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90–232 PDF 2004

S. Hrg. 108–277

KEEPING THE LIGHTS ON: THE FEDERAL ROLE

IN MANAGING THE NATION’S ELECTRICITY

HEARING

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT, 

THE FEDERAL WORKFORCE AND THE DISTRICT 

OF COLUMBIA SUBCOMMITTEE

OF THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

SEPTEMBER 10 AND NOVEMBER 20, 2003

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

AMY B. NEWHOUSE, Chief Clerk

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL 

WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE 

GEORGE V. VOINOVICH, Ohio, Chairman 

TED STEVENS, Alaska 

NORM COLEMAN, Minnesota 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD J. DURBIN, Illinois 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

ANDREW RICHARDSON, Staff Director 

MARIANNE CLIFFORD UPTON, Minority Staff Director and Chief Counsel 

CYNTHIA SIMMONS, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Voinovich ............................................................................................. 1, 37 

Senator Levin .................................................................................................... 4

Senator Lautenberg .......................................................................................... 7, 47 

WITNESSES 

WEDNESDAY, SEPTEMBER 10, 2003

Kyle E. McSlarrow, Deputy Secretary of Energy, Department of Energy .......... 8

Pat Wood, III, Chairman, Federal Energy Regulatory Commission ................... 10

Alan R. Schriber, Chairman, Public Utility Commission of Ohio ........................ 20

Craig A. Glazer, Vice President, PJM Interconnection, L.L.C. ............................ 22

James P. Torgerson, President and Chief Executive Officer, Midwest Independent Transmission System Operator, Inc .................................................... 24

William J. Museler, President and Chief Executive Officer; New York Independent System Operator .................................................................................... 26

James Y. Kerr, II, Commissioner, North Carolina Utilities Commission ........... 28

Mark N. Cooper, Director of Research, Consumer Federation of America ......... 30

THURSDAY, NOVEMBER 20, 2003

Pat Wood, III, Chairman, Federal Energy Regulatory Commission ................... 40

James W. Glotfelty, Director, Office of Electric Transmission and Distribution, 

U.S. Department of Energy ................................................................................. 43

Michael R. Gent, President and CEO, North American Electric Realiability 

Council .................................................................................................................. 45

ALPHABETICAL LIST OF WITNESSES

Cooper, Mark N.: 

Testimony .......................................................................................................... 30

Prepared statement .......................................................................................... 187

Gent, Michael R.: 

Testimony .......................................................................................................... 45

Prepared statement with attachments ........................................................... 200

Glazer, Craig A.: 

Testimony .......................................................................................................... 22

Prepared statement .......................................................................................... 98

Glotfelty, James W.: 

Testimony .......................................................................................................... 43

Prepared statement .......................................................................................... 196

Kerr, James Y. II: 

Testimony .......................................................................................................... 28

Prepared statement with attachments ........................................................... 127

McSlarrow, Kyle E.: 

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 61

Museler, William J.: 

Testimony .......................................................................................................... 26

Prepared statement .......................................................................................... 118

Schriber, Alan R.: 

Testimony .......................................................................................................... 20

Prepared statement .......................................................................................... 88

Torgerson, James P.: 

Testimony .......................................................................................................... 24

Page

IV

Torgerson, James P.—Continued

Prepared statement .......................................................................................... 111

Wood, Pat III: 

Testimony ........................................................................................................ 10, 40

Prepared statements..................................................................................... 71, 193

APPENDIX

‘‘Interim Report: Causes of the August 14th Blackout in the United States 

and Canada,’’ by the U.S.-Canada Power System Outage Task Force, November 2003 ......................................................................................................... 211

‘‘Reviving the Electricity Sector,’’ Findings of the National Commission on 

Energy Poilicy, August 2003 ............................................................................... 333

‘‘Contributing Factors to the Series of Outages on August 14, 2003,’’ A White 

Paper, September 23, 2003, by Stephen T. Lee, Ph.D., EPRI Project Manager ........................................................................................................................ 345

‘‘Michigan Public Service Commission Report on August 14th Blackout,’’ November 2003 ......................................................................................................... 374

Letter to Senator Domenici and Representative Tauzin, dated September 

2, 2003 ................................................................................................................... 484

Responses to Questions for the Record for Pat Wood, III, from Senator Lautenberg .................................................................................................................. 486

(1)

KEEPING THE LIGHTS ON: THE FEDERAL 

ROLE IN MANAGING THE NATION’S ELECTRICITY 

WEDNESDAY, SEPTEMBER 10, 2003

U.S. SENATE, 

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL

WORKFORCE, AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE,

OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:02 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. George V. Voinovich, 

Chairman of the Subcommittee, presiding. 

Present: Senators Voinovich, Levin, and Lautenberg. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. The Subcommittee will please come to order. 

Because we have a very busy schedule and many witnesses, I want 

to begin this hearing on time. I am sure that my colleagues will 

be coming, as I expect several of them to be here today. They indicated that they will be here. 

Again, thank you for coming. We are here today to discuss the 

Federal role in ensuring the reliability of our electricity supply. In 

order to ensure that we have reliability, we need to have highly dependent systems to operate continuously and for them to generate 

and transmit electricity. It is axiomatic that adequate generation 

is meaningless without the transmission capacity to deliver electricity, and equally so to have an adequate or even robust transmission system without adequate generation to meet customer demand. 

There is no question that this Nation is currently served by a 

strained electricity system. Generation has failed to meet growing 

demand and facing ever-tightening restrictions that limit our ability to expand generation capacity, transmission capacity, and 

transmission capacity increases have lagged even behind generation increases, let alone demand increases. So, in effect, what we 

have had is a lot more generation, but we haven’t had the transmission capacity to keep up with that generation capacity. 

Fortunately, the Senate, along with the House and President 

Bush, is moving forward in developing an energy policy to help alleviate these constraints. The energy bill will encourage increased 

production and supplies of natural gas and expansion of hydrobased nuclear and clean coal-fired generation. 

2

Further, I have introduced President Bush’s Clear Skies Act, 

which will provide much needed relief to natural gas markets by 

protecting the long-term viability of coal-based generation and provide regulatory certainty for utilities, which is something that we 

need desperately in this country. There is so much uncertainty 

today out there among generators that it has never been like this 

in the country’s history. 

The issue of electric reliability was brought front and center on 

August 14, when more than 50 million Americans and Canadians 

lost power in parts of the Northeast, the Midwest, and Ontario. In 

my home State of Ohio, at least two million—two million people 

were affected, including yours truly. It was very nice that day 

when the lights came on about 12 hours exactly from the time that 

they went out. I landed at Hopkins Airport when the lights went 

out and it took us about 2 hours to go through the whole procedure. 

I give the bag handlers a lot of credit for doing everything by hand. 

First, I would like to commend the administration for its leadership. President Bush moved quickly to create the U.S.-Canada 

Joint Task Force on the power outage. By initiating a thorough examination of the blackout and getting the Canadians involved 

quickly, the administration has put us on a path to discover what 

happened. 

The purpose of today’s hearing is not to focus on who was responsible for the blackout. I want to emphasize that. I am confident 

that all of those questions will be answered by the investigation 

being conducted by the task force, and in the future, we will be 

holding hearings on these findings. Rather, today’s purpose is to 

focus on how we prevent something similar from happening again. 

Many of us have known for several years that power transmission has not kept up with power generation, particularly in the 

era of deregulation, where the power grid takes on much greater 

priority. The point is, even if the power hadn’t gone out, we would 

still be facing potential problems with our outdated and inadequate 

transmission system. 

What action must be taken by the Federal Government to ensure 

that our grid doesn’t collapse again in the future? The August 

blackout was only the most recent example of why our country’s 

electricity transmission system needs to be modernized. Like all of 

my colleagues on this Subcommittee and in this Senate, I am truly 

concerned about our Nation’s energy situation. 

It may surprise many people in this room that Ohio is the third 

largest energy-consuming State in the United States of America, 

behind California and New York. Ohio, as well as other States, 

needs affordable, reliable energy to ensure a robust economy and 

future growth. Unfortunately, this blackout has had a costly effect 

on many of our business interests and sectors. The Ohio Manufacturers’ Association estimates that the August blackout directly cost 

Ohio manufacturers over $1 billion—$1 billion in an economy that 

is sputtering. 

For example, Republic Engineered Products, based in Ohio, experienced a fire and an explosion as a result of the blackout which 

seriously damaged one of their blast furnaces in Lorraine, Ohio. 

After this furnace went offline, the most effective solution for the 

company was to start a back-up furnace, which cost a significant 

3

amount of money. Additionally, there was molten steel in their 

process machinery which cooled when power was lost, causing additional damage to their equipment. The final price tag this company 

is facing because of the blackouts will be in the millions of dollars. 

I have heard similar stories from companies in other States affected by power outage, including New York, Pennsylvania, and 

Michigan. 

Over the last 40 years, our national electricity system has become congested and strained because growth in electricity demand 

has not been matched by corresponding investment in new generation and transmission. Further, our existing transmission infrastructure, which was created in a world where utilities operated as 

virtual monopolies within their geographic regions, was not designed to meet the demands of our modern electricity markets. 

The result is that generation shortages and transmission constraints have led to major blackouts in California—we have forgotten that so quickly, but it happened—the Midwest, and the Northeast, and the risks of further blackouts are growing daily. Many of 

us were concerned last summer that New York would experience 

blackouts because of the lack of transmission capacity in that great 

city. 

This is not acceptable. When my constituents flip on the lights, 

they expect that the lights come on. 

I am pleased that modernization of our transmission systems is 

finally a national priority and is being debated in the energy bill 

Conference Committee. The need for reliable transmission is universally recognized. However, things break down when policy makers argue about who pays for it. We went through that last year 

when we were trying to put the electricity title together for the energy bill. Who pays for it? Is it the utilities? Is it the customers? 

There is an argument. Somehow, that has got to be worked out so 

that it is a fair way of paying for that transmission capacity. 

The fact is that investing in power generation is a better investment than investing in transmission, and somehow, we have to recognize that. It is understandable that companies are hesitant to invest in transmission because they are facing obstacles, such as 

NIMBY, ‘‘not in my backyard,’’ and frankly, I have heard, and I am 

sure Senator Levin has heard from constituents that don’t want 

transmission lines through their farm and through wherever they 

live. 

To make matters worse, it seems there is a new movement afoot. 

It is called the BANANA movement, ‘‘build absolutely nothing anywhere near anything.’’ Further, even companies that are willing to 

invest in transmission are reluctant because of burdensome and onerous environmental requirements. 

We have to harmonize our environmental and energy policies to 

keep this Nation competitive. For too long, our environmental concerns, our needs, and our energy concerns have been going in different directions. They haven’t been speaking to each other. For the 

betterment of this country, we need to harmonize those environmental and energy needs or we are in deep, deep trouble. 

In an effort to increase transmission capacity, I sponsored legislation in the last Congress to amend the National Environmental 

Policy Act and streamline the siting process for transmission corVerDate 0ct 09 2002 08:17 Mar 29, 2004 Jkt 090232 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\90232.TXT SAFFAIRS PsN: PHOGAN
4

1The letter to Senator Domenici and Representative Tauzin, dated September 3, 2003, appears in the Appendix on page 484. 

ridors. Further, I have recently sent a letter to the energy bill conferees encouraging them to include provisions to strengthen the reliability of our Nation’s electricity supply in that energy bill.1

What I would like to hear from each witness today is your 

thoughts on the best way to move forward to modernize the grid 

and what is the appropriate Federal role in managing and regulating the grid. 

I now would like to call on Senator Levin. Senator Levin, I am 

very happy that you are here today, and if you have an opening 

statement, we would like to hear it. 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Thank you, and I will ask that my entire statement be made part of the record. I will try to be brief because I 

know that we have a number of votes coming up, I believe a little 

later on this morning. 

I commend you, Mr. Chairman, for not only calling this hearing, 

for your initiative and for your leadership in this area, but also for 

trying to hold a hearing when we have a series of stacked votes 

going on later on this morning. It is going to be quite a challenge 

to do that and I thank you for that effort. 

Over the past few years, our country and our economy have been 

rocked by two major energy crises. The first, triggered by Enron’s 

collapse, disclosed rampant energy price manipulation and fraud 

and billions of dollars in electricity overcharges in a number of 

States. The second, on August 14, was a sudden and massive power 

outage that disrupted broad sections of the Midwest, New York, 

and Canada. 

In my home State of Michigan alone, over six million residents 

lost power. Numerous Michigan businesses and schools closed, including over 70 manufacturing companies. The City of Detroit and 

much of Southeast Michigan lost the ability to operate water and 

sewer systems. Michigan State and local governments spent more 

than $20 million on emergency assistance. And ongoing assessments of losses associated with the power failure in Michigan are 

expected to reach $1 billion. 

The massive power failure of August 2003 on top of the massive 

price manipulation perpetrated by Enron and others provide additional proof, if more were needed, that the deregulated energy markets in this country are not functioning well. These energy markets 

are not self-policing. There is no invisible hand guaranteeing efficient power flows and fair prices. Instead, a philosophy that U.S. 

energy markets can function free of meaningful oversight has 

thrown our energy markets into turmoil and opened the door to 

power failures and price manipulation, punishing U.S. ratepayers 

and taxpayers with economic disruption and high energy costs. 

The result is not only unreliable power that threatens our economy and our security, but also a loss of investor confidence in U.S. 

energy markets, a dearth of new investment, and the bankruptcy 

of some energy companies once at the heart of our U.S. energy industry. 

5

Despite the growing complexity and difficulties associated with 

power transmission, it is also clear that currently no single agency 

or company can be held accountable for ensuring the reliability of 

the Nation’s electric grid. Control of transmission lines varies 

across the Nation and includes a hodgepodge of Federal, regional, 

State, local, and private agencies and entities. 

One key player testifying today, the Midwest Independent System Operator, MISO, schedules wholesale use of lines to transmit 

electricity but claims to lack the authority to interrupt power 

transmissions traveling from energy generators to consumers. Instead, when lines go down, as they did on August 14, the MISO can 

issue instructions to utilities using the power lines, but must rely 

on voluntary compliance by the utilities to resolve fast-moving grid 

problems. 

The North American Electric Reliability Council, an industry 

group that designs and issues standards to ensure grid reliability, 

is dependent on voluntary compliance and cannot require transmission line users to meet its standards or penalize non-compliance. 

The Federal Energy Regulatory Commission (FERC) also says it 

lacks clear authority to ensure grid reliability, although in 1999 it 

issued rules which, in part, required regional transmission organizations to ensure reliability. 

The August power failure and the Enron price manipulation 

scandal provide clear mandates for Congressional action. Congress 

needs to pass legislation this year to increase grid reliability and 

to stop energy price manipulation. 

With respect to reliability, Congress needs to replace voluntary 

reliability standards with mandatory and enforceable reliability 

rules applicable to all users, owners, and operators of the transmission network. While industry-developed standards provide a 

starting point, the responsibility for writing the final rules to ensure grid reliability needs to be vested in FERC, a Federal agency 

that can be held accountable for problems. 

Now, while some in Congress want to include a reliability provision in the larger energy bill now in conference, using the urgency 

of that issue to propel enactment of the whole energy bill, this 

issue is too important to hold the reliability provision hostage to 

resolution of a myriad of other problems in the energy bill. We 

ought to act on the consensus that now exists to resolve the reliability problem. If we fail to act now, we are risking more blackouts. 

And just one word on this other legislation to eliminate the socalled Enron exemption, Mr. Chairman. I will not go into that in 

detail except to say that Senators Feinstein, Lugar, myself, and a 

number of other Senators have been working on anti-fraud and 

anti-manipulation laws. We have been guaranteed and assured 

that we will have an up-down vote on an amendment to the agriculture appropriations bill to address that issue. We will be releasing a copy of the amendment in the near future and I, again, would 

appreciate the entire statement on that subject and other parts be 

made part of the record. 

Senator VOINOVICH. Thank you, Senator Levin. 

Senator LEVIN. Thank you very much, Mr. Chairman. 

6

[The prepared opening statement of Senator Levin follows:]

PREPARED OPENING STATEMENT BY SENATOR LEVIN 

Over the past few years, our country and our economy have been rocked by two 

major energy crises. The first, triggered by Enron’s collapse, disclosed rampant energy price manipulation and fraud and billions of dollars in electricity overcharges 

in a number of states. The second, on August 14, was a sudden and massive power 

outage that disrupted broad sections of the Midwest, New York and Canada. In my 

home state, alone, over 6 million Michigan residents lost power. Numerous Michigan businesses and schools closed, including over 70 manufacturing companies. The 

City of Detroit and much of southeast Michigan lost the ability to operate water and 

sewer systems. Michigan state and local governments spent more than $20 million 

on emergency assistance, and ongoing assessments of losses associated with the 

power failure in Michigan are expected to reach $1 billion. 

The massive power failure of August 2003, on top of the massive price manipulation perpetrated by Enron and others, provide additional proof, if more were needed, 

that the United States’ deregulated energy markets are not functioning well. These 

energy markets are not self-policing—there is no invisible hand guaranteeing efficient power flows and fair prices. Instead, an ill-advised philosophy that U.S. energy 

markets can function free of meaningful standards and oversight has opened the 

door to power failures and price manipulation, punishing U.S. ratepayers and taxpayers with economic disruption and high energy costs. 

The result is not only unreliable power that threatens our economy and security, 

but also a loss of investor confidence in U.S. energy markets, a dearth of new investment, and the bankruptcy of some energy companies once at the heart of the U.S. 

energy industry. 

Reforms can and must tackle these issues. While the precise causes of the August 

power failure have yet to be determined, and investigations by the Michigan Public 

Service Commission, U.S. Department of Energy in conjunction with Canada, and 

others are ongoing, some facts have already become clear. We know, for example 

that, during the 1990’s, utilities in the Northeast and Midwest underwent extensive 

deregulation that separated electricity power generation from power transmission 

over the grid. Since this deregulation, according to a recent report by the North 

American Electric Reliability Council, the Midwest has become one of the great 

crossroads in the transmission of power across the nation. Power produced as far 

away as Denver flows through the Midwestern grid on its way to users in New York 

and elsewhere. 

At the same time, the complexities and difficulties involved in coordinating power 

flowing through Midwestern transmission lines have increased. A patchwork of companies and utilities generating power use these lines. These transmission line users 

apparently have no legal obligation to alert the transmission line operators to upcoming voltage fluctuations or the cause of these fluctuations, even though power 

surges can overwhelm transmission lines with little notice and devastating impact. 

Utilities have no legal obligation to warn neighboring utilities of transmission problems, even though warnings can play a crucial role in activating safeguards to minimize grid problems. Detroit Edison reported, for example, that on August 14, it had 

no idea there were problems on the grid until 2 minutes before the Michigan power 

loss, when power flowing from Michigan to Ohio jumped by 2,000 megawatts in 10 

second sand, 90 seconds later, power flowing from Ontario to Michigan jumped by 

2,600 megawatts. Thirty-seconds after that, Detroit Edison’s portion of the grid was 

dead. 

Despite the growing complexity and difficulties associated with power transmission, it is also clear that, currently, no single agency or company can be held 

accountable for ensuring the reliability of the nation’s electrical grid. Control of 

transmission lines varies across the nation and includes a hodge-podge of federal, 

regional, state, local and private agencies and entities. One key player testifying 

today, the Midwest Independent System Operator (MISO), schedules wholesale use 

of liens to transmit electricity, but claims to lack the authority to interrupt power 

transmissions traveling from generators to consumers. Instead, when lines go down 

as they did on August 14, the MISO says that it can issue instructions to utilities 

using the power lines, but must rely on voluntary compliance by the utilities to resolve fast-moving grid problems. The North American Electric Reliability Council, 

an industry group that designs and issues standards to ensure grid reliability, is 

dependent on voluntary compliance and cannot require transmission line users to 

meet its standards or penalize noncompliance. The Federal Energy Regulatory Commission also says it lacks clear authority to ensure grid reliability although, in 1999, 

7

it issued rules which, in part, require Regional Transmission Organizations to maintain short-term reliability in their grid operations. 

The August power failure and the Enron price manipulation scandal provide clear 

mandates for Congressional action. Congress needs to pass legislation this year to 

increase grid reliability and stop energy price manipulation. With respect to reliability, Congress needs to replace voluntary reliability standards with mandatory 

and enforceable reliability rules applicable to all users, owners, and operators of the 

transmission network. While industry-developed standards provide a starting point, 

the responsibility for writing the final rules to ensure grid reliability needs to be 

vested in FERC, a federal agency that can be held accountable for problems. While 

some in Congress want to include reliability requirements in the larger energy bill 

now in conference, using the urgency of this issue to propel enactment of the whole 

bill, this issue is too important to hold resolving the reliability problem hostage to 

the resolution of a myriad of other problems in the energy bill. We ought to act now 

on the consensus that has apparently arisen on the need to strengthen grid reliability. If we fail to act now, we are risking more blackouts. 

Congress also needs to enact legislation to eliminate the so-called Enron exemption that, in 2000, exempted certain energy transactions from federal oversight and 

federal anti-fraud and anti-manipulation laws. Senators Feinstein, Lugar, and I, as 

well as a number of other Senators, have been working on this legislation. When 

the Senate simply adopted last year’s energy bill without addressing this issue, the 

Senate Majority Leader promised us an up-or-down vote on an amendment to the 

Agriculture appropriations bill this fall, and we plan to circulate a bipartisan 

amendment addressing this issue in the near future. It is incomprehensible to me 

that some people are lobbying to maintain the Enron exemption and to stop efforts 

to strengthen federal anti-fraud and anti-manipulation laws. It is long past time for 

Congress to make it clear that fraud and price manipulation are unacceptable in 

any sector of the U.S. energy markets. 

I commend the Chairman for holding this hearing and look forward to the testimony.

Senator VOINOVICH. Senator Lautenberg. 

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. Thanks, Mr. Chairman. I am appreciative 

that you are calling today’s hearing on the blackout. It is so fresh 

in our memory and so dark a spot on the horizon. 

The loss of power on August 14 brought a large swathe of the country to a standstill and reportedly cost New York City alone $1 

billion. Now, in my opinion, this event dramatically demonstrates 

where we are headed if we fail to modernize the Nation’s electrical 

transmission system, but other factors may also have been involved 

and we will need answers about exactly what happened and why 

it happened. If we fail to correct the flaws in these systems and 

soon, many believe more regions will be brought to their knees. 

Shutdowns come with a high price tag: Massive public inconvenience; increased dangers for Americans, especially for Americans 

like those who are in the air depending on air traffic controllers 

with their electric systems to safely land them. 

But reliable electricity is not a new issue. Since 1978, the country has been inching toward deregulation and some regions have 

made great progress while others locked in outmoded systems dating back to the beginning of electricity regulation in this country. 

I understand that some of my colleagues have concerns about electric industry deregulation. But in my State of New Jersey, we are 

part of the PJM interconnection. It is the country’s first fully operating regional transmission organization, the world’s largest competitive wholesale electricity market. 

The ratepayers in New Jersey have reaped enormous benefits 

from belonging to this RTO, including stable rates that have not 

risen in 11 years. Just as important, and more to the point of this 

8

1The prepared statement of Mr. McSlarrow appears in the Appendix on page 61. 

hearing, during the blackout, only 7 percent of PJM’s 25 million 

customers lost their power. Now, 7 percent is not insignificant, but 

compared to 98 or 100 percent, it is pretty darn good. 

So I would like to hear from today’s witnesses about their views 

on additional RTOs that centrally dispatch information, like PJM. 

Had more of these been operating on August 14, the question is, 

could the blackout have been better contained? 

The Wall Street Journal noted in an August 18 editorial that 

adequately addressing the issue of electricity reliability will take 

political will and regulatory common sense, and it is my hope that 

my fellow Senators and I will rise above the entrenched political 

positions that are not serving the public’s needs for a modern, reliable electricity grid. Today, I am looking forward to hearing some 

regulatory common sense from these witnesses. 

I thank you, Mr. Chairman. I hope we will arrive at some direction to take to cure this problem. 

Senator VOINOVICH. Thank you, Senator. 

We have an impressive lineup of witnesses this morning and I 

look forward to an informative discussion. As Senator Levin said, 

we have stacked votes, so this is going to be interesting to see how 

this all works out. 

Our first witness today is Deputy Secretary of Energy Kyle 

McSlarrow. He is joined by Patrick Wood, the Chairman of the 

Federal Energy Regulatory Commission. I thank you both for testifying today. I would also like to note that Jimmy Glotfelty, the Director of the Office of Transmission and Distribution, is also attending this hearing. 

As is the custom here, I would like you to please rise and be 

sworn in. 

Do you swear the testimony that you are about to give before the 

Subcommittee is the truth, the whole truth, and nothing but the 

truth, so help you, God? 

Mr. MCSLARROW. I do. 

Mr. WOOD. I do. 

Senator VOINOVICH. The record will reflect that they answered in 

the affirmative. 

Mr. McSlarrow, we will start with you. 

TESTIMONY OF KYLE E. McSLARROW,1 DEPUTY SECRETARY 

OF ENERGY, DEPARTMENT OF ENERGY 

Mr. MCSLARROW. Mr. Chairman, thank you. Let me first say that 

we appreciate your leadership on such important issues as transmission reliability and a robust, competitive wholesale market that 

benefits consumers. I would like to note that you and Senator 

Levin were among the first to contact our Department to ensure 

that we were fully engaged when the blackout occurred on August 

14. Since then, as you mentioned, we have made good progress in 

our effort to determine the causes. 

As you know, within a few hours of last month’s blackout, President Bush and Prime Minister Chretien ordered a cooperative, binational investigation into that incident. Top government officials 

from both countries and scores of technical and engineering experts 

9

have been hard at work ever since to determine exactly what 

caused this outage, how it was allowed to spread, and what can be 

done to reduce the chances of such an incident in the future. 

While Secretary Abraham has the lead on this task force, I do 

want to recognize the personal leadership exhibited by Chairman 

Wood and all of FERC staff, who put in long hours to ensure that 

we get the right answers as quickly as possible. 

Once we have determined the causes of the blackout, we will 

enter Phase II of the task force’s two-part assignment, which is formulating recommendations to address the specific problems we uncover. Any recommendations the joint U.S.-Canada task force 

makes will likely focus on technical standards for operation and 

maintenance of the grid and on the management of performance of 

the grid in order to more quickly correct the problems we identify. 

We are determined to complete this inquiry in a timely manner. 

We hope to have conclusions and recommendations in a matter of 

weeks, not months. As Secretary Abraham has said, we will not 

compromise quality for speed. 

Beyond the investigation, there is also the broader focus on the 

Federal role in electricity reliability. The President’s National Energy Policy noted that one of the greatest energy challenges was to 

improve our Nation’s aging energy infrastructure and particularly 

the transmission infrastructure. The National Energy Policy also 

called for a transmission grid study, which our Department conducted and completed in May 2002. That study outlined the current condition of our grid and recommended ways to promote the 

expansion of overall transmission capacity, elimination of the bottlenecks on the grid, and enhancement of the grid’s technical efficiency and improvement of the system’s reliability. 

There are several measures before the House and Senate Conference on the energy bill right now that would codify some of the 

recommendations included in the President’s National Energy Plan 

and our Department’s grid study. Since the President’s first days 

in office, the administration has strongly supported proposals to establish mandatory and enforceable reliability standards to reduce 

the risk of power outages. We were pleased that both the House 

and the Senate included provisions in the energy bill to establish 

those standards. 

We also support proposals that would expand investment in 

transmission and generation facilities by repealing the Public Utility Holding Company Act, which has limited the resources that can 

be invested in a transmission system. 

We strongly support measures to provide greater regulatory certainty for transmission expansion, including provisions providing 

for last resort Federal siting authority for high-priority transmission lines and providing for the coordination and streamlining 

of transmission permitting activities across Federal lands. 

We support options that would allow for increased rates of return 

on new transmission investments, including clarifying FERC’s authority to provide incentive-based rates to promote capital investment in new transmission. 

We support the goal of regional coordination and planning 

through the mechanism of voluntary regional transmission organizations that would provide certainty to the marketplace, prevent 

10

1The prepared statement of Mr. Wood appears in the Appendix on page 71. 

undue discrimination, and assist in eliminating transmission constraints. And we support changes in Federal tax law to allow the 

recognition of gain over 8 years for the sale or disposition of transmission assets as part of restructuring and to allow rural cooperatives to provide open access to their transmission systems without 

losing their tax-exempt status. 

Before I close, Mr. Chairman, let me just add that government 

research and development has an important role to play here, as 

well. That is why the President’s 2004 budget request includes additional funding for high-capacity technologies, such as high temperature superconducting transmission lines and for real-time grid 

management tools to enhance reliability. 

Our electricity system is the backbone of the U.S. economy. We 

probably don’t think about something so obvious until the lights go 

out, but we cannot afford to let such a vital component of our infrastructure fail and I am confident that Congress will send an energy 

bill to the President this fall that sets us on a course to successfully 

address those challenges. 

Mr. Chairman, that concludes my testimony. 

Senator VOINOVICH. Thank you very much. Chairman Wood. 

TESTIMONY OF PAT WOOD, III,1 CHAIRMAN, FEDERAL ENERGY 

REGULATORY COMMISSION 

Mr. WOOD. Thank you, Mr. Chairman, Senator Levin, and Senator Lautenberg. As the Deputy Secretary just outlined, the FERC 

and its staff are participating as members of the joint U.S.-Canada 

Task Force to look at what actually happened, why it cascaded 

across such a broad territory. And while the analysis of this voltage 

collapse is ongoing, I will refrain from, as you indicate, for the purpose of this hearing, we are not going into that anyway, but will 

refrain from trying to analyze too deeply until we get the facts, because I think the facts should drive us wherever they lead. 

The Federal role in electricity grid management is the focus of 

your hearing today, and from the outset, let me be clear. As I believe Senator Levin just pointed out, our explicit authorities under 

the Federal Power Act and other statutes in the area of reliability 

are very limited. However, we do have some insight into regional 

grid management deriving from our role primarily as the economic 

regulator of the electricity industry and I think that can provide 

some insight, as you requested in your letter of invitation, Mr. 

Chairman. 

The blackout illustrates, as have many other events in the past 

couple of years, that the power grids are regional in nature. After 

each significant blackout, which were 1996, 1999, 2000, 2001 in 

California, and this year 2003, the Nation has taken significant 

steps forward to recognize that we are, in fact, interconnected and 

regional and to develop new rules and institutions that recognize 

this fact. 

For example, after the 1965 blackout in the Northeast, the 

NERC was created to create regional and voluntary reliability 

standards. That is the subject of the legislation in conference today. 

That would actually make that mandatory. 

11

After the 1996 blackout across the West, the governors and institutions out there developed a regional transmission plan that led 

to significant investment in the grid. I do have to add that I think 

that needs to continue. I believe that this blackout, similarly, will 

warrant significant action toward better regional grid management, 

as well. 

Prior to my term on the Commission, the bipartisan commission 

back in the 1990’s issued Order 2000, which encouraged, but did 

not require, the formation of regional transmission organizations, 

such as PJM that Mr. Lautenberg talked about. The expectation at 

the time was that these would form across the country by the end 

of 2001 and that they would be able to assume full control of the 

regional grids. 

The Midwest, however, is a good example of the fits and starts 

and the difficulties that the voluntary RTO program has had in 

achieving independent regional control in many areas. In such a 

voluntary arrangement, key principles like governance, independence, and even reliability are subject to negotiation and compromise. 

In Order 2000, the Commission stated that RTOs would have 

public accountability for reliability. RTOs would improve reliability 

because they have a broader, more regional perspective than individual local utilities, which number presently 130 independent control areas in the country that are actually the managers of the grid 

implementing the voluntary NERC standards. 

RTOs, as we have seen, have the ability to take action if they 

have the operational authority to do so. An RTO can end the balkanization within the region of the grid and assign it exclusive authority for short-term reliability. In fact, these characteristics are 

embedded in Order 2000 and they relate to the appropriate independence of the entity to run the grid, the appropriate scope and 

regional size of the grid configuration, full operational authority of 

the grid, and the exclusive authority to oversee short-term reliability, which are the NERC standards. 

RTOs also provide long-term transmission infrastructure development, a regional planning process, a regional rate recovery process through tariffs that are administered and are applied on a 

multi-state basis. These are developed through stakeholder processes and have been very successful in the regions where we have 

them. I think that regional investments are going to be almost impossible to make if you do not provide investors a very clear path 

for recovery of those new investments that I think, Mr. Chairman, 

you have pointed out. As a common sense matter, we know they 

need to be made, and we have been knowing this for a few years. 

But the problem is, an investor is not going to sink money if he 

or she doesn’t know how the money is going to get back with a return. 

This spring, after a year and a half of hearings and workshops 

and road trips and written comments, we put out a vision for a 

wholesale power market platform. It is also known by its earlier 

name, standard market design. We recognize the regional nature 

of the power grid and the uncertainty that is created by having balkanized systems across the country. The platform would mandate 

participation in RTOs and require a transition process. 

12

Many other features are left to regions to design and for State 

officials to participate in, crafting the details. But as a practical 

matter, we do need platforms upon which regional grid management can happen so that the benefits that we all know can happen, 

that we have seen in parts of the country where this planning has 

gone forth, can move forward. Thank you. 

Senator VOINOVICH. Thank you. We will limit our questions to 

each of the Members of the Subcommittee to 5 minutes and rotate 

it. 

The two of you have had a chance to observe what has happened 

here in the last several years and most recently on August 14. The 

real question that I have is, what is the best way of ensuring that 

it doesn’t happen again and that we have the reliability that is out 

there, and who should be in charge of the whole operation? 

In other words, we have had a kind of a mixed system out there. 

FERC has a role and the independent systems have a role, and you 

have the regional groups. How do we improve that system so that 

we don’t have what happened on August 14? 

Mr. MCSLARROW. Mr. Chairman, I think that there are several 

different answers, but the most obvious one is to pass the energy 

bill that includes the provisions that I outlined in my testimony. 

Senator VOINOVICH. You believe that the provisions that are in 

the energy bill now, which is in the Conference Committee, will get 

the job done? 

Mr. MCSLARROW. They will get most of the job done. What I don’t 

know and we won’t know until we conclude our task force investigation is whether or not there is something specific to August 14 

in addition to the recommendations that I have outlined that are 

included in the Conference. 

But the energy bill in Conference has a robust electricity title. 

It deals with siting. It deals with incentives for transmission. It 

deals for encouraging the development of regional transmission organizations. It deals with FERC’s ability to clarify those roles and 

provide incentives. It does a lot, and most importantly, it includes 

mandatory enforceable standards that are implemented by the National Electric Reliability Council and enforced by FERC. So I can’t 

say right now it will do 100 percent, but it will do——

Senator VOINOVICH. Implemented by the Reliability Council, but 

they are enforced—FERC’s role will be to enforce and make sure 

that they are carried out? 

Mr. MCSLARROW. Yes, sir. 

Senator VOINOVICH. Which is not the case today? 

Mr. MCSLARROW. Yes, sir, that is right. Today, it is a voluntary 

reliability regime and FERC has no authority to enforce that, nor 

does NERC, for that matter, and there is certainly no penalty for 

not playing by the rules. 

Senator VOINOVICH. Well, we are hoping you get an energy bill 

out before the end of the year. The joint U.S.-Canadian study, you 

said it is not going to be months, it is going to be weeks. How long 

do you think that it will take before we wrap that up to determine 

whether or not they come up with something that ought to be 

added to the provisions of the energy bill? 

Mr. MCSLARROW. I would say we should do the energy bill as 

quickly as we can. We will get our task force completed as quickly 

13

as we can. If there are recommendations and it is still timely to 

add to the energy bill, we will, but the administration would urge 

that we not slow down the energy bill. It is important to get it 

done. If there are additional recommendations, we will come and 

make those to Congress. There are plenty of vehicles that we can 

add that I am sure will have widespread bipartisan support to ensure that the outage of August 14 doesn’t occur again. But we 

would urge to move forward as quickly as possible on the energy 

bill. 

Senator VOINOVICH. Mr. Wood. 

Mr. WOOD. On the more granular level, that being the legal 

framework that would be clarified——

Senator VOINOVICH. Mr. Wood, I just want to say something. You 

are the Chairman of the FERC. 

Mr. WOOD. Yes, sir. 

Senator VOINOVICH. You have, what, three members now? 

Mr. WOOD. We are down to three, yes, sir. 

Senator VOINOVICH. OK. I understand that you are not even capable of doing things because you need two more members? 

Mr. WOOD. Oh, no. We are doing fine. 

Senator VOINOVICH. Are you? 

Mr. WOOD. We are down two, and——

Senator VOINOVICH. You don’t need another two members? 

Mr. WOOD. We are look forward to them being here, yes, we do. 

[Laughter.] 

We definitely do. 

Senator VOINOVICH. Well, I think that we ought to move as 

quickly as we can so that you have those two new members. 

Mr. WOOD. One of our three, however, his term would be up 

when Congress adjourns, so at that point, we do have trouble. 

Just to follow up on Mr. McSlarrow’s comment, getting the legal 

clarifications of that world out there are certainly helpful. The uncertainty that is created by not knowing what the future looks like 

makes investment an almost non-event. So I do want to strongly 

urge from the Commission’s perspective, that is kind of down a little bit more in the trench, that we really do need the Congress to 

say this is what the energy world is going to look like. Putting it 

off for yet another session just means 2 more years of investor uncertainty, and quite frankly, we have had that for quite a while 

and we need to move on. 

So I do want to recommend, as Mr. McSlarrow did, that we do 

get the energy legislation out. I think it has got potential to really 

clarify a lot of issues here. Our job is to take it to the doability 

point and to take the mandatory reliability rules that NERC and 

its experts would work up and go through a public vetting process. 

If, for example, we find that those conflict with some other Power 

Act obligation, we have an obligation under the proposed bill on 

both the House and the Senate side to kick it back and say, rethink 

this because of these issues. 

We have to delicately balance this oversight role because it is 

also going to be overseen by independent Canadian authorities, and 

so this, as we saw, it is an international power grid. We have to 

make sure that—and I think the law has been written in a way 

14

that is very respectful of that. So those are the kind of delicate 

things on reliability. 

The question is, OK, who is going to actually implement these 

standards on a day-to-day basis? Are we going to have it be the 130 

independent utility control areas, some big, some small, across the 

country, or are we going to try to look at that on a more regional 

basis, as we were talking about earlier in our opening statements. 

I do think that the regional model is clearly the correct way to go 

and also the common sense way to go. 

Senator VOINOVICH. Thank you very much. My time is up. Senator Levin. 

Senator LEVIN. Thank you, Mr. Chairman. 

I would like to ask about the current authority that FERC has 

in this area of regulation. FERC indicates it is not a clear authority 

to assure reliability, but the regulations which have been issued, 

the orders which have been issued by FERC, suggest otherwise. 

In February of 2000, FERC issued the final rule, an order entitled, ‘‘Regional Transmission Organizations,’’ the RTO, which ‘‘codifies minimum characteristics and functions that a transmission entity must satisfy in order to be considered an RTO.’’ You grant RTO 

status to regional entities, such as MISO, that operate transmission lines in Michigan and Ohio. 

In the order, it says that it establishes required characteristics 

and functions for these RTOs for the purpose of promoting efficiency and reliability. Then the order goes on to state that an RTO 

‘‘must ensure the integration of reliability practices within an 

interconnection and market interface practices among regions.’’ 

And it goes on to say that the RTO ‘‘must have exclusive authority 

for maintaining the short-term reliability of the grid that it operates.’’ So it sounds like you have authority now and, indeed, will 

not certify or will not license an RTO unless it does those things. 

Mr. WOOD. Correct. 

Senator LEVIN. What is lacking? 

Mr. WOOD. Well, that whole program has requirements and obligations, but it is not—it is a program that utilities volunteer to be 

in. So the predicate for all those required characteristics is really 

set back in that rule, which our proposal of recent months would 

change and make mandatory for everybody. But that rule in 1999, 

which was finished up in 2000, is at its heart an encouragement 

or voluntary. So the legal authority on that was, I don’t think, a 

problem, but it was one that the Commission chose not to exercise 

at the time. 

Senator LEVIN. Can you refuse, then, to certify an RTO? 

Mr. WOOD. We could, yes, sir. 

Senator LEVIN. And then what would be the penalty? Why would 

an RTO care if it were not certified? In other words, if you can insist that there be reliability standards that an RTO will adopt——

Mr. WOOD. Under current law——

Senator LEVIN [continuing]. As part of the certification process, 

why isn’t that enough power right now to achieve those reliability 

standards? 

Mr. WOOD. Where you have utilities agreeing to get into an RTO, 

you are correct. There is no question there. Where you have got 

some that do and some that don’t, or some that will and some that 

15

won’t, then you do have some concerns, and that is actually one of 

the issues we have in the Midwest, is you have some utilities that 

have not joined up with an RTO and there are basically holes in 

the Swiss cheese. 

Senator LEVIN. The standards which are in the House and the 

Senate bill, I take it, are adequate as far as you are concerned in 

the energy bill to achieve the authority that you need to make 

mandatory these standards, reliability standards? 

Mr. WOOD. Yes, sir. 

Senator LEVIN. OK. You, Mr. McSlarrow, the Energy Department 

supports those provisions, I understand. 

Mr. MCSLARROW. We do, yes, sir. 

Senator LEVIN. Now why, if the energy bill—if, and I know it is 

a big if—it runs contrary to your hopes, perhaps your expectations, 

but at least your hopes—if the energy bill doesn’t look like it is 

going to pass this year, why is it not essential that we pass these 

provisions to assure reliability and that there is not a repeat of the 

blackout? Why do we hold them hostage to the rest of the energy 

bill, which has all kinds of complicated provisions where people are 

in dispute over them? We have everything from the Alaska wilderness to things which are almost as complicated as that. 

Why should we say that we are not going to do what we need 

to do to prevent a future blackout and give FERC what it needs 

in terms of authority until and unless we get all these other energy 

issues resolved? 

Mr. MCSLARROW. I don’t think that it is just about NERC’s reliability standards. 

Senator LEVIN. About——

Mr. MCSLARROW. About these mandatory reliability standards. 

And quite frankly, I have not met a utility official or an engineer 

who hasn’t treated them as if they were mandatory. So, I mean, 

making them voluntary to mandatory does, yes, put the stick a lot 

bigger, because now you can do monetary penalties. 

But at its core, there is more in the energy bill than just this and 

it is that certainty that I was mentioning in my answer to Chairman Voinovich, is that we can make all the reliability standards 

in the world, but if you don’t have anybody that wants to come and 

invest in upgrading the grid, not just big new power lines. We 

might need some of those, sure. 

But investing the kind of smart technologies that are out there 

that are dying to be implemented on the grid that utilities have 

zero incentive to employ right now if they don’t understand what 

the regulatory and investment framework is going to be. And I will 

say, there are a number of provisions throughout both the House 

and Senate bills that do provide, I think, good contours for that investment certainty for the next 10 years. 

Senator LEVIN. It would be less likely that they will invest? 

Mr. MCSLARROW. Yes, sir, if we just have——

Senator LEVIN. That is fine. 

Mr. MCSLARROW. If we have no bill or just a stand-alone reliability bill, I think. 

Senator LEVIN. I understand there would be less incentives, but 

you still need these reliability standards. There may or may not be 

those kind of investments. Those are presumably positive features. 

16

But in the meantime—and you are not guaranteeing that investment with the energy bill, with those other provisions. You are just 

presumably facilitating. 

But on this, we know there is a consensus that we need to give 

for this power to force these regional entities, these regional councils to take the steps to make these mandatory, and if they don’t 

or if they are not adequate, for FERC to substitute its own standards. So they will do some good by themselves. They will clarify 

your power by themselves. And so it seems to me that we are risking needlessly, we are risking that additional clout by linking it to 

all of these other provisions. 

I am talking about all the other provisions of the energy bill. I 

am not talking about the ones that you have just outlined. I am 

talking about drilling in Alaska and everything else that is in here. 

Mr. MCSLARROW. Senator, if we are at the end of session and 

nothing has happened on the energy bill, I am certainly not prepared to say today that we are going to take off the table any options between the administration and the House and Senate leadership. 

I will say this. We have lurched from energy crisis to energy crisis, from California at the beginning of our administration to gasoline prices to oil prices to natural gas shortages, back to electricity, 

to home heating oil, and every time, there is something in the energy bill that could be taken out and passed right then. And our 

view is, we need to stop this and pass a comprehensive energy bill. 

So before we get to that point, I think we should do everything we 

can to get it done. 

Senator LEVIN. And if you get to that point, you are open minded? 

Mr. MCSLARROW. I am open minded, yes, sir. 

Senator LEVIN. Thank you. My time is up. 

Senator VOINOVICH. Senator Lautenberg. 

Senator LAUTENBERG. Thank you, Mr. Chairman. I am curious as 

to whether or not there are mandates or requirements for RTO formulation or any indication of a preference by FERC that suggests 

that this is a good way to operate. I mean, there was a mention 

of it in the statement that Mr. Wood made, that PJM functioned 

very well because we had the capacity to control the switches and 

the supply, the connections that were necessary to keep our lights 

on with a relatively minimal effect. 

So is there anything in the regulation that says or in the rules 

that say if there must be an RTO, that there should be an RTO. 

Is that what you’re thinking? Has any direction been given? Are we 

in our area just lucky that, by chance, we had formed this RTO? 

Mr. WOOD. I would think one should never discount luck. I think 

the ability of the utilities actually started back in the 1920’s, Senator Lautenberg, in the Pennsylvania, New Jersey, Maryland, and 

Delaware areas, including the District. However, yes, in 1999, the 

question that Senator Levin was asking me about, the Commission 

that I chair now did put forth a detailed set of standards that 

should be met on a voluntary basis by the utilities under FERC jurisdiction throughout the country. I think the Commission at the 

time hoped that that would happen over an 18-month period. It did 

with a few utilities, but—and particularly throughout the West, 

17

with the exception of California, and in some Southeastern 

States—we have not seen a lot of forward progress on coming together on that. 

And then throughout the country, random utilities are not participating, either because they are not FERC jurisdictional or they 

just choose not to because it is not a requirement. So, actually, we 

have proposed, and have out there, a rule that would make that 

mandatory and that is what the subject of some debate is here in 

the Senate. 

Senator LEVIN. Mr. McSlarrow, last week’s House hearing on the 

blackout, Secretary Abraham indicated that the initial investigation findings of the blackout task force will not be open to the public. But DOE has also publicly stated that it wants a transparent 

process. Now, what is going to happen here? Is it going to be transparent, open to the public, or is it going to be filtered, censored, or 

husbanded by the administration? 

Mr. MCSLARROW. There are two different things going on. The 

first is the investigation. This is not like we are having a series of 

public policy meetings. These are actual investigators looking at 

data on computers and interviewing operators of the grid, operators 

of the ISOs. This is the same thing that was taking place all over 

America with any law enforcement agency. Normally, you don’t 

have the public traipse along with you doing that. 

Once they get the findings, then we actually move to a policy 

phase where we are thinking about recommendations. Secretary 

Abraham did testify, and I know it is his intention, that we will 

have as open and transparent a process as possible. 

Senator LAUTENBERG. I hope so, because the public is a partner 

here. We hear grumblings. People say, well, it is going to cost more 

for the users, for the ratepayers to get this thing into shape. But 

then, in my view, we have to take a look back, see what the operating results were of these companies, what did they do with their 

reserves, did they build any reserves, and why didn’t they move 

ahead on some of these things. 

Mr. Wood, you talk about state-of-the-art digital switchings, 

things that I think are dying to be used in the current system. 

Well, if that is the case and we have technology, we understand 

what it is that would keep things going, then why haven’t we 

moved? Was there such an overwhelming profit motive for this 

commodity material that they just said, well, the heck with that. 

We are not going to do it until we are forced to do it. Where would 

the automobile business be if they didn’t improve the design on a 

constant basis? Where would other industries be? 

So what happened here? Why weren’t these investments made, 

do you think? 

Mr. WOOD. From the FERC side, we do get all the financial data 

and we are looking from really tracking all the utilities involved in 

this blackout from 1990 forward to get an idea of what kind of investments were made. I don’t have any data at this time to share, 

but we will be including that with the broader study going on here 

to just understand what sort of investment has been made in the 

transmission grid by the current people doing that and get a better 

understanding why that went up or down. But I don’t have a specific answer to your question today. 

18

Senator LAUTENBERG. I can tell you that the ratepayers will not 

joyfully write checks and say, OK, well, we have to fix the systems. 

You said something. Investors want to know what is going to happen if they put money in there and they have a right to know that. 

There are opportunities for financing, especially in periods like this 

when the cost for money is relatively low, and I would hope that 

the target isn’t the ratepayer who is going to be asked to pick up 

the load because the system was faulty. 

Do either of you think that if we had RTOs in place, more RTOs 

in place, that wouldn’t it have been possible to prevent the blackout from occurring? 

Mr. MCSLARROW. Go ahead. 

Mr. WOOD. I want to resist the urge to just say yes and be quiet 

there, but——

Senator LAUTENBERG. No, don’t. 

Mr. WOOD [continuing]. I do think some aspects of RTOs were 

very helpful. I mean, there is an understandable debate about what 

energy markets should do and what they should look like. Should 

they be like PJM or should they be something less than that? And 

that is a fair debate to have. We have it a lot. 

But at the core, the RTO is a transmission operator of a regional 

grid that recognizes what the laws of physics have told us long ago, 

that this product is going to flow where the path of least resistance 

lies, not where State boundaries or utility boundaries lie. So at its 

core, you have got that business plan going on there. 

And so to the extent an RTO does bring together and get investment and get the kind of real-time control systems where you can 

see, in fact, that that line is out, that line is on, this one is sagging, 

to have that information come in at one time over a broad area, 

not just for one small utility but for the entire area, yes, I think 

had we had some of the utilities in the Northern part of Ohio all 

part of the same interconnected and real-time communicated grid, 

that might have been a different outcome, sure. 

Senator LAUTENBERG. Yesterday, I was visited by several employees of First Energy and they reported to me that the company 

is using power transmission lines at well over capacity and has 

failed to replace sections of an old unreliable infrastructure. Can 

FERC play a role to address this kind of irresponsible part of behavior on the part of a utility? 

Mr. WOOD. I think we can. As I mentioned, we are talking to 

folks of that nature. I am not sure if it is the same ones as part 

of the broad investigation with the task force. And if there are specific issues that relate to FERC’s mandate as opposed to that of the 

Canadians or the other American agencies, we will pursue those 

independently. 

I do think this is probably an area where mandatory reliability 

standards as opposed to the voluntary ones makes a difference—

and the main difference there is you can put a price tag on violating a mandatory standard. If a mandatory standard is, you can’t 

exceed 105 percent of the capacity more than ten minutes out of 

a day, or whatever the standard would be, then that has a financial 

consequence attached to that. 

19

We do not have that today. Now, a State may have that authority. Some States do and some don’t. But we clearly do not. That 

would change with the reliability legislation in both chambers. 

Senator LAUTENBERG. Mr. Chairman, I will conclude with that, 

but I would hope that we go further in developing information because it is very hard in this kind of a fairly short burst to get the 

data that are needed. I think that there is an opportunity—should 

be an opportunity for us to thoroughly review the past performance 

of these firms, to have it done and presented to us or to the Congress generally, about what took place when things were better and 

whether there was any preparation at all for the expansion that 

was inevitable as our population grew and demands were increasing. 

So I commend you for doing this, but I think that there is a lot 

more that we have to learn before we are satisfied that it is not 

going to be the ratepayers doing this. 

Senator VOINOVICH. One of the things that I have mentioned is 

that it is my intention that once the report is finished, to have 

hearings on that report. It is going to be public. We are going to 

have people in here and we are going to go over the report. I would 

rather wait until everybody has got all the information to do it 

rather than do it prematurely, as is so often the case around here. 

Sometimes, we never do get to the real cause of something because 

you have tackled it before people have had the facts before them. 

I would like to thank the panel very much for being here today. 

I just want to make one thing clear again. Both of you feel that 

to remedy some of the things that we have talked about here, particularly Senator Lautenberg about what people should do and 

shouldn’t be doing. You believe that the language in the energy bill 

electricity title gets the job done. 

Mr. MCSLARROW. We do. 

Senator VOINOVICH. That is what I am worried about. I want to 

make sure that since this new incident on August 14—that there 

isn’t anything new that has come to the surface that ought to be 

reflected in that language so it is as comprehensive as possible. 

I would also like to mention that I happen to believe that this 

should stay in the energy bill. It is long overdue that this country 

have an energy policy. There is so much uncertainty out there, not 

only in this area, but also what utilities can do to reduce their NOx, SOx, and mercury emissions, and it is a chaotic situation of lawsuits. It is a maze, as a matter of fact. We need to clear that out 

and let everybody know where they stand, and if they get out of 

line, that they are going to pay a steep penalty for getting out of 

line. 

I hope that you keep staying with this and keep the administration on it, that we have to get an energy bill out and we have to 

get it out as soon as possible. Thank you very much for being here 

today. 

Mr. WOOD. Thank you. 

Mr. MCSLARROW. Thank you, Mr. Chairman. 

Senator VOINOVICH. We are going to recess for a few minutes. 

There is 4 minutes left in the vote. So we are going to go over and 

vote and then we will stick around for the vote on the next bill and 

then come back and we should have about 35 or 40 minutes so that 

20

1The prepared statement of Mr. Schriber appears in the Appendix on page 88. 

maybe we can get the testimony from our witnesses that are here 

today. Thank you. 

[Recess.] 

Senator VOINOVICH. The Subcommittee will come back into order. 

I want to apologize to the witnesses. We never know in the Senate 

what is going to happen and we had some stacked votes then. We 

are going to try and get as many of you in as we possibly can. I 

have to go back. I have about 20 minutes between now and then 

and I will try to have the next vote, which is very important because it is an amendment that I am cosponsoring, and then we will 

see how it works out. 

You all know who you are and I am glad that you are here. For 

the record, on our second panel we have Dr. Alan Schriber, who is 

Chairman of the Public Utility Commission of Ohio. Thank you for 

being here, Dr. Schriber. 

Next to Dr. Schriber, he has his predecessor, Craig Glazer, who 

was former Chairman of the PUCO of Ohio, and now is Vice President of PJM, and someone that has worked with me on energy 

issues since he was in the Water Department of the City of Cleveland and we rewrote the public utilities law of Ohio. And then 

when I became governor, I made him Chairman of the Public Utilities Commission, and Craig, I am glad that you are here. 

James Torgerson is the President and CEO of the Midwest Independent System Operator. William Museler is the President and 

CEO of the New York Independent System Operator. 

And rounding out the panel, James Kerr, a Commissioner of the 

North Carolina Utilities Commission, and Dr. Mark Cooper, the Director of Research at the Consumer Federation of America. 

I wish the witnesses would stand up and I would swear you in, 

as is the custom. 

Do you swear your testimony is the whole truth and nothing but 

the truth, so help you, God? 

Mr. SCHRIBER. I do. 

Mr. GLAZER. I do. 

Mr. TORGERSON. I do. 

Mr. MUSELER. I do. 

Mr. KERR. I do. 

Mr. COOPER. I do. 

Senator VOINOVICH. The record will show that they all answered 

in the affirmative. We will start out with Mr. Schriber. 

TESTIMONY OF ALAN R. SCHRIBER,1 CHAIRMAN, PUBLIC 

UTILITY COMMISSION OF OHIO 

Mr. SCHRIBER. Thank you, Mr. Chairman, and thank you for the 

opportunity to be here. My testimony, I won’t read. If it is submitted for the record, that would be great. 

Senator VOINOVICH. May I say something? You all heard the testimony before from the other two witnesses, I think, didn’t you? 

Mr. SCHRIBER. Yes. 

Senator VOINOVICH. And you also heard the questions from Senator Levin and you also heard the questions from Senator Lautenberg——

21

Mr. SCHRIBER. Yes, sir. 

Senator VOINOVICH [continuing]. And you heard some of my 

questions. If you want to sprinkle in some of your reactions to that, 

I would be very grateful. 

Mr. SCHRIBER. OK, sir. 

Senator VOINOVICH. I am particularly interested in whether or 

not the language in the energy bill, which I am sure most of you 

are familiar with, is adequate to get the job done or if you have 

some problems with that language. I am going to be very much involved, and have been, with that bill, and I would sure like to hear 

from any of you if you think they have left out—there is a big hole, 

or there is something in it that we feel goes too far or whatever 

your opinion is. 

I want to fix the problem, and we will talk about this investigation after they get the job done. But we have this wonderful opportunity to make a difference and I want to make sure that we don’t 

miss this opportunity. 

Mr. Schriber. 

Mr. SCHRIBER. Thank you very much, and I will note that I am 

a member of that binational task force and I would look forward 

to delving into that and hopefully someday reporting back to you. 

Just to get to the point, which I know you want to do, we want 

to talk about reliability for a moment because I think everybody 

agrees that reliability is a critical issue. I think for clarity, we need 

to understand that reliability can take on different meanings. In 

the arcane world of electricity that we deal with, we talk about reliability in terms of security and resource adequacy. I think what we 

are talking about now, in light of the blackout of August 14, is the 

physical properties of the network, of the system, of the grid. How 

secure is it? Is it reliable? Is it going to break? I think that is really 

important. 

I don’t think we have a third world system. I think what we do 

need is rules and we need standards. We need NERC and FERC 

to have the authority to promulgate and enforce those rules, and 

I think the States can play a very prominent role in enforcement. 

As you know, having been governor, Mr. Chairman, in Ohio, as 

in other States, we enforce—the State enforces rules that are promulgated by other Federal agencies, highway rules, rail rules, and 

so forth, and there is a good argument that can be made for having 

the ability to enforce rules that are for FERC, if you will. But I 

think, again, we all agree that is very necessary and I would say 

that the reliability provisions of that electricity title are absolutely 

essential. 

I also agree with Chairman Wood that optimum allocation of resources, of dollars toward the system, to the extent that it needs 

to be fixed, and again, I don’t think it is a third world system. I 

think it is like a highway system. It is broken down in some places. 

It needs to be fixed in others, and in some cases, congestion needs 

to be taken care of. I think dollars need to flow where they need 

best be invested and I think this is done only if you have a control 

which takes place over a larger area than among 12 fragmented 

transmission systems, as we have in the Eastern Interconnect. 

So, therefore, I would urge you and your colleagues to give FERC 

the authority they need to move forward in establishing these 

22

1The prepared statement of Mr. Glazer appears in the Appendix on page 98. 

large, centralized transmission systems that embrace not just one 

or two, but a very large section of the Eastern Interconnect. I think 

that gives FERC the ability to put these organizations in place, and 

within those organizations, I believe decisions can be better forthcoming. 

Senator VOINOVICH. Can FERC right now order a utility into an 

RTO? 

Mr. SCHRIBER. No, but the States in some cases have, where 

mergers have taken place. As merger agreements or as provisions, 

like in Ohio’s law, States—rather, utilities were ordered to join 

RTOs. 

Senator VOINOVICH. So that right now, the power is in the States 

to get utilities to join RTOs, and this legislation would give FERC 

the power to order them in? 

Mr. SCHRIBER. That is correct. 

Senator VOINOVICH. OK. 

Mr. SCHRIBER. We would hope. The States said, at least our 

State has ordered that, and it has been a provision some mergers. 

At any rate, I think FERC should be supported in their endeavors. 

And, I think those are the two main provisions. We could talk 

about the Public Utilities Holding Company Act. I would have no 

problems with that being suspended or rescinded. I think that we 

are likely to hear some arguments in opposition. They have to do 

with deregulation as being a problem. And I am prepared, although 

I won’t go into it now, but upon questioning, I would be prepared 

to take issue with that. I don’t think deregulation has much, if anything, to do with what is going on. 

I think with that, I know you want to move on and I know you 

want to hear what others have to say with respect to the questions 

that were raised here, so I will conclude with that. 

Senator VOINOVICH. Thank you. Those comments were wonderful. 

Mr. SCHRIBER. Thank you. 

Senator VOINOVICH. Mr. Glazer. 

TESTIMONY OF CRAIG A. GLAZER,1 VICE PRESIDENT, PJM 

INTERCONNECTION, L.L.C. 

Mr. GLAZER. Thank you, Mr. Chairman. It is always tough to, 

first off, follow your successor. As bad as August 14 was for me 

that night, I actually felt good that after 10 years, I said, somebody 

else is in charge of the PUCO, not me for a change. So I am glad 

I didn’t have his job that night. 

I also, Mr. Chairman, I have to tell you, I sleep better at night 

knowing that we have a member of the U.S. Senate that actually 

ran an electric system, and not only ran an electric system, but ran 

it and made it competitive and made the model of competition 

work. I mean, competition worked in the City of Cleveland. It 

brought savings to the residential customers and it was used by 

you as an economic development tool. 

I think those lessons are really important, so I just wanted to say 

thank you for your leadership over the years. It is important that 

we have somebody in the Senate that actually had hands-on experiVerDate 0ct 09 2002 08:17 Mar 29, 2004 Jkt 090232 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 C:\DOCS\90232.TXT SAFFAIRS PsN: PHOGAN
23

ence, and I think that means a lot as we move forward with this 

and I appreciate your involvement in this energy bill because it is 

so important to a State like Ohio. 

Let me cut quickly to the chase. I remember one day back in 

1996 in the dusty halls of the Ohio legislature talking with the 

then-chairman of the State Committee, Senator Richard Finan, 

about this electric restructuring. I remember discussing with him 

electric restructuring and saying, ‘‘If this is about instant gratification, forget it. It is not going to happen. If it is about cutting 

rates, you don’t need to restructure the industry. I have got enough 

authority at the PUCO to do that right now. If it is about command 

and control from the government and telling people what to build, 

we have the authority to do that.’’

But if we needed to attract investment, when investment is critical to this industry, we need, and I firmly believe we still need, 

to reform and continue to reform the structure of this industry. The 

electric industry is the most capital intensive industry other than 

the military, other than the military, the most capital intensive industry in the world. And right now, we are teetering in a very dangerous place. 

And you asked about the provisions of the energy bill. There are 

good provisions, but there is some language floating around that 

we think would actually might set this industry back if we are not 

careful. I think we are in kind of a difficult place and the investors 

are watching the fact that we are in a difficult place. Let me come 

to that just in a minute. 

I know Dr. Cooper, who I know very well and respect, is on this 

panel and he is going to say restructuring doesn’t work. We should 

just go back to the old way. Well, as I said, Mr. Chairman, at the 

beginning, you ran a competitive electric system. You did make it 

work. By the same token, in PJM, we have actually been able to 

make the system work on the wholesale level. We have seen greater efficiency in generation. People are better maintaining their 

equipment than they did under the old regulated system. We have 

been able to attract new investment. We have been able to keep 

prices stable. 

And what is important for Ohio, in particular, but also for Michigan in this, we have been working with our counterparts in the 

Midwest ISO on a joint operating agreement and reliability plan. 

I am not here to say that would have been the total panacea, but 

it addressed a number of things that went afoul the day of August 

14. Had that been in effect, I think we would have certainly reduced the number of people involved. We would have had clearer 

rules in place. 

I think it is important as First Energy moves into the Midwest 

ISO, which it has chosen to do, as AEP moves into PJM, as it has 

chosen to do, that we have that agreement in place. I hope we can 

move forward with the Federal Energy Regulatory Commission, the 

NERC, the National Electric Reliability Council. It will help Ohio 

and it will provide a new level of reliability in the Midwest. To the 

credit of Midwest ISO, we have been working together on that, 

really had signed that, had that in place, at least conceptually, and 

we are going through the stakeholder review process. 

24

1The prepared statement of Mr. Torgerson appears in the Appendix on page 111. 

You had correctly asked, what can Congress do? The first thing 

I would say is do no harm. There are provisions floating around, 

because this country is very split on the very issues you are talking 

about, do we mandate RTOs? Commissioner Kerr will say, my region doesn’t need RTOs, and I respect him for saying that. But we 

run into the law of unintended consequences. There is language 

floating around in the Senate Committee draft that would really tie 

FERC at the knees, would ban its efforts on—delay its efforts on 

standard market design. 

Mr. Chairman, I would rather almost kill something than delay 

something. Delay, frankly, is an easy cop-out, but delay is really 

the death knell to investment and I am very worried about that. 

Also, we heard a lot about investing. You mentioned in your 

opening statement, invest in transmission. We should do that, but 

let us do it wisely. 

One of the things which we do at PJM, one of the things which, 

frankly, we did at the PUCO and Dr. Schriber continues to do is 

regional planning. We ought to not just throw money at transmission. We ought to integrate it with regional planning. Back at 

the time, we had a big issue, you may recall, about scrubbers. 

Senator VOINOVICH. Mr. Glazer, do you want to wrap it up? 

Mr. GLAZER. Let me wrap it up by saying, at the end of the day, 

we need to pause and study what has happened, but we do need 

to move forward. We need to respect and go at different paces for 

different regions. But let us not cut the Federal Energy Regulatory 

Commission at the knees. Let us give it the continued ability to get 

the job done, and that is in play right now in the energy bill. 

Senator VOINOVICH. Both you and Mr. Schriber feel that the legislation, the electricity title, gets the job done, but you are worried 

about some stuff floating around that would delay it? 

Mr. GLAZER. Yes. 

Senator VOINOVICH. That is what you are—the language is OK, 

but you are worried about what is going on inside the Committee? 

Mr. GLAZER. Yes, exactly. 

Senator VOINOVICH. OK. I have got it. Mr. Torgerson. 

TESTIMONY OF JAMES P. TORGERSON,1 PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, MIDWEST INDEPENDENT 

TRANSMISSION SYSTEM OPERATOR, INC 

Mr. TORGERSON. Good morning, Mr. Chairman. Thank you for inviting me to this hearing. I am Jim Torgerson, President and CEO 

of the Midwest ISO. I want to provide some insights today on what 

I saw concerning the circumstance surrounding the power outages 

of August 14 and offer suggestions as to what might be done in the 

future. 

The Midwest ISO was formed in 1998. It is the Nation’s first voluntary regional transmission organization that did not originate 

from a legislative mandate or against the backdrop of a tight power 

pool. The Midwest ISO is also the first entity found by the Federal 

Energy Regulatory Commission to be a regional transmission organization. 

25

The Midwest ISO’s region covers portions of 15 States and the 

province of Manitoba, and our current role is that of a NERC-certified reliability coordinator. As a reliability coordinator, the Midwest ISO monitors flows on key transmission facilities, develops 

day-ahead plans, conducts next-hour analyses regarding the highvoltage grid, and communicates with the control areas in our regions who have the primary control capabilities to open and close 

transmission circuits and to redispatch generation. 

Three of the more than 30 companies within our reliability territory suffered outages in the blackout, Consumers Power Company, 

Detroit Edison, and First Energy. The cause of the blackout and 

why it cascaded will be forthcoming from the work being done by 

the international task force formed by President Bush and Prime 

Minister Chretien of Canada. The Midwest ISO only has a part of 

the data needed to reconstruct those events, and in addition to appearing at today’s hearing, the Midwest ISO is cooperating with 

the international task force and the General Accounting Office in 

determining what occurred on August 14. 

Likewise, the reason for the cascading effect of the outage is unknown at this time. The analysis that has been done to date in the 

Midwest seems to indicate there were a number of events in the 

Eastern Interconnection on August 14. Some are surely related to 

separations and the substantial losses of load that occurred and 

others are likely unrelated. 

At approximately 4:10 Eastern Daylight Time, portions of the 

Eastern Interconnection were separating from one another——

Senator VOINOVICH. Mr. Torgerson, I know that and I appreciate 

it. 

Mr. TORGERSON. OK. 

Senator VOINOVICH. I would really like you to—you have the 

Midwest. You have seen the language in that energy electric title. 

Do you like it or don’t like it? Do you think they are stepping on 

your toes? Do you think that utilities should be able to be mandated join? That is what I am interested in. 

Mr. TORGERSON. Yes, Mr. Chairman. We find that we need 

strong reliability standards, and they should be mandatory. We are 

comfortable with the language in the energy bill. I think it does 

provide what we need for us to go forward. I think the energy bill, 

overall, will be satisfactory. I agree with my colleagues here about 

the energy bill as it stands. 

The other thing I wanted to point out is the Midwest ISO has 

formed an organization, the Organization of MISO States. The Organization is composed of all the State commissions within the 

Midwest ISO that have gotten together to work cooperatively with 

the Federal Government on siting of transmission facilities. We believe that approach holds great promise in allowing the siting of 

needed transmission facilities and protecting the regional efforts to 

address issues associated with the wholesale electric market. 

Senator VOINOVICH. So in terms of the siting of transmission 

lines, you would be involved in doing that, in other words, setting 

priorities as to where the transmission lines might be, looking at 

your grid and how it all works out? 

Mr. TORGERSON. In our overall approach, we provide a long-term 

transmission expansion plan that covers the entire footprint. We 

26

1The prepared statement of Mr. Museler appears in the Appendix on page 118. 

just had it approved by our board. We work with all the State commissions in getting this built up. Then we do a review of it to make 

certain that what is in the plan will relieve congestion. It is not 

overstepping things, it is making sure there are no duplicative investments, and it looks at how we are solving problems in the Midwest. That is then worked with all the States and the State commissions and then ultimately approved by our board, and our board 

approved $1.8 billion in investments that needed to be made for reliability in the Midwest over the next 5 years. So those are the 

things we have been focused on. 

Senator VOINOVICH. Do you think that the provisions of the electricity title in terms of siting, dealing with the NIMBY problem 

and the NEPA problem, are taken care of, or do you still think 

more is needed. I mean, one of the problems is, how do you pay 

for it, and two, how can you get it done, and do you think that the 

language is adequate enough so that if you decide these transmission links have to be sited, that it can be done? 

Mr. TORGERSON. We think it is adequate. I think the approach 

we are taking with the Organization of Midwest ISO States is they 

are looking at it regionally, but they are also breaking it down. If 

a project is going to affect two or three States, those two or three 

States will then work with us on getting the siting done, and that 

is the game plan behind it. So we think it can be effective. 

Senator VOINOVICH. Thank you. I want to make clear also to you, 

and I again apologize to you, because of this vote schedule, your 

full testimony will be entered into the record. 

Mr. TORGERSON. Thank you, sir. 

Senator VOINOVICH. Mr. Museler. 

TESTIMONY OF WILLIAM J. MUSELER,1 PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, NEW YORK INDEPENDENT SYSTEM OPERATOR 

Mr. MUSELER. Thank you, Mr. Chairman. I will skip most of my 

prepared remarks and go to the subjects that you wanted us to concentrate on here. 

Just a brief background. The New York ISO began operation in 

1999. We are responsible for operating the grid, assuring open access, and operating New York’s electricity markets. 

With respect to the policy——

Senator VOINOVICH. May I ask you something? Are you part of 

PJM? 

Mr. MUSELER. No, sir. 

Senator VOINOVICH. You are a separate operation? OK. I have 

got it. 

Mr. MUSELER. That is correct. The Northeast consists of—and we 

all operate approximately the same way. PJM, which is the largest 

RTO. There are three ISOs, New York, New England, and Ontario. 

So when we talk about the Northeast, we typically talk about those 

four ISOs and RTOs which all operate more or less the same way 

and the markets are—at least the New York, PJM and New England markets are very similar to one another. 

27

With respect to the policy recommendations, it is certainly strikingly clear that we need mandatory reliability rules. Our view is 

that NERC should be the standard setting authority under FERC 

jurisdiction. 

You asked, however, whether or not there were—whether or not 

provisions in the pending legislation are adequate. As you know 

better than I do, there are differences between the House and Senate versions. For example, with respect to reliability, one of them 

allows for a region or a sub-region to have more stringent reliability rules if they so desire. We think that is critical. New York 

City currently has more stringent reliability rules than the NERC 

rules and we think that if the areas, the States, and the operating 

authorities believe that more stringent rules are required in certain 

areas, that we should be permitted to do that. 

It would not, in my view, be acceptable to have an area like New 

York City be held to the floor of reliability when the importance of 

maintaining power in New York City has effects nationally and 

even internationally. So we certainly think the legislation deals 

with mandatory reliability rules very well, but there is a difference 

between the bills and we think that needs to be taken into consideration. 

With respect to siting, again, I think the legislation is very good 

in that regard. But with respect to backstop authority for siting of 

transmission lines, there is a difference. So it depends on what the 

Conference Committee comes up with there. The States have the 

primary responsibility for siting transmission lines. I don’t think 

anybody disagrees with that and State compacts, State agreements—and PJM is a good example of that in terms of the agreements they have with their States to move on their transmission 

plans and actually build things—is a good example of that. 

However, should the States fail, there, in our judgment, needs to 

be some backstop to ensure that the public interest is taken into 

consideration. 

Senator VOINOVICH. Mr. Museler, I am going to have to excuse 

myself because I have got 2 minutes left on the vote, but the point 

you are making is that if the States don’t do the siting and the 

siting is needed then the backstop should be, what, FERC? 

Mr. MUSELER. Yes, sir. 

Senator VOINOVICH. FERC should be able to say, these lines have 

to be sited. We are looking at the big picture. It has to be done. 

Mr. MUSELER. Well, they should have the authority to make that 

judgment. 

Senator VOINOVICH. To make the judgment. 

Mr. MUSELER. They may affirm the States. 

Senator VOINOVICH. OK. I think I will try and be back in about 

10 minutes and we will finish up, and then maybe give you all an 

opportunity to share some more with me. Thank you. 

[Recess.] 

Senator VOINOVICH. The Committee will come to order. 

Mr. Museler, you had some time left. Do you want to make any 

last one or two comments? 

Mr. MUSELER. I would just make one additional point, Mr. Chairman, and that is with respect to the cost recovery, transmission 

cost recovery provisions in the legislation. It does provide FERC 

28

1The prepared statement of Mr. Kerr appears in the Appendix on page 127. 

authority for certain cost recovery measures. I would note that I 

would not suggest anything additional except that even with that 

authority in States and jurisdictions that have bundled transmission rates and rate caps, the fact that FERC can set a higher 

transmission rate does not translate into the actual entities—in all 

cases, it does not translate into the entities actually being able to 

get that as an incremental amount of revenue recovery. 

So FERC needs the authority, in my judgment, to be able to ensure that its incentive rate of returns or its regular cost-base rate 

of returns actually are able to flow through to the transmission 

builder-owner within a reasonable amount of time. If there is a 5- 

or 10-year rate cap that prevents that—that will chill investment 

if investors know they can’t even begin to recover for 5 or 10 years. 

That is all I would like to add, sir. 

Senator VOINOVICH. Thank you. 

Senator VOINOVICH. Mr. Kerr. 

TESTIMONY OF JAMES Y. KERR, II,1 COMMISSIONER, NORTH 

CAROLINA UTILITIES COMMISSION 

Mr. KERR. Thank you, Mr. Chairman. My name, again, is Jim 

Kerr. I am with the North Carolina Utilities Commission, and to 

my knowledge, I am the first State official from outside the directly 

affected region and I appreciate your Committee, Subcommittee’s 

interest in hearing to some extent from those of us beyond the directly affected area. 

I have filed written testimony which is part of the record, and 

given the time constraints will also dispense with my prepared 

statement this morning. What we have tried to do in our testimony 

is to describe that we have a very different electric industry structure in the Southeastern United States that is dependent on 

vertically integrated utilities and a cost-based State regulatory system. 

With respect to reliability, I have also illustrated how that electric industry system on a regional level is coordinated through the 

Southeastern Reliability Council and sub-regions within the Southeast and how we deal directly with accountability, planning, coordination, and operational control. 

With respect to the broader issues that are being discussed as 

possible reactions to August 14, in my testimony, I express the significant concern that regulators in my region have had with mandatory RTOs and standard market design initiatives at the FERC 

and then try to comment briefly on the discrete issues in the bill 

which we think, or which I think, as a personal opinion, are pretty 

good ideas. 

You have asked this morning for our thoughts on the specific language that is before the Congress in the Conference Committee, 

and for the sake of time, I will run through very quickly that it is 

my opinion that the Federal enforcement authority over reliability 

standards is certainly an appropriate step that this Congress could 

take. I believe that appropriate backstop siting authority, similarly, 

is an appropriate step that this Congress could take. 

29

I want to point out here that on that point, I differ with the position of the National Association of Regulatory Utility Commissioners. They are opposed, and I feel obligated to point that out. 

It is my personal opinion, however, that the language on this issue 

in the bill is, in fact, appropriate. 

I think that appropriate incentives for transmission investment 

at the Federal level, as they are contemplated in the bill, seem to 

be appropriate. I am concerned that in January of this year, the 

FERC issued an incentive rate provision that seemed to me to 

apply incentives to the moving around of existing transmission as 

opposed to applying simply to new investment. I think if you apply 

incentive rates to rearranging the control or ownership of existing 

transmission as a way to incent folks to join regional transmission 

organizations, you are creating no new transmission and, in fact, 

are creating additional costs that will ultimately be borne by the 

ratepayers. 

Finally, with respect to what role the FERC should have with respect to regional markets and RTOs, I think it is imperative that 

Congress not allow FERC to move forward with mandatory RTOs. 

I believe that the administration said this morning they were in 

favor of voluntary RTOs and we believe that should be codified in 

the energy bill. Market design concepts, market oversight, we believe all of that should be—the various regions of the country 

should go forward in a voluntary nature so that they can craft 

those types of solutions to the industry structure that may exist, 

whether it be in the Midwest, the Northeast, or in our area. 

When you ask, am I supportive of the energy bill itself, with the 

more discrete provisions on siting, reliability standards, investment 

incentives, that language, as I understand it in the two versions of 

the bill, seems fine to me. 

With respect to standard market design, I am not quite sure 

what the Senate version is right now. I will tell you that the provision in the Senate, the Domenici substitute, appears to me to be 

appropriate. 

I want to just take a very brief time to respond to some of the 

concerns raised by the representatives of PJM as well as my colleague, Dr. Schriber, as to whether or not that language—I think 

that is the language that they were saying would somehow cut 

FERC off at the knees. As I read Section 1122 of the Domenici substitute, it speaks to no final rule of general applicability within the 

scope of the proposed SNB rulemaking could go into effect until a 

certain period of time. 

I believe this, and I believe it would be—I read that to mean that 

if in PJM or if in MISO, that organization, the stakeholders in that 

organization and the Federal regulators can reach agreement on 

market design, FERC can certainly approve such a proposal. So I 

don’t believe that language was intended or, in fact, does constrict 

the ability of my colleagues from other regions of the country to 

move forward. That is not my intention, and to the extent it might 

do that, I think that we—and we, in fact, have offered our colleagues from the Northeast and the Midwest to help craft better 

language, if you will. 

So if that was the piece that was referred to as handcuffing 

FERC’s ability to move forward, as I read the actual language, and 

30

1The prepared statement of Mr. Cooper appears in the Appendix on page 187. 

this is the only language I have seen, I don’t believe it does that. 

I believe it says a rule of general applicability, which I would think 

would mean a notice of proposed rulemaking that would be applicable across the country. 

So with that, my time is up and I thank you for the opportunity. 

Senator VOINOVICH. Thank you, Mr. Kerr. Thank you for your 

perspective. Dr. Cooper. 

TESTIMONY OF MARK N. COOPER,1 DIRECTOR OF RESEARCH, 

CONSUMER FEDERATION OF AMERICA 

Mr. COOPER. Thank you, Mr. Chairman. You have asked us to 

get to the point and I have got that reputation. [Laughter.] 

In my opinion, the deregulation provisions of the legislation go 

too far and the reliability provisions do not go far enough. Let me 

first lay out the conditions why and then I will go to the specifics. 

Electricity is unique. It is not just a commodity, and we must 

never forget that. It has no substitutes. It is not storable. It is essential to public health and safety, to daily activities. It is delivered 

under incredibly demanding conditions that are extremely capital 

intensive. 

And deregulation and restructuring have increased the stress on 

the grid—so you have to recognize that—by causing a dramatic increase in the number and complexity of transactions for which this 

system was never built. It creates difficulties in coordination and 

planning as competition and contracts replace centralized decision 

making. 

PJM was a tight power pool for 50 years or so before it became 

an RTO. The RTO had nothing to do with its ability to control its 

area. 

Deregulation certainly short-circuited utility incentives to invest 

in transmission because the private interests of facility owners 

come into conflict with the shared public nature of the transmission system. It is a highway, not a market, and especially when 

you are asking them to make investments that they—for a system 

they share with their competitors. It is very difficult. 

And moreover, deregulation undermines the ability to account for 

social and environmental questions and constraints. The social cost 

of transmission is much higher than its mere economic cost. The 

fundamental problem with transmission is not inadequate incentives to invest. Utilities were willing to do so before deregulation. 

The problem is public resistance to building additional transmission facilities for environmental, health, and safety reasons. 

For these social reasons, scarcity of transmission in an economic 

sense is likely to be a permanent part of this industry’s landscape. 

That is what our people tell us. 

The benefits of the shared transmission facilities are difficult to 

allocate. This is a network that is shared. The problem is geographic and intergenerational. Today’s investments deserve a longterm, long-distance transaction, maybe tomorrow’s core for serving 

native load. 

Now, I understand the pressure to do something in the wake of 

the blackout, but when it comes to electricity, doing just anything 

31

will not help. You have to do the right thing or you will make matters worse. 

Right now, you do not need to repeal the Public Utility Holding 

Company Act to improve the reliability of the system. I don’t need 

utilities going into non-utility businesses and creative massive 

multi-state holding companies that escape regulation in order to 

improve reliability. We do not need to impose the standard market 

design. And the regional transmission organizations that are embodied in it are the wrong ones to create. They are dominated by 

industry, they preempt local accountability, and they have forced 

utilities into markets for allocating transmission resources with no 

assurances that the capacity is adequate today, additional capacity 

will be built or maintained. 

We must not rely on industry self-regulation. The proposal to 

move from voluntary self-regulation to mandatory self-regulation 

misses the point. The difficulty is not the voluntary versus the 

mandatory. It is the ‘‘self’’ part. We need clear accountability to 

public authorities. 

Do not create private transmission monopolies. Transmission is 

a natural monopoly, part of a shared network. Transferring control 

to unregulated companies will simply allow them to increase their 

profit and exploit their market power. 

So that is what you shouldn’t do. What should you do? I personally believe we need transmission organizations, but they have to 

be organized on a very different model than has been contemplated 

and proposed. Any transmission organization must be based on 

fairness and public accountability. Fairness requires a process for 

representation of all interests affected by transmission projects. 

The way to overcome social resistance to transmission projects is 

to give people a fair chance to present their case, defend their interest. That is what federalism is all about. It is an ugly, tough 

process, but it works because it empowers the people. 

Accountability demands that the local officials who get the phone 

calls when the lights go out are the people who are making the decisions, who have the ultimate authority. They didn’t call the 

FERC when the lights went out in Ohio. They called the Ohio 

PUC. The Ohio PUC must have a fair representation in this process. 

Accountability also requires transparency. We cannot have this 

conflict between the FERC and the DOE and the private companies 

and the NERC over who has got the data and who is responsible 

for the analysis. 

Finally, even if economic incentives were a problem, and I don’t 

think they are, the solution is not to increase the rate of return but 

to lower the risk, and that is what the utility model used to do. It 

established a long-term commitment. It established a stable environment. And frankly, all of the people who say we can’t raise 

money in the industry are living in the dot-com 1990’s, not the 

post-bust market. Give me a stock that offers a stable dividend, a 

slow and long-term growth rate, the widow and orphan stocks that 

the utilities used to be. They will have no trouble raising capital. 

But it is public policy that must create that environment that will 

promote the investment. Thank you. 

32

Senator VOINOVICH. Thank you. You have all had a chance to 

hear each other today. One of the things I like to do is to give witnesses an opportunity to comment on what other folks have had to 

say at the table. If there are any volunteers—Mr. Glazer. 

Mr. GLAZER. Thank you, Mr. Chairman. You correctly focused in 

on the Senate, the legislation, and I think that is clearly the issue. 

Commissioner Kerr mentioned that there are provisions in the legislation, or being talked about—they are not actually in the legislation—to delay FERC’s standard market design initiative. The Commissioner is right. I mean, you can read the language lots of different ways——

Senator VOINOVICH. Standard market——

Mr. GLAZER [continuing]. Design——

Senator VOINOVICH [continuing]. Basically is the overall plan 

that looks at the entire transmission grid, looks it over and comes 

back with recommendations on how it can be improved and then 

tries to determine how individual companies, RTOs, States get——

Mr. GLAZER. It is a plan to actually sort of set forth some standards around the country. One of the big issues was we have seams 

around the country, and Ohio is a good place, a good example of 

that. And the idea behind what FERC was trying to do was saying, 

well, let us have some basic rules of the road. Let the markets look 

like this. This commodity doesn’t respect State lines. Let us have 

some basic rules with regard to markets, with regard to planning, 

reliability, etc. So it was a broad brush approach. 

Some may argue it was too much, too little. Personally, I am very 

concerned about a provision that would come down that would just 

delay things, because as I mentioned, delay is the kiss of death on 

Wall Street. 

Senator VOINOVICH. I think some people were saying delay 3 

years or something like that, and my personal feeling is that we 

have waited too long. 

Mr. GLAZER. Exactly. 

Senator VOINOVICH. We are so long overdue on this that it is not 

time for us to delay and look and try to figure out where we are 

going. What people don’t understand is that this is a capital-intensive industry and people are not going to invest in something if 

there is uncertainty about what the future looks like. They are just 

not going to invest. It is the same thing with nuclear energy. One 

of the problems in terms of building new nuclear energy plants is 

what to do with the waste? That is why Yucca Mountain is very 

important. We finally decided we are going to go forward with this. 

So you are going to probably see some new nuclear plants in this 

country because investors know that that issue is taken care of 

long term. 

Mr. GLAZER. And that is the problem with delay. I would rather, 

if the Federal Energy Commission comes out with something that 

the Congress of the United States thinks is inappropriate, you have 

the tools to change it. When I was on the PUCO, if the legislature 

didn’t like something PUCO did or you didn’t like something PUCO 

did or the Supreme Court, there were lots of checks and balances. 

But delay is just the kiss of death to investment. I would rather 

let the FERC move forward. If the Congress doesn’t like this proviVerDate 0ct 09 2002 08:17 Mar 29, 2004 Jkt 090232 PO 00000 Frm 00038 Fmt 6633 Sfmt 6601 C:\DOCS\90232.TXT SAFFAIRS PsN: PHOGAN
33

sion or that provision, it certainly can weigh in. But delay is the 

kiss of death for the reasons you stated. 

Senator VOINOVICH. Mr. Schriber. 

Mr. SCHRIBER. Mr. Chairman, just to underscore what Craig has 

told you, the one thing that Dr. Cooper said, and maybe the only 

thing that I really agreed with, is that Ohio should have a voice 

in the outcome of all this and you are our voice. As Craig has suggested, and I wholeheartedly agree, delay is not the way to go. If 

there are any provisions that would handcuff the FERC from moving forward, I think it would be very unfortunate. 

Senator VOINOVICH. Any further comments? 

Mr. COOPER. Mr. Voinovich, I am not sure you want to be responsible when the lights go out and have them call you. Let us be 

clear. The Chairman of the IO Commission hears about it. The fundamental question here on the SMD was not a question of—there 

is very little in the SMD that had to do with reliability. The SMD 

sort of punted on that question. What the SMD has is an economic 

model for transacting transmission rights and electrons, right, and 

if the FERC hadn’t bothered with the transmission rights, it might 

have gotten away with its wholesale markets. 

But this was a model that two-thirds of the country—let us be 

clear. You have got Ohio. You have got New York. They have been 

here. But two-thirds of the States have not chosen their deregulatory model, and in our view, the SMD was coercing the other 

States in the country through its market design requirements to 

pursue this path. 

So you need to decouple the deregulation issues from the reliability and the transmission issues. If you do that, you will have 

a lot more support for expanding and devoting more attention to 

the national highway system for electrons. 

Senator VOINOVICH. What you are basically saying is that there 

are some people that haven’t yet decided what they want to do and 

they shouldn’t be forced in it. Your opinion is that the standard 

Market Design would force them into it. Does anyone want to comment on that? Mr. Kerr. 

Mr. KERR. It would absolutely, Mr. Chairman, as Chairman 

Wood said today, that in this rule, they have moved beyond Order 

2000 and said that you would mandatorily be required to join a regional transmission organization as part of the SMD. And again, 

I think we need to parse words here. Being a lawyer in my former 

life, I am guilty of that. Delay, I think a lot of mistakes are avoided 

by taking your time. So, I mean, we can comment generally about 

whether delay is good or bad. 

But as I read the language that came in Senator Domenici’s substitute, it says only that FERC shall not issue a rule with general 

applicability related to the standard market design. What I have 

not heard, people have said, well, this could delay what we want 

to do in Ohio. I don’t see how that is possible, because that would 

not be a rule of general applicability if it were confined to a particular RTO or ISO. 

If that is true, I think that language could be very carefully improved upon. You could put a ‘‘however’’ clause afterwards. You 

could say, however, nothing in this section is intended to stop Mr. 

Torgerson or Mr. Glazer or Dr. Schriber from moving forward in coVerDate 0ct 09 2002 08:17 Mar 29, 2004 Jkt 090232 PO 00000 Frm 00039 Fmt 6633 Sfmt 6601 C:\DOCS\90232.TXT SAFFAIRS PsN: PHOGAN
34

operation with the Federal regulators to adopt the market rules 

that they want to apply within their region. 

So again, when I look at the language, I do not see the basis for 

this agreement, ‘‘don’t handcuff FERC.’’ In contrast, I know that if 

FERC goes forward with this rule, its position will be that the entire Southeast and the West and other regions of the country that 

are in different structures, that have very serious—who have studied these proposals and have continued to have very serious concerns about whether this is correct for us would, in fact, be forced 

to go forward. 

So I don’t think it is that our region wants to stop Dr. Schriber’s 

region. We certainly don’t. In fact, we would help in any way we 

could. But I think the question ought to be asked, should your 

State, should Ohio force upon us what it needs to solve its problems. I think clearly it should not be, and this language allows that 

because it says you can’t put a national plan out, but it doesn’t prohibit you from going forward and working maybe with instead of 

a hammer, a surgical scalpel to work on the various regions to improve upon the systems. 

They are doing a lot of good things in the Midwest. They are 

doing a lot of good things in the Northeast. And what we ought to 

do is take what is good and improve upon it in every region of the 

country, but certainly not go backwards in our regions of the country. So with that, I——

Senator VOINOVICH. I would like to get one more comment in regard to what Mr. Kerr said, and I think that what I am going to 

do is wrap it up with one last comment on what you made reference to, Mr. Kerr, and then we are going to adjourn the hearing. 

Mr. Museler. 

Mr. MUSELER. Thank you, Mr. Chairman. Just a few comments 

on that. The first is that there is some regionality from the standpoint of market design. I think that is factored into the SMD rules 

that FERC wants to promulgate. 

Senator VOINOVICH. So you don’t think the SMD rules are going 

to force people, as Mr. Kerr has suggested—or, no, Mr. Kerr. You 

believe the language is broad enough so that it doesn’t force you 

into——

Mr. KERR. The language in the SMD would, in fact, make our 

participation in an RTO mandatory. The language—the point I was 

making is that the language in Senator Domenici’s substitute 

would allow all the regions to proceed as they chose to. So two different documents. 

Mr. MUSELER. The point I would like to make is that the standard in standard market design matters. The design of the markets 

matter. California is an example of what happens when you don’t 

get it right. I am not saying they all need to be the same, but they 

do need to be consistent and they do need to make economic sense, 

because whatever the region is, whatever regions choose to say 

they are the region, there are seams, as Mr. Glazer pointed out, 

and there needs to be consistency in those rules, both for reliability 

and for market operation. You cannot have too much diversity in 

those market rules or you will not have interstate commerce occurring the way it should. 

Senator VOINOVICH. Any other comments before I run? 

35

Mr. GLAZER. Just a quick one. I think FERC, we should give 

them some credit. They really did back down from sort of the more 

mandatory parts of their standard market design. The rule as it 

presently is being proposed has that regional flexibility. So I think 

that they have tried to make the balance between what Mr. 

Museler said and what Commissioner Kerr would say, so I——

Senator VOINOVICH. Is there anything that FERC can or should 

do with market design that has enough flexibility to work for all 

of you? 

Mr. GLAZER. I think the white paper that—they just issued what 

is called a white paper. I think it provides that flexibility in there. 

They really did hear the message from the Congress. So I think 

that flexibility is in there. There is this issue about whether you 

mandate RTOs or not. 

The problem there isn’t, what if one region, what happens. What 

happens if one utility doesn’t want to play but all the utilities 

around it want to play? Then you have got a problem. You have 

got an electrical problem again. 

Senator VOINOVICH. There has got to be some provision that says 

if that kind of thing happens, that somebody is going to step in and 

make it happen. 

Mr. GLAZER. Somebody has got to, right. 

Senator VOINOVICH. Absolutely. And I think the other thing that 

you need to look at is that we are today, tomorrow, 5 years from 

now, 10 years from now, and God only knows just how this thing 

is all going to work out, but more and more, we have electricity 

moving around and I am sure somebody smarter than I am can get 

into what happened in California. But it really appeared to me that 

somebody was not doing what they were supposed to be doing in 

terms of developing a grid so that that situation would not have 

occurred. 

Mr. COOPER. Mr. Chairman, let me offer one point about the 

seams question, and that gets to the fundamental proposition 

that—the desire to have a Federal backstop. You have heard it said 

that the States don’t do their job. I want you to do more than that, 

and here is what I want you to do. I want a formal process, and 

the Congress ought to take the responsibility for establishing a formal process of State compacts or some other mechanism so that it 

is not simply a question of whether one State disagreed or not, but 

a process has to be set up by which the States can sit together and 

reconcile their differences. 

If you look at what has happened in the Midwest, people have 

jumped in and out. The industry members have jumped in and out. 

I think the State officials, if they were sitting together with the authority to make that decision, would have done a much better job 

than the industry has jumping in and out. 

So it is a governmental responsibility to make interstate commerce flow effectively, and that is not in anything before the Congress. 

Senator VOINOVICH. This has been an interesting panel. I apologize for the interruptions that we have had. Thank you very much. 

Again, thank you for your attention and your courtesy in being 

here, and this hearing is adjourned. 

[Whereupon, at 11:32 a.m., the Committee was adjourned.] 

(37)

KEEPING THE LIGHTS ON: THE FEDERAL 

ROLE IN MANAGING THE NATION’S ELECTRICITY 

THURSDAY, NOVEMBER 20, 2003

U.S. SENATE, 

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL

WORKFORCE, AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE,

OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:07 a.m., in 

room SD–342 Dirksen Senate Office Building, Hon. George V. 

Voinovich, Chairman of the Subcommittee, presiding. 

Present: Senators Voinovich, Carper, and Lautenberg. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. Good morning. As one who has hearing aids, 

I can understand your problem. 

First of all, I would like to say that I am glad that I am Chairman of the Subcommittee on the Oversight of Government Management, the Federal Workforce and the District of Columbia, because 

this hearing could probably be held in the Environment and Public 

Works Committee, of which I am also a member. But having the 

chairmanship of this Subcommittee gives me some authority to 

oversee different areas of government, and I thought it was very 

important that we deal with this subject before this Subcommittee 

on Oversight of Government Management for its significance in 

terms of the issue as to the public’s relying on electricity and also 

because it is an important issue in the State of Ohio, where a lot 

of this occurred. 

This is the second hearing that we have held on the blackout 

that hit the Midwest and the Northeast on August 14, and the 

proper Federal role on managing our electricity system. It is now 

well-documented that the August 14 blackout was the largest 

blackout in our Nation’s history. Over 50 million people lost power 

that day, including over 2 million people in Ohio. 

What has been lost in the shuffle here in Washington, however, 

is the impact that the event had on the economies of the Midwest 

and the Northeast. The Ohio Manufacturing Association estimates 

that this blackout directly cost Ohio manufacturers over $1 billion, 

a huge hit that could not have come at a worse time, given that 

millions of American manufacturing jobs are already at risk. 

It is absolutely imperative that we do all we can to prevent such 

events from happening in the future. As I mentioned at our first 

38

hearing on this topic, our Nation is currently served by an overburdened and heavily strained electricity system that was not designed for the widespread wholesale transactions that currently 

take up a large part of its capacity. 

Over the last several decades, our transmission capacity has 

lagged behind both generation and demand increases. We must 

take concrete steps now to strengthen our grid by establishing reliability standards that are mandatory and enforceable. We need 

new investment in transmission capacity, and we need to strengthen existing Regional Transmission Organizations so that we can effectively manage the grid to prevent future blackouts. 

A lot has happened since we held the first hearing back in September. First, the U.S.-Canada Power System Outage Task Force 

that was established to investigate the blackout has issued an interim report entitled, ‘‘Causes of the August 14 Blackout in the 

United States and Canada.’’ Second, a House-Senate conference 

has reported a comprehensive energy bill that contains electricity 

provisions which will significantly affect the management of our 

national electricity system. It is now pending business here in the 

U.S. Senate, and I am prayerful that it is not filibustered so that 

we cannot move forward and get it done before we go home. 

I want to commend the administration for its leadership on electricity transmission issues and the August 14 blackout. President 

Bush has moved quickly to create the U.S.-Canada Joint Task 

Force on the Power Outage, and I appreciate the fact that the Canadians have cooperated and strongly pushed for a more reliable 

electricity grid in order to prevent future blackouts. 

Secretary Abraham has overseen significant changes in the utility sector over the last 3 years—I had an opportunity to talk to him 

about that yesterday when I saw him—during which time there 

were two major blackouts. He issued an important study on the 

transmission grid and created a new Office of Electricity Transmission and Distribution at the Department of Energy. Simply put, 

the administration has made our national electricity system a national priority—as it should be. 

I would also like to comment on the electricity title in the conference report on H.R. 6. Following the August 14 blackout, I, along 

with several of my colleagues, called on the energy bill conferees 

to include provisions that would help prevent future blackouts in 

the conference report. I also asked the witnesses at our first hearing, which was on September 10; Mr. Wood, you were here for that; 

what they thought we needed to do legislatively in order to prevent 

future blackouts. Chairman Wood, you probably remember me asking you that question. The response from the witnesses, including 

Chairman Wood, was that the best legislative fix would be to enact 

electricity provisions in the comprehensive energy bill including 

mandatory reliability provisions, provisions to increase investment 

in the transmission grid, and provisions to grant Federal siting authority to FERC. 

The energy bill conferees obviously listened. The electricity title 

to the conference report will, when enacted, establish mandatory 

reliability standards that will be implemented and enforced by 

FERC. It will encourage new investment in the transmission grid. 

There is a lot of money in there to do that. It will grant Federal 

39

1The report entitled ‘‘Interim Report: Causes of the August 14 Blackout in the United States 

and Canada’’ appears in the Appendix on page 211. 

siting authority to FERC. And, although it delays implementation 

of the Standard Market Design rulemaking—we talked about that 

again at our last hearing—it will allow FERC to strengthen existing Regional Transmission Organizations in order to ensure that 

problems and mistakes—like the ones detailed in the interim report we are discussing today—are eliminated in the future. 

The House passed the conference report by a bipartisan vote of 

248 to 160 on Tuesday, and we will be voting on cloture tomorrow 

morning on this bill. The Senate needs to follow suit and send this 

critical legislation to the President as soon as possible—it is very 

important we this done. 

As I mentioned earlier, the purpose of today’s hearing is to discuss the interim report entitled, ‘‘Causes of the August 14 Blackout 

in the United States and Canada,’’ that was issued yesterday by 

the U.S.-Canada Power System Outage Task Force. Before we proceed, I would like to include the interim report in the record. Without objection, it is ordered.1

I understand that the administration is currently planning to accept public comments on this interim report and then publishing 

a final report early next year. I intend to hold a final hearing on 

this topic when the administration releases the final draft and 

makes its recommendations as to what further steps need to be 

taken to prevent such an occurrence from happening again, and I 

would be really interested if any of you witnesses want to comment 

about whether this conference report contains enough to get the job 

done? And if you do not believe that it does I would like to know 

what your ideas are on what other things we need to have in order 

to give you the tools to get the job done. 

We have got an impressive lineup of witnesses this morning to 

outline the preliminary findings of the task force. I look forward to 

an informative discussion. 

Our first witness today is the Hon. Pat Wood, the Chairman of 

the Federal Energy Regulatory Commission. And joining him on 

behalf of the administration is James Glotfelty, the Director of the 

Office of Electricity Transmission and Distribution at the Department of Energy, a new job, and Michehl Gent is the President and 

CEO of the North American Electric Reliability Council, and I 

think that the acronym is NERC. We are very happy to have all 

of you here today, and thank you for testifying. 

Gentlemen, it is the custom of this Subcommittee that we swear 

in our witnesses, and I wish that you would rise, and I would administer the oath to you. 

[Witnesses sworn.] 

Senator VOINOVICH. Let the record show that the witnesses answered in the affirmative. 

Mr. Wood, we will start with your testimony. 

40

1The prepared statement of Mr. Wood appears in the Appendix on page 193. 

TESTIMONY OF HON. PAT WOOD, III,1 CHAIRMAN, FEDERAL 

ENERGY REGULATORY COMMISSION 

Mr. WOOD. Good morning, Mr. Chairman. It is nice to be back. 

I appreciate the opportunity to discuss the very heavy report yesterday that was presented by Secretary Abraham and Minister 

Dhaliwal. 

Watching and studying the blackout for me, and I think for a 

number of us, has been a sobering experience. The reliability of the 

North American electric system is normally so excellent that this 

year’s notable service interruptions from the August 14 blackout 

here in the Northeast, blackouts overseas in London, Italy, Argentina, Scandinavia, and also and recently back here again from Hurricane Isabel and related weather damages have forced us all to 

look afresh at all of the old assumptions that we have about the 

value of reliable electric service and what it takes to keep the 

lights on. 

So here are some thoughts from an energy regulator about what 

I have learned from this blackout investigation, from the thorough 

investigation encompassed in the interim report, and from thinking 

about these other blackouts that we have seen in the past year. 

The blackouts in the Northeast, in Italy, and in London and elsewhere, have a common theme: Something routine happens, like a 

tree contacting a power line, or a minor relay setting trips because 

it was done wrong, and the time to react and keep the system stable suddenly shrinks beyond the capability of human control, when 

the machines take over. 

The grid is a tremendously complex machine, and the interconnectedness that allows us to benefit from both higher reliability 

and lower costs in all hours also causes the domino failures experienced in many countries in recent months. We cannot ever prevent 

blackouts, but we can and must learn to reduce their frequency, 

magnitude and impact. 

The best way to manage blackouts is to prevent them, not to 

hope for heroic rescues when we are already in a jam. And the secret to reliability lies in making sure that every transmission 

owner, control area operator, and reliability coordinators takes care 

of the basics: Adequate tree trimming, adequate training for emergency as well as routine operations, effective communications within and across organizations, and having effective backup facilities, 

procedures and tools. 

The investigation clearly shows that had First Energy trimmed 

its trees, used a solid state estimator program after the trip of the 

East Lake 5 Unit along the lake, and regularly throughout the 

afternoon of August 14, and trained its operators to better recognize and deal with these emergencies, the blackout would not have 

happened. The blackout study shows that the current reliability 

standards were violated by First Energy and the Midwest Independent System Operator. We need better compliance and tough, 

clear standards. 

The FERC will be working closely with NERC and the stakeholders to develop those standards and to implement the reliability 

provisions of the energy bill if Congress approves it. 

41

In anticipation of approval and because the timelines are so 

short, and the needs are so great, on December 1, the Commission 

has scheduled a conference to discuss the implementation of the reliability provisions in the statute, in order that we can have mandatory rules in place and operational by this summer. We do need 

some major investments in new transmission facilities and new 

grid technologies, especially those that make it easier for us to 

manage the basics of electricity. But we need to make these investments wisely, for lines and equipment that expand the reliability 

parameters of the grid where it is needed, for example, new sources 

of reactive power in the Cleveland-Akron area. These appear to be 

long overdue. 

Further analysis conducted by the blackout investigation teams 

will teach us much about how the cascade spread, why it stopped 

where it did, and those things will help us to design a system that, 

over the long-term, should perform more reliably and cascade more 

narrowly. The new energy bill offers options to site long-needed 

transmission lines and to pay for the reliability investments, and 

I am eager, as my colleagues are at the Commission, to put these 

measures into place. 

We also need to invest in hardware and software that let operators manage the grid more effectively. Tools that improve system 

monitoring, evaluation, visibility, and information sharing about 

the grid operations over a wide region will allow operators to manage the grid more reliably on a day-to-day basis as well as in emergencies. Our colleagues at the Department of Energy have done 

some excellent work in this area over the past few years, and we 

will be looking to these technologies and others to raise the bar for 

effective grid management. 

Transmission is regulated at both the Federal and the State 

level. Clearly, we need to regulate it better to assure that the reliability that Americans have come to expect is, in fact, delivered. As 

the present energy bill recognizes, the days of voluntary reliability 

standards with no enforcement teeth must end. Federal regulators 

must work closely with our State colleagues to make sure that utility cost-cutting that allows 14-inch diameter trees to grow in a 

transmission right-of-way or inadequate operator training or the 

widespread use of inadequate software ineffectively used must end. 

I pledge that my Commission will work closely with our colleagues in Ohio and other States to deliver better regulation for 

better reliability. I do note with that that my former panelist, Mr. 

Shriver, from the State of Ohio, announced yesterday some remedial measured that they have initiated with the utilities in Ohio already, with the governor’s support. 

Some claim that electric competition and higher energy flows 

caused underinvestment in an overworked grid and made this 

blackout inevitable. What they ignore is that the operators’ primary challenge is to work the system that you have and that the 

operator has the power to cut back any transaction, whether it is 

a long distance transaction or one to serve local load; to tighten the 

operational limits on any transmission line or power plant; and 

even to cut customer load if that is what it takes to keep the system safe and secure. Markets do not compromise reliability, but we 

42

must redouble our efforts to assure that all necessary reliability 

measures are taken. 

Perhaps the saddest portion of the blackout report is Chapter 6, 

the comparison of this outage to those that have happened since 

1965. The common factors are overwhelming: Conductor contact 

with trees due to inadequate vegetation management; insufficient 

reactive power; inability of system operators or coordinators to recognize and understand events across the broad, regional system; 

failure to ensure that system operation was within safe limits; lack 

of coordination on system protection; failure to identify emergency 

conditions; ineffective communication; lack of safety nets; and inadequate personnel training. 

The seven outages that the report reviewed from 1965 to 1999 

include all of these elements. Extensive analysis followed each outage, and blue ribbon panels were developed with good recommendations after each of these outages. Some of the recommendations 

that have followed these outages have been implemented but not 

many. It is my hope that with the adoption of the new reliability 

provisions in the energy bill, we can finally implement most if not 

every one of these recommendations and stop repeating the mistakes again and again. The cost of the mistakes is high for our Nation, for our sister nation to the north, and all of our citizens deserve better. 

The cost of blackouts is immense, both in human and financial 

costs. I have seen estimates every day that try to impact the cost 

not only to your home State, Senator, but to the entire Northeastern quadrant of the continent. New transmission facilities and 

tools are not cheap, and business practices are not cheap, either, 

but these improved business practices will need to be paid for; they 

will need to be part of the overall cost of electricity, and as an economic regulator, I am prepared to put those in the rates and justify 

that is in the public interest. 

But if you ask New Yorkers who were stuck in the Subway on 

August 14 or the Cleveland residents who had to boil their water 

for days or folks around Maryland and Virginia who sat without 

power for as long as a week after Hurricane Isabel, most would tell 

you that they would rather pay a little more for a reliable electric 

system than reduce their bills to avoid incremental, reliability and 

improving costs. 

So I do think it is important to recognize that there will be a cost 

to improve this system. I think that it is one that, as a Nation, we 

should pay, because the benefits far outweigh the costs. But again, 

as an economic regulator, I do think the findings here were very 

important and force us all to rethink the paradigm that we have 

been operating under. 

I look forward to your questions, Senator Voinovich and Senator 

Lautenberg. Thank you. 

Senator VOINOVICH. Thank you, Mr. Wood. Mr. Glotfelty. 

43

1The prepared statement of Mr. Glotfelty appears in the Appendix on page 196. 

TESTIMONY OF JAMES W. GLOTFELTY,1 DIRECTOR, OFFICE OF 

ELECTRIC TRANSMISSION AND DISTRIBUTION, U.S. DEPARTMENT OF ENERGY 

Mr. GLOTFELTY. Thank you, Mr. Chairman and Senator Lautenberg. 

I appreciate the opportunity to testify before you today and outline the findings of the U.S.-Canada Power System Outage Task 

Force investigating the blackout that occurred on August 14. 

Three months ago today, large sections of the United States and 

Canada were still recovering from one of the largest power blackouts in our Nation’s history. Since that blackout, hundreds, literally hundreds, of technical experts have worked tirelessly, long 

hours, sleepless nights, to help the U.S.-Canada Task Force determine how and why this blackout occurred. 

Yesterday, as you know, the task force released the interim report that marks our progress to date in the search for answers on 

what happened that day. The interim report focuses on events, actions, failures, and conditions that led to the blackout and caused 

it to cascade over such a large region as well as questions relating 

to the nuclear power plant operations in both countries and the security of our grid control systems. It presents facts collected by the 

investigation team, and it does not offer speculative or unconfirmed 

information or hypotheses. 

Without going through a line-by-line review of how the system 

failed, I would like to walk you through the causes that we outlined 

in the interim report. But before I do this, I would like to make 

it clear that it is the control area operator, in this case, First Energy, who had the primary responsibility to maintain system reliability, regardless of the conditions. They are required to have the 

tools to ensure that the grid is reliable. They must be able to take 

all actions necessary to ensure a reliable system. 

With that caveat in mind, I will walk you through the causes 

that we outlined in our report. The first type of cause: First Energy 

did not properly assess the changing conditions on their system. 

They did not use an effective contingency analysis tool routinely. 

They lost their monitoring alarm systems and lacked procedures to 

understand that. After they made repairs, they did not check to see 

if they were effectively working to monitor the system. And once 

both systems failed, they did not have effective backup tools to ensure that they really had a basic understanding of the system conditions before them. 

Second, First Energy failed to adequately maintain its transmission rights of way. This seems so very basic, yet, as Mr. Wood 

said most of the blackouts that have occurred in this country and 

overseas, some portion of that or some cause of that deals with inadequate vegetation management in our rights of way. Our report 

specifically stated: Overgrown trees in First Energy’s transmission 

rights of way caused the first three major 345 line failures in Ohio. 

These lines trip when contacting trees that had grown past their 

maximum allowable limits in their rights of way. 

Our investigators found that First Energy rights of way being 

clean are not a new problem. They found one tree over 42 feet tall 

44

in a right of way that they approximated the age was 14 years old. 

Another was 14 inches in diameter currently in the rights of way. 

These trees do not grow overnight. This means that there is a long, 

systemic issue that needs to be dealt with not only with First Energy, but it needs to be looked at by utilities all across the country 

on how we ensure our rights of way are maintained. 

It seems so very basic that we would maintain our rights of way. 

However, it does conflict reliability of our system grid with land 

owner rights, and that is something that the State commissions as 

well as FERC will have to deal with in the coming months. 

The third and final group of causes of this blackout deal with reliability coordinators, in this case, the Midwest ISO. They were unable to provide adequate diagnostic support over the entire region 

to help First Energy respond to their problems. Their State estimator failed. Their monitoring equipment did not have real-time 

line status and information. Their operators could not identify 

where lines had tripped. And the Midwest ISO and their neighbor, 

PJM, did not have adequate measures to understand issues on the 

seams between the two borders. 

According to NERC and outlined in our report, these failures 

amount to at least six NERC reliability standards being violated, 

four by First Energy and two by MISO. Hopefully, the Congress 

will take action on the energy bill and make these rules mandatory, and we can move down the road to ensuring that we have stiff 

penalties for violation of reliability rules. 

Mr. Chairman, I would like to reference a critical point in this 

investigation: 3:05 in the afternoon on August 14 is the critical 

time frame. At that time, the investigation’s extensive modeling determined that the system was being operated reliably, within safe 

operating limits. That fact alone eliminates a number of possibilities as causes of the blackout. It eliminates high power flows to 

Canada, of which the majority of the power flows going across First 

Energy’s system were actually ending in First Energy’s system. Approximately 20 percent of First Energy’s load was being imported. 

System frequency variations; low voltages earlier in the day and 

prior days; low reactive power output from independent power producers; outages of individual generators and transmission lines 

that occurred well in advance of the blackout; all of those were considered by the investigations team, modeled and discarded as not 

causes of the blackout. 

Finally, the task force spent time understanding the nuclear 

plants and the security of the system. The report outlines that all 

of the nuclear plants in the United States and Canada shut down 

safely. They were not a cause of the blackout. They were reacting 

to system conditions and tripped themselves from the grid. The security group found that there was no terrorism or deliberate cause. 

There were no SCADA system violations with the information that 

they have reviewed to date and no computer viruses that caused 

any of this blackout. 

Phase one of our task force investigation and the public’s response to it will give us a wealth of information that will be the 

basis for forming recommendations. Phase two of our investigation 

will include three public forums in Cleveland, New York City, and 

Toronto in early December. These forums will offer an opportunity 

45

1The prepared statement of Mr. Gent with attachments appears in the Appendix on page 200. 

to all of those listed in this report as well as other interested parties to provide the task force with comments and recommendations. 

The task force will then issue a final report containing our recommendations for improving the electric system and its reliability. 

Thank you, Mr. Chairman. I would be happy to answer any questions. 

Senator VOINOVICH. Thank you, Mr. Glotfelty. Mr. Gent. 

TESTIMONY OF MICHEHL R. GENT,1 PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, NORTH AMERICAN ELECTRIC RELIABILITY COUNCIL 

Mr. GENT. Thank you, Mr. Chairman and thank you, Senator 

Lautenberg. You probably do not know this, but you are my Senator in the State of New Jersey. I appreciate your being here this 

morning. 

Senator LAUTENBERG. I am glad to represent you. It depends on 

your testimony. [Laughter.] 

Mr. GENT. Thank you all for inviting me this morning to speak 

to NERC’s perspective on the interim report of the U.S.-Canada 

Power System Outage Task Force on the causes of the blackout. 

NERC, as most of you know, is a not-for-profit organization that 

was formed after the Northeast blackout in 1965. Our job is basically to prevent blackouts from happening. That cascading outage 

of 1965 was supposed to have been the last one, and it was not. 

So this study adequately covers what the problems were leading up 

to this recent blackout. 

We are structured as a regional organization that every electric 

utility and member that participates in the electric system market 

belongs in one of 10 regional reliability councils. They own a notfor-profit organization, which is NERC. NERC has been an integral 

part of the joint fact-finding investigation that led to the interim 

report that was issued yesterday. We fully support the report’s 

findings and conclusions, and I would like to add that I fully support the testimony of Mr. Glotfelty and Mr. Wood here this morning. 

With respect to what happened, the key findings and conclusions 

may be difficult to find, but I will reference page 23 for the information that Mr. Glotfelty briefly described, and on page 25, you 

will see the NERC standards that we believe that we have determined have been violated. 

Immediately after the onset of the blackout, NERC began assembling a team of the best technical experts in North America to investigate exactly what had happened and why. Every human and 

data resource that we have requested of the industry has been provided, and experts covering every aspect of the problem have volunteered from across the United States and Canada. 

In the week following the blackout, NERC joined with representatives of DOE and the Federal Energy Regulatory Commission to 

establish a single joint fact-finding investigative team. The question has often been asked: Are there more than one investigation 

underway? And the answer is no. We stand side-by-side in this. 

46

All of the members of the team, regardless of their affiliation, 

have worked to help correlate and understand the massive amount 

of data that we have received. We have hundreds of volunteers 

from organizations all over North America, and we believe more 

are to come as we venture further into the investigation. 

To lead our NERC effort, we established a steering group of the 

industry’s best executive-level experts from systems not directly involved in the cascading grid failure. The steering group’s scope and 

members of that group are described in our Attachment A to our 

written testimony. 

On October 15, I sent a letter to the CEOs of 160 control areas 

and reliability coordinators across North America that control our 

electric grids, and I directed them to verify that within 60 days 

that their organizations are measuring up to reliability requirements in six key areas. Those are also described in an attachment 

to my written testimony. Those responses are due on December 15. 

The purpose was to make sure that we are reducing, to the extent 

possible, the likelihood of any further action like the blackout. 

Chapter 6 of the interim report has been mentioned this morning 

by Mr. Wood. It compares this blackout to blackouts that we have 

seen in the past, and while it is true that the same things seem 

to continue to crop up as the reasons, it is also true that we have 

a number of situations where automobiles were involved in deaths, 

and we have not been able to stop that. I do not mean to be flip 

about this, but the area of study is so wide that we are virtually 

unable to totally prevent these things from happening. 

What we have done, though, is we have made tremendous 

strides. The whole reliability coordinator system is a result of recommendations of a previous blackout. We now certify our operators. That is the result of the recommendations of the report. And 

we have taken other large steps. 

One important step that Congress can take is, as you have indicated earlier, Mr. Chairman, is to pass the reliability legislation or 

the energy legislation with the reliability language in it. I believe, 

as you asked, I believe that legislation, the reliability part, is adequate. It will provide us with the assurances that we need to see 

that the rules are developed correctly and that they are enforced 

and complied with. 

As for the August 14 outage, much remains to be done. As the 

entity responsible for reliability standards, NERC must understand 

and communicate with its members what happened on August 14 

and why. The interim report is a major step; in fact, it may go beyond a major step. This may be the finest document of its type ever 

produced, even though it is the result of a disaster. We must also 

determine if there are other standards that have been violated. We 

must determine if our standards are adequate. We must make 

modifications to take into account what happened with this blackout and how the system is now being used. 

We will continue to work with the task force. The investigation 

will proceed, and recommendations will be developed. We expect to 

learn many more lessons from this event, and I expect that I will 

be back here again some day in the future. 

Thank you, and I would be happy to take your questions. 

Senator VOINOVICH. Thank you, Mr. Gent. 

47

We have been joined by Senator Lautenberg. Senator Lautenberg, would you like to make a statement before I start the first 

round of questions. 

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. I would appreciate the chance to just make 

a short statement. I would like to first welcome Mr. Gent. 

And I thank you, Mr. Chairman, for convening this second hearing on the electricity blackout. It takes someone who has been a 

governor and a mayor, who has been up front with the problem, to 

recognize the importance of getting on with this thing and not letting it linger, and we appreciate your direction and your action 

here. 

The critical loss of power on August 14 brought a large part of 

the country to a standstill, and we still have unanswered questions, 

as all three of you have identified. One of the questions that arises 

for me is heaven forbid that terrorist organizations that we know 

threaten us from many, many points and could coordinate something with the lights out would be devastating in terms of not only 

the damage that might occur but the panic that would follow if 

news ever got out that there was something underway that was attacking the American people in that area. 

This event dramatically demonstrated our vulnerabilities in the 

Nation’s electrical grid and the need for mandatory reliability 

standards. Now, if we fail to correct the flaws in the Nation’s electricity transmission system, experts, they say that other parts of 

the country will suffer similar blackouts. I think that is a given at 

this point. Blackouts come with a high price tag: Massive public inconvenience, increased danger for citizens who find themselves in 

the dark. Reliable electricity is not a new issue. 

Some regions have made great progress, while others remain 

locked in outmoded systems dating back to the beginning of electricity regulation in this country. And I understand that some of 

my colleagues have concerns about deregulation of the electric industry, but I would like for them to take a look at what has happened in New Jersey, where we are part of PJM, the Pennsylvania, 

New Jersey, Maryland interconnection, the country’s first fully-operating regional transmission, RTO, and the world’s largest competitive wholesale electricity market. 

And as an aside, Mr. Chairman, I am going to start a society to 

get rid of acronyms. [Laughter.] 

Because by the time we get finished with FERC, NERC, MISMA, 

MISO, and all of the other things, I do not know whether it is a 

Japanese menu that I am ordering from. [Laughter.] 

And they all get an explanation. So why bother trying to shorten 

them when we are going to lengthen them by a second statement 

of understanding? 

The ratepayers of New Jersey reaped enormous benefits from belonging to this RTO, including stable rates that have not risen effectively in 11 years. More to the point of this hearing: During the 

blackout, only 7 percent of PJM’s 25 million customers lost their 

power. Well, it is still a very significant number, but it is a long 

way from having the 100 percent blackout. And today, that is referred from the witnesses, we want to talk about the need for more 

48

RTOs like PJM, and given the multiple interconnections that exist 

across the grid, it strikes me that we need some kind of a regulatory structure for regional, not just State or local transmission 

systems. I do not think that in that forum, it can be handled just 

by one State or by one community. 

So I welcome the release of the U.S.-Canada Task Force Interim 

Report, and hopefully, it will shine the light—we have not had a 

chance to examine it yet—but it will shine a light on the events 

and conditions which led to the blackout. And, of course, because 

the report was so recently received, we are going to need a little 

bit of time to fully digest the findings that it contains. And I do 

not know whether our witnesses have had the chance to read all 

of the words or every word in it, but we have experienced people, 

Mr. Chairman, good people who work on these things, and we congratulate you each for your part in that. 

And I have talked, the last time I mentioned this, to some of the 

employees at First Energy who came in to see me, and they complained bitterly about the antiquated state of transmission lines at 

First Energy. And this was not intended to be a labor dispute. We 

are not taking sides. But when the people who have to do the work 

say hey, this facility is outmoded, you ought to pay attention. And 

so, we did better than we might have, but when we look at the 

source of the problem, as it seems to be indicated, the source of the 

problem was where these folks were pointing when we had our conversation. 

So, Mr. Chairman, I thank you for the courtesy of letting me 

make the statement, and I would be happy, after you, to ask some 

questions. 

Senator VOINOVICH. Thank you, Senator Lautenberg. 

I guess the new organization decided to get rid of that. [Laughter.] 

I would like to congratulate all of you for your testimony this 

morning and also to underscore the fact that instead of everyone 

working individually on this investigation, that you have pooled 

your resources, and we were able to get Canada and the United 

States to work together on this issue. 

As many of you know, there were several other organizations 

that have taken a look into the blackout and have published reports on their findings, such as the State of Michigan, the Electric 

Power Research Institute, and the National Commission on Energy 

Policy, and I would like to enter these studies into the record without objection 

One of the things that I support in the energy bill is 

themandatory reliability standards with penalties. I also support 

the incentives for utilities to encourage investment in transmission 

lines, transmission lines are less of a payback than investing in 

generating electricity. And, of course, the other problem was environmental concerns and not in your own back yard kind of thing. 

That is all in the energy bill, and I think was it you, Mr. Wood, 

who said that you thought we could really move and review and 

come up with some new mandatory reliability standards, by when? 

Mr. WOOD. I would like next summer, if the bill passes. We have 

180 days to adopt a rule to set up an electric reliability organization, which could be anybody but could be NERC, and at that point, 

49

NERC and anybody else would come in and file to be declared. It 

is my intention that we basically say when you file, you also file 

the basic reliability rules. There will probably be some that are 

controversial that will take time to kind of hash out, but the entity 

that would be approved here, say, NERC, would design the rules; 

through their normal, open, transparent process. 

Senator VOINOVICH. But the point I am making is you are talking about this summer. 

Mr. WOOD. Of 2004. 

Senator VOINOVICH. But that is based on the fact that this legislation would be passed now. 

Mr. WOOD. That is correct. 

Senator VOINOVICH. If it is not passed now, that means we are 

in limbo until such legislation is passed or this title is pulled out 

and considered as a separate piece of legislation. Most of us would 

not want to do that, but it could be necessary if this thing just continues to be in limbo. 

Mr. WOOD. Yes, sir. We are assuming, the fact I gave you would 

be an enactment in the next couple weeks. We would be able to go 

forward and do the proper open process that the law would require 

us to do. 

Senator VOINOVICH. Second, we talked—you were mentioning 

about Mr. Schreiber in Ohio heading up the PUCO, the Public Utilities Commission of Ohio. 

Mr. WOOD. Yes, sir. 

Senator VOINOVICH. You do not necessarily have to do this today, 

but there are different jurisdictions. In other words, if we pass this 

legislation, and FERC has a much larger role to play, what responsibilities would the PUCO have in Ohio and other public utilities 

commissions in other States have. Would they be responsible tree 

trimming, or would FERC or the organization that FERC would 

empower to do this? 

What is the difference in terms of jurisdictions between FERC, 

under the new legislation, and States? 

Mr. WOOD. Under the new legislation, FERC would approve the 

standard that NERC would say this applies to either the whole 

country or to the eastern part of the country, what have you. This 

is how often you must do the tree trimming, and this is how much 

clearance you need to give it, etc. This is how you should train operators, backup plans; all the operational. 

NERC is also in charge, at the first instance, with enforcing compliance with those regulations, NERC or the ERO certified under 

the law. If someone complains that they were unfairly treated——

Senator VOINOVICH. Now, we want to make it clear that FERC 

is not anticipated to do this. You would authorize an organization 

like NERC or some other organization to go and be involved in 

this. Is that correct? 

Mr. WOOD. Correct, and then, we would be, for example, a court 

of appeals if someone wants to contest the finding of NERC that 

they violated a rule, but by and large, that would be handled, at 

the first instance, by NERC and would not involve either the State 

or the Federal commission until an appeal is brought before us. So 

that would actually streamline, I think, the compliance process. Although we could end up handling a lot of appeals; the PUCO would 

50

have independent authority under their State law. For example, 

when I was a Texas regulator, we had independent reliability authority over transmission and over distribution. From my understanding, from what Mr. Schreiber said yesterday, they have clear 

authority over the distribution side, and they do not over the transmission side. 

Senator VOINOVICH. That protocol would have to be worked out, 

because you have different situations in different States, which I 

think it would be very important to understand that. 

Now, let us talk about transmission lines. It is my understanding 

that in terms of transmission lines and where they go that that is 

a State responsibility. 

Mr. WOOD. Correct, yes, sir. 

Senator VOINOVICH. They are responsible for siting it, correct? 

Mr. WOOD. Correct. 

Senator VOINOVICH. Now, what if the mandatory reliability organization says that we need a transmission line in order to improve 

upon the grid, and the States say we are not going to do it? What 

happens then? 

Mr. WOOD. The reliability provisions specifically state that the 

reliability organization cannot mandate construction of a transmission line or a generation plant. However, another provision in 

the law, in the proposed law before the Senate today, would empower the Department of Energy, Mr. Glotfelty’s group, to identify 

national interest lines of a national nature, both large lines and 

multi-state lines. One year after identifying those lines, if a permitting process has not been successfully pursued and a permit received by a utility from a given State or States, then that would 

elevate up to the Federal Government to look at that. And we call 

it the backstop siting authority. 

So the States are still in the driver’s seat. It is only when they 

cannot act, or they are prohibited by their law from acting, or they 

choose not to act, that it comes to the Federal Government, in 

which case, we have to look at the issues you laid out, which are 

landowner, environmental siting. We might say no as well, but it 

is looked at on a broader scale and looked at on behalf of what is 

a national interest line. 

Senator VOINOVICH. So from a practical point of view, the reliability standard organization, say, NERC, if they get the job, would 

say this is really needed. They tell the States about it, and if the 

States refuse to act, if this was something that they considered to 

be very essential to the grid, would make that information available to the Department of Energy——

Mr. GLOTFELTY. Correct. 

Senator VOINOVICH [continuing]. Who would then review the situation, and a year after that, would come back and say yes, this 

is absolutely necessary and DOE would be able to take action to 

get the transmission line constructed; is that right? 

Mr. GLOTFELTY. That is possible; we——

Senator LAUTENBERG. May I interrupt just for a minute? I have 

got to go to another committee, but the record will be kept open 

so that we can submit questions, I assume, and I would ask our 

witnesses to respond as quickly as you can. 

Senator VOINOVICH. Thank you, Senator Lautenberg. 

51

Senator LAUTENBERG. Thank you very much. 

Mr. GLOTFELTY. The process that we would like to go through for 

identifying national interest transmission corridors is not in place 

yet. Obviously, that is something that we need to do if the legislation is passed. But we would not wait for NERC or the reliability 

organization to come to us with information for necessary, needed 

upgrades. We would do our independent modeling. We would work 

with the regions to determine national security, economic security 

or reliability lines that are necessary, and we would designate 

those in our own process. 

It will be a public and open process where everybody can participate. Then, the State will—if the utility agrees and would like to 

build the line, then, that is when the State process gets triggered. 

And if they are not completed in a year, the authority would then 

go to FERC. 

Senator VOINOVICH. OK; so the fact is that we are putting incentives in here for companies to go ahead and invest in transmission 

lines. The State says fine; we will site this, but the utility says hey, 

we are not interested in going forward with it, what authority 

would you have in that situation? 

Mr. WOOD. Assuming it is identified as a national interest line, 

that is the trigger. And say there were 50 lines in the country that 

the DOE puts forward, and all but one of them gets built. If the 

one does not get built, it can be built also—and this is a provision 

that was, I think, put in during the conference—it could also be 

built by someone other than the utility in the area. So you could 

have what we call a merchant transmission company come in and 

have the ability to get Federal eminent domain to build as well. 

So I do not anticipate that there will just be an absence of anybody willing to build the line, particularly in light of the fact that 

it has a predictable—it may be a relatively low cash flow compared 

to what generation used to be. I think I am thinking about a comment that you all made. But it is pretty steady; I mean, 12 percent, 

13 percent return on equity, predictable over time, is a lot better 

than 20 percent 1 year and 5 percent the next year that we have 

seen on the generation side. 

Senator VOINOVICH. So you think it——

Mr. WOOD. It would be an attractive investment, I think. It is 

steady. I hate to use the term widows and orphans, but it is kind 

of what traditional utility stocks used to be. This is still a regulated 

entity. Transmission is actually highly regulated. So it would continue forth in that regard. 

Senator VOINOVICH. OK; and the PUCO, the respective State, 

would be the one that would have the jurisdiction over increasing 

the rate in order to pay for the transmission line. 

Mr. WOOD. Well, as it stands now, in the RTO format, which the 

Ohio utilities are part of, the rate is actually approved as part of 

a Federal rate, which the utility can then seek to recover, say it 

is Cinergy, can seek to recover that in its Ohio-regulated rate. So 

it is kind of two levels. We set a wholesale rate, transmission rate. 

We say the transmission rate is X. Then, the company pays for that 

to all of the other companies that sell transmission. And then, its 

payment is one cost like income taxes or employee or labor costs 

or new power plant costs that go into the retail rates. 

52

So it is one that the Ohio commission would have ultimate say 

on what the total rate is, but the FERC component of that rate is 

a valid and effective rate in the first place. 

Senator VOINOVICH. So you kind of set the parameters of the rate 

on the national level, and then, it is up to the——

Mr. WOOD. State how they might want to——

Senator VOINOVICH [continuing]. Organization to work with the 

utility as they traditionally do in terms of their rate-setting. 

Mr. WOOD. Yes, sir. They might allocate the cost, for example, 

to large customers and small customers differently than the next 

State would do. 

Senator VOINOVICH. Senator Carper has joined us, and Senator, 

I have had a little opportunity here to ask some questions, and 

Senator Lautenberg was with us for a couple of minutes. And we 

welcome you. 

Senator CARPER. Thank you. 

Senator VOINOVICH. And would you like to make some kind of 

opening statement before we continue the questions? 

Senator CARPER. No; I am sorry I missed your questions, though. 

I would like to ask just a couple of questions. 

Senator VOINOVICH. Yes, sure; we welcome you. 

Senator CARPER. Thanks very much. And to our witnesses, welcome to this morning’s hearing. 

As we are gathered here in this hearing room, a debate is going 

on on the Senate floor, as you may know, on the energy bill that 

has been reported out of conference. Regrettably, during the conference, the Democrats in the Senate were not invited to participate. And I believe nor were Democrats in the House, and that is 

regrettable. 

And while there are some good things in that energy bill, there 

are a number of aspects of it that are troubling to a number of us. 

Today’s hearing is, as I understand it, the second of two hearings 

that are designed to deal with the Federal role in preventing power 

outages, the likes of which we witnessed in the Northeast and Midwest a couple of months ago. 

The energy bill that is before us, specifically the conference report that is before us, lays out a Federal role with respect to transmission of energy, whether you happen to be in our part of the 

country where we participate in what is regarded, I think, as a 

very successful grid network. My question of each of you is—and 

I have not read this report—but I would just like to know when 

you marry up what your beliefs are what the Federal role should 

be, and you compare that to what is proposed in the energy conference report, how close are we, how near are we to the mark in 

terms of where you think we ought to be? 

Mr. GLOTFELTY. First of all, the report outlines the causes. It 

does not have recommendations on how we make our system more 

reliable. This was just phase one of our investigation. Phase two, 

which will be done, and we will have a report out early in January, 

we hope, January or February of next year, will list recommendations that we think are critical for ensuring the reliability of the 

system. 

Most of those, in my mind, will be pretty technical. They will not 

be broad policy decisions that need to be addressed by Congress. 

53

We think that the majority of the broad policy issues actually have 

been addressed in the energy legislation before the Senate. First 

and foremost, mandatory reliability standards are critical. I think 

all of the witnesses here as well as the majority of the Congress 

supports mandatory reliability rules and getting them in place as 

quick as possible. 

But we also believe that other parts of the electricity title in the 

energy bill and in the tax title provide a basis for expanding our 

transmission system and making it more reliable as well; specifically, siting provisions; tax title provisions, which encourage transmission investment; incentive base rates for transmission investment; all are critical for ensuring that our system maintains reliability and is robust to serve our citizens. 

So we believe that it is accurate, and it is a very strong foundation for a reliable system going forward. 

Senator CARPER. Thank you. Other thoughts? 

Mr. WOOD. Yes, sir, Senator Carper; since I have been at the 

Commission, I have been involved in the large debate we have had 

on electricity policy, and I do think certainly, some certainty is 

called for. We really have been in kind of a stasis now for some 6 

years; certainly, the last 8 months. And we cannot really afford to 

keep going. 

So that is kind of a timing issue. As far as the substance, I do 

think the substance here is good. I think the NERC language, the 

reliability language, where you would—and this has been, again, 

kicked around for 6 years—it is time to get it down so we can get 

rules in place by next summer so that there is true accountability, 

true enforceability, a much more formal as opposed to informal organization of the reliability enforcement across the country, because it is a multiowner grid that really works as a single machine 

for the two halves of the country. 

To the extent that new transmission investment is required, and 

this report shows that it is not just a hardware issue; it is a human 

resources issue, too, but to the extent that investment is required, 

the incentives that are provided in this bill, which I think are actually progressive; yes, it is not just throwing money at a problem. 

It has a very strong focus on new technologies that are involved. 

That was introduced at conference. That was not in the original 

bill. But the technology angle is one that our Commission has been 

increasingly adamant on, and to have that kind of support to 

incentivize and attract the new technologies to bring them out of 

the lab and into the marketplace and onto the poles and the wires 

and the systems that make our grid reliable are really, actually, 

progressive standards. 

The siting authority that we have just discussed with the Chairman, clearly, I would rather it never be used; that the States actually handle these siting issues, because I do think that with land 

owners in particular and environmental issues, the decisions on 

those should be as close to the people as possible. But to the extent 

that there are obstacles, either legal or bureaucratic, to getting the 

needed infrastructure in place, this bill makes it clear that that is 

going to happen, and those things should be handled on a broader 

scale than perhaps is being done. 

54

I also think that the bill’s strong endorsement for regional grid 

operators, the RTOs, while not mandatory is a sufficient and quite 

important provision that this Congress goes on the record supporting competitive wholesale power markets and supports regional 

transmission organizations and that utilities should join them; it is 

very important to our Commission. I think there has been a big 

skirmish over the Commission’s desire to make those mandatory, 

which, of course, I do support but is being put on the side burner 

for 3 more years. 

Well, if in 3 years, we do not have everybody in RTOs anyway, 

then, shame on us, because this blackout report, our experience 

with economic efficiencies and Senator Lautenberg’s market that 

he talked about in his comments, which your State also is a part 

of, Senator Carper, is very compelling, and that story is one that 

the rest of the Nation is starting to understand as we kind of get 

past and learn from the California experience about how markets 

can also be done very wrong. 

And finally, when markets are done wrong, this bill provides enforcement and penalties that our Commission has never had before, 

not only the ability to order refunds for cases the day that they 

happen but to actually put punitive administrative penalties on top 

of people who violate the power market rules and violate the law. 

We have less authority today than the Delaware PUC has. But yet 

we are intended to be the national regulator. So this bill corrects 

that as well. 

So there is a lot in it. You have other issues on it, but I do think 

just from the point of view of what you asked me as a regulator 

for the electricity industry, there is a compelling case to be made 

for this legislation. 

Senator CARPER. Thank you. Mr. Gent. 

Mr. GENT. Senator Carper, if I could just add, NERC’s only interest in the energy bill is the reliability provisions. We have had consensus on that for nearly 4 years, and I believe that if we had this 

in place a couple of years ago, we would not have had the blackout. 

So I would urge you to do what you can to help us out by passing 

that legislation. 

Senator CARPER. OK; in Delaware, we are part of one of those 

SROs that is called PJM, which we think is a model in some respects for our country. And I guess I am just especially interested 

in how the provisions of the energy conference report might affect 

the dependability of the grid, the electric grid, within PJM. We 

think we have a good system. We like the way it operates, and 

when we are losing power in a lot of other parts of the country, it 

is sort of like washed up against our region and pretty much 

stopped there, and we do not want to mess up a good thing. 

Mr. WOOD. Nothing in the bill would impact—and I care a lot 

about that, too, because it is, from a national perspective, the experience in PJM and now, more recently, in New England, which has 

adopted a very much close to PJM, the same type of market model 

and organizational model, just since I have been on the FERC; New 

York is in the process of probably by March of adopting that same. 

So you are going to have really the whole Northeast in largely the 

same format. They are close today; they will be even closer after 

New York. 

55

We are very interested in that model not only surviving but 

thriving, and nothing in this bill, in my read or in anybody else’s 

read, would set that back at all. In fact, with the reliability overlay 

here, I think it enhances it, because it gives not only the economic 

oomph that we have under current law to back up economic practices and economic decisions, but it now adds that important sister 

consideration of reliability and says they are both important; they 

are both enforceable under the national law, and that is the way 

it is going to be. 

So I think that that buttresses, actually, the capabilities of PJM 

and the other independent operators in the region. 

Senator CARPER. All right. Anybody else have a thought on this? 

Mr. GENT. For at least 30 years, I have been preaching that we 

need to have, first, larger power pools, and then, the term was regional transmission organizations, and then, it was ISOs, and now, 

it is RTOs. Speaking only from an operating standpoint, I think 

that North America would be far better off if we had a dozen or 

less of these types of organizations, and certainly, PJM is the allstar model that we would point to in terms of operation. 

For my constituents, I have to make it clear I am not proposing 

the economic operation of PJM, but from a reliability operational 

standpoint, I think it is stellar. 

Senator CARPER. Good. Thank you. Mr. Chairman, could I ask 

one more? 

Senator VOINOVICH. Go ahead. 

Senator CARPER. This is a fairly broad question. You have been 

here testifying. Our Chairman has had the benefit of listening to 

your testimony. The reason why there are not more of us here is 

because all of us have three or four hearings going at the same 

time, and we are just trying to spread ourselves around. Some of 

us may have a press conference around 12 o’clock that we are looking forward to. 

But as I walk out of here, another point or two that you would 

want me to take along, just say if you remember nothing else or 

keep nothing else from this hearing, what would that be? 

Mr. GLOTFELTY. From my standpoint, I think it would be that 

this blackout is a reminder that the States and the Federal Government must work together; the economic cost of a blackout of 

this magnitude is huge. We have smaller blackouts or smaller lines 

that trip every day across our system, and a renewed focus and renewed attention at the Federal level within the Congress and within the States to ensuring that our system is reliable is actually critical for our economic growth moving forward. 

We do, as Mr. Wood said, have tremendous technologies that 

have been in our labs. Entrepreneurs all across the country are 

coming to us every day with new technologies that make our system more robust and more reliable. And giving them the opportunity to put those on the system, to make it a more reliable system, is critical moving forward. And the energy bill provides that 

in our mind. 

Senator CARPER. All right, thank you. Mr. Gent. 

Mr. GENT. I believe that the legislation, particularly the reliability part of the legislation, provides for a way for the stakeholders to remain engaged and keep their expertise out in front 

56

and fresh and involved in the standards-making and enforcement 

process with a Federal backup when needed. So I would urge you 

to do something about passing the reliability legislation. 

Senator CARPER. All right. Mr. Wood. 

Mr. WOOD. I am going to echo my colleagues here on the reliability issue. As a natural gas regulator, too, I do want to point out 

how critical it is, and this bill does address it, that the Alaska natural gas pipeline project come to be in the next decade. The availability of reliable and environmentally-benign and domesticallyproduced natural gas is very critical to the overall economic health 

of our country. We have just seen last year, those prices have actually doubled as supply has come, now, to more of a crunch than we 

ever thought; that has had a lot of impact on a lot of industries. 

I know some in your home State and some in mine of Texas as well 

that are very gas-intensive industries that, if we are looking into 

the future, $5, $7, or $8 gas when we have our own gas right here 

in Alaska to bring down and keep the price in the $3, $4, or $5 

range, that is a step that has to be taken, and I think it will not 

be taken unless Congress provides the kind of regulatory, legal, 

and in the case of the loan guarantees, some financial security for 

what is probably the biggest engineering project in our lifetime. 

The additional increment of liquefied natural gas to that overall 

mix is very important. These things all, this is where the electricity 

of the future is coming from. It is coal and natural gas. Yes, there 

will be nuclear; yes, there will be renewable; yes, there will be 

more hydro, perhaps, but coal and natural gas are going to be the 

two big pistons of that engine, and there are provisions in this bill. 

I know they are not beloved and all, but we have got to step back 

and think what else do we have? We are not going to put solar panels in space and beam it down like something out of a Star Trek 

movie. It is going to be coal and natural gas. So we have got to 

make sure we have got clean coal, and we have got to make sure 

we have abundant natural gas. 

And so, the steps that are laid in this bill to make that happen 

in the nonelectricity pars of this bill are real important. And I hope 

that is weighed into consideration by Members of the Senate. 

Senator CARPER. When I was first reading the press reports on 

the conference report of the energy bill, among the provisions that 

raised my spirits and my hopes were the provisions dealing with 

the construction of a natural gas pipeline from Alaska. I have since 

learned that the chairman and CEO of Conoco Phillips, which is 

the oil and gas company that was believed to be most likely to participate in building a natural gas pipeline to bring natural gas 

down from Alaska had written to the conferees several weeks ago 

and indicated what needed to be in the bill in order for them to 

go forward with the project. 

And what his company needed to be in the bill was not included, 

and he has indicated, as I understand it, that they are not going 

to go forward with the project. 

There were several labor unions, some building and construction 

trade unions; I think the IBEW was among them; the Teamsters 

was another labor group that was strongly in support of actually 

opening up ANWR but also very much in support of the natural 

gas pipeline proposal. And I learned yesterday that they have withVerDate 0ct 09 2002 08:17 Mar 29, 2004 Jkt 090232 PO 00000 Frm 00062 Fmt 6601 Sfmt 6601 C:\DOCS\90232.TXT SAFFAIRS PsN: PHOGAN
57

drawn their support from the bill because it falls short of really 

making good the commitment to build a natural gas pipeline. 

We are still trying to run this one down fully and understand it, 

but Senator Voinovich and I talked a whole lot about the need for 

natural gas and our concerns about rising natural gas prices. I was 

born in West Virginia, and my dad used to be a coal miner for a 

period of time. I have a whole lot of concern about coal there and 

other places in the country. We are the Saudi Arabia of coal here 

in America. And I want to make sure we have access to coal and 

clean coal technology to use it, and I sure want to make certain 

that we can bring that natural gas down from Alaska, and I am 

just troubled by the prospect that maybe we are not. 

Senator VOINOVICH. Well, I am glad you brought up some of 

these other issues. 

First of all, I think that we should all feel very good that finally, 

we are doing something about reliability and mandatory standards. 

I think in the testimony that you have given that we have had 

these things happen before, and we just ignore them until the next 

time, and I think that you should be congratulated, and I think my 

colleagues in Congress should be congratulated, that we have decided to take this on and do something about it. 

My concern is that if this bill is not passed, what are we going 

to do in the interim period of time? I mean, is there anybody——

Mr. WOOD. I have made a career out of looking at statutory language pretty closely, and I think it would be a challenge, but certainly, this Commission is compelled, in light of what we hear here 

in this report and what we have learned from participating on the 

task force that we would push hard to find it in the Federal Power 

Act somewhere. It is going to be a challenge, and it is going to be 

hard, but we are going to do our best to go forward under whatever 

statute we can find. And we are scrambling hard to do that, but 

I can tell you it is going to be infinitely harder to do it that way 

than if Congress says we want it this way—do it. But we will commit to trying our best under the Federal Power Act and look in the 

penumbra of the statute and find it where we can. 

Senator VOINOVICH. Well, it would be very important to this Senator and to Senator Carper if you could communicate that to several of the Senators on my side of the aisle and perhaps some on 

Senator Carper’s side of the aisle about how important this is in 

terms of they may have some problems with other parts of this bill, 

but if you do not have this authority, you are not going to be able 

to move forward and deal with this issue that could substantially 

impact on the wellbeing of their respective States. 

Mr. WOOD. I appreciate the opportunity you all have given us 

today to do that. I know the timing is pretty——

Senator VOINOVICH. Well, somebody ought to pick up the phone. 

We all know who they are—— [Laughter.] 

And try to influence them to say this is important stuff, for this 

country. The problem here in the Senate is that there is never a 

perfect piece of legislation, and too often, we let the perfect get in 

the way of something that is good and moves us down the field, 

and if it is not as good as we would like it to be, we have another 

shot at it when Congress comes back. 

58

But in this case, it is not going to be done; then, if it is not going 

to be done, then, you have got to decide you have got to try to figure out some other way you can get it done. And then, the next 

thing will be that we pull this out of this bill and then try to get 

it done next year, and you know how difficult that is going to be. 

There was a statement that if—did you make it, Mr. Gent?—the 

mandatory reliability standards had been in place, and there were 

penalties—one of you said this—that you believe this would not 

have happened. I want you to comment on it. 

Mr. GENT. Yes; I believe that we have the right standards, but 

what we do not have now are the rights to do audits, to enforce 

compliance with the standards. We have been trying for several 

years on a voluntary basis to get people to agree through contracts 

to subject themselves to reliability standards. We have been successful in the West of getting three standards agreed to by a wide 

group of people, and even there, certain companies have refused to 

sign up and allow themselves to be subjected to mandatory standards. 

So we are convinced that the only way we can really do this is 

to have a law that says you have to do it. 

Senator VOINOVICH. And this does get it done for you, with penalties. 

Mr. GENT. My general counsel here testified at a recent hearing 

2 years ago that it was not a question of if; it was just a question 

of when, and I think that we can state that again if we do not get 

the legislation. 

Senator VOINOVICH. So again, you really feel that if what is in 

this legislation was in place, in your opinion, this probably would 

not have happened. 

Mr. GENT. The reliability legislation, yes. 

Senator VOINOVICH. All right. 

Mr. GENT. That is my opinion. 

Senator VOINOVICH. The other thing that I would like—we have 

identified the responsibilities of the various parties in terms of, in 

your opinion, the cause of this. The issue is did anything, did the 

grid contribute to this, were the transmission lines adequate? It is 

like when we had the stock market crash of 1929, and it went 

down. And we know that there were certain things that happened. 

But there was something wrong with the market that allowed it to 

collapse. And since that time, we have changed some of the things 

to try to prevent that kind of thing from happening. 

We had a crash here, did we not, a big crash? And the issue is 

is the transmission system inadequate to the extent that it contributed to this at all? Or was it strictly a matter of certain people not 

doing certain things? 

Mr. GLOTFELTY. I will begin that one. I think it is the latter, at 

least on this example. First Energy and MISO had the tools that 

were available. They had the responsibility to ensure that this did 

not happen. The system has worked very well every other day since 

and every day before. 

There were smaller lines that do fail, as we have said, every day. 

But the system failed that day. And that is not an indictment of 

the whole region and the transmission lines within that region on 

any other day. That was just the process and procedures and failVerDate 0ct 09 2002 08:17 Mar 29, 2004 Jkt 090232 PO 00000 Frm 00064 Fmt 6601 Sfmt 6601 C:\DOCS\90232.TXT SAFFAIRS PsN: PHOGAN
59

ures, human, computer and mechanical that happened on that day. 

Saying that, there probably are transmission lines that can be built 

in Ohio, around Lake Erie, that can provide more stability to the 

system, and that is something that I suspect the Midwest ISO and 

FERC, as well as the Ohio Public Utility Commission, are all considering. 

Mr. GENT. But there is another aspect to your question that I 

would like to address. As we proceed in the investigation, and we 

take a closer look at all of the things that actually did happen, we 

may actually decide that we have to redesign some of the ways that 

we set relays. I hate to get too technical here, but there is a process 

underway. We might be reaching out too far. We might be tripping 

too soon or not soon enough. And all of this has to be considered 

in our committee stakeholders process. It might call for a redesign 

of certain elements. 

Senator VOINOVICH. In other words, if the grid had been more robust, would that have had anything to do with this? 

Mr. GENT. I am not sure I can say. I believe that the events, as 

they transpired, would transcend any robustness. 

Senator VOINOVICH. So the thing is that the utilities that were 

involved in the MISO, when the new law goes into effect, you are 

going to have the mandatory reliability standards which will put 

in some discipline into those organizations to do certain things. 

And then, you will, at the same time, look at the grid to see how 

that can be also enhanced to make it even more effective in terms 

of moving electricity and responding to the kinds of things that occurred on August 14. 

I just want to say to you that I will never forget that day, because I was coming into Cleveland with my wife, and we were not 

sure whether the plane would land. We thought that maybe the 

control tower might not let us in. And then, when we got there, it 

took us a couple of hours to get our bags, because all electricity was 

off in the place, and I will never forget it. And then, we were without electricity for 24 hours, which was not too bad, but my daughter and many other people were without electricity for several days. 

For the every day citizen, this is a big deal. And I think that 

sometimes, we take for granted, I know after they had this hurricane here, my staff people were without electricity for 6 or 7 days. 

And it is very significant. It is a very high priority. Having reliable 

electricity is important to our quality of life and to our standard 

of living and also reflective on our economic well being. 

And one of the reasons why we have been so successful as a Nation is that we have had reliable electricity at reasonable costs, and 

it seems to me that if you look at the cobweb and the maze out 

there of all of the things that the utilities in this Nation are confronted with that we need to streamline the whole process. I think 

what we are doing here will streamline it; the fact that there are 

going to be incentives to build transmission lines; that it is going 

to be a little bit easier to site them and move forward with them 

is good. 

But other issues, Mr. Wood, are very important: Things like new 

source review that has been kicking around, and finally, the administration has had the courage to take it on and is being criticized, vastly by many of the environmental groups. But utilities 

60

were in limbo. They did not know what to do, whether to move forward or not. So they did nothing. It did not make their operations 

more efficient and did not do anything more to improve in terms 

of the quality of the environment. 

And then, we have the whole issue that has been kicking around 

here for the last several years in terms of the 4–P bill and how we 

deal with NOx, SOx, mercury and then deal with the issue of greenhouse gases. And I do not think people appreciate the fact that all 

of these things that are going on make it very difficult for us to 

get through. It is almost like the Maginot Line, trying to figure out 

how you can get anything done. 

And I would urge all of you in your respective organizations to 

take a little more interest—I am on the Environment and Public 

Works Committee, and this hearing could have been held there. 

But the fact is that we need to start to have a much more global 

look at—U.S. look at how all of these things connect up with each 

other and bring some sense and some certainty to a very uncertain 

environment that we have had for too long. And I think it is really 

important that we get our environmental groups, harmonize our 

energy, and our environmental concerns in this country and that 

we start talking to each other instead of talking past each other. 

This is very serious business, and I can tell you right now it is 

impacting on my economy in my State. You talked about natural 

gas. We are losing business after business from our State, because 

they are going—some of them are going overseas because of their 

natural gas costs are being lowered. 

We had a situation where we have done everything we can to 

close down the availability of natural gas and exacerbate the demand for natural gas. And the prices have skyrocketed. The people 

have got to understand that that impacts on not only our businesses, our manufacturers, on agribusiness, on the chemical industry; it also impacts on just ordinary citizens: People, particularly, 

who are what I refer to as the least of our brethren, the elderly 

and those people, who are poor. 

All of this has got to be taken into consideration as we deal with 

this. And so, I would say to you you have your respective responsibilities, but I think it is also incumbent on you, the Department 

of Energy, Mr. Gent at NERC, the FERC to start to connect up 

with some of the other agencies to start looking at the big picture 

and maybe come back with us and say look, this is what we are 

going to need if we are going to have an environment where we can 

provide reliable electricity at reasonable cost and, at the same 

time, make sure that we protect our environment. 

So I want to thank you very much for being here today. We will 

be back again after the report is finished, and I am interested in 

that final report, and I think it is important that you give everyone 

an opportunity that has some issues with it to be heard so that 

their points of view are recorded there, or they feel like they have 

had their ‘‘day in court.’’ And the next time we get together, I 

would also, hopefully, this legislation will have passed, and if it has 

not, then, we will have to decide on how we are going to get this 

job done together. Thank you very much. 

[Whereupon, at 11:28 a.m., the Subcommittee adjourned.] 

(61)

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