017 

The Honorable Tim Walberg 

2436 Rayburn House Office Building 

Washington, DC 20515 

Dear Rep. Walberg: 

DIANE V. DENTDN 

Managing Director 

Federal Policy 

526 S. Church Street 

Charlotte, NC 28202 

Tel: 704.382.8598 

@ane.dentonfctykt=energycom 

On behalf of Duke Energy, I am pleased to offer support for the "PURPA Modernization Act of 2017," H.R. 

4476. We appreciate your leadership to bring common-sense, pro-customer reform to an outdated 

statute. Duke Energy is committed to providing safe, affordable, reliable and clean energy to our 

customers, and the legislation you have proposed will aid us in meeting that commitment. 

Duke Energy is one of the largest electric power holding companies in the United States, serving 7.5 

million retail electric custome·rs located in six states in the Southeast and Midwest, representing a 

population of approximately 24 million Americans. Renewable energy is an integral part of a balanced 

energy solution to generate cleaner energy, and we support efforts to advance renewable energy. We 

have invested more than $5 billion over the past 10 years building wind and solar farms across America 

and are regarded as one of the top five renewable energy companies in the nation. In the next 10 years, 

we expect to invest an additional $11 billion in clean energy resources. 

Unfortunately, in our Carolinas service area, the antiquated Public Utility Regulatory Policies Act of 1978 

has led to a situation where our retail customers must pay for more than 2,000 megawatts of overpriced 

solar power (the equivalent capacity of three nuclear reactors) that, but for PURPA, would not and should 

not have been buiH. 

Duke Energy Progress and Duke Energy Carolinas, and by extension our retail customers, must 

purchase the power generated by these facilities at rates that do not reflect the true value of the 

renewable resource in the wholesale energy market. We estimate that in North Carolina alone. retail 

customers are overpayino by more than $1 billion over the next ten years due to the difference between 

the actual wbolesale price of energy and the "must pay" rate required by law. 

We take seriously our commitment to keeping electricity costs affordable for our consumers while 

ensuring a clean energy future. We believe that H.R. 4476 is a common-sense, pro-customer approach to 

PURPA that re-aligns the law wtth its original goal of promoting fuel diversity in a manner that does not 

adversely affect retail rates for electric customers and does not impair the reliability of utilities' systems. 

Again, thank you for your leadership on this issue, and we look forward to working with you to advance 

this Important legislation. 

Diane Denton 

Managing Director 

Federal Policy 

cc: Energy and Commerce Committee Chairman, Rep. Greg Walden 

Energy and Commerce Subcommittee Chairman, Rep. Fred Upton 
172 


EEl 

Edison Electric 

INSTITUTE 

November 29, 2017 

The Honorable Tim Walberg 

U.S. House of Representatives 

Washington, DC 20515 

Dear Representative Walberg: 

Thomas R. Kuhn 

President 

On behalf of the Edison Electric Institute, I am writing to express our strong support for your 

legislation, H.R. 4476, the PURPA Modernization Act of 2017. The Public Utility 

Regulatory Policies Act (PURP A) was enacted almost 40 years ago during a national oil 

crisis and when electricity markets were vastly different than what they are now. It is time 

to update PURPA to reflect the realities oftoday's electricity markets. 

PURP A • s mandatory purchase obligation forces electric companies to purchase power they 

may not need from certain qualifying facilities (QFs) at prices that can be significantly above 

market. This costs electricity customers billions of dollars in higher energy bills. 

Over the past 40 years, factors that have driven a transfonnation of electricity markets 

include: 

• Federal Energy Regulatory Commission (FERC) open access transmission rules that 

enable power producers to reach many prospective purchasers and interconnection 

roles that assure smaller generators access to the energy grid; 

• Greater competition among generators in wholesale electricity markets, which has 

benefited customers; 

• Improvements in generation technologies that have resulted in declining costs for 

renewable energy resources and natural gas; and 

• Implementation of various federal and state regulations and policies that have 

bolstered renewable energy development and created greater opportunities for 

distributed generation. 

We believe your legislation recognizes the changes occurring in electricity markets and 

makes some common-sense updates to the PURP A mandatory purchase obligation. The bill 

would reqnire PERC to provide a rebuttable presumption to its one-mile regulations so 

electric companies could challenge QF projects that they believe "game" the current 

701 Pennsylvanra Avenue, NW I Wasnrngton. DC 20004-2696 I 202-508·5000 I www eeLorg 
173 


November 29,2017 

Page2 

regulations. The bill also would require FERC to update its current 20-megawatt size 

threshold for QFs in competitive, organized wholesale markets; FERC set the current 

threshold almost 12 years ago, and we believe that level should be reduced to reflect the 

increased competition in these markets. Finally, your legislation would grant authority to 

state regulatory commissions to suspend the mandatory purchase obligation for an electric 

company if the state commission determines that the electric company does not need the 

energy to meet customer demand or the electric company employs integrated resource 

planning and conducts a competitive resource procurement process that provides QFs the 

opportunity to supply energy to the electric company. 

Again, we appreciate your leadership on electricity issues, and we look forward to working 

with you to advance H.R. 4476. 

Sincerely, 

Thomas R. Kuhn 

TRK: kas 

cc: Energy and Commerce Committee Chairman Greg Walden 

Energy Subcommittee Chairman Fred Upton 
174 


1101 K Street, NW 

Suite700 

WashingtOn DC 20005-421 

202.682.1390 

John P. Hughes 

President 8r. Chief Executive Officer 

The Honorable Tim Walberg 

2436 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Representative Walberg, 

December 6, 2017 

On behalf of the Electricity Consumers Resource Council (ELCON), I am writing in support of your legislation 

entitled the "PURPA Modernization Act of 2017." 

ELCON is the national association representing large industrial users of electricity, including large manufacturers 

that own and/or operate or host PURPA qualifying cogeneration and small power production facilities. In fact, 

ELCON was founded in 1976 in anticipation of the enactment of the Public Utility Regulatory Policies Act. ELCON 

members are among the largest owners and operators of Combined Heart and Power (CHP) or cogeneration 

facilities which are used in oil refining, petrochemicals, organic and inorganic chemicals processing and 

manufacture, food processing, and motor vehicle manufacturing. 

The PURPA-bred cogeneration facilities operated by ELCON members have been an important part of our nation's 

energy mix for over forty years. They help reduce our national energy requirements, improve business 

international competiveness by increasing energy efficiency and reducing costs, diversify energy supplies by 

enabling further integration of domestically produced and renewable fuels, advance environmental goals by 

reducing various emissions, improve grid reliability and create jobs. 

Recently the Act was the subject of hearings before Federal Energy Regulatory Commission (FERC) and the Energy 

and Commerce Committee. While CHP was roundly praised as consistent with the original intent of the Act, some 

legitimate concerns were raised about some non-CHP facilities covered by the Act. This has created the perception 

that PURPA is no longer a credible federal policy and should be abolished. ELCON believes the "PURPA 

Modernization Act of 2017"narrowly addresses those concerns while preserving the successful cogeneration 

provisions in the Act. It would be an important step in restoring the credibility of PURPA. 

While we do support this legislation in its current form, we strongly urge you to consider language exempting all 

industrial qualifying facilities regardless of the energy source as advocated by the American F9rest & Paper 

Association (AF&PA) and the Industrial Energy Consumers of America (IECA). 

ELCON appreciates your efforts to fine tune this Jaw and looks forward to working with you to insure that PURPA 

continues to promote cogeneration as a least-cost, clean, efficient and reliable source of energy. 
175 


Environmental Law & Policy Center * Natural Resources Defense Council * 

Solar Energy Industries Association * 

Southern Environmental Law Center* Vote Solar* 

January 18,2018 

The Honorable Fred Upton, Chairman 

Energy Subcommittee 

House Energy and Commerce Committee 

The Honorable Bobby Rush, Ranking Member 

Energy Subcommittee 

House Energy and Commerce Committee 

Dear Chairman Upton and Ranking Member Rush, 

We are writing to urge you to oppose H.R. 4476, the PURPA Modernization Act of2017. 

The Public Utility Regulatory Policies Act (PURPA) advances competition in the electric utility 

industry. The Act was passed in response to a pattern of utility "discrimination" against small 

power producers. The threat of that discrimination and its adverse consequences for the U.S. 

economy and to consumers, who are deprived of affordable, independent energy, remains. Forty 

years after its passage, where it has been effectively implemented, PURPA is delivering on its 

goal of increasing competitiveness in the electricity sector by improving fair market access for 

small renewable energy and cogeneration facilities in traditional monopoly utility markets. 

PURP A provides that utilities pay their "avoided costs," (what it would have cost the utility to 

generate and deliver that power itself) for electricity generated by "qualified facilities," including 

small cogeneration, hydro, solar and wind power producers. PURPA helps reduce utility costs 

over time by helping to delay or defer the need for expensive new power plants that raise 

consumers' utility bills when rate-based. 

Unfortunately, H.R. 4476's provisions would weaken PURPA and the competition and diversity 

of energy sources it brings for consumers' benefit. 

H.R. 4476 would undermine the essential goals of a competitive market by allowing utilities 

to avoid buying power from qualified facilities under PURPA. The way PURP A works, the 

forces of competition determine the size of the market for qualified small power producers based 

on the need for additional energy. As long as these generators can deliver energy below the 

utility's "avoided cost," then development is encouraged. As H.R. 4476 is written, utilities will 

define the size of the PURP A market, in consultation with state agencies. This would put the 

proverbial fox in charge of the hen house- and consumers will ultimately be the ones to suffer 

if utilities are able to favor more expensive self-built generation. The inevitable result of H.R. 

4476 will be less competition, higher electric rates, less investment in new technologies, less 

economic development, fewer new jobs, and less progress towards cleaner air and protection of 

public health. 

H.R. 4476 would create a presumption that all small power producers 2.5 MW or larger in 

size have non-discriminatory access to competitive markets. This proposed change is vastly 
176 


different than the presumption currently in effect under FERC regulations. FERC has 

consistently determined that there are high barriers for entry to the electricity generating market 

for these small producers. The change in the presumption proposed in H.R. 44 76 would 

effectively deny market access to a wide range of small power producers facing very real 

discrimination. 

H.R. 4476 creates a means for utilities to frustrate competitive market development 

through FERC litigation about the size of small power producers. From the date of initial 

passage, PURP A has distinguished between large and small power production facilities. FERC 

has the authority to modify the rule if changes are necessary. But H.R. 4476 changes would 

replace an objective rule with a presumption, thus inviting utilities to litigate to overturn the 

presumption for facilities located more than one mile apart. Monopoly utilities, unlike privatesector competitors, can attempt to pass these litigation expenses on to ratepayers. 

H.R. 4476 does not modernize PURPA, but, instead, it threatens to undermine the essential 

competition that PURPA brings to the electricity market and the many benefits to consumersincluding clean renewable energy and a healthier environment. We urge you to oppose H.R. 

4476. 

Sincerely, 

Environmental Law & Policy Center 

Natural Resources Defense Council 

Solar Energy Industries Association 

Southern Environmental Law Center 

Vote Solar 

Cc: Members ofthe Energy Subcommittee, House Energy and Commerce Committee 
177 


November 29, 2017 

The Honorable Tim Walberg 

2436 Rayburn House Office Building 

Washington, D.C. 20510 

~IDAHO ~POWER® An IOACORP Company 

Re: Letter of Support for HR 4476, the Public Utility Regulatory Policies Act of 1978 

Modernization Bill 

Dear Representative Walberg: 

Idaho Power Company thanks you for your leadership in introducing legislation to 

modernize the Public Utility Regulatory Policies Act of 1978 ("PURPA"), and submits this 

letter in support of such legislation and efforts. Idaho Power is a predominately 

hydroelectric based investor-owned utility providing electric service to a territory of 

approximately 25,000 square miles across southern Idaho and eastern Oregon. Idaho 

Power is consistently among the lowest cost retail public utility service providers in the 

nation. Even without state mandated renewable portfolio standards Idaho Power has 

significant and substantial development of renewable PURPA generation across its 

system. Idaho Power's all-time peak load is just over 3,400 MW, with system-wide 

minimum load of approximately 1,100 MW. In comparison Idaho Power has more than 

1,130 MW of PURPA generation under long-term contracts currently operating on its 

system. Idaho Power's current long-term Integrated Resource Plan shows that the 

Company is completely generation sufficient to meet projected load through the year 

2026, however, the mandatory purchase obligation imposed by PURPA requires the 

continued acquisition of any PURPA generation requesting contracts, at prices that 

typically exceed market prices. 

The mandatory purchase obligation of PURPA consistently works to undermine Idaho 

Power's state regulatory commission required, long-term integrated resource planning 

process that is designed to assure that utility customers are reliably served in a least cost 

manner. The price for PURPA electricity often exceeds the market price for electricity, 

causing unnecessarily high costs for utility customers. PURPA contract terms, typically 

as long as 20 or 35 years, unreasonably lock in these over-market prices for customers 

with no ability to change or modify such long-term contractual commitments. Under the 

mandatory purchase obligation, Idaho Power must continue to acquire PURPA 

generation, even if such generation is not needed to serve customers. The Company is 

sometimes forced to modify and curtail the operation of lower cost and/or more efficient 

and clean generation in order to accommodate PURPA generation. This distorts energy 

markets and results in higher costs for customers. 

1221 W, Idaho St, (83702) 

P.0.8ox70 

Solse, 10 83707 
178 


Honorable Tim Walberg Page 2 of3 November 29, 2017 

PURPA was enacted during the national oil crisis of the 1970s. The energy landscape is 

vastly different today than when it was enacted, and new market realities mean PURPA 

needs to be updated. Some of these developments include: open access to transmission 

for power producers and standardized interconnection for smaller generators; 

independent power producer development and greater competition in wholesale 

electricity markets; improvements in generation technologies; declining costs for 

renewable energy resources and natural gas; and implementation of various state and 

federal regulations, policies, and incentives that have bolstered renewable energy 

development and created greater opportunities for distributed generation. Given these 

changes, along with the substantial PURPA development that has occurred, it is essential 

that PURPA be modernized to more appropriately co-exist with the requirements to 

reliably serve the public in a least cost manner. 

Today, PURPA results in unnecessarily high costs for customers and urgently needs to 

be reformed. While Congress made improvements to PURPA in the Energy Policy Act 

of 2005, PURPA still promotes the uneven and uneconomic development of PURPA 

generation at the expense of utility customers, other lower cost and more efficient 

resources, and system reliability. It is essential that PURPA be modernized to continue 

to serve the public interest. Legislation to reform PURPA is needed now. 

The proposed legislation recognizes the important role of state regulatory processes to 

plan a cost-effective generation supply for the benefit of customers. It appropriately 

introduces a common sense, and missing, needs-based requirement for the continued 

acquisition of PURPA generation, as well as starting to address the abuses of the "onemile rule" and the onerous 20 MW presumption of lack of access to wholesale markets. 

Together, the changes will modernize PURPA as applied to qualifying small power 

production facilities on a prospective basis. Idaho Power currently has over $3.5 billion 

of contractual obligation for more than 1,100 MW of PURPA generation. PURPA 

generation has typically represented approximately 19% of Idaho Power's generation, 

and 32% of generation cost. While the proposed statutory changes cannot impact those 

existing contracts, it is important that Congress begin the necessary process of 

modernizing PURPA so that further onerous contracts, and their costs to customers, do 

not continue to grow. 

As the bill is considered in the House of Representatives, please know that Idaho Power 

appreciates your efforts and stands ready to provide you with any assistance necessary 

to support this much-needed modernization to PURPA. 
179 


Honorable Tim Walberg 

Sincerely, 

JeffMalmen 

Senior Vice President, Public Affairs 

Idaho Power Company 

Page 3 of3 November 29, 2017 
180 


January 19, 2018 

The Honorable Tim Walberg 

U.S. House of Representatives 

2436 Rayburn House Office Building 

Washington, DC 20515 

Re: H.R. 4476, The PURPA Modernization Act of 2017 

The Independent Power Producers Coalition of Michigan {IPPC) cannot support H.R. 4476, the "PURPA 

Modernization Act of 2017," in its current form because it would likely result in the closure or 

abandonment of Michigan's small independent power producers, which would be a terrible loss to this 

state. 

We look forward to working with your staff to address our concerns. 

IPPC represents existing renewable power generators who are qualified facilities (QFs) equal to or less 

than 20 MW in size. They were developed under PURPA, which encourages the use of small renewable 

generation resources to diversify the nation's electrical supply. For decades PURPA has sustained these 

facilities in lieu of market access, which they still don't have in Michigan despite a recent change in energy 

policy, and in lieu of state renewable portfolio standards, which limited QF participation because they 

were in operation before those polices were adopted. 

Changes are needed in H.R. 4467, as introduced, to accommodate these existing facilities that have been 

making contributions to the energy supply, the grid, and local communities for more than 30 years. 

Without PURPA and its reasonable avoided cost rates and purchase obligations, these facilities will not be 

able to provide their services and benefit: 

Turning wood waste, landfill gas, and municipal solid waste into renewable electricity, which has 

environmental and local economic benefit; reducing disposal costs for citizens and industries, and 

providing forest management tools for the timber industry; 

The operation of small hydroelectric dams, formerly abandoned by regulated and municipal 

utilities, that create lakefront properties and related tax base, and provide flood control, fisheries, 

recreational access, and black-start capability. 

The PURPA changes proposed in H.R. 4476 will gut the regulatory infrastructure that makes small power 

generation, and all its benefits, possible. 

Testimony during FERCs technical conference on PURPA in June 2016, and in your Subcommittee Energy 

hearing on September 6, 2017, made it clear that existing small QFs are not part ofthe problems that 

H.R. 4476 intends to address: 

1. Existing small QFs do not impact market conditions that the industry and regulators are 

wrestling with. Compensation for our generation is the "full and actual" avoided cost of the 

utility, which is separate from the market conditions and the forces acting upon it. 

2. Existing small QFs are not responsible for increasing costs to ratepayers. "Full and actual" 

avoided cost is equal to utility cost a( generation. If a utility claims QF costs are "too high," or in 
181 


some statements, "above market price," then, too, the utility's own generation costs are too 

high or above market price. 

3. Existing small QFs are not abusers of the one-mile rule. 

The contributions that these existing brick-and-mortar generators provide are too valuable to allow 

them to simply fade away. We are happy to assist you and staff in making changes to H.R. 4467 to 

ensure the survivability of these facilities. 

Thank you for your time and consideration. We look forward to having more conversation with you and 

staff on these issues. 

Sincerely, 

IPPC 

of MICHIGAN 

Kent County Waste to Energy Facility 

City of Beaverton 

Hillman Power Co. 

Viking Energy of lincoln 

Viking Energy of McBain 

Energy Development Inc. (formerly Granger Energy) 

Boyce Hydro Power 

White's Bridge Hydro 

Black River Hydro 

Elk Rapids Hydroelectric Power 

Michiana Hydroelectric Co. 
182 


.......... ,. 

,...,. I \... A FORTIS COMPANY 

January 17,2018 

The Honorable Tim Walberg 

U.S. House of Representatives 

Washington, DC 20515 

Dear Congressman Walberg: 

On behalf of!TC Holdings Corp. this letter serves to express our support of your 

proposed legislation, H.R. 4476, the PURPA Modernization Act of2017.lTC's interest 

in this issue is to help reduce customer costs and provide an efficient transmission 

grid. 

When PURPA was enacted in the late 1970's, it sought to address pressing energy 

concerns facing the country during the time of an unprecedented international oil 

crisis. PURPA helped the country navigate those difficult times, promoting energy 

conservation and efficiency, and encouraging the development of new small 

generation sources. Nearing 40 years later, the nation's energy industry is radically 

different, and the concerns that PURPA sought to address no longer exist. Today's 

open access transmission environment, competitive wholesale energy markets, and 

robust growth in renewable energy sources and other new technologies, now 

render many of PURPA's measures unnecessary, and even detrimental to customers, 

and the industry overall. 

In today's environment, requirements brought in under PURPA cost American 

ratepayers significant additional costs annually. Mandatory purchase obligations 

often force utilities to buy unneeded power from qualifying facilities (QFs) at rates 

that far exceed the price available in the competitive market. Also, utilities' longterm resource and capital planning is made far more difficult when the utilities are 

forced to contend with unanticipated and unneeded mandatory power purchases 

from QFs. Apparent gaming of the QF regime, through frequent creative planning 

around the one-mile rule, also exacerbates the PURPA-related challenges faced by 

many utilities. 

Your proposed PURPA Modernization Act is a common-sense adjustment to a 

legislative scheme that has served its purpose, and is now overdue for an update. 

The proposed measures to reduce gaming of the one-mile rule, and to reduce the 

threshold size of QF facilities that are deemed to have non-discriminatory access to 

transmission and wholesale markets, will help bring the PURPA regime in line with 

modern reality. Further, we strongly support your proposal to exempt utilities from 

the mandatory QF power purchase obligation where state regulators determine that 

I T C H 0 L D I N G S C 0 R P • 27175 Energy Way • Novi, Ml 48377 

phone: 248.946.3000 • www.ltc-holdlngs.com 
183 


------------ - -------- --- -- ------ --------------- ---- ----- ------------------

the utility does not need the power, or where QFs have had an opportunity to 

participate in a competitive resource procurement process conducted by the utility. 

lTC is strongly committed to providing our customers with a transmission system 

that will provide safe, reliable and affordable energy. We feel that your proposed 

PURPA reform will assist us in these efforts, and will benefit our customers. We 

therefore support your leadership in this important policy area, and congressional 

action to amend PURPA to make it more reflective of the needs of the electricity 

industry and its customers. 

Sincerely, 

Vice President Regulatory, Federal Affairs, and Communications 

Cc: The Honorable Greg Walden, Chairman Committee on Energy and Commerce 

The Honorable Fred Upton, Committee on Energy and Commerce, 

Chairman Subcommittee on Energy 
184 


N A R u c 

National Association of Regulatory Utility Commissioners 

The Honorable Tim Walberg 

U.S. House of Representatives 

2436 Rayburn House Office Building 

Washington, DC 20515 

December 19,2017 

Re: H.R. 4476, the "PURPA Modernization Act of2017" 

Dear Representative Walberg: 

On behalf of the National Association of Regulatory Utility Commissioners (NARUC), I am 

writing to express our support for H.R. 44 76, the "PURPA Modernization Act of20 17," which you recently 

introduced. We commend you for your efforts to update the Public Utility Regulatory Policies Act of 1978 

(PURP A) to reflect the changes and challenges that have occurred in the electric utility sector since PURPA 

was enacted. 

Since enactment, States and their public utility commissions have dramatically increased the 

number of renewable resources on the system both through PURPA and through their own State-led 

initiatives. With the significant proliferation of qualifYing facilities (QFs), though, many States have seen 

a disproportionate rise in the transaction costs for implementing PURP A. Public utility commissions now 

· need to be able to manage the growth in QFs, which as supporters of renewable resources they want to see 

continue, in ways that ensure rates are affordable for consumers. We believe the provisions in your bill 

allow us, as public utility commissioners, to accomplish this goal. 

While we believe all the reforms in your bill to be positive, specifically, we would like to highlight 

our support for Section 4. This section would ensure that each State commission has the authority to 

detennine what resources are necessary to provide affordable and reliable service to their electric 

consumers. There are a number of instances today where State consumers are confronted with paying for 

power they don't need at prices that are artificially high. This section would address this problem. 

We would like to thank you and your staff for taking up the challenge of refonning PURP A. 

NARUC's members and staff look forward to working with you as the legislative process for H.R. 4476 

moves forward. 

1101 Vermont Ave,, NW, Suite 200, Washington, DC 20005- Tel: 202-898-2200- Fax: 202-898-2213 -www.naruc.org 
185 


November 29, 2017 

The Honorable Tim Walberg 

2436 Rayburn House Office Building 

Washington, DC 20515 

Dear Representative Walberg: 

I write in support ofH.R. 4476, the PURPA Modernization Act of2017, and 

commend you for authoring this criticallegis1ation. We agree that the Public Utility 

Regulatory Policies Act of 1978 (PURP A) is outdated and imposes unnecessary 

regulatory and financial burdens on electric co-ops. While PURPA served its 

purpose, as set forth 40 years ago. it now serves to artificially drive up the cost of 

electricity. H.R. 44 76 updates PURP A to better reflect the existing electricity 

market, and I urge the House of Representatives to pass this legislation swiftly. 

Delivering affordable~ reliable electricity is imperative to the communities served 

by electric co~ops. The electricity industry has undergone a dramatic 

transformation from the time PURPA was enacted, The development of 

competitive wholesale electricity markets, the abundance of natural gas, the thriving 

renewable energy sector and innovation by electric cooperatives all contributed to 

this transformation. Many qualifying facilities have access to competitive markets 

and yet they continue to have prices set well above market rates. In some 

communities, PURPA contracts have actually inhibited new renewable energy 

facilities, which could provide more efficient and affordable electricity at far lower 

rates. 

The helpful reforms included in H.R. 4476 expand the authority of states and 

localities to evaluate markets in their jurisdictions. Under this bill, waivers to 

mandatory purchase obligations could be granted, if it is determined that a 

qualifying facility has nondiscriminatory access to a competitive market or if a 

utility does not need capacity or energy from a qualifying facility. We agree that 

states and localities are best positioned to make these assessments and, by providing 

this flexibility, H.R. 4476 can ensure the original intent ofPURPA is preserved and 

can help utilities continue to provide affordable electricity to consumers. 

This bill also includes an important provision aimed to prevent abuse by developers 

who disaggregate large*scale facilities into several smaller units to benefit from 

multiple power purchase agreements. By allowing stakeholders to petition the 

Federal Energy Regulatory Commission, this agency would be authorized to 

determine whether such abuses occur. 
186 


H.R. 4476 would modernize PURPA to more accurately reflect the current 

electricity market and help rural electric cooperatives continue to provide 

affordable, reliable electricity. I strongly urge the House of Representatives to move 

this important legislation forward. 

National Rural Electric Cooperative Association 

cc: The Honorable Greg Walden 

The Honorable Frank Pallone 

The Honorable Fred Upton 

The Honorable Bobby Rush 
187 


OGE Energy Corp 

November 29, 2017 

PO Box321 

Oklahoma City, Oklahoma 73101-0321 

405-553-3000 

www.oge.com 

Honorable Tim Walberg 

US House of Representatives 

2436 Rayburn House Office Building 

Washington DC 20515-2207 

Dear Congressman Walberg: 

OGl-E 

On behalf of OGE Energy Corp., the holding company for Oklahoma Gas & 

Electric, which is the largest electric utility in Oklahoma, I want to express our 

company's support for your "PURPA Modernization Act of 2017 (HR 4476), which 

would bring needed reforms to the outdated Public Utility Regulatory Policy Act 

(PURPA). It is important that electric customers in Oklahoma and Arkansas not be 

burdened with unnecessary costs associated with federally mandated and 

potentially unneeded power supplies. It is even more important that abuses of the 

PURPA federal mandatory purchase obligation be prevented so that utilities can 

effectively plan for a diverse, reliable and cost-efficient power supply. 

We applaud your introduction of HR 4476 and look forward to its 

law. 
188 


December 12,2017 

Portland General Electric Company 

121 SW Salmon Street • Portland, Oregon 97204 

The Honorable Representative Walberg 

U.S. House of Representatives 

2436 Rayburn House Office Building 

Washington, DC 20515 

Dear Representative Walberg: 

On behalf of Portland General Electric Company, I am writing in strong support of H.R. 4476, the 

PURPA Modernization Act of20l7. We appreciate your leadership in introducing this important 

legislation to bring about common sense reforms to an outdated statute. 

The Public Utility Regulatory Policies Act of 1978 (PURP A) was enacted to increase energy 

independence in the midst of an energy crisis. Much has changed in the decades since the Act's passagethe structure of the electric sector, technological advances enabling increased renewables, and broad 

policy support for renewable development. Since PURPA's passage, laws promoting renewable power 

have resulted in the development of a robust renewable energy industry and significant renewable power 

growth. This has eroded the need for PURPA to prop up rcnewables developers many of them 

multinational companies -at the expense of utility customers. 

Portland General Electric (PGE) is fully committed to building a cleaner energy future for Oregon. PGE 

was among the first energy companies to advocate for climate legislation at the national level and we 

have a long history of helping to shape and support state and national policies that promote renewable 

energy, energy efficiency, smart grid and storage deployment, transportation electrification, and 

greenhouse gas emission reductions. At present, our generation mix is about 40% carbon-free. By 2040, 

70% ofPGE's energy will be from carbon-free resources. 

Nearly forty years after PURPA's enactment, the statute requires modernization to align it with today's 

need to significantly reduce the carbon emissions from the nation's energy use at the lowest possible cost 

to customers. PURP A's mandatory purchasing obligation significantly and unnecessarily increases the 

costs of decarbonizing the electricity sector for POE's customers because PURPA contracts lack the 

planning and cost scrutiny undertaken for other resource decisions. POE estimates that if all the 1,218 

MW ofPURPA projects that are currently online, under contract, or in process come online, POE's 

customers would be forced to pay more than $703 million above competitive procurement prices over the 

next 15 years. PGE could also face significant reliability risk as many PURPA generators are not subject 

to the same reliability requirements as other renewable generators. 

PURPA should be modernized to achieve the law's intent in today's renewable energy economy while 

protecting utility customers from excessive costs. 

We support congressional action to address the issues associated with outdated PURPA requirements. 

We therefore urge prompt consideration ofH.R. 4476. 

Director of Government Affairs and Environmental Policy 
189 


(l Xcel Energy" RESPONSIBLE BY Nil-Ufi(:t 

The Honorable Tim Walberg 

United States Representative 

2436 Rayburn House Office Building 

Washington, DC 20515 

Dear Representative Walberg: 

Frank P. Prager 

Vice President 

Policy & Federal Affairs 

November 29,2017 

Larimer Street, Suite 1200 

Denver, CO 80202 

(303)294-21 08 

Frank.Prager@xcelenergy.com 

1800 

On behalfofXcel Energy, I am writing in strong support ofH.R. 4477, the PURPA Modernization 

Act of 2017. We appreciate your leadership in introducing this important legislation to bring about 

common sense reforms to an outdated statute. 

Xcel Energy, headquartered in Minneapolis, provides electric and gas service in eight Western and 

Midwestern states, including the upper peninsula of Michigan. We are also proud to be the number 

one utility wind provider for twelve years running. As strong advocates of cost-effective renewable 

energy, we believe the time is ripe to address abuses of the Public Utility Regulatory Policies Act 

("PURPA) and realign its incentives with those that will best serve electric customers. 

As I noted in my September 6, 2017 testimony before the Energy Subcommittee of the House 

Energy and Policy Committee, PURPA, represents an energy policy from another time that is 

inconsistent with the realities of today. PURPA was adopted almost 40 years ago to encourage 

states and utilities to grow domestic energy resources. Today, however, PURPA incentivizes 

developers to build generation that is not needed and site it in locations where it provides no value 

to the grid. PURPA thwarts the opportunities of other independent power producers. PURP A also 

enables developers to circumvent state siting rules and pursue avoided cost pricing constructs that 

are contrary to the best interests of utilities' customers, the people who ultimately pay these higher 

costs in their electric bills. 

We support congressional action to address the issues associated with outdated PURPA 

requirements. We therefore urge prompt consideration ofH.R. 4477. 

Sincerely, 

Frank P. Prager 

Vice President 

Policy and Federal Affairs 
190 

[Mr. Winberg did not answer submitted questions for the record 

by the time of printing.] 


GREG WALDEN, OREGON 

CHAIRMAN 

Mr. Steven Winberg 

ONE HUNDRED FIFTEENTH CONGRESS 

FRANK PALLONE, JR., NEW JERSEY 

RANKING MEMBER 

<!ongre~~ of tbt Wntttb j,tatt~ 

j!}oulSe of .1\eprelScntatibelS 

COMMITIEE ON ENERGY AND COMMERCE 

2125 RAYBURN HousE OFFICE BuiLDING 

WASHINGTON, DC 20515-6115 Majority {202)225-2927 

Minority{202)225-3641 

March 7, 2018 

Assistant Secretary for Fossil Energy 

Department of Energy 

1000 Independence Avenue, S.W. 

Washington, DC 20585 

Dear Mr. Winberg: 

Thank you for appearing before the Subcommittee on Energy on January 19, 2018, to testify at 

the hearing entitled "Legislation Addressing LNG Exports and PURPA Modernization." 

Pursuant to the Rules of the Committee on Energy and Commerce, the hearing record remains 

open for ten business days to permit Members to submit additional questions for the record, which are 

attached. To facilitate the printing of the hearing record, please respond to these questions with a 

transmittal letter by the close of business on Wednesday, March 21,2018. Your responses should be 

mailed to Kelly Collins, Legislative Clerk, Committee on Energy and Commerce, 2125 Rayburn House 

Office Building, Washington, DC 20515 and e-mailed in Word format to kelly.collins@mail.house.gov. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

cc: The Honorable Bobby L. Rush, Ranking Member, Subcommittee on Energy 

Attachment 
191 


Attachment-Additional Questions for the Record 

The Honorable Tim Walberg 

1. Since PURP A was signed into law in 1978, transmission access has become open to 

competitive generators, organized markets have been developed, and even in bilateral 

markets there is robust trading with independent generators. Given that the electricity sector 

has changed drastically, do you believe that implementation of PURP A has fully kept pace? 

a. Do you believe the current law represents the maturity of competitive markets, state 

renewable energy portfolio standards, investment tax credits, production tax credits, 

zero emission credits, reduced cost in renewables and greater access to markets for 

smaller power producers? 

b. Should the law be updated to meet today's challenges? 

2. As energy prices have declined around the country, 20 year PURP A contracts at fixed prices 

seem to be above market prices. 

a. Are PURP A contracts on average more expensive than the market price? 

3. What percentage of new renewable generation coming online is output from PURPA QFs 

versus other sources? 

4. I am a believer in an all of the above energy approach. I believe a diversified electricity 

portfolio is crucial. With that being said, I fear PURP A is inhibiting my constituents from 

benefitting from the lowest cost source of renewable electricity. 

a. Are there instances where a lower cost renewable generation is bypassed by utilities 

because they have to purchase QF output? 

b. Is PURP A the most cost-effective driver of renewable resources? 

5. Do you have any suggestions about how this bill can be improved to ensure that PURP A 

section 210 best reflects current market realities and protects consumers? 

6. Do you have any other suggestions about how PURP A section 210 can be improved, either 

in legislation or as implemented through regulations? 

a. In particular, how can PURPA section 210 be implemented in a way that better 

reflects Congress' intent in EPACT 2005? 
192 


GREG WALDEN, OREGON 

CHAIRMAN 

Mr. James Danly 

General Counsel 

ONE HUNDRED FIFTEENTH CONGRESS 

FRANK PALLONE, JR., NEW JERSEY 

RANKING MEMBER 

(:ongrc~~ of tbt Wnttcb ~tate~ 

J,loust of ll\epusentatibt5 

COMMITTEE ON ENERGY AND COMMERCE 

2125 RAYBURN HousE OFFICE BuiLDING 

WASHINGTON, DC 20515-6115 Majority (202)225-2917 

Minority (202)225-3641 

March 7, 2018 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, DC 20426 

Dear Mr. Danly: 

Thank you for appearing before the Subcommittee on Energy on January 19, 2018, to testify at 

the hearing entitled "Legislation Addressing LNG Exports and PURP A Modernization." 

Pursuant to the Rules of the Committee on Energy and Commerce, the hearing record remains 

open for ten business days to permit Members to submit additional questions for the record, which are 

attached. To facilitate the printing of the hearing record, please respond to these questions with a 

transmittal letter by the close of business on Wednesday, Mareh 21, 2018. Your responses should be 

mailed to Kelly Collins, Legislative Clerk, Committee on Energy and Commerce, 2125 Rayburn House 

Office Building, Washington, DC 20515 and e-mailed in Word format to kelly.collins@mail.house.gov. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

cc: The Honorable Bobby L. Rush, Ranking Member, Subcommittee on Energy 

Attachment 
193 


FEDERAL ENERGY REGULATORY COMMISSION 

WASHINGTON, D. C. 20426 

OFFICE OF THE GENERAL COUNSEL 

The Honorable Fred Upton, Chairman 

Subcommittee on Energy 

Committee on Energy and Commerce 

U.S. House of Representatives 

2125 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Chairman Upton: 

March 22, 2018 

Thank you for the opportunity to appear before the Subcommittee on Energy on Friday, 

January 19, 2018, to testify at the hearing entitled "Legislation Addressing LNG Exports and 

PURP A Modernization." Attached are my responses to the Supplemental Questions for the 

Record. • 
194 


Responses by James Danly to Additional Questions for the Record 

The Honorable Fred Upton 

1. During the first 30 years of PURP A's existence, electricity demand was 

continually increasing, meaning that there was a consistent need for the 

construction of new power plants in order to meet this growing demand. 

a. Now that many areas of the country are experiencing flat or 

declining electricity demand, the construction of new QF facilities in 

certain areas is no longer needed to provide system capacity. In 

instances such as this, can the construction of new QF's result in 

higher electricity costs for ratepayers? 

b. Does PURP A reform remain a priority for the Commission? 

c. Are there other reforms to FERC's regulations that are being 

considered aside from those contemplated in the proposed 

legislation? 

Answer: PURP A provides that no rule adopted by the Commission "shall provide for a 

rate which exceeds the incremental cost to the electric utility of alternative electric 

energy," and PURP A defines that incremental cost as "the cost to the electric utility of 

the electric energy which, but for the purchase from the cogencrator or small power 

producer, such utility would generate or purchase from another source." 16 U.S.C. § 

824a-3(b), (d) (2012). While the Commission's regulations identify factors that should 

be considered in establishing such rates, 18 C.F .R. § 292.304( e) (20 17), the Commission 

docs not itself establish the rates that qualifying facilities charge. Rather it is typically 

the states that are responsible for establishing such rates. 

The Commission has not compared the rates that qualifying facilities charge to the costs 

that utilities otherwise incur to construct their own new generation or to purchase 

electric energy from other sellers, and, in fact, does not collect data on qualifying facility 

rates that would allow it to make such a comparison. 

Several members of the Commission have spoken recently about possible changes to the 

Commission's regulations implementing PURP A. Consideration of such changes likely 

would build on the record that the Commission developed at a June 2016 technical 

conference on PURPA-related matters. 
195 


- 2-

2. Some individuals have expressed that one of the original goals of PURP A 

was to increase the nation's supply of renewable energy. 

a. Looking at the current policy landscape for both the Federal and 

State level, is it accurate to say that there are other existing policies, 

outside of PURP A, which are encouraging the development of 

renewable energy? 

Answer: The range of generation types that are qualifying facilities under PURP A is 

broad, encompassing not only renewable energy resources but also cogeneration. That 

being said, I would agree that other governmental policies beyond PURP A can and 

currently do encourage development of renewable energy resources. 

3. We held an oversight hearing last September to examine concerns with 

PURP A and heard that consumers around the country are paying millions 

every year in above-market rates for QF output. At the Jan. 19 hearing we 

heard from a Michigan utility who testified that its customers are estimated 

to pay $21 million annually above the market rate for power from PURPA 

facilities. 

a. In light of these costs to consumers, is FERC considering modifying 

Section 292 of its regulations to adjust the circumstances when 

utilities may be relieved of its obligation to purchase from QFs? 

Answer: The obligation that electric utilities must purchase electric energy from 

qualifying facilities is a statutory obligation. 16 U.S.C. § 824a-3(a) (2012). While the 

Energy Policy Act of2005 amended PURPA to provide that the Commission could, in 

certain defined circumstances, terminate what is often referred to as the "mandatory 

purchase obligation," 16 U.S.C. § 824a-3(m) (2012), the Commission may do so only 

for new contracts or obligations to purchase electric energy and then only when the 

qualifying facility has nondiscriminatory access to markets that meet certain 

Congressionally-mandated criteria. The Commission's regulations reflect these 

statutory directives and criteria. 18 C.F.R. §§ 292.309-10 (20 17). 

4. In 2006, FERC established a rebuttable presumption in its regulations (§ 

292.309) finding that QFs with a capacity greater than 20 MWs have nondiscriminatory access to markets in regions where RTOs and ISOs exist. 
196 


- 3-

a. At that time, FERC found that a 20 megawatt threshold struck a 

reasonable balance between small and large projects. However, 

since then, we now have small QFs with direct access to competitive 

wholesale markets. In such instances, do you believe the threshold 

should be lowered below 20 MWs? 

Answer: At the outset, I would note that the 20 MW threshold is used to define a 

rebuttable presumption. Qualifying facilities greater than 20 MW located in certain 

markets are rebuttably presumed to have nondiscriminatory access to markets that, under 

PURPA as amended by the Energy Policy Act of2005, warrant the electric utilities in 

those markets, upon application to the Commission, being granted termination of the 

utilities' mandatory purchase obligation as to these larger qualifying facilities. 

Correspondingly, qualifying facilities 20 MW or less located in certain markets are 

rebuttably presumed not to have nondiscriminatory access to such markets. 18 C.F.R. § 

292.309 (2017). In certain cases, the Commission has found that these presumptions 

have been successfully rebutted- that certain larger qualifying facilities did not have the 

relevant access and that certain smaller qualifying facilities did have such access. 

The Commission may consider changes to the 20 MW threshold as it reviews its 

regulations implementing PURP A. Of course, Congressional guidance as to this subject 

always would be welcome. 

5. Under section 210(h) ofPURPA, FERC can exercise its enforcement 

authority to require a state regulatory authority to implement the 

Commission's regulations. However, during disputes between QFs, utilities, 

and state commissions, FERC rarely exercises its enforcement authority. 

Instead, FERC usually issues a "Notice of Intent Not to Act" which then 

allows the underlying petitioner to bring its own action before a U.S. District 

Court. 

a. In the past tO years, how many times bas FERC brought an 

enforcement action in court under PURP A? 

b. Why is FERC reluctant to exercise this authority more often? 

Answer: The Commission, when presented with a petition for enforcement, typically 

exercises its discretion and issues a "Notice oflntent Not to Act," thus allowing the 

petitioner to itself pursue its own action in court. 
197 


- 4-

Comity and respect for the type of cooperative federalism reflected in PURP A both 

counsel for cautious use of this enforcement authority against the states. I am aware of 

only one instance in recent years where the Commission opted to pursue a matter on its 

own rather than allow the parties to litigate among themselves. In that proceeding, the 

Commission initiated litigation against the Idaho Commission. The Commission and the 

Idaho Commission ultimately reached a Memorandum of Understanding that resolved 

their disagreement. 

The Honorable Tim Walberg 

1. FERC recently approved self-certification of qualifying facilities which 

share common ownership, share common construction, use the same 

operation and management agreements and are within one mile of each 

other. IfCongress or FERC were to modify the one-mile rule to prevent 

gaming ofthe location of qualifying facilities, what steps will FERC take to 

ensure that its PURP A regulations are not gamed in other ways? 

Answer: When a small power production facility or cogeneration facility self-certifies 

(or self-recertifies), it certifies that it satisfies the requirements for qualifying facility 

status. Such certifications do not require formal Commission approval. 18 C.F.R. § 

292.207(a) (2017). I am not aware of an instance of the Commission allowing the selfcertification of two affiliated small power production facilities located within one mile 

of each other that together exceed the statutory 80 MW size limitation for qualifying 

facility status for such facilities. 16 U.S.C. § 796(17)(A) (2012); 18 C.F.R. § 292.204(a) 

(2017). Under the Commission's regulations, a qualifying facility must concurrently 

notify the utility it expects to interconnect with or sell to, and also notify each state 

regulatory authority where the facility and each affected electric utility are located, of its 

certification filed with the Commission. 18 C.F.R. § 292.207(c) (2017). If either the 

utility or state regulatory authority has concerns that two affiliated small power 

production facilities that together exceed 80 MW are located within one mile of each 

other, it can attempt to demonstrate that the facilities are a single facility. The 

Commission has the authority, on its own motion or on the motion of any person, to 

revoke qualifying facility status, including that of a self-certified qualifying facility, 

should that be appropriate. 18 C.F.R. § 292.207(d) (2017). 

2. FERC's regulations on avoided costs were established in 1980. Since then, 

organized wholesale electricity markets have developed across the country. 
198 


- 5 -

Some states, such as California and Massachusetts sought to use marketbased mechanisms to establish avoided costs, but federal courts in Allco and 

Winding Creek overturned those programs, noting that the state avoided 

cost mechanisms were preempted by FERC regulations on avoided costs. 

Where FERC has successfully encouraged the development of market 

mechanisms for energy pricing, is it appropriate that FERC regulations 

established in 1980 preempt the use of avoided cost pricing based on those 

market prices? 

a. What plans does FERC have to revisit the avoided cost regulations in 

that light? 

b. Does FERC believe its 1980's avoided cost regulations reflect today's 

electricity markets and rates? 

Answer: The Commission does not establish qualifying facility rates; the states typically 

set such rates. The Commission has, instead, identified a list of factors that the states 

when exercising their considerable discretion in this area- should consider when they are 

setting such rates. 18 C.F.R. § 292.304(e) (2017). Such factors include consideration of, 

among other things, electric utility costs, the availability of the qualifying facility's 

capacity or energy during peak periods, the qualifying facility's expected or demonstrated 

reliability, the usefulness of the qualifying facility's capacity or energy during system 

emergencies, and the value, both individually and in the aggregate of qualifying facility 

capacity and energy on the electric utility's system. I believe that these factors remain 

reasonable considerations to be taken into account when qualifying facility rates under 

PURP A are established. 

Let me add that the compensation that the organized markets provide to the generators in 

those markets typically goes beyond the mere price paid for energy in any given hour; an 

accurate comparison of prices must reflect all of the sources of compensation that the 

generators in those markets receive. 

3. NARUC recently submitted a letter to FERC contending that utilities should 

be relieved of the mandatory purchase obligation in states with robust 

programs that request proposals for renewables program. Would FERC be 

able to implement such relief under existing law? 

a. Are there other opportunities for FERC to recognize the costeffective procurement of renewables administered by states? 
199 


- 6-

b. What other ways could FERC revise its PURP A regulations to 

provide for greater cost-effective procurement of renewable energy 

resources? 

Answer: The obligation that electric utilities must purchase electric energy from 

qualifying facilities is a statutory obligation. 16 U.S.C. § 824a-3(a) (2012). While the 

Energy Policy Act of 2005 amended PURP A to provide that the Commission could, in 

certain defined circumstances, terminate what is often referred to as the "mandatory 

purchase obligation," 16 U.S.C. § 824a-3(m) (2012), the Commission may do so only for 

new contracts or obligations to purchase electric energy and then only when the 

qualifying facility has nondiscriminatory access to markets that meet certain 

Congressionally-mandated criteria. The Commission's regulations reflect these statutory 

directives. 18 C.F.R. §§ 292.309-10 (2017). 

That being said, in establishing qualifying facility rates, the states have considerable 

discretion. While there are factors that the states are to consider- for example, electric 

utility costs, the availability of the qualifying facility's capacity or energy during peak 

periods, the qualifying facility's expected or demonstrated reliability, the usefulness of 

the qualifying facility's capacity or energy during system emergencies, and the value, 

both individually and in the aggregate of qualifying facility capacity and energy on the 

electric utility's system, among other considerations these factors provide states the 

ability to ensure that ratepayers are ultimately charged rates that reflect cost-effective 

procurement of electric energy. 

4. In 1983, the Supreme Court upheld FERC's establishment ofPURPA 

avoided cost at full avoided cost, noting that it was the top-end of the range 

of avoided costs that could be set but that it was acceptable as FERC stated 

it was needed to incentivize small power production. The Court also noted 

that "the full-avoided-cost rule is subject to revision by the Commission as it 

obtains experience with the effects of the rule." Since then, state renewable 

portfolio standards have been developed that require renewable resources, 

utilities issue requests for proposals solicit the lowest-cost renewable 

resources, and customer demands further incentivize generation of 

renewable energy. In light of these developments, is it time for FERC to 

revise its avoided cost rules to provide for more cost-effective procurement 

of renewable resources? 
200 


- 7-

a. What changes could FERC make? 

Answer: The Commission does not set qualifying facility rates, but instead has 

identified factors that states should consider when states which are the entities 

typically setting such rates set such rates. These factors allow the states considerable 

discretion. States thus have the ability, in thoughtfully considering these factors, to 

ensure cost-effective procurement of electric energy. 

5. Recently, we have heard certain members of the Commission mention that 

PURP A modernization is a priority. In fact, 18 months ago under Chairman 

Bay FERC held an ali-day technical conference on the matter (in Docket 

No. AD 16-16), and Commissioner Chatterjee stated it was his second 

priority following the DOE Grid Resiliency NOPR. Does the Commission 

still see a need to update or make tweaks to PURPA? 

a. If yes, what changes does the Commission believe are necessary? 

Answer: As you note, several members of the Commission have spoken recently about 

possible changes to the Commission's regulations implementing PURPA. Consideration 

of such changes likely would build on the record that the Commission developed at, and 

in comments following, a June 2016 technical conference on PURPA-related matters. 

6. Does FERC have the authority to implement section 2 ofH.R. 4476 

addressing the one-mile rule and section 3 that would lower the megawatt 

threshold to 2.5 megawatts for the mandatory purchase obligation of the 

legislation? 

a. Does the Commission have any interest in implementing these 

proposals? 

b. Does the Commission have the authority to extend the Commission's 

waiver authority to the states or would this require Congressional 

action? 

c. How has FERC implemented its waiver authority in the past? 

Answer: The obligation that electric utilities must purchase electric energy from 

qualifying facilities is a statutory obligation. 16 U.S.C. § 824a-3(a) (2012). While the 

Energy Policy Act of 2005 amended PURP A to provide that the Commission could, in 

certain defined circumstances, terminate what is sometimes known as the mandatory 
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purchase obligation, 16 U.S.C. § 824a-3(m) (2012), the Commission may do so only for 

new contracts or obligations to purchase electric energy and then only when the 

qualifying facility has nondiscriminatory access to markets that meet certain 

Congressionally-mandated criteria. The Commission is currently not able, under 

PURP A, to delegate to the states the authority to terminate the mandatory purchase 

obligation. 

In implementing the PURPA-related provisions of the Energy Policy Act of2005, the 

Commission established a 20 MW threshold that is used to define rebuttable 

presumptions for termination of the mandatory purchase obligation. Qualifying facilities 

greater than 20 MW located in certain markets are rebuttably presumed to have 

nondiscriminatory access to markets that, under PURP A as amended by the Energy 

Policy Act of 2005, warrant the electric utilities in those markets, upon application to the 

Commission, being granted termination of the utilities' mandatory purchase obligation as 

to these larger qualifying facilities. Correspondingly, qualifying facilities 20 MW or less 

located in certain markets are rebuttably presumed not to have nondiscriminatory access 

to such markets. 18 C.F.R. § 292.309 (2017). In considering specific applications, the 

Commission has found that these presumptions have been rebutted- that certain larger 

qualifying facilities did not have the relevant access and that certain smaller qualifying 

facilities did have such access. 

7. Since PURPA was signed into law in 1978, transmission access has become 

open to competitive generators, organized markets have been developed, 

and even in bilateral markets there is robust trading with independent 

generators. Given that the electricity sector has changed drastically, do you 

believe that implementation ofPURPA has fully kept pace? 

a. Do you believe the maturity of competitive electricity markets, state 

renewable energy portfolio standards, investment tax credits, 

production tax credits, zero emission credits, and reduced cost in 

renewables have resulted in greater access to. the markets for 

smaller power producers? 

b. How do you believe the law should be updated to meet today's 

challenges? 

c. How can FERC 's implementation of PURP A be updated to meet 

today's challenges? 

Answer: The Commission may consider changes as it reviews its regulations 
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implementing PURP A. Of course, Congressional guidance as to this subject always 

would be welcome. 

8. State utility commissions set avoided cost rates and have the authority to set 

the appropriate length of PURP A contracts. This seems to me that states 

have significant authority in implementing PURP A. I noticed in your 

testimony you stated granting PURP A exemption findings to the states 

would create a state-by-state energy program. Essentially, I view this as 

providing state regulators with the tools to help them meet their state's 

electricity needs at the lowest cost to rate payers as possible. 

a. Couldn't one argue that extending FERC's waiver authority is 

keeping in line with state implementation coupled by strong FERC 

oversight? 

Answer: States have considerable discretion with respect to the setting of qualifying 

facility rates. However, the mandatory purchase obligation- the requirement that electric 

utilities must purchase from qualifying facilities - is a statutory requirement applicable 

nationwide (subject to termination consistent with the amendments to PURPA included 

in the Energy Policy Act of 2005). I view this statutory directive as making PURP A a 

national energy program. I testified previously, and I continue to believe, that its 

elimination would make PURPA a state-by-state energy program. As I testified, such a 

change is not within the scope of the Commission's authority, and is a change more 

appropriate for consideration and action as Congress deems appropriate. 

9. Do certain states have more qualified facilities than others? 

a. Could you please explain why certain states have significantly 

more QFs than others? 

Answer: Some states do have more qualifying facilities than other states, and some states 

do have more of particular types of qualifying facilities than other states. 

All else being equal, states with greater wind and solar natural resources, for example, 

would be more likely to have a greater number of wind and solar qualifying facilities, just 

as states with more industrial facilities would be more likely to have a greater number of 

cogeneration facilities. Beyond that, given the discretion allowed to the states by PURPA 

and the Commission's regulations, states may choose to adopt pricing policies under 

PURP A that result in the setting of rates more or less likely to induce qualifying facility 
203 


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development. 

10. As energy prices have declined around the country, many long-term 

PURPA contracts are fixed at above market prices. 

a. Are PURP A contracts on average more expensive than the market 

price? 

Answer: In a period of declining prices, long-term contracts executed previously would 

naturally seem high-priced compared to current market prices. Correspondingly, in a 

period of increasing prices, long-term contracts executed previously would seem lowpriced compared to current market prices. 

11. I am a believer in an all of the above energy approach. I believe a 

diversified electricity portfolio is crucial. With that being said, I fear 

PURP A is inhibiting my constituents from benefitting from the lowest cost 

source of renewable electricity. 

a. Are there instances where a lower cost renewable generation is 

bypassed by utilities because they have to purchase QF output? 

b. Is PURPA the most cost-effective driver of renewable resources? 

c. Is there a way to implement PURP A in a way that is more cost 

effective? 

d. What FERC policies would need to be modified to ensure the best 

deal for customers? 

Answer: The Commission does not set qualifying facility rates, but instead has identified 

factors that states should consider when states set such rates. These factors allow the 

states considerable discretion. States thus have the ability, in thoughtfully considering 

these factors, to ensure cost-effective procurement of electric energy. 

12. FERC held a technical conference more than 18 months ago and developed 

a considerable record regarding abuses of the one-mile rule, including the 

proposal for a qualitative analysis in determining the size of a qualifying 

facility. How and when does FERC intend to act on that record regarding 
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the one-mile rule? 

Answer: Several members of the Commission have spoken recently about possible 

changes to the Commission's regulations implementing PURP A. Consideration of such 

changes likely would build on the record that the Commission developed at a June 2016 

technical conference on PURP A-related matters. I am not able to predict when or how 

the Commission may choose to act on the one-mile rule, in particular. 

13. FERC instituted the 20 MW threshold for organized markets on the basis 

that it is bow it designates small generators. But since that threshold was 

established, FERC bas closed several loopholes for small generators, and 

created a 2 MW threshold for facilities to receive expedited interconnection 

processes, and proposed 100 kW for aggregation of distributed energy 

resources to participate in organized markets. On that basis, shouldn't the 

presumption for small generators having access to the market be lowered? 

Answer: The 20 MW threshold is tied to defining rebuttable presumptions associated 

with nondiscriminatory access to markets for purposes of evaluating whether to 

terminate the mandatory purchase obligation under PURPA. As my testimony before 

the Subcommittee indicated, such presumptions reflected the Commission's 

understanding of the difficulty that smaller qualifying facilities faced, in practice, in 

obtaining nondiscriminatory access to markets. The Commission has not, to date, 

evaluated whether the considerations that underlay the actions you identify in your 

question apply equally in the context of nondiscriminatory access to markets by smaller 

qualifying facilities for purposes of evaluating whether to terminate the mandatory 

purchase obligation under PURP A, and thus whether changed circumstances now 

warrant a change in the threshold. 

14. In FERC's view, can implementation of PURPA be adapted to these 

modern drivers of renewables procurement? Given the decrease in costs of 

wind energy and rapid deployment of wind generation across the nation, 

does it make sense to allow states to require QFs to participate in a 

competitive solicitation process to ensure that renewable energy is deployed 

in the most cost-effective manner? 

Answer: The obligation that electric utilities must purchase electric energy from 

qualifying facilities is a statutory obligation. 16 U.S.C. § 824a-3(a) (2012). While the 
205 


- 12-

Energy Policy Act of 2005 amended PURP A to provide that the Commission could, in 

certain defined circumstances, terminate what is sometimes known as the mandatory 

purchase obligation, 16 U.S.C. § 824a-3(m) (2012), the Commission may do so only for 

new contracts or obligations to purchase electric energy and then only when the 

qualifying facility has nondiscriminatory access to markets that meet certain 

Congressionally-mandated criteria. The Commission is currently not able, under 

PURP A, to delegate to the states the authority to permit utilities to purchase from 

qualifying facilities only when they participate in, and win, competitive solicitation 

processes. 

15. In FERC's view, does PURPA serve to lower renewable energy costs or 

increase them for consumers? Please provide written examples where 

PURPA's implementation has reduced energy costs for consumers over the 

past 5 years. 

Answer: PURP A provides that no rule adopted by the Commission "shall provide for a 

rate which exceeds the incremental cost to the electric utility of alternative electric 

energy," and PURP A defines that incremental cost as "the cost to the electric utility of 

the electric energy which, but for the purchase from the cogenerator or small power 

producer, such utility would generate or purchase from another source." 16 U.S.C. § 

824a-3(b), (d) (2012). The states typically set qualifying facility rates. 

The Commission has not compared the rates that qualifying facilities charge to the costs 

that utilities otherwise incur to construct their own new generation or to purchase electric 

energy from other sellers, and, in fact, does not collect data on qualifying facility rates 

that would allow it to make such a comparison. 
206 


GREG WALDEN, OREGON 

CHAIRMAN 

Mr. Travis Kavulla 

Vice Chainnan 

ONE HUNDRED FIFTEENTH CONGRESS 

FRANK PALLONE, JR,, NEW JERSEY 

RANKING MEMBER 

Ql:ongrt~~ of tbt Wnittb ~tate~ 

~ou~c of ll\cpre~entatibe~ 

COMMITTEE ON ENERGY AND COMMERCE 

2125 RAYBURN House OFFICE BuiLDING 

WASHINGTON, DC 20515-6115 Major!ty (202)225-2927 

Minority ~202)22.5-3641 

March 7, 2018 

Montana Public Service Commission 

170 I Prospect Avenue 

Helena, MT 59620 

Dear Mr. Kavulla: 

Thank you for appearing before the Subcommittee on Energy on January -19, 2018, to testify at 

the hearing entitled "Legislation Addressing LNG Exports and PURP A Modernization." 

Pursuant to the Rules of the Committee on Energy and Commerce, the hearing record remains 

open for ten business days to penn it Members to submit additional questions for the record, which are 

attached. To facilitate the printing ofthe hearing record, please respond to these questions with a 

transmittal letter by the close of business on Wednesday, March 21, 2018. Your responses should be 

mailed to Kelly Collins, Legislative Clerk, Committee on Energy and Commerce, 2125 Rayburn House 

Office Building, Washington, DC 20515 and e-mailed in Word fonnat to kelly.collins@mail.house.gov. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

Sincerely, 

1-{_ 

h~~an Subcommittee on Energy 

cc: The Honorable Bobby L. Rush, Ranking Member, Subcommittee on Energy 

Attachment 
207 


N A R u c 

National Association of Regulatory Utility Commissioners 

The Honorable Fred Upton 

Chairman 

Subcommittee on Energy 

March 26, 2018 

House Energy and Commerce Committee 

2125 Rayburn House Office Building 

Washington, DC 20515 

RE: "Legislation Addressing Exports and PURPA Modernization." 

Dear Chairman Upton: 

Thank you again for providing me an opportunity to present testimony on January 19, 2018, at 

the hearing entitled "Legislation Addressing Exports and PURP A Modernization." 

Attached, please find my responses to the additional questions for the record you provided to me 

on March 7, 2018. 

Sincerely, 

Travis Kavulla 

Vice Chairman 

Montana Public Service Commission 
208 


Commissioner Travis Kavulla Responses 

to 

Questions for the Record 

on behalf of the 

National Association of Regulatory Utility Commissioners 

from the January 19, 2018 Subcommittee on Energy Hearing 

"Legislation Addressing LNG Exports and PURPA Modernization" 

The Honorable Fred Upton 

I. There is some opposition to H.R. 4476 on the grounds that it will hinder the future 

development of renewable energy. 

a. IfH.R. 4476 is passed, do you think it would alter the current trajectory for renewable 

energy deployment? 

Kavulla Response: No. Data from the U.S. Energy Information Administration suggests just the 

opposite. Nearly half of utility-scale capacity installed in 2017 came from renewable resources. 1 

More than half of States have their own renewable mandates, and even those which do not have 

shown substantial additions in rcnewables, not because ofPURPA, but because of the falling 

cost curve of renewable technologies such as solar and wind.2 Further, wind and solar, the 

leading sources of renewable growth, rely little on PURP A QFs, which is why the vast majority 

of the renewables deployed since 1980 are not PURPA qualifying facilities (QF.) I see no reason 

for this trend to cease with passage ofH.R. 4476. 

b. From your vantage point representing NARUC, are there other tools and means 

available, outside of PURP A that policymakers and regulators may use to promote 

renewable energy if they choose? 

Kavulla Response: Yes, State legislatures, governors and public utility commissions have taken 

the lead in promoting renewable energy policies such as renewable energy portfolio standards, 

fuel diversity requirements, and rate design for example. 

U.S. Energy Information Administration, Nearly half of utility-scale capacity installed in 

2017 came from renewables, "Today in Energy (Jan. 10, 2018)," (Form EIA-860M, Preliminary 

Monthly Electric Generator Inventory), available online at: 

https://www.eia.gov/todayinenergy/detail.php?id=34472. 

2 U.S. Energy Information Administration, PURP A qualifYing facilities as a percentage of 

total renewable capacity (1980-20 15), "Today in Energy (Aug. 23, 20 15)," available online at: 

https://www.eia.gov/todayinenergy/detail.php?id=27632. 
209 


Travis Kavulla, MPSC/NARUC 

2. In areas where competitive markets exist, such as RTOs and ISOs, the legislation would 

lower the size threshold for QFs who would be presumed to have access to these markets. That 

threshold would be lowered from 20 MW to 2.5 MW, meaning that QFs above 2.5 MW would 

be presumed to have open access to markets, and those below would not. 

a. Do you think the 20 MW threshold should be retained or lowered? 

Kavulla Response: The 20-MW threshold is an arcane distinction, and it has little bearing on a 

QF's ability to sell its energy and capacity into the wholesale energy markets, which is the goal 

of PURP A. It should be lowered. 

b. Based on your experience, are resources larger than 2.5 MW generally able to access 

and participate in a competitive market? 

Kavulla Response: The 20-MW threshold was premised on FERC's distinction between a 

"small generator" and a "large generator" for the purpose of transmission interconnection. 3 

Transmission interconnection, however, is not the relevant consideration here; instead, the 

threshold should conform to a resource's ability to participate in the wholesale energy markets. 

Since the 20-MW threshold was established, FERC has undertaken market reforms specifically 

intended to allow much smaller resources to participate in energy markets. 4 Yet even as these 

reforms to streamline small resources into these markets, the 20-MW distinction under PURP A 

has remained. This arbitrary distinction harms consumers by not allowing the competitive 

markets to do the work they were designed to. It seems that such markets in question all have 

size thresholds smaller than 2.5 MWs. 5 

Therefore, resources larger than 2.5 MW s already have the ability to participate in competitive 

markets, and a 2.5-MW size limit-{)r even a smaller one-is clearly justified. 

The Honorable Tim Walberg 

New PURPA Section 210(m) Regulations Applicable to Small Power Production and 

Cogeneration Facilities, Order No. 688, FERC Stats. & Regs.~ 3 I ,233, at P 76 (2006), order on 

reh'g, Order No. 688-A, FERC Stats. & Regs.~ 3 I ,250 (2007), a.ffd sub nom. Am. Forest & 

Paper Ass'n v. FERC, 550 F.3d I I 79 (D.C. Cir. 2008). 4 See e.g., Electric Storage Participation in Markets Operated by Regional Transmission 

Organizations and Independent System Operators, Order No. 841, 162 FERC ~ 61,127 at P 207, 

P 274 (directing wholesale market operators to set a minimum size requirement for market 

participation that does not exceed I 00 kw and noting that "numerous I 00 kW minimum size 

requirements already exist" in the markets). 5 "Considerations for Minimum Resource Size Threshold in the Capacity Market," (July 2017), 

Alberta Electric System Operator, citing to CAISO, NEISO, NYISO, and PJM size thresholds at 

p.3. Available online at: https://www.aeso.ca/assets/Uploads/20170704-Eligibility-Session-3-

Minimum-Resource-Size-Presentation.pdf. 

2 
210 


Travis Kavulla, MPSC/NARUC 

I. Recently, we have heard members of the Commission mention that PURPA modernization is 

a priority for some at the Commission. In fact, 18 months ago under Chairman Bay, FERC held 

an all-day technical conference on the matter, and Commissioner Chatterjee stated it was his 

second priority following the NOPR. Does the commission still see a need to update or make 

tweaks to PURP A? 

Kavulla Response: As a NARUC witness, I cannot comment on behalf ofFER C. However, I 

do believe that FERC should act expediently to update PURP A. 

a. If yes, what changes do you believe arc necessary? 

Kavulla Response: Please see my responses to the below questions. 

2. Since PURPA was signed into law in 1978, transmission access has become open to 

competitive generators, organized markets have been developed, and even in bilateral markets 

there is robust trading with independent generators. Given that the electricity sector has changed 

drastically, do you believe that implementation ofPURPA has fully kept pace? 

Kavulla Response: No. With the creation and development of robust wholesale electricity 

markets in many parts of the country, Congress saw that PURPA needed to be updated in the 

Energy Policy of2005 (EPAct 2005) by allowing exemptions from PURPA where QFs had 

access to those markets. EPAct 2005 also provided a generic provision that allows FERC to 

ascertain whether developments in the wholesale markets outside of RTOs have provided QFs 

avenues to contract formation similar to those in RTOs and ISOs, and FERC has the legal 

authority to declare those areas similarly exempt from PURP A. In other words, Congress 

recognized that the structure of the electricity sector was changing and it was necessary to 

provide a mechanism to modernize PURP A to keep up with the changing industry. 

However, given the enormity of the changes that have taken place in the last 13 years, not only in 

the electricity sector (the rise of wholesale markets, the place of QF technologies as a 

commonplace source of power, the open-access regulation of the transmission system, and the 

use of competitive methods to select projects throughout the States), but the entire energy sector, 

we would suggest that it is necessary to continue to align PURPA to these developments, rather 

than allowing PURP A to obstruct them. 

a. Do you believe the current law represents the maturity of competitive markets, state 

renewable energy portfolio standards, investment tax credits, production tax credits, 

zero emission credits, reduced cost in renewables and greater access to markets for 

smaller power producers? 

Kavulla Response: No. This is why we are encouraging the FERC and Congress to modernize 

PURPA and are supporting H.R. 4476, as introduced. 

b. How do you believe the law should be updated to meet today's challenges? 

3 
211 


Travis Kavulla, MPSC/NARUC 

Kavulla Response: We believe the reforms contemplated in H.R. 4476, as introduced, as well 

as complementary changes in FERC regulations, will assist State utility commissions with the 

challenges that exist between PURP A and a changing electricity sector in the near term. As we 

have seen since PURPA's enactment, changing circumstances may require Congress and/or 

FERC to revisit this issue in the future as the situation dictates. 

c. How can FERC's implementation of PURP A be updated to meet today's challenges? 

Kavulla Response: In a December 18, 2017 letter to the members of FERC, NARUC outlined 

three actions we believed were necessary for FERC to take to modernize PURP A. First, FERC 

should adopt regulations that move away from the use of administratively determined avoided 

costs, and encourage the use of competitive solicitations for PURPA compliance and project 

selection. Second, FERC should lower or eliminate the 20 MW threshold for the rebuttable 

presumption that QFs with a capacity at or below that size do not have nondiscriminatory access 

to the market, which would increase competition and reduce transaction costs to State 

commissions. Third, FERC should address the disaggregation problem, where QFs have gamed 

State and federal regulation to secure contracts for which they would be otherwise ineligible, by 

making changes to the "one-mile rule" and other related reforms. 

3. Does FERC have the authority to implement section 2 dealing with the one-mile rule and 

section 3 that would lower the megawatt threshold to 2.5 megawatts for the mandatory purchase 

obligation of the legislation? 

Kavulla Response: NARUC believes FERC has the statutory authority to implement the 

changes contained in sections 2 and 3 of H.R. 4476. 

a. Do you believe the Commission should review these proposals? 

Kavulla Response: As we responded in question 2 c, NARUC suggested ways for FERC to 

modernize PURPA in a December 18, 2017 letter to the FERC members. In that letter NARUC 

requested that FERC adopt the reforms found in H.R. 4476 sections 2 and 3. 

b. Does the Commission have the authority to extend the Commission's waiver authority 

to the states or would this require Congressional action? 

Kavulla Response: PURP A is an example of cooperative federalism, and there is room for 

flexibility in the allocation of responsibilities for executing the law to FERC and State 

commissions. However, it would seem that the Commission does not have the power to give 

States the categorical power to exempt utilities from their PURP A obligations. Instead, the 

Commission would, under the authority it has under 16 U.S.C.A. § 824a-3(m)(l )(C), have the 

ability to give States a larger role in certifying competition-such as through oversight of 

competitive solicitations-as part of a determination that certain areas presented QFs with 

sufficient opportunities to access the wholesale markets. Meanwhile, H.R. 4476 would empower 

4 
212 


Travis Kavulla, MPSC/NARUC 

States more directly to make determinations about their customers' energy needs, and streamline 

PURPA with other renewable objectives they may have. 

c. Would this be a beneficial tool for state utility regulators? 

Kavulla Response: Yes, the provisions in sections 2 and 3 and most importantly section 4 of 

H.R. 44 76, as introduced, would be beneficial to State utility regulators. 

d. If so, how is this beneficial? 

Kavulla Response: Section 2 deals with the enduring problem where a single developer 

disaggregates a project into multiple QFs to circumvent PURPA's maximum capacity provision 

(80 MW), which allows developers to avail each QF of the mandatory purchase obligation at an 

administrative-forecast rate, or a developer might break one larger project into several small QFs 

to enter into standard-offer contracts available only to smaller QFs, which tend to be more 

lucrative. This activity is a form of gaming that harms customers by increasing costs. Section 2 

would allow a fact-dependent investigation by FERC to police these types of abuses. This in turn 

helps State commissions hold down consumer costs associated with PURPA. 

Section 3 protects very small resources that may not have the ability to sell their energy and 

capacity efficiently into the existing competitive markets while lowering the current exemption 

that badly overstates the size threshold in today's modern power generation regime where 

smaller resources are being developed and encouraged to participate in competitive wholesale 

markets. This assists State commissions by modernizing the nondiscriminatory access provisions 

of PURPA which would improve efficiency and help to set just and reasonable rates. 

Section 4 would reduce the administrative burden on States to attempt to set fair rates for QFs 

through regulatory proceedings rather than more efficient competitive processes. It would also be 

a more accurate way to determine resource needs and costs that would better protect consumers. 

4. State utility commissions set avoided cost rates and have the authority to set the appropriate 

length of PURP A contracts. This seems to me that states have significant authority in 

implementing PURPA. I noticed in your testimony you stated granting PURPA exemption 

findings to the states would create a state-by-state energy program. Essentially, I view this as 

providing state regulators with the tools to help them meet their state's electricity needs at the 

lowest cost to rate payers as possible. 

a. Couldn't one argue that extending FERC's waiver authority is keeping in line with 

state implementation coupled by strong federal oversight? 

Kavulla Response: As I answer the question in 4a, I wish to correct any misunderstanding of 

my testimony. NARUC does not believe that "granting PURPA exemption findings to the States 

would create a state-by-state energy program." It is NARUC's position that providing the States 

5 
213 


Travis Kavulla, MPSC/NARUC 

with that authority will enhance PURPA 's purported purpose of promoting the development of 

renewable energy and cogeneration technology. Currently, State commissions arc the primary 

point of responsibility for the vast majority of the work on all aspects of PURPA 

implementation, adjudication, and approval with strong federal oversight. This will not change 

under H.R. 4476, as introduced. However, without the provisions in section 4 of H.R. 4476, 

consumers in many States will continue to be confronted with paying for power they do not need 

at prices that are artificially high. Additionally, the States are uniquely qualified to measure 

whether unexpected intermittent resources can be added to the electric system without 

compromising reliability. 

5. Do certain states have more qualified facilities than others? 

Kavulla Response: Yes. To the best of my knowledge California, North Carolina, and Texas 

are the top three with QFs and represent approximately 36 percent of the nation's QF resources. 

a. Could you please explain why certain states have significantly more QFs than others? 

Kavulla Response: This could be for a few reasons. In some cases, States had administrative 

processes that led to higher avoided cost contracts, some States have utilities that do not 

participate in markets FERC has found to be exempt from the mandatory purchase obligation of 

PURPA, or those States had physical/natural characteristics that spurred the development of 

renewable resources. 

6. As energy prices have declined around the country, 20 year PURP A contracts at fixed prices 

seem to be above market prices. 

a. Are PURPA contracts on average more expensive than the market price? 

Kavulla Response: They are. PURPA requires consumers to buy QFs' output at no more than a 

utility's "avoided cost," which ostensibly means that consumers are cost-indifferent to PURPA's 

mandatory purchase obligation because such purchases are conceptually made at the same cost 

that the utility would otherwise incur to supply an equivalent amount of energy and capacity. 

However, since PURPA's inception, FERC's regulations require States to forecast "avoided 

cost" over a period of time when the QF requests a contract.6 This administrative forecasting 

may lead States to overestimate or underestimate what the actual avoided cost will be. 

Overestimates, because they are a higher price, naturally tend to attract greater QF developer 

interest, and thus more QF projects. This means that while it is a noble statutory goal, "avoided 

cost" in practice means a trial-like administrative proceeding that leads to substantially higher 

prices for consumers than would result from a genuinely competi~ive process where generators, 

including QFs, vie against one another through bids to serve the needs of customers. It is 

axiomatic that competitive solicitations, rather than government price-setting, is a better tool for 

18 C.F.R. § 292.304(d)(2) (2018). 

6 
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Travis Kavulla, MPSC/NARUC 

price discovery. However, a real-life example of this exists in Montana where my commission, 

trying to do its best looking into the crystal ball of market price forecasts, has tended to 

overestimate avoided cost and caused many QFs to come online that are uneconomic when 

compared to actual market prices.7 

7. I am a believer in an all of the above energy approach. I believe a diversified electricity 

portfolio is crucial. With that being said, I fear PURPA is inhibiting my constituents from 

benefitting from the lowest cost source of renewable electricity. 

a. Are there instances where a lower cost renewable generation is bypassed by utilities 

because they have to purchase QF output? 

Kavulla Response: Yes. A federal court, citing to PURPA's mandatory purchase obligation, 

recently invalidated an attempt by the State of California to comply with PURPA by using a 

reverse-auction, which would fit the ideal model of renewable generators competing with one 

another by offering the lowest price possible, while complying with PURP A. 8 A fundamental 

feature of any such auction is a quantity that "clears"-in economic terms, a demand curve 

against which the supply curve intercepts. This ensures suppliers (in this case, the QFs) actually 

offer the lowest price possible because, otherwise, these suppliers risk being priced out of the 

market, which has some limit on demand. PURPA, meanwhile, obligates a utility to take all 

energy and capacity from all QFs that present themselves. The court found these two approaches, 

therefore, to be inconsistent with one another. Most economists would say that we are sacrificing 

economically rational design for procuring renewables to the black-letter law ofPURPA, which 

senselessly requires overprocurement, at above-market prices. 

b. Is PURPA the most cost-effective driver of renewable resources? 

Kavulla Response: For the reasons noted above, the answer is clearly no. 

c. Is there a way to implement PURP A in a way that is more cost effective? 

Kavulla Response: Yes, by streamlining PURPA with competitive practices, which Sec. 3 and 

Sec. 4 would largely accomplish. 

d. What PERC policies would need to be modified to ensure the best deal for customers? 

Kavulla Response: See the answer to 3b. 

8. PERC instituted the 20 MW threshold for organized markets on the basis that it is how it 

designates small generators. But since that threshold was established, FERC has closed several 

loopholes for small generators, and created a 2 MW threshold for facilities to receive expedited 

Commissioner Travis Kavulla (Vice Chairman, Montana Public Service Commission) 

testimony on behalf of the National Association of Regulatory Utility Commissioners, before the 

U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Energy, 

January 19,2018, "Legislation Addressing LNG Exports and PURPA Modernization," Exhibits 

A and B, pages 9-10 8 Winding Creek Solar LLC v. Peevey, Case 3:13-cv-04934-JD (N.D. Cal. 2017). 

7 
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Travis Kavulla, MPSC/NARUC 

interconnection processes, and proposed I 00 k W for aggregation of distributed energy resources 

to participate in organized markets. On that basis, shouldn't the presumption for small generators 

having access to the market be lowered? 

Kavulla Response: Yes. As mentioned in previous responses to these additional questions for 

the record, NARUC believes that the 20 MW threshold for the rebuttable presumption that QFs 

with a capacity at or below that size do not have nondiscriminatory access to the market should 

be lowered or eliminated altogether. 

9. In your view, can implementation ofPURPA be adapted to these modem drivers of 

renewables procurement? Given the decrease in costs of wind energy and rapid deployment of 

wind generation across the nation, does it make sense to allow states to require QFs to participate 

in a competitive solicitation process to ensure that renewable energy is deployed in the most 

cost-effective manner? 

Kavulla Response: FERC and/or Congress could adopt interpreting regulations or law that relax 

either the mandatory purchase obligation or make it clear that shorter-term avoided-cost 

calculations are acceptable for PURP A compliance in certain circumstances. These 

circumstances could include the following: where solicitations are routinely held and genuinely 

competitive for the needs identified in a utility's Integrated Resource Plan (IRP); or, where a 

utility, in its IRP does not forecast the need for an additional owned or long-term-contracted 

energy resource for the next 5 or 7 years; or, where a real-time energy market is operational, and 

where clearing prices and/or bids in the market are not subject to market-power mitigation. 

NARUC believes that we need to adopt legislation and regulations that move away from the use 

of administratively determined avoided costs to their measurement through competitive 

solicitations or market clearing prices. Competitive solicitations are a more effective means of 

ensuring that generators are paid a fair price and consumers are protected from unjust and 

unreasonable prices. 

8 
216 


GREG WALDEN, OREGON 

CHAIRMAN 

ONE HUNDRED FIFTEENTH CONGRESS 

FRANK PALLONE, JR., NEW JERSEY 

RANKING MEMBER 

C!tongress of tbe Wniteb ~Mates 

j!)ousc of !\cprcscntattbes 

COMMITIEE ON ENERGY AND COMMERCE 

2125 RAYBURN HousE OFFICE BuiLDING 

WASHINGTON, DC 20515-6115 Majority ~202) 225-2927 

Minority {202)275-3641 

March 7, 2018 

Mr. Timothy J. Sparks 

Vice President, Electric Grid Integration 

CMS Energy, Consumers Energy 

One Energy Plaza 

Jackson, MI 49201 

Dear Mr. Sparks: 

Thank you for appearing before the Subcommittee on Energy on January I 9, 2018, to testify at 

the hearing entitled "Legislation Addressing LNG Exports and PURPA Modernization." 

Pursuant to the Rules of the Committee on Energy and Commerce, the hearing record remains 

open for ten business days to permit Members to submit additional questions for the record, which are 

attached. To facilitate the printing of the hearing record, please respond to these questions with a 

transmittal letter by the close of business on Wednesday, March 21, 2018. Your responses should be 

mailed to Kelly Collins, Legislative Clerk, Committee on Energy and Commerce, 2125 Rayburn House 

Office Building, Washington, DC 20515 and e-mailed in Word format to kelly.collins@mail.house.gov. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

Sincerely, 

cc: The Honorable Bobby L. Rush, Ranking Member, Subcommittee on Energy 

Attachment 
217 


Consumers Energy Company's Response to 

Questions for the Record: 01119/2018 Energy Hearing 

The Honorable Fred Upton: 

l. In your testimony, you state that your ratepayers have paid over $300 million in 

recent years for QF electricity at above-market prices. Can you provide more details 

regarding the number of PURP A contracts you are facing and how the mandatory 

purchase obligation is affecting your company and your consumers? 

2. Can you give us a flavor of the type of QFs that are in your service area? Are they 

small "Mom and Pop" developers with some renewable assets, or are they 

sophisticated corporations that are reaping the benefits ofPURPA under the guise 

of being a small generating resource? 

Response: 

I. From 2006-2015, Consumers Energy (the Company or CE) customers paid 

approximately $300 million more in electric capacity and energy costs to the 25 

existing qualifying facilities (QFs) compared to buying the same electric capacity and 

energy from the Midcontinent Independent System Operator (MISO) markets. 

Currently CE has 25 PURP A contracts in place for the output of QFs with a 

nameplate capacity of20 MW or less for a total of 104 MW. However, the Company 

has interconnection requests totaling 1,194 MW 1 from companies requesting or likely 

to request PURP A contracts - the majority of which are solar facilities that we expect 

to become QFs. For context, 1,194 MW represents approximately 16 percent of 

Consumers Energy's typical peak summer load. Of these, 75 projects totaling 467 

MW of new capacity have made formal requests for PURP A contracts. If CE is 

required to purchase electric capacity and energy from these facilities at the avoided 

cost rate pending before the Michigan Public Service Commission, in Case No. U18090, our customers will pay as much as $38 million more per year in electric 

capacity and energy costs2. Ifalll,194 MWs request a PURPA contract, our 

customers will pay approximately $98 million more per year compared to purchasing 

from the MISO markets. 

2. Consumers Energy has PURP A contracts in place with a variety of organizations. As 

of March 14,2018 51 of the 75 projects that have contacted the Company to request 

new PURP A contracts are large organizations that are experienced in solar 

photovoltaic development. Of the 25 QFs with whom we have current contracts, 15 

are owned by parent companies that are large organizations. 

1 Consumers Energy Company's response to the Michigan Public Service Commission's PURPA QF Survey filed 

March 15, 2018. 2 MISO market costs are based on combined average capacity and energy costs of$44.44/MWh. 
218 


Consumers Energy Company's Response to 

Questions for the Record: 01119/2018 Energy Hearing 

3 http://www.ariaenergy.com/portfolio/ 

4 https://www.fortistar.com/projects/ 

'http://www.commonwealthpowercompany.com/ 

6 http://www.energydevelopments.eom.au/ 

7 http://www.eaglecreekre.com/facilities/operating-facilities 
219 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

Electric Grid Integration Department 

8 https://www .engie.com/wp-content/uploads/20 18/03/engie-fy-20 17 -appendices1.pdf 9 https://www .engie.com/wp-content/up1oads/20 18/03/engie _ 2017 -management-report-and-annua1-consolidatedfinancia1-statements-2.pdf 

10 https://www.engie.com/en/joumalists/press-re1eases/solar-power-plant-in-india/ 11 http://www.wm.com/sustainability/renewab1e-energyjsp 12 http://sustainability.wm.com/down1oads/pdfs/WM _20 17 _ SR_ Update. pdf 
220 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

1. Recently, we have heard members of the Commission mention that PURPA 

modernization is a priority for some at the Commission. In fact, 18 months ago 

under Chairman Bay FERC held an ali-day technical conference on the matter, and 

Commissioner Chatterjee stated it was his second priority following the NOPR. 

Does the commission still see a need to update or make tweaks to PURPA? 

a. If yes, what changes do you believe are necessary? 

Response: 

1. In 2017, then Acting FERC Chairman Chatterjee indicated PURP A reform was one 

of his top priorities13• More recently, at the 2018 National Association of Regulatory 

Utility Commissioners (NARUC) winter meeting, FERC Chairman Mcintyre 

indicated there are aspects like size requirement and avoided cost calculations that 

will be on the table for FERC this year. Commissioner Glick also commented at the 

NARUC meeting that the Commission could look at the one mile rule14• 

a. There are several changes that are necessary due to changes in the utility industry: 

I. Since the formation of Regional Transmission Organizations (RTO) and 

Independent System Operators (ISOs), utilities and independent power 

producers alike have access to wholesale market-based energy and 

capacity. The methodologies utilized to calculate "avoided cost" should be 

updated to reflect the market rates for any utility that is connected to these 

markets. QFs have access to the market through their distribution utility. 

For example, Consumers Energy offers wholesale distribution service that 

allows the QFs energy to be delivered at other areas of the bulk electric 

system at very low cost. In fact, Consumers Energy has multiple 

independent generators currently taking advantage of this service. 

2. The term length ofPURP A contracts is often burdensome to the utility's 

customers. This issue is especially prevalent in situations where forecasted 

energy and capacity costs are used as the basis for the rates that the Q F 

receives. More times than not, forecasted energy and capacity costs end 

up being more than actual energy and capacity costs. The result is 

13 Energy Bar Association 2017 Mid-Year Forum. October 17,2017. 14 https://www.utilitydive.com/news!resilience-pipelines-pm:pa-ferc-regulators-preview-major-issues-atnaru/517065/ 
221 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

customers paying more, most of the time substantially more, than what 

they otherwise would have paid at the time of actual production of the 

energy and purchase of capacity. 

3. Because of the markets operated by RTOs and ISOs, utilities should not be 

required to purchase from QFs that are outside of the utility's service 

territory. Such QFs can sell into the markets regardless of their location. 

A QF located outside of a utility's service tenitory must utilize the electric 

transmission system to transmit capacity and energy to the utility. This is 

incongruous with a QF's claim that utilities must purchase their resources 

because they lack access to the electric transmission system. 

4. Some states have allowed competitive retail open access service which 

further exacerbates any burden placed on utility full-service customers 

resulting from long-term avoided cost rates based on forecasted capacity 

and energy prices that are not reflective of future technology innovations. 

For states that allow competitive retail open access service, the utility's 

obligation to purchase under PURPA should be waived or should be 

limited to avoided cost rates determined at the time of delivery. In the 

alternative, if a utility's obligation to purchase under PURPA is not 

waived, all customers connected to a utility's electric system, should be 

obligated to pay their share of PURP A purchases that the utility must 

make. In Michigan, retail open access service customers are CU11'ently not 

paying for any PURPA purchase obligations that Consumers Energy fullservice customers must make. Having to purchase PURP A resources is 

one of the reasons why customers want to take retail open access serviceso they can avoid paying significantly higher PURP A resource rates 

compared to other resource options like MISO market purchases. 

March 21,2018 

Electric Grid Integration Department 
222 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

2. Since PURPA was signed into law in 1978, transmission access has become open 

to competitive generators, organized markets have been developed, and even in 

bilateral markets there is robust trading with independent generators. Given that the 

electricity sector has changed drastically, do you believe that implementation of 

PURPA has fully kept pace? 

Response: 

a. Do you believe the current law represents the maturity of competitive markets, 

state renewable energy portfolio standards, investment tax credits, production 

tax credits, zero emission credits, reduced cost in renewables and greater access 

to markets for smaller power producers? 

b. How do you believe the law should be updated to meet today's challenges? 

c. How can PERC's implementation of PURPA be updated to meet today's 

challenges? 

2. No, the implementation ofPURPA has not kept pace with these advancements. A 

significant aspect of this failure is demonstrated by the length of the contracts that the 

utilities are obligated to sign under PURP A. As markets mature and resources 

become more economic, contractual obligations with PURP A facilities need to be 

addressed to allow customers to appreciate the savings associated with these positive 

changes. For example, as market prices shift, they often vary dramatically from those 

prices produced by the organized RTO markets- with the customer left paying 

above-market rates for years and sometimes decades. A shorter contract term would 

provide some relief to address this issue. Similarly, requiring the avoided cost 

reflected in PURP A contracts to shift with the market price shifts would also address 

this issue. 

a. No, the current Jaw is outdated. Consumers Energy fully supports the expansion 

ofrenewables. But such expansion should occur at the lowest possible cost. The 

United States has significantly increased its use of renewable energy through, 

among other vehicles, state renewable standards and tax incentives, without the 

utilization ofPURPA as a driver. More economic means exist to secure renewable 

energy than PURPA, such as competitive bidding. Today, Consumers Energy is 

able to purchase renewable energy from wind resources at costs below 
223 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

$45/MWh15• The Company's pending Avoided Cost rate that will be paid to solar 

developers is approximately $99/MWh- over twice the cost of wind renewable 

resources. 

Also, small power producers, like PURP A QPs, located in the footprint ofRTOs 

have access to organized capacity and energy markets. Most local distribution 

companies, like Consumers Energy, offer wholesale distribution service that 

allows distribution-connected generators to access the electric transmission 

system and thus the RTO capacity and energy markets. 

b. Customers of utilities located in the footprint of RTOs and ISOs should not be 

burdened with the mandatory purchase obligation of the current PURP A law. 

Distribution and transmission connected QPs do have access to the markets 

administered by the RTOs and ISOs. And, in states that support retail open access 

service, these customers are able to bypass paying for the additional costs 

associated with the mandatory purchase obligation placed on utility full-service 

customers. 

c. Since PURP A was enacted, open access to transmission, greater competition 

among generators in organized and bilateral wholesale markets, improvements in 

technology, lower costs of technology, and implementation of state and federal 

policies have all helped drive changes in the generation fuel mix of utilities. The 

result is that generation sources like co-generation and renewable energy has 

increased substantially, largely without the aid ofPURP A. Due to the birth of and 

changes to energy markets, PERC's rules implementing PURPA promote the 

uneven, unplanned, and uneconomic development ofQPs. In short, PERC's 

current implementation ofPURPA provides subsidies for QPs at the expense of 

customers, system reliability, and other more competitively-priced renewable 

resources. 

When Congress enacted PURP A, it required that the Commission provide 

guidelines for implementation. PERC has done so in numerous orders. But as the 

markets and the generation mix have changed, the Commission's rules regarding 

PURP A need updating to recognize access of QPs to the wholesale markets and 

the increased sophistication of companies developing QPs, while also respecting 

the important role of the states. 

"https://www.freep.com/story/news/local/michigan/2016/08/20/michigan-wind-turbines-money-andmyths/89041958/ 
224 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

At a minimum, the Commission should update its rules implementing PURP A to 

address the following issues: 

• The 20 MW threshold should be eliminated or reduced to the threshold 

that RTO/ISO rules require for participation- which for MISO is 100 

kW. 

• The one-mile rule should be changed to address the increased 

sophistication of developers and to address the "gaming" and abuse of 

PURPA. 

• PURPA states that the avoided cost, which is the rate paid for QF power, 

shall not "exceed the incremental cost to the electric utility." Today, QFs 

are granted long-term contracts at rates substantially above a utility's 

avoided cost of replacement energy and capacity. The Commission 

should update its rules to allow for competitive solutions and rates more 

closely tied to markets. 

• A utility's legally enforceable obligation to purchase from a QF remains 

unclear and varies by state. PERC should clarify when the utility's 

obligation to the QF begins. 

• Commission precedent cunently allows QFs to contract with utilities that 

are not connected to their systems. This unfairly allows QFs to "price 

shop" for a utility with a high avoided cost rate, again placing unnecessary 

financial burdens on customers and promoting gaming of PURP A. A QF 

that can deliver capacity and energy to a system that it is not connected to 

typically requires access to the electric transmission system and therefore 

the organized markets. The Commission could change this precedent 

through a rulemaking procedure. 

• Under the Commission's QF self-certification regulations, certification of 

QFs is automatic -which puts the burden on the public to question 

certification and pay the associated costs of such questions. The 

Commission should create a process with stronger checks and balances on 

QF certifications. 

In July 2016, the Commission held a technical conference at the request of 

Congress. However, the technical conference was limited in scope. Working 

with EEI, Consumers Energy submitted proposed changes to the Commission on 

the 20 MW threshold, the one-mile rule, and avoided cost. Since that time, 
225 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

additional changes have been identified. Accordingly, the Commission should 

allow for additional comments on PURPA to supplement the existing record and 

then issue a NOPR. There are a number of changes that the Commission can 

make to update its rules and regulations implementing PURP A so that the rules 

reflect the cunent electric markets. 

Electric Grid Integration Department 

- -~- Jiii". -- -- -

Ttmothy J. Sparks 

March 21,2018 
226 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

3. Does FERC have the authority to implement section 2 dealing with the one-mile 

rule and section 3 that would lower the megawatt threshold to 2.5 megawatts for 

the mandatory purchase obligation of the legislation? 

Response: 

a. Do you believe the Commission should review these proposals? 

b. Does the Commission have the authority to extend the Commission's waiver 

authority to the states or would this require Congressional action? 

c. Would this be a beneficial tool for state utility regulators? 

i. If so, how is this beneficial? 

3. Consumers Energy believes FERC has the authority to address the one-mile rule and 

the megawatt threshold associated with the mandatory purchase obligation. 

a. The Commission should review these proposals and has publicly indicated that 

PURP A reform is one of its top priorities. 

b. Under Section 210(m) ofthe PURPA, the Commission does not have the 

authority to extend waiver authority to the states. Thus, congressional action is 

required to give states the authority to grant a utility a waiver from the purchase 

obligation in PURP A. 

c. Consumers Energy believes that updating FERC PURP A regulations, such as the 

one-mile rule and lowering/eliminating the mandatory purchase obligation will 

benefit state utility regulators by essentially "untying their hands" and providing 

clear guidance on how best to ensure reliability of energy services while 

protecting customers from inflated and unnecessary costs. 

Electric Grid Integration Department 
227 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

4. State utility commissions set avoided cost rates and have the authority to set the 

appropriate length of PURP A contracts. This seems to me that states have 

significant authority in implementing PURP A. I noticed in your testimony you 

stated granting PURP A exemption findings to the states would create a state-bystate energy program. Essentially, I view this as providing state regulators with the 

tools to help them meet their state's electricity needs at the lowest cost to rate 

payers as possible. 

Response: 

a. Couldn ~ one argue that extending FERC 's waiver authority is keeping in line 

with state implementation coupled by strong federal oversight? 

a. Yes. One of the challenges that utilities currently face is that the rules 

surrounding the implementation of PURP A do not allow for flexibility in 

responding to changes in market dynamics. States have the responsibility to 

ensm·e utilities are maintaining adequate energy and capacity to efficiently and 

cost-effectively serve their customers. The PURP A mandatory purchase 

obligation reduces the flexibility of states to ensure the most economic generation 

resources, including renewable energy resources, are harnessed to serve 

customers. 

Electric Grid Integration Department 
228 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

5. Do certain states have more qualified facilities than others? 

Response: 

a. Could you please explain why certain states have significantly more QFs than 

others? 

5. Yes, there are differences in the penetration of QFs across the US. 

a. The avoided cost methodology is determined on a state-by-state basis. Since 

there is variability in the interpretation and implementation of "avoided costs" 

there is also variability by state in the revenue stream for QFs. 

Electric Grid Integration Department 
229 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

6. As energy prices have declined around the country, 20 year PURPA contracts at 

fixed prices seem to be above market prices. 

Response: 

a. Are PURPA contracts on average more expensive than the market price? 

a. Yes. When energy prices are fixed for a long period of time, such as 20 years, the 

likelihood of having price separation between the contract price and market value 

increases dramatically. 

Electric Grid Integration Department 
230 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

7. I am a believer in an all of the above energy approach. I believe a diversified 

electlicity portfolio is crucial. With that being said, I fear PURP A is inhibiting my 

constituents from benefitting from the lowest cost source of renewable electricity. 

Response: 

a. Are there instances where a lower cost renewable generation is bypassed by 

utilities because they have to purchase QF output? 

b. Is PURPA the most cost-effective driver of renewable resources? 

c. Is there a way to implement PURP A in a way that is more cost effective? 

d. What FERC policies would need to be modified to ensure the best deal for 

customers? 

a. Yes. We recently began receiving 100 MW of wind energy and capacity through a 

new power purchase agreement with a third party at a cost ofless than $45/MWh. 

If Consumers Energy is forced to purchase all of the new solar resources that have 

applied for an interconnection to our electric distribution system at the pending 

avoided cost rate of $99/MWh, our customers will pay more than twice the rate of 

wind renewable energy and capacity -resulting in increased costs to our 

customers of $100 million per year. The purchase obligations under PURP A will 

require the Company's customers to pay for more expensive renewable generation 

than what the Company can obtain through competitive solicitations. 

b. No. As it is currently implemented, PURPA promotes renewable resources at 

rates that are not cost-effective. Consumers Energy has obtained both wind 

contracts and company-owned wind resources at rates competitive with market 

rates. 

c. Yes. Competitive solicitations are one of the most cost-effective methods for 

increasing renewable resources. Competitive solicitations establish a true market 

value for the cost of new generation resources, including renewables. Utilities 

could compare their cost to build new renewables against the lowest bids from the 

competitive solicitations and pursue the lowest cost option for customers. 

PURPA would be much more cost effective if the QFs competitively bid their 

projects to the utility until the utility's generation needs are satisfied. 
231 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

d. Congress should eliminate the mandatory purchase obligation, as it promotes 

unnecessarily expensive new generation. Instead, competitive solicitations should 

be used to determine the most cost-effective renewable options available to 

customers. 

Electric Grid Integration Department 
232 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

8. FERC instituted the 20 MW threshold for organized markets on the basis that it is 

how it designates small generators. But since that threshold was established, FERC 

has closed several loopholes for small generators, and created a 2 MW threshold 

for facilities to receive expedited interconnection processes, and proposed 100 kW 

for aggregation of distributed energy resources to participate in organized markets. 

On that basis, shouldn't the presumption for small generators having access to the 

market be lowered? 

Response: 

8. Yes. The formation ofRTOs and ISOs and the wholesale markets has greatly 

improved QFs' ability to participate in organized markets. Most of Consumers 

Energy's existing PURPA-based contracts above 2 MW are owned by large 

organizations that have the experience and resources necessary to participate in the 

market. Utilities like Consumers Energy also offer Wholesale Distribution Service to 

provide generators with access to the market at a very economic rate. The 20 MW 

threshold should be updated to reflect market conditions. Notwithstanding the 

complete elimination of the threshold Consumers Energy is supportive of the 

proposed 2.5 MW threshold in HR 4476. 

Electric Grid Integration Department 
233 


Consumers Energy Company's Response to 

Questions for the Record: 01/19/2018 Energy Hearing 

The Honorable Tim Walberg: 

9. In your view, can implementation ofPURPA be adapted to these modern drivers of 

renewables procurement? Given the decrease in costs of wind energy and rapid 

deployment of wind generation across the nation, does it make sense to allow states 

to require QFs to participate in a competitive solicitation process to ensure that 

renewable energy is deployed in the most cost-effective manner? 

Response: 

9. Yes, competitive solicitations secure the most cost-effective renewable projects. This 

procurement mechanism results in the lowest costs and continues to promote 

renewable energy. 

Electric Grid Integration Department 
234 


GREG WALDEN, OREGON 

CHAIRMAN 

Mr. Karl Rabago 

Executive Director 

ONE HUNDRED FIFTEENTH CONGRESS 

FRANK PALLONE, JR., NEW JERSEY 

RANKING MEMBER 

(:ongrt~~ of tf)t Wnfttb ~tate~ 

j!)ouse of l\epresentattbes 

COMMITTEE ON ENERGY AND COMMERCE 

2125 RAYBURN House OFFICE BuiLDING 

WASHINGTON, DC 20515-6115 Majority {202)225-2927 

Minority (202)225-3641 

March 7, 2018 

Pace Energy and Climate Center 

62 Prospect Street 

White Plains, NY I 0606 

Dear Mr. Rabago: 

Thank you for appearing before the Subcommittee on Energy on January 19, 2018, to testify at 

the hearing entitled "Legislation Addressing LNG Exports and PURPA Modernization." 

Pursuant to the Rules ofthe Committee on Energy and Commerce, the hearing record remains 

open for ten business days to permit Members to submit additional questions for the record, which are 

attached. To facilitate the printing of the hearing record, please respond to these questions with a 

transmittal letter by the close of business on Wednesday, March 21, 2018. Your responses should be 

mailed to Kelly Collins, Legislative Clerk, Committee on Energy and Commerce, 2125 Rayburn House 

Office Building, Washington, DC 20515 and e-mailed in Word format to kelly.col!ins@mail.house.gov. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

Subcommittee on Energy 

cc: The Honorable Bobby L. ush, Ranking Member, Subcommittee on Energy 

Attachment 
235 


re 

RABAGO ENEFI:GY LLC 

6:: Prospect Street, White Plains, New York 106o6 

March 13,2018 

The Honorable Fred Upton 

Chairman, Subcommittee on Energy 

House Committee on Energy and Commerce 

2125 Rayburn House Office Building 

Washington, D.C. 20515-6115 

Dear Chairman Upton: 

Thank you again for the opportunity to appear before Subcommittee on Energy on January 19, 

2018 to testify at the hearing entitled "Legislation Addressing LNG Exports and PURPA 

Modernization." In the enclosed attachment, I am pleased to provide responses to the Additional 

Questions for the Record submitted by the Honorable Paul Tonko. 

I would be pleased to provide any additional information or responses you require. 

Sincerely, 

Karl R. Rabago 

Rabago Energy LLC 

Also transmitted via electronic mail to kelly.collins@mail.house.gov 

Attachment 
236 


Attachment- Responses to Additional Questions for the Record 

Submitted by The Honorable Paul Tonko 

Ql. Section 3 of the PURP A Modernization Act 

a. Can you please provide context for the general scale of a 2.5 megawatt 

Qualified Facility? What would this threshold encompass? A single wind 

turbine? A community solar project? 

Response: 

General: The average U.S. household uses about 900 kWh in electricity per 

month. A 2.5 MW wind turbine with a 35% capacity factor would generate 

enough electricity to meet the annual needs of about 700 homes. Small 

hydropower facilities have similar capacity factors. A 2.5 MW solar photovoltaic 

facility with a 13% capacity factor would generate enough electricity to meet the 

annual needs of about 260 homes. A 2.5 MW biomass or biogas facility with a 

capacity factor of about 60% would generate enough electricity to meet the needs 

of about I ,200 homes. 

Renewable energy plant economics tend to improve with increases in plant size. 

As discussed below, FERC has consistently found that small generators smaller 

than 20 MW in size lack non-discriminatory access to electricity markets. 

Wind: Many commercial scale windfarms today utilize turbines that have a 

capacity greater than 2.5 MW per turbine. The land footprint for an individual 

turbine is typically less than 5 acres. Aside from novel single-turbine 

demonstration projects, there are few single-turbine small generator projects. 

Solar: The National Renewable Energy Laboratory conducted a review of land 

requirements for various solar technologies and plant sizes. See the table below 

titled Land-Use Requirements/or Solar Power Plants in the United States, NREL 

Technical Report NREL/TP-6A20-56290, June 2013. 

2 
237 


Table ES~1. Summary of Land~Use Requirements for PV and CSP Projects in the United States 

Te<:hnology 

Tower 

DishStfrting 

Linear Fresnel 

Direct Area 

Capacityweighted 

average !and 

use 

(acres/MW.c)~ 

Total Area 

Capacityweighted 

average land 

Biomass: Biomass and biogas facilities have small facility footprints than solar 

farms. A small biomass facility size is typically a few acres for the generator pad 

and associated facilities. 

b. Mr. Danly said the 20 megawatt threshold was initially set after a FERC 

proceeding. Has FERC or Congress established any public record that would 

justify lowering this threshold? 

Response: 

In Order 688, issued in 2006, FERC established the rebuttable presumption that 

small (20 MW or smaller) qualified generators do not enjoy non-discriminatory 

access to markets. See FERC Order 688 (Oct. 20, 2006), available at 

https://www.ferc.gov/whats-new/comm-mcet/l 01906/E-2.pdf. FERC has 

revisited the issue in specific cases on numerous occasions, even within the past 

five years. 

The burden of overcoming the rebuttable presumption rests on the utility seeking 

to overturn the presumption and avoid the obligation to purchase from the small 

Qualified Facility. See Pub. Serv. Co. of New Hampshire, 131 FERC 61,027 at~ 

22 (20 1 0), reh 'g denied, 134 FERC 61,041 (20 13) (the burden is on the utility to 

"rebut the presumption on a QF-by-QF basis," as required by Order No. 688). 

FERC has found that discrimination in market access continues in some markets 

as recently as 2015, when it revisited the small generator rebuttable presumption 

3 
238 


and maintained it. See Northern States Power Co., 151 FERC 61,110 at~~ 28-29 

(2015); see also PPL Electric Utilities Corp., 145 FERC 61,053 (2013), reh'g 

denied, 148 FERC 61,207 at~~ 19,24 (2014) (denying PPL's request to waive its 

mandatory purchase obligation for a roughly 18 MW cogeneration facility in PJM 

and re-emphasizing the various reasons behind creation of the small QF 

exemption in Order No. 688). 

FERC has demonstrated that utilities can make the case to overcome the 

presumption in several cases. See, e.g., Fitchburg, 146 FERC 61,186 (granting an 

application to terminate a utility's purchase obligation from a QF under 20 MW); 

City of Burlington, 145 FERC 61,121 (2013). 

The record at FERC conclusively demonstrates that the small generator rebuttable 

presumption (the 20-megawatt rule) continues to be necessary to enable nondiscriminatory market access for small generators. Congress has not developed a 

record to justify setting a 2.5 MW or smaller constraint on QF size. 

c. Do small power producers, including those between 2.5 megawatts and 20 

megawatts, face market access or interconnection issues? 

Response: 

Interconnection: Generators smaller than 20 MW that interconnect at 

transmission level may rely upon PERC's small generator interconnection rules in 

order to avoid some of the problems of discrimination in interconnection. FERC 

has revisited and modernized the rules relating to interconnection of small 

generators on several occasions. These standards were promulgated in 2005, and 

FERC updated them in 2013 and 2014 with FERC Orders 792 and 792-A. In July 

2016, FERC revised again the standards in FERC Order 828, available online at: 

https://www.ferc.gov/whats-new/comm-meet/2016/072116/E-ll.pdf 

It is important to note that as recently as 2016, FERC revised but did not eliminate 

the small generator interconnection standards. FERC is the appropriate body to 

conduct a comprehensive review of whether market conditions have changed 

sufficiently in the past two years to support modification or elimination of the 

small generator interconnection standards. 

Market Access: Non-discriminatory market access is a function of facility size 

(including access to capital, ability to bear large administrative and legal costs, 

operating revenues and margins), point of interconnection (market access is more 

difficult for small facilities connected at distribution level), and access 

requirements for certain markets (operating characteristics, financial 

requirements, bidding rules, administrative requirements). 

4 
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Q2. 

In 2006, in Order 688, FERC comprehensively reviewed market conditions in 

light of Congress' action in the Energy Policy Act of2005 and found that the 

record supported "creating a rebuttable presumption that certain QFs may not 

have nondiscriminatory access to markets because of their small size." FERC 

Order 688 at~ 57 (Oct. 20, 2006) available at https://www.ferc.gov/whatsnew/comm-meet/1 0 1906/E-2.pdf 

PERC is the appropriate body to conduct a comprehensive review of whether 

market conditions have changed sufficiently in the past eleven years to support 

modification or elimination of the rebuttable presumption regarding small 

generator non-discriminatory market access. 

d. What are the consequences for consumers when this discrimination occurs? 

Response: When small generators face discrimination in market access, two 

adverse results follow. First, the economy, work force, and environment are 

denied the benefits of clean, renewable electricity facility investment, operation, 

and generation. Second, when not obligated to purchase energy or capacity from 

small generators, utilities will serve customers with their own more expensive 

resources. 

For consumers, the results are higher rates, more pollution, and a weaker 

economy. Local economies lose jobs, tax revenues, and electric supply diversity 

as well. 

In your testimony, you assert PURP A protects consumers. Yet, the 

Subcommittee also received testimony that "CE customers are estimated to 

pay approximately $21 million annually above market for power from 

existing contracted PURP A facilities." 

a. How would you explain this outcome under PURP A? 

Response: The cited testimony is misleading at best. The author of the testimony 

is Consumers Energy, a monopoly utility located in Michigan, and the testimony 

did not provide any documentation or calculations for its assertion. The 

truthfulness of its testimony should be tested before a regulatory authority such as 

FERC or the Michigan Public Service Commission (Michigan PSC). 

The wording of the testimony suggests that Consumers Energy is measuring past 

contract prices against current short-run marginal cost prices set in the MISO 

regional transmission organization's service territory (Consumers Energy resides 

in MISO's territory). Consumers Energy's testimony is misleading for three 

reasons. 

5 
240 


First, Consumers Energy's use of market prices is misleading because PURPA 

contracts provide pricing for several years under standard contracts at or below 

the utility's avoided costs, and short-run marginal costs posted in markets are 

good only for the short-run and do not reflect the full range of costs associated 

with obtaining energy and supply over the long-term. PURPA contract prices are 

set based on market conditions existing at the time of the contract, just as utility 

self-build decisions are based on information available at the time the utility 

proposes to construct a power plant. However, unlike utility investments that can 

lock customers into payment obligations for 40 years or more, PURP A contracts 

typically have durations of less than 20 years. 

Second, Consumers Energy's use of market prices is misleading because it is a 

regulated monopoly utility, and regulated monopoly utilities do not even rely on 

markets to recover their costs. Rather, regulated monopoly utilities are guaranteed 

cost recovery from ratepayers regardless of market prices. 

Third, Consumers Energy's use of market prices is misleading because, when 

compared to the utility's actual costs of generating electricity, PURPA avoided 

costs are actually lower than the utility's costs. Consumers Energy's ratepayers 

are estimated to pay approximately -$4 million more annually for Consumers 

Energy's proposed solar energy expansion than if it acquired its solar energy from 

PURPA qualifying facilities. 

The new avoided cost rate for PURP A qualifying solar facilities in Michigan is 

estimated around $90 per MWh, but Consumers Energy wants to build 1 OOMW of 

solar and charge its ratepayers $126 per MWh. See Consumers Energy's 

Supplemental Testimony of Margaret Lowe at 3:20-4:2, Case No. U- 18231 

(Mich. Pub. Serv. Comm'n Mar. 8, 2018) available at https://perma.cc/K474-

CA5Y. 

Assuming a capacity factor of 13%, the annual cost difference between I OOMW 

of PURP A qualifying facility solar energy and I 00 MW of Consumers Energy 

solar is approximately -$4 million. The calculation is: 

(100 MW X 13% X 8760*) X $90 

(100 MW X 13% X 8760) X $126 

-$4 million 

*hours in a year 

6 
241 


In addition, the cited testimony by Consumers Energy tells us nothing about 

whether PURP A prices are protecting customers. The many regulatory 

proceedings before state commissions and the FERC that have carefully 

considered the costs avoided by the purchase of energy and capacity from small 

generators and concluded that the PURP A prices are just and reasonable. 

b. How does PURP A operate to protect consumers? 

Response: PURPA protects customers by ensuring that monopolies and large 

generators do not squeeze out the innovation, cost-savings, competitive, and 

environmental benefits associated with small generator development and 

operation in the electricity generation sector. PURPA is the only Federal statute 

that requires competition in the electricity sector-and healthy competition 

benefits consumers, competitors, and incumbent monopolies alike. 

Over the 40 years since PURP A was passed, Congress has revisited the law on 

several occasions. Notably, Congress has seen fit only rarely, and as recently as 

2005, to make significant changes-and those have been focused on protecting 

consumers through strengthening of the effect of market forces in the electricity 

generation sector. The FERC has revisited and applied the law in light of 

prevailing market conditions each and every year since its enactment. Contrary to 

assertions that PURP A needs "modernization," implementation and adaptation of 

the law has been consistent with dramatic changes in markets, demonstrating that 

a balanced, well-written law can provide enduring benefits to consumers and 

market competition. PURPA also creates mechanisms for states to regularly visit 

market conditions, to proactively address potential market failures, and ensure 

market transparency. PURPA was built on a foundation of market competition; 

changes which would reduce the effect of competitive forces would be 

inconsistent with the reasons that PURP A was enacted. 

As shown above, solar qualifying facilities could save ratepayers in Consumers 

Energy approximately $4 million annually if the monopoly obtained an equivalent 

amount of solar energy from PURPA qualifying solar facilities. This is a perfect 

illustration of how PURPA works to protect customers. 

7 
242 


GREG WALDEN, OREGON 

CHAIRMAN 

Mr. Paul N. Cicio 

President 

ONE HUNDRED FIFTEENTH CONGRESS 

FRANK PALLONE, JR., NEW JERSEY 

RANKING MEMBER 

C!Congrt5'5' of tbt ltnittb ~tatt5' 

~ouse of ~epresentatibes 

COMMITTEE ON ENERGY AND COMMERCE 

2125 RAYBURN HousE OFFICE BuiLDING 

WASHINGTON, DC 20515-6115 Majorily (202)225-2927 

Minority 1202)225-3641 

March 7, 2018 

Industrial Energy Consumers of America 

1776 K Street, N.W.; Suite 720 

Washington, DC 20006 

Dear Mr. Cicio: 

Thank you for appearing before the Subcommittee on Energy on January 19, 2018, to testify at 

the hearing entitled "Legislation Addressing LNG Exports and PURPA Modernization." 

Pursuant to the Rules of the Committee on Energy and Commerce, the hearing record remains 

open for ten business days to permit Members to submit additional questions for the record, which are 

attached. To facilitate the printing of the hearing record, please respond to these questions with a 

transmittal letter by the close ofbusiness on Wednesday, March 21,2018. Your responses should be 

mailed to Kelly Collins, Legislative Clerk, Committee on Energy and Commerce, 2125 Rayburn House 

Office Building, Washington, DC 20515 and e-mailed in Word format to kelly.collins@mail.house.gov. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

Sincerely, .~· 

Fred 

~/~ Upton 

Chairman 

Subcommittee on Energy 

cc: The Honorable Bobby L. Rush, Ranking Member, Subcommittee on Energy 

Attachment 
243 


Industrial Energy Consumers of America 

The Voice of the Industrial Energy Consumers 

-:========~ • Washington, D.C. 20006 I www.ieca-us.org 

March 20, 2018 

The Honorable Fred Upton 

Chairman 

Subcommittee on Energy 

U.S. House of Representatives 

2183 Rayburn House Office Building 

Washington, DC 20515 

Re: Legislation Addressing LNG Exports and PURPA Modernization 

Dear Chairman Upton: 

Thank you for the opportunity to address the questions from your March 7 letter as a follow up 

to the hearing on, "legislation Addressing LNG Exports and PURPA Modernization." We are 

pleased to provide the following responses. 

ADDITIONAL QUESTIONS FOR THE RECORD 

The Honorable Fred Upton 

1. At FERC's 2016 Technical Conference on PURPA, your organization, IECA, submitted 

written testimony stating that in instances where QF's are abusing the "one-mile rule" 

changes should be made to the one-mile rule in order to protect ratepayers. 

a. Does IECA still maintain this position on the one-mile rule? 

Answer: Yes, we do. 

2. Based on the information we have received, the number of cogeneration QF's who are 

also registered as a small power producer is very small, in fact to our knowledge we are 

only aware of one such facility. 

a. Will you provide us with data on the number of IECA owned cogeneration 

facilities that are registered as small power producers? 

Answer: We can assure you that there are many small power producers, but not as 

many QFs that are classified as cogenerators. 

IECA, a trade association, does not own cogeneration facilities of any kind. /ECA 

member companies do own and operate numerous QFs that are classified at the 

Federal Energy Regulatory Commission (FERC) as "small power producers." The 
244 


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Industrial Energy Consumers of America 

American Forest and Paper Association also has companies that have such facilities 

as well. IECA does not know how many there are across the country. 

All QFs, whether classified as small power producers or cogenerators, must file at 

FERC. We have asked FERC the same question on the number. FERC has stated that 

their system of QF filings does not lend itself to answer the question. And, that it 

would be very time consuming and expensive to determine specifically how many 

QFsexist. 

It is important to note that the small power producer classification also includes 

industrial QFs that have built as either wind turbines or solar displays inside the 

fence line for purposes of using the power within the manufacturing facility. 

The Honorable Paul Tonko 

1. Industrial Energy Users 

a. Historically, has PURPA played an important role in enabling cogen facilities to 

come online? 

Answer: Without PURPA, industrial companies would not have built cogeneration 

facilities, because of regulatory uncertainty, thus the financial uncertainty would be 

too great. PURPA provides the regulatory certainty and protections from 

discrimination by incumbent entities who view cogeneration as competition and take 

action to prevent cogeneration facilities from being built. PURPA guarantees that we 

are able to connect to the grid and secure the necessary standby power at just and 

reasonable rates and sell excess power to the grid at avoided costs. Importantly, 

industrial cogeneration facilities cannot optimize energy efficiency without PURPA. 

b. Why are some industrial sites classified as small power producers for the 

purposes of PURPA? 

Answer: Under PURPA, all QFs must file at FERC. FERC created two QF classifications 

that produce power differently and with different energy sources as described below 

by FERC. 

A small power production facility is a generating facility of 80 MW or less whose 

primary energy source is renewable {hydro, wind or solar), biomass, waste, or 

geothermal resources. There are some limited exceptions to the 80 MW size limit that 

apply to certain facilities certified prior to 1995 and designated under section 3(17}(E) 

of the Federal Power Act (FPA @) (16 U.S. C. § 796{17/(E) @), which have no size 

limitation. In order to be considered a qualifying small power production facility, a 

facility must meet all of the requirements of 18 C.F.R. §§ 292.203(a) @, 292.203(c) 

@and 292.204 r!ilfor size ond fuel use, ond be certified as a QF pursuant to 18 C.F.R. § 

292.207@. 

A cogeneration facility is a generating facility that sequentially produces electricity 

and another form of useful thermal energy (such as heat or steam) in a way that is 
245 

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Industrial Energy Consumers of America 

more efficient than the separate production of both forms of energy. For example, in 

addition to the production of electricity, large cogeneration facilities might provide 

steam for industrial uses in facilities such as paper mills, refineries, or factories, or for 

HVAC applications in commercial or residential buildings. Smaller cogeneration 

facilities might provide hot water for domestic heating or other useful applications. In 

order to be considered a qualifying cogeneration facility, a facility must meet all of the 

requirements of 18 C.F.R. §§ 292.203(b/ r§Jand 292.205 r§Jfor operation, efficiency and 

use of energy output, and be certified as a QF pursuant to 18 CF.R. § 292.207@. 

There is no size limitation for qualifying cogeneration facilities. 

Examples of industrial facilities that would certify as small power production 

facilities instead of cogeneration facilities include industrial facilities that recover 

residual heat from their manufacturing process and use this energy to generate 

electricity that is primarily used to serve internal manufacturing loads. Biomass 

facilities that are under 80 MWs also often file as a small power producer. 

If you have any further questions, please feel free to forward them me. I would be happy to 

address them. 

Sincerely, 

Paul N. Cicio 

President 

The Industrial Energy Consumers of America is a nonpartisan association of leading manufacturing 

companies with $1.0 trillion in annual sales, over 3,400 facilities nationwide, and with more than 1. 7 

million employees worldwide. It is an organization created to promote the interests of manufacturing 

companies through advocacy and collaboration for which the availability, use and cost of energy, power or 

feedstock play a significant role in their ability to compete in domestic and world markets. IECA 

membership represents a diverse set of industries including: chemical, plastics, steel, iron ore, aluminum, 

paper, food processing, fertilizer, insulation, glass, industrial gases, pharmaceutical, building products, 

brewing, independent oil refining, and cement.