```

[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

 
                          THE CHU MEMORANDUM:
                       DIRECTIVES COULD INCREASE
                         ELECTRICITY COSTS FOR
                       OVER 40 MILLION FAMILIES
                         AND SMALL BUSINESSES

=======================================================================

                           OVERSIGHT HEARING

                               before the

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                      Tuesday, September 11, 2012

                               __________

                           Serial No. 112-128

                               __________

       Printed for the use of the Committee on Natural Resources

         Available via the World Wide Web: http://www.fdsys.gov
                                   or
          Committee address: http://naturalresources.house.gov

                  U.S. GOVERNMENT PRINTING OFFICE
75-941                    WASHINGTON : 2013
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                     COMMITTEE ON NATURAL RESOURCES

                       DOC HASTINGS, WA, Chairman
            EDWARD J. MARKEY, MA, Ranking Democratic Member

Don Young, AK                        Dale E. Kildee, MI
John J. Duncan, Jr., TN              Peter A. DeFazio, OR
Louie Gohmert, TX                    Eni F.H. Faleomavaega, AS
Rob Bishop, UT                       Frank Pallone, Jr., NJ
Doug Lamborn, CO                     Grace F. Napolitano, CA
Robert J. Wittman, VA                Rush D. Holt, NJ
Paul C. Broun, GA                    Raul M. Grijalva, AZ
John Fleming, LA                     Madeleine Z. Bordallo, GU
Mike Coffman, CO                     Jim Costa, CA
Tom McClintock, CA                   Dan Boren, OK
Glenn Thompson, PA                   Gregorio Kilili Camacho Sablan, 
Jeff Denham, CA                          CNMI
Dan Benishek, MI                     Martin Heinrich, NM
David Rivera, FL                     Ben Ray Lujan, NM
Jeff Duncan, SC                      Betty Sutton, OH
Scott R. Tipton, CO                  Niki Tsongas, MA
Paul A. Gosar, AZ                    Pedro R. Pierluisi, PR
Raul R. Labrador, ID                 John Garamendi, CA
Kristi L. Noem, SD                   Colleen W. Hanabusa, HI
Steve Southerland II, FL             Paul Tonko, NY
Bill Flores, TX                      Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Jon Runyan, NJ
Bill Johnson, OH
Mark Amodei, NV

                       Todd Young, Chief of Staff
                      Lisa Pittman, Chief Counsel
               Jeffrey Duncan, Democratic Staff Director
                David Watkins, Democratic Chief Counsel

                                 ------                                

                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Tuesday, September 11, 2012......................     1

Statement of Members:
    Hastings, Hon. Doc, a Representative in Congress from the 
      State of Washington........................................     2
        Prepared statement of....................................     3
    Markey, Hon. Edward J., a Representative in Congress from the 
      Commonwealth of Massachusetts..............................     4
        Prepared statement of....................................     6

Statement of Witnesses:
    Anderson, Ed, General Manager, South Dakota Rural Electric 
      Association, Inc., Pierre, South Dakota, Statement 
      submitted for the record...................................    56
    Azar, Lauren, Senior Policy Advisor to Energy Secretary 
      Steven Chu, U.S. Department of Energy, Washington, D.C.....    23
        Prepared statement of....................................    25
    Baak, Jim, Director of Policy for Utility-Scale Solar, The 
      Vote Solar Initiative, San Francisco, California...........    28
        Prepared statement of....................................    29
    Bladow, Joel, Senior Vice President, Transmission, Tri-State 
      Generation and Transmission Association, Inc., Westminster, 
      Colorado...................................................    36
        Prepared statement of....................................    37
    Corwin, R. Scott, Executive Director, Public Power Council, 
      Portland, Oregon...........................................    19
        Prepared statement of....................................    20
    Crisson, Mark, President and CEO, American Public Power 
      Association (APPA), Washington, D.C........................     7
        Prepared statement of....................................     8
    Palmerton, W. Kent, General Manager, Power and Water 
      Resources Pooling Authority, Carmichael, California........    32
        Prepared statement of....................................    33
                                     

 OVERSIGHT HEARING ON ``THE CHU MEMORANDUM: DIRECTIVES COULD INCREASE 
 ELECTRICITY COSTS FOR OVER 40 MILLION FAMILIES AND SMALL BUSINESSES.''

                              ----------                              

                      Tuesday, September 11, 2012

                     U.S. House of Representatives

                     Committee on Natural Resources

                            Washington, D.C.

                              ----------                              

    The Committee met, pursuant to notice, at 10:05 a.m., in 
Room 1324, Longworth House Office Building, Hon. Doc Hastings 
[Chairman of the Committee] presiding.
    Present: Representatives Hastings, Duncan of Tennessee, 
Gohmert, Lamborn, Coffman, McClintock, Thompson, Tipton, Gosar, 
Labrador, Noem; Markey, Kildee, Holt, Costa, and Tsongas.
    The Chairman. The Committee on Natural Resources will come 
to order, and the Chair notes the presence of a quorum, which, 
under Committee Rule 3(e) is 2 Members, and we have exceeded 
that.
    The Committee on Natural Resources today meets to hear 
testimony on ``The Chu Memorandum: Directives Could Increase 
Electricity Costs for Over 40 Million Families and Small 
Businesses.''
    We have a distinguished panel that we will hear from later 
on. We have Mr. Mark Crisson, President and CEO of the American 
Public Power Association; Mr. Scott Corwin, who is the 
Executive Director of the Public Power Council out of Portland, 
Oregon; Ms. Lauren Azar, Senior Policy Advisor to Energy 
Secretary Steven Chu, from the U.S. Department of Energy; Mr. 
Jim Baak, who is Director of Policy for Utility-Scale Solar, 
The Vote Solar Initiative out of San Francisco; Mr. Kent 
Palmerton, General Manager of the Power and Water Resources 
Pooling Authority, also out of California, in Carmichael; and 
Mr. Joel Bladow, Senior Vice President of Transmission of the 
Tri-State Generation and Transmission Association, out of 
Westminster, Colorado.
    And I note that we had another panelist, Mr. Ed Anderson, 
who is a manager of the South Dakota Rural Electric 
Association. But unfortunately, there was a flight problem, and 
he could not make the hearing today. However, at the 
appropriate time, his full testimony will appear in the record.
    Under Committee Rules, opening statements are confined to 
the Chairman and Ranking Member. However, I ask unanimous 
consent that if any Member wishes to have a statement, it be 
given to the Committee prior to the close of business today.
    I will now recognize myself for 5 minutes.

    STATEMENT OF THE HON. DOC HASTINGS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    The Chairman. Today's hearing is the second examination of 
potentially significant electricity rate increases on 40 
million consumers due to Washington, D.C. directives. These 
mandates, as proposed by Obama Administration and Energy 
Secretary Chu without a clear legal authority, in my view, 
could dramatically change and undermine the collaborative and 
low-cost, emissions-free nature of the Federal power program.
    Five months ago we heard that the Administration's 
directives were a ``solution in search of a problem,'' and that 
nothing was broken. In fact, we heard that those in the Pacific 
Northwest and others receiving hydropower from dams and 
reservoirs are working well on a collaborative level to resolve 
grid reliability concerns and to integrate more non-
intermittent energies.
    At the hearing, I asked why family farmers in my rural 
district in Central Washington should be forced to pay higher 
electricity bills so people in downtown Seattle can plug in 
expensive electric vehicles just because the Secretary says so. 
I never got an answer to that question. So I subsequently 
joined with 18 of my Pacific Northwest colleagues from both 
sides of the aisle in a letter to reaffirm that concern and 
other concerns.
    But because it appeared these bipartisan concerns were 
falling on deaf ears, the full House adopted, through the 
appropriations process, a bipartisan Appropriations Committee 
provision to prohibit funding for any new activities outlined 
in the Chu memo. Shortly after that, 166 bipartisan House and 
Senate Members sent a letter with their concerns that this was 
a top-down effort, and urged the Secretary to engage in a 
``meaningful collaboration with stakeholders, including rate 
payers and Congress prior to moving forward with these new 
initiatives.'' That was a direct quote.
    These actions should have sent a message to the Obama 
Administration and Secretary Chu that they need to work with 
rate payers most impacted by the memorandum, and that they may 
have gone a bit too far with the memoranda. But apparently, the 
message has not been received.
    We will hear testimony today that DOE's workshops to gather 
input were superficial and disorganized. The American Public 
Power Association and National Rural Electric Cooperative 
Association, two national utility organizations representing 
consumers impacted by these directives, questioned whether DOE 
was genuinely seeking customer input.
    Senator Max Baucus of Montana, in a letter he sent a few 
weeks ago, asked for concrete examples where Montana ratepayers 
will not pay for something in which they do not benefit. To my 
knowledge, he has not received a concrete example. Instead, the 
Secretary's staff is determined to impose its will on the 
Western Area Power Association, or WAPA, by its own arbitrary 
set deadline of the end of the year.
    I commend and support Senator Baucus for his efforts to 
delay implementation of the Administration's Chu directive 
until at least early next year. But I have to say the evidence 
to me is irrefutably clear that the better approach would be 
for the Secretary to pull the plug entirely on this misguided 
effort.
    The Secretary needs to scrap this effort, start over, and 
work with all involved in forming a policy based on need and 
transparency. That is why I introduced my hydropower protection 
and promotion legislation, H.R. 6247, which includes a 
provision to that end.
    I fear this Administration is roaring downhill on a freight 
train to a pre-determined conclusion. Secretary Chu issued this 
Memorandum. It is, after all, signed by him and is in his name, 
which is why he was personally invited to testify today. 
Unfortunately, he turned down that request one more time.
    With Americans already struggling to fill their tanks due 
to the rising gas prices, the last thing they need is to pay 
more every time they flip on the light switch. The Secretary 
needs to personally explain to this Committee why he and this 
Administration are experimenting with various energy schemes 
and mandates. At a crucial economic time, raising home energy 
prices defies logic. Yet that is what the Administration's 
proposals would do, according to many of our distinguished 
witnesses before us today. The only thing this Secretary seems 
to be generating in this effort is unanswered questions and a 
great deal of uncertainty. I think the American people deserve 
better.
    [The prepared statement of Mr. Hastings follows:]

          Statement of The Honorable Doc Hastings, Chairman, 
                     Committee on Natural Resources

    Today's hearing is the second examination of potentially 
significant electricity rate increases on 40 million consumers due to 
Washington, DC directives. These mandates, as proposed by the Obama 
Administration and Energy Secretary Chu without any clear legal 
authority, could dramatically change and undermine the collaborative 
and low-cost, emissions-free nature of the federal power program.
    This Committee heard five months ago that the Administration's 
directives were a ``solution in search of a problem'' and that nothing 
was broken. In fact, we heard that those in the Pacific Northwest and 
others receiving hydropower from our dams and reservoirs are working 
well on a collaborative level to resolve grid reliability concerns and 
to integrate more non-intermittent energies. I joined with 18 of my 
Pacific Northwest colleagues from both sides of the aisle to reflect 
many of those concerns. At the time, I asked why family farmers in my 
rural district should be forced to pay higher electricity bills so 
people in downtown Seattle can plug in expensive electric vehicles just 
because Secretary Chu says so. I never got an answer.
    Because it appeared these bipartisan concerns were falling on deaf 
ears, the full House adopted a bipartisan Appropriations Committee 
provision to prohibit funding for any new activities outlined in the 
Chu Memorandum. Shortly after, 166 House Members and Senators sent a 
bipartisan letter with their concerns that this was a ``top-down'' 
effort and urged the Secretary to engage in a ``meaningful 
collaboration with stakeholders, including ratepayers and Congress, 
prior to moving forward with these new initiatives.'' That's very 
telling in this political atmosphere.
    With these actions, the Obama Administration and the Energy 
Secretary, in particular, should have heard loud and clear the messages 
that they needed to work with those ratepayers most impacted by the 
Memorandum and that maybe they had gone too far. By most accounts, the 
Administration, the Secretary and his people failed.
    We will hear testimony today that the Department of Energy's 
workshops to gather input were ``superficial'' and ``disorganized''. In 
fact, the American Public Power Association will testify that they 
question whether DOE is ``genuinely seeking customer input'' and the 
National Rural Electric Cooperative Association has recently stated 
that ``the reasons for the initiative have not been made clear and 
appear to be continually evolving''. These charges are troubling and 
significant since they all come from those representing consumers who 
could be saddled with the bills stemming from these directives.
    Senator Max Baucus, in a letter he sent a few weeks ago to the 
Secretary, appropriately asked for concrete examples where Montana 
ratepayers will not pay for something in which they do not benefit. To 
my knowledge, he has not received an example. Instead, the Secretary's 
staff is emphatic about imposing its will on the Western Area Power 
Administration by its own arbitrarily-set deadline of the end of the 
year. Senator Baucus spoke for many in pointing out the Department's 
rush to judgment when he asked for a delay until at least early next 
year.
    I commend Senator Baucus for his efforts to delay implementation of 
the Administration's Chu directives, and I support him, but the 
evidence is irrefutably clear that the better approach would be for the 
Secretary to pull the plug on this misguided effort. It's troubling to 
think that DOE's efforts with one PMA will become a blueprint for the 
other PMAs, including the Bonneville Power Administration.
    The Secretary needs to scrap this effort, start over and work with 
customers and us in forming a policy based on need and transparency. 
That's why, following the Appropriations' Committee's actions earlier 
this year, my hydropower protection and promotion legislation, H.R. 
6247, includes a provision to that end.
    But, I fear that this Administration is on a roaring freight train 
to a pre-determined conclusion. Secretary Chu issued this Memorandum--
it is, after all, signed by him and is in his name--which is why he was 
personally invited to testify today about its potential to drive up 
electricity costs. Unfortunately, he turned down our request once 
again.
    When Americans are already struggling to fill up their tanks due to 
the rising price of gasoline, which has doubled under this 
Administration's watch, the last thing they need is to pay more every 
time they flip on the light switch. The Secretary needs to personally 
explain why he and his Administration are experimenting with various 
energy schemes and mandates. He also needs to work with this Committee 
to come up and explain for himself and his Department in person.
    At a crucial economic time, raising home energy prices defies logic 
yet that is what the Administration's proposals would do according to 
many of our distinguished witnesses before us today. The only thing 
this Secretary seems to be generating in this effort is unanswered 
questions and fear. The American people deserve better.
                                 ______
                                 
    The Chairman. And with that, I will recognize the 
distinguished Ranking Member, Mr. Markey.

  STATEMENT OF THE HON. EDWARD J. MARKEY, A REPRESENTATIVE IN 
        CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

    Mr. Markey. Thank you, Mr. Chairman, very much. This March 
Secretary Chu issued a memo to the Power Marketing 
Administrations under his jurisdiction. In that memo he 
outlined opportunities to modernize the grid that would also 
reduce costs to consumers.
    As it turns out, Secretary Chu is a pretty smart guy. The 
Republicans these days are predictable. Secretary Chu knew the 
Republicans would call a bunch of hearings on his memo and try 
to mischaracterize it. So he said, right up top, in the second 
sentence of his memo, ``Taking greater advantage of energy 
efficiency, demand resources, and clean energy, while at the 
same time reducing cost to consumers, requires a transition to 
a more flexible and resilient electric grid, and much greater 
coordination among system operators.''
    We are here today talking about this memo because some 
people doubt that part about reducing cost to consumers. So 
let's break it down. Let's see what people are afraid of. Let's 
do the arithmetic.
    Energy efficiency--that is all about using less. 
Eliminating waste--that reduces costs. Demand response--that 
means lowering electricity demand at peak times. You need to 
build fewer new power plants. That reduces the costs. Wire 
transmission planning, better control systems, more frequent 
scheduling. The competition and increased efficiency these 
upgrades bring more than pay for the up-front investments. And 
renewable energy, new wind power is being contracted for 3 
cents per kilowatt hour right now in the Western Area Power 
Authority service territory.
    But never mind that. The Chu memo has nothing to do with 
electricity generation, nothing. Hear that again? The Chu memo 
has nothing to do with electricity generation. Power Marketing 
Administrations don't own renewable energy. Can you hear that 
again? And they don't require anyone to purchase it. Can you 
hear that again? Can you do the arithmetic here? Nothing plus 
nothing equals nothing.
    Should the grid be able to accommodate renewables? 
Absolutely. There must be a level playing field. And since 
renewable electricity is essentially free to operate--wind and 
solar actually drive down the price of electricity in markets--
that reduces cost. So the arithmetic is getting pretty clear 
here, huh? Nothing plus nothing plus nothing plus nothing plus 
nothing--additional costs, plus the savings that you get is 
good arithmetic. Good arithmetic, ultimately, for consumers.
    If all the component parts potentially save money, then the 
Chu initiative can save money. See, it is just arithmetic, very 
simple to understand.
    Today's hearing is part of the same anti-clean energy, 
anti-progress agenda that Republicans have been pushing for the 
last 21 months. They have made this Congress the most do-
nothing Congress in history. And now they are trying to shut 
down Secretary Chu's grid modernization effort to make sure 
this is the most do-nothing Department of Energy in history, as 
well.
    Today's hearing is just the anti-clean energy opening act 
for the week. The main event is Friday, when Republicans roll 
out their No More Solyndras Act on the House Floor. That 
legislative monstrosity proclaims to end the Department of 
Energy loan guarantee programs, but actually plays favorites 
and allows $88 billion worth of coal and nuclear loan 
guarantees to go forward. So the bill should really be called 
the Only $88 Billion More for Coal and Nuclear No More 
Solyndras Act of 2012.
    Republicans actually have just two approaches to solving 
any problem this Nation faces. First, privatize it. Social 
Security, public lands, Medicare, privatize them. Second, if 
they are already privatized, then Republicans want to repeal 
any and all regulations related to it. Clean air, clean water? 
Forget it, they say. The free market will figure it out. It is 
radical. It is bad for most Americans. But at least it is 
ideologically consistent.
    In contrast, the Republicans' approach to the grid 
resembles Chinese central planning from the 1970s. They want 
the Federal Government to continue owning huge pieces of the 
transmission system, and they oppose operating it in the most 
modern, efficient manner possible. So, not only do Republicans 
support a Socialist electricity system, they support a 
backwards and inefficient Socialist electricity system, like it 
was in the old Soviet Union or China. The Republicans have to 
take bizarre positions for the sake of killing clean energy.
    Here is the reality. The reforms in Secretary Chu's memo 
are anything but radical. He is proposing proven, tested, 
effective practices that are standard for any other large, 
private grid operators in the United States. Let's just 
modernize. That is our message. But, unfortunately, the 
Republicans oppose it, because they want to keep the Socialist 
system in place that doesn't, in fact, have to improve 
anything.
    I yield back the balance of my time.
    [The prepared statement of Mr. Markey follows:]

     Statement of The Honorable Edward J. Markey, Ranking Member, 
                     Committee on Natural Resources

    Thank you, Mr. Chairman.
    This March, Secretary Chu issued a memo to the Power Marketing 
Administrations under his jurisdiction. In that memo, he outlined 
opportunities to modernize the grid that would also reduce costs to 
consumers.
    As it turns out, Secretary Chu is a pretty smart guy. And 
Republicans these days are predictable. Secretary Chu knew the 
Republicans would call a bunch of hearings on his memo and try to 
mischaracterize it. So he said right up top, in the second sentence of 
the memo:
    ``Taking greater advantage of energy efficiency, demand resources, 
and clean energy--WHILE AT THE SAME TIME REDUCING COSTS TO CONSUMERS--
requires a transition to a more flexible and resilient electric grid 
and much greater coordination among system operators.''
    We're here today talking about this memo again because some people 
doubt that part about REDUCING COSTS TO CONSUMERS. So let's break it 
down. Let's see what people are afraid of. Let's do the arithmetic.
          Energy efficiency: That's all about using less, 
        eliminating waste. That reduces costs.
          Demand response: That means lowering electricity 
        demand at peak times. You need to build fewer new power plants. 
        That reduces costs.
          Wider transmission planning, better control systems, 
        more frequent scheduling: The competition and increased 
        efficiency these upgrades bring more than pay for the upfront 
        investments.
          Renewable energy: New wind power is being contracted 
        for 3 cents per kilowatt hour right now in Western's service 
        territory. But never mind that. The Chu memo has NOTHING TO DO 
        WITH ELECTRICITY GENERATION. NOTHING. Power Marketing 
        Administrations don't own renewable energy and they don't 
        require anyone to purchase it. Should the grid be able to 
        accommodate renewables? Absolutely, there must be a level 
        playing field. And since renewable electricity is essentially 
        free to operate, wind and solar actually drive down the price 
        of electricity in markets. That reduces costs.
    If all the component parts potentially save money, then the Chu 
initiative can save money. It's arithmetic.
    Today's hearing is part of the same anti-clean energy, anti-
progress agenda that Republicans have been pushing for the last 21 
months. They've made this Congress the most ``Do Nothing'' Congress in 
history. And now, they're trying to shut down Secretary Chu's grid 
modernization effort to make sure this is the most ``Do Nothing'' 
Department of Energy in history as well.
    Today's hearing is just the anti-clean energy opening act for the 
week. The main event is Friday, when Republicans roll out their ``The 
No More Solyndras Act'' on the House floor. That legislative 
monstrosity proclaims to end the Department of Energy loan guarantee 
program, but actually plays favorites and allows $88 billion worth of 
coal and nuclear loan guarantees to go forward.
    Republicans usually have just two approaches to solving any problem 
this nation faces. First, privatize it. Social security, public lands, 
Medicare? Privatize them.
    Second, if it's already privatized, then Republicans want to repeal 
any and all regulations related to it. Clean air and clean water? 
``Forget it'' they say ``the free market will figure it out.'' It's 
radical and bad for most Americans. BUT . . . at least it's 
ideologically consistent.
    In contrast, the Republican approach to the grid resembles Chinese 
central planning from the 1970s. They want the federal government to 
continue owning huge pieces of the transmission system. And they oppose 
operating it in the most modern, efficient manner possible. So not only 
do Republicans support a socialist electricity system, they support a 
backwards and inefficient socialist electricity system.
    Republicans take bizarre positions for the sake of killing clean 
energy.
    Here's the reality. The reforms in Secretary Chu's memo are 
anything but radical. He is proposing proven, tested, and effective 
practices that are standard for other large, private grid operators in 
the United States.
    Let's not wait for the current system to fail before we implement 
the best available systems, technologies, and practices. Let's be open 
to modernization and engage constructively with Secretary Chu on how 
best to do it.
                                 ______
                                 
    The Chairman. I thank the gentleman for his opening 
remarks.
    For the panelists, I will remind you once again of how 
these lights work. Most of you are somewhat familiar with that. 
But when the green light goes on it means you have 5 minutes. 
And when the yellow light goes on it means you have a minute. 
And when the red light goes on that means your time has 
expired. And I would ask you to try to finish your statement. 
Now, all of you have submitted statements for the record. Your 
full statement will appear in the record, if you don't say it 
orally. So it will appear in the record.
    So, with that, we will start with Mr. Mark Crisson. And you 
are recognized for 5 minutes.

 STATEMENT OF MARK CRISSON, PRESIDENT AND CEO, AMERICAN PUBLIC 
              POWER ASSOCIATION, WASHINGTON, D.C.

    Mr. Crisson. Thank you, Chairman Hastings, Ranking Member 
Markey, members of the Committee. I appreciate the opportunity 
to testify before you today. My name is Mark Crisson. I am 
President and CEO of the American Public Power Association, or 
APPA. We are the national service organization for the Nation's 
more than 2,000 not-for-profit, community-owned electric 
utilities that serve more than 46 million Americans in 49 
States. Of these, approximately 600 of these public power 
systems in 33 States purchase hydropower from the 4 Federal 
Power Marketing Administrations, or PMAs.
    In total, 1,180 public power and cooperative systems 
purchase power from the PMAs. And the rates they pay for this 
marketed hydropower cover all the costs of generating and 
transmitting the power, including interest on the Federal 
investment in the projects, and ongoing operation and 
maintenance. In many cases, the power customers also subsidize 
other purposes of the dams, such as irrigation and recreation.
    As you know, in March of this year, Energy Secretary Chu 
sent a memo to the PMA administrators directing changes in the 
policies and operations of the PMAs. These proposals, however, 
were crafted without any consultation with the very customers 
they would most directly affect. Customer consultation at the 
regional level has long been a core principle of PMA operation, 
so the DOE approach was very troubling.
    Included in the changes proposed in this memorandum were 
concepts that could have a number of adverse impacts, including 
increasing power costs, altering the successful partnership 
between the PMAs and their customers, requiring participation 
in new and costly market programs in the West that could 
further erode State and local control of power costs, and 
creating a top-down decision-making process that moves 
decisions now made at the regional level to Washington, D.C.
    Soon after the April Committee hearing we learned that the 
first PMA to be impacted would be the Western Area Power 
Administration, or WAPA, and that a series of workshops would 
be held over the summer to garner stakeholder input. APPA and 
its members participated extensively in that process, as 
delineated in detail in my written testimony. Suffice it to say 
that the process did little to enhance our confidence in the 
process, or our understanding of the need for the proposed 
changes, and the shifting rationales presented by DOE since 
April have not served to clarify the ultimate goal of DOE.
    Furthermore, the timeline delineated by DOE for completion 
of the WAPA recommendations is December 31st, which we feel is 
an arbitrary and inadequate time frame to thoroughly consider 
such sweeping proposals.
    Given the course of the proceedings to this point, we find 
it hard to believe that DOE is genuinely interested in seeking 
customer input, or that it does not have a predetermined policy 
agenda it wishes to pursue, regardless of the views of the 
customers or the facts. And the facts, by the way, reveal that 
the PMAs are appropriately addressing the challenges of the 
integration of renewable resources, and that they operate and 
maintain reliable and resilient transmission systems. Rather, 
DOE seeks to institute a new regime for the PMAs, instead of 
coordinating with PMA customers to improve PMA operations 
within their congressionally mandated framework.
    We, therefore, recommend that DOE step back and start this 
process anew. Take this opportunity to plug in to the long-
established processes that identify the needs and objectives 
for each PMA. We urge them to take the time to engage in a real 
dialogue with the groups that will be primarily affected by any 
changes to the PMAs.
    First, they should examine, in conjunction with the PMAs 
and their customers, where needs exist within the system, and 
then work with that group to articulate clear goals and plans 
to address these needs. This process should be led by the PMAs 
and their partners, the PMA customers. Only through steps like 
these can DOE hope to foster meaningful and lasting change in 
this area.
    And this offer to work with DOE is not an empty gesture. As 
partners of the PMAs, the customers have every incentive to 
pursue good ideas that will increase efficiencies and reduce 
costs. In fact, most of the changes to the PMA's mission or 
authorities over time have originated with proposals from their 
customers.
    Should DOE not reverse course, APPA would ask the Committee 
to consider legislative and other oversight remedies, including 
language similar to the provision in Chairman Hastings's new 
hydropower bill, H.R. 6247, which would prohibit DOE from 
implementing the March 16th memo.
    We greatly appreciate the Committee's interest in this 
important issue, and the efforts you have undertaken to date. 
Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Crisson follows:]

             Statement of Mark Crisson, President and CEO, 
                American Public Power Association (APPA)

    Thank you for the opportunity to testify at this hearing to examine 
the impacts of Department of Energy Secretary Chu's March 16, 2012, 
memorandum on the federal Power Marketing Administrations (PMAs) and 
the steps that DOE has taken since release of the memo almost five 
months ago. My name is Mark Crisson, President and CEO of the American 
Public Power Association (APPA). APPA, based in Washington, D.C., is 
the service organization for the nation's more than 2,000 not-for-
profit, community-owned electric utilities. Collectively, these 
utilities serve more than 46 million Americans in 49 states (all but 
Hawaii).
    APPA was created in 1940 as a non-profit, non-partisan organization 
to advance the public policy interests of its members and their 
customers, and to provide member services to ensure adequate, reliable 
electricity at a reasonable price with the proper protection of the 
environment. Since two-thirds of public power utilities do not generate 
their own electricity and instead buy it on the wholesale market for 
distribution to customers, securing low-cost and reliable wholesale 
power is a priority for public power. Most public power utilities are 
owned by municipalities, with others are owned by counties, public 
utility districts, and states. APPA members also include joint action 
agencies (state and regional consortia of public power utilities) and 
state, regional, and local associations that have purposes similar to 
those of APPA.
    APPA advocates for policies that: ensure reliable electricity 
service at competitive costs; advance diversity and equity in the 
electric utility industry; promote effective competition in the 
wholesale electricity marketplace; protect the environment and the 
health and safety of electricity consumers; and safeguard the ability 
of communities to provide infrastructure services that their consumers 
require.
    Approximately 600 public power utilities in 33 states purchase 
hydropower from the four federal Power Marketing Administrations 
(PMAs). The PMAs market the hydropower produced at large federally-
owned dams operated by the U.S. Army Corps of Engineers (Corps) and the 
Bureau of Reclamation (BOR). Each of these public power utilities has a 
unique contractual arrangement with the PMA from which they receive 
power. Some of these utilities get all of their power needs met through 
the PMA, while others only get a portion--augmenting the federal 
hydropower with their own generation sources or those purchased from 
others, which include natural gas, coal, nuclear, other hydropower 
facilities and non-hydro renewable sources such as wind, solar, 
geothermal and biomass. What they have in common is that the rates they 
pay for the PMA-marketed hydropower cover all of the costs of 
generating and transmitting the power, interest on the federal 
investment in the project, and ongoing operation and maintenance. In 
some cases, the power customers also subsidize other purposes of the 
dams, such as irrigation and recreation.
    For the public power utilities that purchase hydropower marketed by 
the PMAs, this system of repayment of the federal investment, through 
rates charged to electricity customers has worked well for decades. As 
modifications and updates are made to federal dams, the power customers 
who receive the benefits of these upgrades repay the government for 
such upgrades. This principle, long-referred to as ``beneficiary 
pays,'' is a core underpinning of the PMAs' operations. Another 
principle is that of ``preference'' which is essentially a ``right of 
first refusal'' to access PMA power that has been granted under federal 
law to not-for-profit utilities--public power and rural electric 
cooperatives--and a few other not-for-profit entities such as military 
installations and publicly-owned universities. This sound public policy 
principle is based on the concept that our nation's river systems, and 
many of the dams that have been built on them, are public goods, and 
thus the benefits of these facilities must flow broadly to consumers on 
a cost-based, not-for-profit basis. This concept has had bipartisan 
support since the inception of federal hydropower in the early 1900s.
    The four PMAs--Bonneville Power Administration (Bonneville or BPA), 
Western Area Power Administration (Western or WAPA), Southwestern Power 
Administration (Southwestern or SWPA) and Southeastern Power 
Administration (Southeastern or SEPA)--market wholesale power to 
approximately 1,180 public power utilities and rural electric 
cooperatives in 33 states, serving over 40 million electricity end-
users. These 1,180 public power utilities and rural electric 
cooperatives are often referred to collectively as the ``PMA 
customers.'' They in turn serve their end-use electric consumers who 
are located in the following states, by PMA region: BPA: Washington, 
Oregon, Idaho, Montana (part). WAPA: Arizona, California, Colorado, 
Iowa, Kansas (part), Minnesota, Montana (part), North Dakota, Nebraska, 
New Mexico, Nevada, South Dakota, Texas (part), Utah, Wisconsin, 
Wyoming. SWPA: Arkansas, Kansas (part), Louisiana, Missouri, Oklahoma, 
Texas (part). SEPA: Alabama, Florida, Georgia, Illinois, Kentucky, 
Mississippi, North Carolina, South Carolina, Tennessee, Virginia.
    APPA members, as purchasers of significant quantities of wholesale 
power marketed by the PMAs, are directly impacted by changes to the 
``federal power program'' (the policies and laws that collectively 
govern the PMAs). The PMAs are based on a system of cost ``pass-
throughs,'' whereby federal investment is repaid, plus interest, 
through electricity rates. As the costs to the federal government to 
provide these hydropower services increase, wholesale and retail 
electricity rates are raised correspondingly. As a result of this 
relationship, APPA has consistently opposed unnecessary changes to the 
structure and mission of the PMAs that would have resulted in higher 
electricity rates for its members and their customers. These changes 
have often been attempts to either privatize the PMAs, or to raise the 
federal wholesale rates to market-based rates, as opposed to the cost-
based rate methodology under which the PMAs have operated successfully 
for decades, at no cost to the federal government. Today, however, PMA 
customers face a more subtle, yet equally problematic, challenge.

Background on Department of Energy Secretary Chu March 16, 2012, Memo 
        on the PMAs and Initial Customer and Congressional Response:
    On March 16, 2012, Department of Energy (DOE) Secretary Steven Chu 
released a six-page memorandum outlining several proposed changes to 
the PMAs (``March 16 Memorandum''). As APPA testified at the April 
hearing held by this Committee, portions of the March 16 Memorandum 
contain admirable goals, at least in the abstract. But these proposals, 
which promise to impose unnecessary and inappropriate cost increases on 
federal hydropower customers, and therefore on millions of retail 
electricity customers, were crafted without any consultation with the 
very customers they would most directly affect. Customer consultation 
at the regional level has long been a core principle of PMA operations. 
In all PMA projects, customers have paid for improvements to the 
systems that provide them with hydropower and will continue to do so, 
as required by the various PMA authorizing statutes. The lack of 
coordination by DOE with PMA customers--the group that will be 
primarily impacted--in crafting these proposed changes, was therefore 
startling. When combined with the secretive process by which the March 
16 Memorandum was created and the lack of specific directives, the 
entire effort was, and continues to be, quite troubling.
    Included in the changes proposed in this March 16 Memorandum were 
concepts such as construction of new transmission through third-party 
financing mechanisms and new borrowing authorities; ``improvement'' of 
the PMAs' rate designs; the institution of an energy imbalance market 
for the West; the creation of revolving funds for transmission 
improvements, and other changes described in the sections below.
    These plans, as introduced, were very short on specificity. They 
were described by Ms. Lauren Azar, the DOE Senior Advisor working on 
these issues, in written testimony to this Committee as ``foundational 
goals.'' APPA and its PMA-customer members had hoped that more 
specificity would soon be forthcoming. However, the March 16 
Memorandum's rollout was only the first step in a confusing and 
secretive process that could be described as, at best, poorly 
organized, and, at worst, misleading and misinformed. DOE has 
consistently shifted its rationale for its proposed changes to the 
PMAs. While DOE has used words such as ``collaboration'' and 
``transparency'' to describe its intentions for the PMA-change process, 
APPA believes this process has been full of shifting justifications and 
opaque processes. For example, below is a short timeline outlining 
DOE's shifting public justifications for undertaking this effort:
        Initial justification--March 16, 2012: The March 16 Memorandum 
        from Secretary Chu is released, having been crafted with no 
        customer input. As primary justification for these proposals, 
        Secretary Chu cites a need for greater integration of renewable 
        resources (wind and solar power) and a need to upgrade the 
        nation's transmission grid.

        Second justification--May 31, 2012: At a meeting of PMA 
        customers in Denver, Colorado, hosted by APPA and the National 
        Rural Electric Cooperative Association (NRECA), Ms. Azar reads 
        aloud from a May 30 blog posting by Secretary Chu. This 
        statement cites ``global competitiveness'' and enhancing 
        transmission to avoid repetition of the September 2011 
        blackouts in the Southwestern United States (see below) as 
        further justification for the proposed PMA changes (http://
        energy.gov/articles/america-s-competitiveness-depends-21st-
        century-grid).

        Third justification--July 9, 2012: In response to a letter to 
        Secretary Chu signed by 166 Members of Congress expressing 
        concerns about his plans for the PMAs, Secretary Chu cites 
        blackouts that occurred as part of a ``derecho'' weather 
        pattern in Washington, D.C., as further evidence of the need 
        for an upgrade of the PMAs' transmission systems.

        Fourth justification--July 24 through August 2, 2012 (during 
        the regional WAPA workshops--see below): Inappropriately 
        characterizing her conversations with the CEOs of APPA and the 
        National Rural Electric Cooperative Association (NRECA), Ms. 
        Azar cites her attendance (she appeared unannounced) at a 
        meeting of electric and nuclear utility CEOs who were 
        discussing emergency preparedness with the Secretaries of the 
        Department of Homeland Security and the DOE as an indication 
        that these CEOs, including APPA's and NRECA's, fully supported 
        the objectives of the March 16 Memorandum. She publicly cites 
        her involvement in this meeting, which was organized after 18 
        months of effort to discuss coordinated processes in the event 
        of a national disaster, as justification of the need for the 
        proposed PMA changes.
    In the hearing held on this topic in April, Members of the 
Committee sought to better understand the specific plans and rationales 
for the effort announced in the March 16 Memorandum. And, as mentioned 
above, so did 166 members of the House and Senate, as well as PMA 
customer representatives from public power utilities and co-ops at a 
meeting in Denver. These three processes--the hearing, a broadly-
bipartisan letter, and direct questions from PMA customer 
representatives to DOE and PMA staff--did little to enhance APPA's PMA-
customer members' understanding of DOE's specific plans for the PMAs. 
We did learn, however, that the first PMA to be overhauled would be 
WAPA, and that a series of workshops would be held over the summer to 
garner stakeholder input. Much of the rest of this statement will focus 
on this process, including the topics related to the March 16 
Memorandum that were discussed in the workshops. The statement will 
conclude by making recommendations to DOE and the Committee based on 
the process and substance of these workshops.

WAPA Workshops:
    WAPA markets wholesale power to approximately 287 public power 
systems in Arizona, California, Colorado, Iowa, Kansas (part), 
Minnesota, Montana (part), North Dakota, Nebraska, New Mexico, Nevada, 
South Dakota, Texas (part), Utah, Wisconsin, and Wyoming. WAPA serves 
over 5.5 million electricity end-users in the public power communities 
in these states.
    Six regional listening sessions/workshops were announced as part of 
DOE's processes for overhauling WAPA. APPA was immediately concerned 
when hearing of this announcement because these workshops were cast as 
including all PMA ``stakeholders,'' a term Ms. Azar had described as 
meaning any person or group with a past, current, or future/potential 
interest in changes to the PMAs. For decades, PMA customers have paid 
for PMA operations and would bear the most direct impact of any cost 
increases caused by these changes. Hence, the customers regard 
themselves as more than mere ``stakeholders'' of the PMAs. DOE's lack 
of understanding that PMA customers are, in effect, the founding 
partners of the PMAs was apparent in its release of the March 16 
Memorandum. This ignorance was further highlighted as DOE announced it 
would allow anyone with any interest whatsoever to attend workshops 
designed to discuss its vague PMA plans. Without first confirming its 
plans with the very PMA customers that agreed, decades ago, to enter 
into a partnership to create the PMAs, DOE effectively demonstrated its 
intention to move forward with or without PMA customer cooperation. 
This left the strong impression with the PMA customers that these 
regional meetings were more form than substance, intended as a ``check 
the box'' exercise.
    In similar fashion to the (lack of) introduction of the March 16 
Memorandum, DOE's webinar explaining the details for the upcoming 
workshops did little to inspire confidence that these meetings would be 
useful. In fact, it contained slides that had incorrect information 
about the PMAs' operations. The sign-up process for these workshops was 
confusing and was highlighted by changed registration dates, 
conflicting guidelines, and an overall lack of organization. So many 
questions were left unanswered that workshop attendees were forced to 
ask direct questions of the meeting organizers. It was only through 
these questions that customers learned that their contributed funds--
$100,000 or more--were being used to fund the very workshops they had 
been given so little information about and from which they had largely 
been excluded from the planning. To learn this at the beginning of the 
three-week workshop process was a further insult to PMA customers.
    The workshops and listening sessions did allow PMA customers and 
other stakeholders to discuss their views on several specific topics, 
as elaborated on below. Prior to providing more detail on this process, 
however, it is important to clarify WAPA's mission. In materials 
provided by DOE prior to the WAPA workshops, WAPA's historical mission 
is described as ``to market and deliver reliable, renewable, cost-based 
hydroelectric power and related services to its customers.'' Secretary 
Chu earlier stated in his May 30 blog post that ``the fundamental 
mission of the PMAs to provide electricity at cost-based rates--equal 
to the cost of generation and transmission--will not change.''
    The mission of the PMAs is not simply to provide wholesale 
electricity from hydropower at cost-based rates. Instead, any new 
actions taken by the PMAs must be in accordance with the standard 
established in Section 5 of the Flood Control Act of 1944, which 
provides that sales of wholesale electric power to PMA customers are to 
be made ``at the lowest possible rates to consumers consistent with 
sound business practices.'' The distinction between this language and 
the broader ``cost-based rates'' verbiage is critical. Without a 
standard specifying that rates are to be the ``lowest possible,'' the 
concept of cost-based rates allows for boundless, and potentially 
duplicative, mandates from DOE to the PMAs that would drive up the 
costs included in the rates. Therefore, any new initiative undertaken 
by WAPA must have an objective consistent with the obligations of WAPA 
to its customers, and must represent the lowest-cost means to achieve 
that objective.
    Each of the five regional workshops featured three break-out 
sessions with specific working groups. APPA will discuss each breakout 
and the topics covered in it separately.

Transmission Planning and Operations:
    This working group addressed the following two topic areas of the 
March 16 Memorandum: ``Improving PMA Existing Infrastructure'' and 
``Improving Collaboration with Other Owners and Operators of the 
Grid.'' The comments below focus on each of these issue areas.

Improving PMA Infrastructure:
    DOE statements made at the workshops and listening sessions with 
regard to the WAPA transmission system imply that the transmission 
system is in a greater state of disrepair than other parts of the 
national grid. Such a portrayal has served as a distraction from any 
actual evaluation of transmission improvements that might in fact be 
needed, and raises questions about DOE's understanding of WAPA's 
infrastructure.
    Examples of statements made by DOE on the state of the PMA 
infrastructure include Secretary Chu's statement in his May 30 blog, 
with regard to the PMAs, that ``[m]ost of the transmission lines and 
power transformers we depend upon are decades old and in many cases 
nearing or exceeding their expected lifespan.'' The Secretary's blog 
post further states that ``the PMAs will need to make many of the same 
types of investments that other privately held electric utilities will 
need to make, and in some cases are already making, if the United 
States is to remain economically competitive.'' (Emphasis added.)
    There is no evidence that WAPA and the other PMAs are out of step 
with other utilities or somehow not in compliance with federal policy 
regarding transmission investments. These statements ignore the large 
number of transmission upgrades WAPA has constructed, as detailed on 
its web site and in annual or quarterly reports. For example, WAPA's 
2011 Annual Report lists 47 transmission upgrade projects and three 
Transmission Infrastructure Program (TIP) projects totaling over 1,000 
miles. WestConnect, a transmission planning organization which includes 
WAPA along with a number of public power and cooperative customers 
among its members, regularly releases detailed ten-year transmission 
plans. According to WestConnect's 2012 Ten-Year Transmission Plan, 
there are almost a billion dollars of upgrades and new facilities 
planned for WAPA's system between 2012 and 2020. It is questionable 
whether DOE took into account in its statement these documented, 
planned upgrades.
    As discussed previously, the rationale for the Secretary's PMA 
directives has shifted from the integration of renewable energy to the 
prevention of power outages. In his July 9 response to the June 5 
letter from 166 Members of Congress, Secretary Chu stated:
        As of July 6, 400,000 customers remained without power in 
        sweltering heat due to the June 29, 2012 derecho storm that 
        swept through the mid-Atlantic and East Coast. Blackouts not 
        only cause significant economic losses, they are also a threat 
        to human health, especially when they occur during extreme 
        weather events.
    The Secretary further points to the San Diego blackout as ``a good 
example of what can happen when our Nation's electric sector is slow to 
respond to needed reforms.'' APPA agrees that blackouts, regardless of 
the causes, impose an immense burden on the public, whether these 
originate at the bulk power (wholesale) level or are the result of the 
effects of extreme weather on local distribution systems. However, 
conflating the June 29, 2012, derecho storm outages that brought down 
thousands of trees and the September 2011 blackout is not helpful in 
enhancing either public or congressional understanding of recent power 
outages or the measures that can and should be taken in response. 
Moreover, the storm outages that took place in the Midwest and Mid-
Atlantic states beginning on June 29, 2012, were distribution system 
(as opposed to wholesale, bulk power system level) events that took 
place over a wide area. WAPA and the other PMAs do not own or operate 
significant distribution facilities, but instead operate bulk power 
system facilities (nor is there any significant PMA presence in these 
regions--note list of PMA states on page 2 of this statement).
    With regard to the September 2011 outages, the Federal Energy 
Regulatory Commission (FERC) and the North American Electric 
Reliability Corporation (NERC) investigation into the outage concluded 
that this bulk electric system outage stemmed primarily from weaknesses 
in two broad areas--operations planning and real-time situational 
awareness, which are both essential to ensure reliable system 
operation. FERC and NERC, in their report ``Arizona-Southern California 
Outages on September 8, 2011, Causes and Recommendations'' specifically 
recommended, among other items, improved data sharing and 
communications between neighboring balancing authorities and 
transmission operators, improving real-time tools to constantly monitor 
internal and external contingencies, better identifying and planning 
for external contingencies, and accounting for the impact of facilities 
below 100 kV (kilovolts) on reliability. Secretary Chu in his May 30 
Blog post notes that DOE will be investigating ``the exchange of real 
time data with neighbors for situational awareness and the exchange of 
scenarios and models for operational planning.'' While this is a 
commendable effort and should be pursued, simply restating the FERC/
NERC recommendations in the blog post does not, however, mean that a 
broad array of DOE directives to the PMAs will improve reliability. 
Also, broad institutional ``reforms'' are not needed to respond to 
these events. Rather, existing system operators, particularly entities 
with responsibility for wide-area coordination and system operations, 
such as the Western Electricity Coordinating Council (WECC) Reliability 
Coordinator and California Independent System Operator, need to improve 
the execution of their responsibilities and keep local area system 
operators (such as WAPA) fully informed when extreme events take place.
    As John DiStasio, general manager and CEO of the Sacramento 
Municipal Utility District, stated in the July 29, 2012, The Sacramento 
Bee:
        The directives in the DOE memo would lessen reliability, all in 
        the name of efficiency. It's akin to increasing the number of 
        airplanes that can land on a runway in a given hour in the name 
        of efficiency, without taking into consideration unintended 
        side effects such as a reduction in safety.
    Ms. Azar added to this unrealistic portrayal of the PMA 
infrastructure at the workshops by repeatedly citing irrelevant 
statistics on the age of the wood poles on WAPA's transmission system. 
Ms. Azar's data is based in part on the age of the line and not the 
poles themselves. If a line is 50 years old, it does not mean that all 
of the poles are 50 years old. Poles are replaced as necessary. 
Moreover, there is a fundamental distinction between the economic and 
useful age of equipment. It would be cost-prohibitive to replace poles 
and equipment due to age only. What is important is how the system is 
performing. Like most utilities, WAPA has a program that, on a regular 
basis, inspects each and every pole on a given line. All poles that 
fail the inspection are replaced, and the reliability of the line is 
maintained at the high level that is expected. This standard utility 
practice implemented by WAPA ensures its system remains at a high level 
of reliability, with just one or two temporary outages on each line per 
year. Such outages are typically either momentary in nature (less than 
one second) or quickly returned back to service (a couple of minutes). 
According to the WAPA 2011 Annual Report, just 27 outages of 
consequence were reported on WAPA's entire system in 2011, most lasting 
less than 35 minutes.
    Not all miles of a transmission system can be new all the time. 
Prudent management of the system entails replacing the parts that are 
in the worst shape or the most overloaded, which are not necessarily 
the oldest. WAPA has continually replaced the equipment and wood poles 
that require replacement due to performance-related issues, while 
balancing the impacts on rates to keep the system reliable and 
affordable. Detailed data is available in WestConnect's Ten-Year 
Transmission Plan on a number of projects involving replacement of wood 
structures with steel 230 K monopoles. This Plan was released in 
February 2012, one month prior to the March 16 Memorandum.
    For transformers, the manufacturer plans for a 40-year life at full 
load. The life expectancy is directly related to the heavy continuous 
loading which causes the transformer to run at its maximum rated 
temperature. At that temperature, the heat eventually deteriorates the 
insulation, causing a failure. But most transformers idle along at far 
less than their full load rating and are only fully loaded during 
extremely high loading or during outages. Transformers that have 
regular oil testing and monitoring, along with other testing, have 
provided reliable service for decades after the 40 year ``expected'' 
life.
    Any formulation of new policies needs to be based on an accurate 
understanding of the status quo. The use of selected statistics to 
mischaracterize the current reality regarding WAPA's transmission 
system does not contribute positively to the debate. Rather, it raises 
additional concerns that the intent of DOE is to achieve predetermined 
policy outcomes, regardless of the facts ``on the ground.'' This is a 
flawed basis for determining optimal policies to provide electric power 
at the lowest possible rates to consumers consistent with sound 
business practices, as the statute requires. Formulating policies for 
the PMAs based on this incorrect assessment of WAPA's infrastructure 
raises a significant risk of layering additional costs on WAPA's 
customers without any establishment of the need to incur them.

Improving Collaboration with Other Owners and Operators of the Grid:
    Secretary Chu's March 16 Memorandum directs ``the PMAs to capture 
economies through partnering with others in planning, building, and 
operating the grid,'' including the implementation of an Energy 
Imbalance Market (EIM). The Secretary claims an EIM will ``capture many 
of the potential efficiencies that remain untapped in the Western 
Interconnection.''
    Although later communications from Secretary Chu do not mention the 
EIM, this concept was a topic at all of the workshops, and is actively 
being discussed by the PUC EIM, a taskforce established by the Western 
Governors' Association and comprised of state public utility 
commissioners (state utility commissions regulate retail--or 
distribution rates--and functions of investor-owned and cooperative 
utilities in most states). In contrast to Secretary Chu's foregone 
conclusion that an EIM will capture untapped efficiencies, there are 
significant uncertainties regarding the benefits and costs of an EIM. 
Such uncertainties indicate the need to proceed very cautiously on this 
measure, and to carefully evaluate other alternative methods to 
integrate variable energy resources.
    Thus far, the only fully completed analysis of the costs and 
benefits of an EIM in WECC was commissioned by the WECC staff and 
finalized last October--entitled ``WECC Efficient Dispatch Toolkit 
Cost-Benefit Analysis.'' The results of this analysis presented a range 
of the present value of net benefits over a 10-year period, with a high 
of a net benefit of $941 million and a low of a net cost of $1.25 
billion. Not only was the ability of an EIM to produce net benefits not 
proven, but there were a number of flaws in the analysis that could 
have reduced the projected benefits or raised the costs. The benefit 
analysis, performed by Energy and Environmental Economics, Inc. (E3), 
found the largest category of benefits to be the reduction in the need 
for ``flexibility reserves,'' which are generation resources standing 
by to come on line quickly when wind or solar resources drop off 
sharply, as often occurs. The reduction in flexibility reserves needs 
was assumed to result from access to a larger geographic array of 
renewable energy resources and a corresponding reduction in the overall 
variability of such resources. For example, if the wind or sunlight is 
low in one region of the EIM it might be greater in another area, thus 
reducing the total variability. But this benefit can only be fully 
achieved if there is adequate transmission capacity throughout the 
entire region, a highly unrealistic assumption. An April 2012 analysis 
by Argonne National Laboratory noted that the presence of transmission 
congestion could negate this benefit. Hence, the cost of the 
transmission facilities needed to reduce/eliminate such congestion 
would have to be assessed and included in the cost/benefit analysis.
    The measurement of the costs of an EIM, also commissioned by WECC 
and performed by Utilicast, LLC, was limited to the infrastructure 
(i.e., software, hardware, facilities, and equipment), rent, supplies, 
travel, and staff costs incurred by the market operator and market 
participants, which include local utilities, balancing authorities, 
generation owners and transmission providers. These costs, however, 
ignore the likelihood for an EIM eventually to evolve into a full 
Regional Transmission Organization (RTO), a construct that has been 
imposed in the East, California, Texas, and most of the Mid-West, but 
has been resisted in the Southeast, and all of the West, except 
California, because of the costs associated with such a construct and 
the skepticism in these regions about the competence of the Federal 
Energy Regulatory Commission (FERC) to prevent skyrocketing costs and 
market manipulation such as was seen in the western electricity crisis 
of 2000-2001. The complexities of the constantly changing market rules, 
lengthy stakeholder meetings, FERC proceedings, and settlement talks 
that are an inevitable part of an RTO would produce much greater 
infrastructure, labor and time costs than estimated by Utilicast. 
Consumers would also bear the additional cost of potential price 
increases from an EIM or eventual RTO. An APPA analysis of retail price 
data provided by DOE's Energy Information Administration found that, in 
2011, deregulated states located within RTOs had average retail 
electric rates that exceeded that of the remaining states by 42 
percent. (Report available at http://publicpower.org/files/PDFs/
RKW_Final_-_2011_update.pdf.)
    Another technical change that has already been implemented, but is 
not accounted for in this study or others that have been commissioned 
by WECC and the PUC EIM recently, is the use of what is known as 
``intra-hourly'' scheduling of transmission lines in order to more 
precisely dispatch generation from power plants where necessary. Since 
electricity is generated and consumed instantaneously, grid operators 
must constantly balance the supply and demand. With power generation 
that is variable (i.e., cannot be dispatched and controlled in the same 
manner as conventional sources of power) like wind and solar, more 
precise scheduling of transmission lines becomes necessary. Therefore, 
WAPA implemented intra-hourly scheduling in July 2011, and FERC, which 
regulates bulk power system activities, ordered in June 2012 that 
public utility (i.e.; investor-owned utilities) transmission providers 
offer such scheduling. Many of the benefits of an EIM will be captured 
by these new requirements for more precise scheduling and, conversely, 
many of the additional technical aspects to an EIM are likely to have 
significant costs. As FERC stated in Order No. 764, Paragraph 98:
        The Commission appreciates that implementation of other 
        reforms, such as intra-hour imbalance settlement, an intra-hour 
        transmission product, increasing the frequency of resource 
        commitment through sub-hourly dispatch, or the formation of 
        intra-hour imbalance markets, could yield additional benefits 
        for public utility transmission providers and their customers. 
        However, these additional reforms can have significant costs. 
        The Commission's review of the record in this proceeding 
        suggests that a more measured approach is appropriate to take 
        at this time. (Emphasis added.)
    In the midst of the attention given to the conflicting and dubious 
benefits estimates, little attention has been paid to the costs. The 
only data collected by the PUC EIM on costs consists of the incremental 
market operator costs that would be incurred if one of two existing 
RTOs, the Southwest Power Pool or the California ISO, were to operate 
the EIM. These estimates ignore individual utility infrastructure and 
labor costs, not to mention the additional eventual likely cost of 
moving to a full RTO. APPA is greatly concerned that these 
underestimated costs will be paired with the overestimated benefits to 
justify implementation of an EIM.
    Although APPA agrees that FERC is unlikely to unilaterally impose 
an RTO on the West, the history of existing RTOs reveals a step-by-step 
evolution into more complex and problematic markets, rather than a 
``grand design'' from the outset. In recent years, FERC has even 
overturned carefully negotiated settlements regarding the rules 
applicable to such RTO markets, to the detriment of consumers. For a 
more detailed discussion, see RTO Capacity Markets and Their Impacts on 
Consumers and Public Power, APPA Fact Sheet, February 2012 available at 
http://www.publicpower.org/files/PDFs/RTOCapacityFactsFeb2012FS.pdf.
    In ``Corporate Structure and Governance of Western Energy Imbalance 
Market,'' a paper prepared by Wright & Talisman, PC, possible measures 
to guard against an unwanted RTO or RTO-like markets or characteristics 
are proposed. Although APPA greatly appreciates Wright & Talisman's 
efforts in this area, we remain concerned that an EIM will move forward 
based on an overreliance on such illusory safeguards. Two measures are 
proposed in this paper. First, the paper proposes that the structure of 
the EIM would assure that the market administrator would not assume 
control of any entity's transmission facilities, meaning that the EIM 
would not meet the definition of an RTO; it would, however, be 
administering a wholesale power market, which would presumably be 
subject to FERC's jurisdiction over sales for resale of electric power 
in interstate commerce. Second, the membership agreement would include 
a provision protecting against ``mission creep'' and the evolution of 
an EIM. This second tier safeguard is crucial, but unlikely to hold up.
    The Wright & Talisman paper offers only the following description 
of this secondary safeguard:
        It is feasible to address this matter in the Members Agreement, 
        either by including restrictive provisions or by establishing 
        voting levels to allow mission expansion. If participants favor 
        restrictions, such restrictions could be at the heart of 
        providing assurance that the EIM will be only an EIM, until and 
        unless there is broad consensus for change. Until and unless 
        such expansion of the organizational role is approved, the 
        scope and services of the EIM in Western markets would remain 
        unchanged.
    This language is hardly an assurance that the region would be 
adequately protected from the development of an RTO. First, there would 
need to be an agreement among all of the prospective members to include 
such language in the Members Agreement upon formation of an EIM, hardly 
a certainty. Second, the paper acknowledges that there could be an 
undefined ``broad consensus for change.'' How would such a consensus be 
defined? Would public power have adequate representation in the 
decision-making? Would public power and other similarly-situated 
entities have sufficient staff and other resources to participate in 
the lengthy proceedings leading up to the determination of such a 
consensus? The past experience of APPA and its members in RTO regions 
is that what happens in one RTO does not stay in that RTO; rather, 
``innovations'' jump from one to another. Moreover the lop-sided 
resources that generators and their allies bring to RTO stakeholder 
processes mean that consumers and those who serve them often are steam-
rolled, and they bear the consequences in the form of increased rates 
and decreased supply options. Hence, while the measures set out in this 
paper are no doubt well-intentioned, they should not be ``taken to the 
bank.''
    There are also factors specific to WAPA that may impede the 
development of an EIM, and that are not being explored by DOE or the 
PUC EIM. First, transmission constraints and the absence of adequate 
interconnections with some regions, such as WAPA's Sierra Nevada 
region, may limit the ability to dispatch resources across the region. 
Second, there are statutory and other constraints on the availability 
of hydropower for dispatch under an EIM. Water delivery and maintaining 
water quality have priority over the generation of electricity from 
hydropower, and electricity from the hydropower must then be made 
available first to public power and rural electric cooperative 
preference customers. Also, the role of BOR is critical, as it operates 
and maintains the hydropower projects, and they, therefore, must agree 
to the participation of these facilities in an EIM. To APPA's 
knowledge, DOE has not asked the BOR (or to the Corps) its views about 
participation by hydropower in an EIM, and possible issues that could 
arise.

Design of Transmission Services/Integration of Variable Energy 
        Resources:
    It should first be noted that the development of wind and solar 
power is not part of WAPA's historical mission. Nevertheless, WAPA has 
made substantial efforts to integrate renewable energy in consultation 
with the PMA customers. As discussed previously, WAPA has implemented 
intra-hourly scheduling. WAPA and a number of balancing authorities 
(electric utilities or other entities charged with ``balancing'' the 
availability of generation and transmission in a given sub-region) in 
the region are also developing and implementing a number of highly 
technical processes to enhance the integration of variable wind and 
solar power.
    WAPA's customers are also taking significant steps to expand their 
use of electricity generated from renewable sources. In 2011, WAPA 
customers provided 13.8 million megawatt-hours of renewable power, 
almost one million megawatt-hours more than in 2010. These efforts are 
not acknowledged by Secretary Chu or Ms. Azar, outside of the following 
statement made by the Secretary in a footnote to his Memorandum: ``I 
recognize that, in some cases, one or more of the PMAs may already be 
accomplishing the directive.'' No further details are included with 
this vague acknowledgement.

Energy Efficiency and Demand Response:
    The March 16 Memorandum directs the PMAs to create rate structures 
that incentivize programs for energy efficiency and demand response, 
the integration of variable resources, and preparation for electric 
vehicle deployment.
    APPA is concerned that these ``incentives'' and any restructuring 
of the PMA rates to incorporate them will artificially and 
inappropriately raise the cost of providing federal hydropower to 
preference customers, resulting in wholesale and retail rate increases. 
This proposal could well mean that PMA customers would be subsidizing 
wind development and energy efficiency and demand response programs, 
whether or not they receive any benefits from these programs.
    Furthermore, energy efficiency, demand response, and electric 
vehicle integration are primarily retail issues, not wholesale. As 
discussed above, the PMAs provide power at wholesale, while retail 
decisions are made at the local and state levels. Secretary Chu's 
proposal would thus substantially encroach on the jurisdiction of state 
and local decision-making bodies, including public utility districts, 
municipalities, and cooperative boards of directors. Moreover, there is 
no evidence that such encroachment is warranted given the increasing 
levels of customer activities in this area. As with renewable energy, 
WAPA's annual report provides summary data on the achievements of its 
customers in the area of demand-side management, which includes both 
energy efficiency and load-management (i.e., shifting energy demand to 
different time periods to reduce costs). In 2011, WAPA customers 
reported a savings of 2.7 million megawatt-hours from demand-side 
management, an increase of one million megawatt-hours from 2010.

Transmission Authorities:
    Section 1222 of Energy Policy Act of 2005 (EPAct05) authorizes WAPA 
and the Southwestern Power Administration (SWPA), and the Transmission 
Infrastructure Program (TIP) created in the 2009 American Reinvestment 
and Recovery Act (ARRA) authorizes WAPA, to partner with non-customer 
groups to develop transmission on their systems.
    The Section 1222 authority has rarely been used (although WAPA and 
SWPA are currently evaluating applications for its use). However, 
initial experiences with these applications reveal that even the 
administration of Section 1222 can impose significant burdens on the 
PMAs. For example, APPA understands that the processing of the Clean 
Line application by SWPA has consumed a significant portion of budget 
and staff time, which must come out of SWPA's own budget and, in turn, 
the electric customers of public power and cooperative utilities. This 
diversion of staff time and resources has greatly constrained SWPA 
staff's availability to review proposals for new power contracts, 
leading SWPA staff to simply renew preference customers' existing 
contracts coming up for renewal for one-year time frames. Finally, 
there appear to be conflicting interpretations as to whether the 2015 
sunset provision applies merely to the cap on funding or applies more 
broadly to the ability to take contributed funds or to the program 
itself. APPA's position is that Congress intended the sunset of the cap 
at the end of 2015 before accepting any third-party funds contributed 
after that date.
    There are also reasons for concern with the TIP, the implementation 
of which was criticized in a DOE Inspector General report released in 
November 2011 (http://energy.gov/sites/prod/files/OAS-RA-12-01.pdf). 
That report cited instances of mismanagement and inefficiency within 
the program, including a lack of timely, integrated cost and schedule 
information that would allow WAPA to adequately monitor progress of the 
first project funded (the Montana Alberta Tie Line) and the absence of 
a risk-based management reserve to fund unanticipated cost overruns.
    Despite both the explicit flexibility in Section 1222 for the 
relevant PMAs to exercise discretion regarding the use of this 
authority and the problems identified with the TIP program, Secretary 
Chu apparently seeks to mandate the use of these programs by 
administrative fiat. EPAct05 and the ARRA authorized, but did not 
mandate, third-party financing mechanisms, clearly allowing the PMAs, 
in collaboration with their customers, to balance the interests of the 
statutory preference customers with other interests in developing 
third-party financing proposals. In a new centralized mandatory regime 
directed from DOE headquarters, however, PMA customers could 
potentially be required to take on the costs of system-wide 
transmission upgrades not needed to serve them. Any benefit they would 
receive from these improvements would certainly not be commensurate 
with the costs they would be forced to pay. This would be a blatant 
violation of the ``beneficiary pays'' principle, discussed above.

PMA Customers Expect and Deserve Transparency Throughout This Process:
    As noted above, the development and release of the March 16 
Memorandum and the subsequent workshops and listening sessions have not 
allayed the concerns of APPA and the PMA customers. A webinar held this 
past Friday, September 7, by the Joint Outreach Team comprised of three 
paid consultants and numerous WAPA staff, was troubling given the 
breadth of staff and resources being dedicated to this effort--which is 
to be finalized by the end of the calendar year for no practical 
reason. In addition, a recent incident in the SWPA region undermines 
our faith in the process even further: DOE notified PMA customers in 
the SWPA region in mid-August that they would be hosting a session to 
discuss Section 1222 of the Energy Policy Act of 2005 (mentioned above) 
today, September 11, in Branson, Missouri. Despite the short notice and 
the limited details about the meeting, many SWPA customers made plans 
to attend--in many cases rearranging schedules, purchasing plane 
tickets, and reserving hotel rooms. Less than two weeks out from the 
meeting, these same PMA customers were informed by DOE that it had been 
cancelled because other ``stakeholders'' were unable to attend given 
the short notice. To date, the meeting has not been rescheduled.
    Given the course of the proceedings up until now, we find it hard 
to believe that DOE is genuinely seeking customer input, or that it 
does not have a predetermined policy agenda it wishes to pursue, 
regardless of the views of the customers or the actual facts ``on the 
ground.'' We are also concerned that the WAPA process could be a 
template for the other regions. The scheduling of the SWPA meeting on 
short notice then the abrupt cancellation of that meeting is also 
troubling.
    To change this dynamic, APPA urges DOE to be transparent throughout 
the remainder of this process. To that end, the public should be 
provided and allowed to comment on both the draft and final versions of 
the recommendations of DOE and WAPA staff to the Secretary. DOE's 
failure to grant this request would not be in keeping with the 
Administration's commitment to new levels of openness and transparency 
in government.
    In the pre-read materials for the WAPA workshops, DOE stated that, 
at the workshops' conclusion, it would use the feedback received when 
developing draft recommendations to Secretary Chu regarding the 
application of the March 16 Memorandum to WAPA. DOE states further 
that, ``[a]fter developing draft recommendations, the JOT will again 
seek stakeholder input on the draft recommendations before finalizing 
and submitting its recommendations to Secretary Chu sometime in the 
fall.'' DOE has made clear in the pre-read materials that it will make 
public its staff's draft recommendations for comment. In the webinar 
held on September 7, staff stated that there will be a 30-day comment 
period on the draft recommendations after publication in the Federal 
Register. APPA believes that a 60-day comment period is the minimum 
that due process would require, given the significant number of hours 
the PMA customers devoted to the process and the extensive record that 
was established.
    DOE staff has not, however, made clear that it will make public the 
final recommendations submitted to Secretary Chu. Asking the PMA 
customers and others to participate in this time-consuming and 
resource-intensive process and then not sharing the final 
recommendations publicly would represent a grave disregard for those 
who took the time to participate, and would further bolster the view 
that the entire series of meetings and comment process were mere 
``check the box'' exercises. If these final recommendations are 
expected to be the precursor to any proposed changes to WAPA's 
operations or rates, DOE staff should make public the final 
recommendations submitted to Secretary Chu.
    Finally, any recommendations from DOE staff to Secretary Chu, in 
and of themselves, cannot result in any changes to WAPA's operations or 
rates. WAPA and DOE must operate within the statutes applicable to the 
PMAs. DOE cannot propose to make any changes affecting the operations 
of the PMAs without complying with the relevant legal and rulemaking 
processes, including those required by the DOE Reorganization Act and 
the Administrative Procedure Act. Depending on the actual 
recommendations, congressional action may well be required.

Conclusion and Recommendations:
    The PMAs' are an ideal example of a successful public/private 
partnership. They were created in coordination with the customers they 
still serve today, which in turn repay the federal investment in these 
projects. They are subject to many congressional authorities and must 
help their customers meet many obligations, all while keeping costs at 
the ``lowest possible'' level. Rather than demonstrating problematic 
performance records, the PMAs are examples of government projects 
successfully accomplishing their statutory requirements. Instead of 
targeting a specific and necessary fix, DOE's proposals for WAPA and 
the other PMAs are simply solutions in search of problems. Instead of 
coordinating with PMA customers to improve PMA operations within their 
congressionally mandated framework, DOE seeks to institute a new regime 
for the PMAs, outside the scope of their original purposes altogether.
    Some broad goals laid out in the March 16 Memorandum for the PMAs, 
from modernizing and increasing the efficiency of the grid to 
integrating renewable power to preventing future blackouts in all 
regions of the country, are admirable. The process by which they have 
been announced and initiated, however, has been characterized by DOE's 
apparent unwillingness even to acknowledge, much less evaluate and 
incorporate, the accomplishments of the PMAs in these areas. Similarly, 
DOE seems to have paid little more than lip service to the PMAs' 
statutory obligations to their customers, and the costs and need for 
these directives. Finally, DOE has ``moved the goal posts'' several 
times in terms of the stated purpose of the March 16 Memo such that it 
is difficult to ascertain the true impetus and goals of the proposals. 
If the most recent statements by Secretary Chu and Ms. Azar are to be 
followed, then the impetus of the memo is for the PMAs to better 
prevent blackouts (also known as improving ``reliability''). While 
laudable, there are numerous, well-established processes in place to 
address electric reliability at the bulk power system level. In 
addition, the PMAs' total transmission footprint only encompasses eight 
percent of the entire transmission system of the continental U.S. This 
limited ability to impact bulk power system reliability underscores 
that the PMAs must work through existing processes and institutions to 
ensure regional reliability. This is another case where a new process 
is neither necessary nor appropriate.
    APPA therefore recommends that the DOE step back and start this 
process anew, and essentially ``plug in'' to the long-established 
processes that identify the needs and objectives for each PMA. First, 
DOE should examine, in conjunction with the PMAs and their customers, 
where needs exist within each system. Then, it should allow the PMAs to 
work with their customers to articulate clear goals and plans to 
address these needs. These steps should build upon the PMAs' ongoing 
activities, without saddling the PMA customers with excess costs. This 
process should be led by the PMAs and the primary ``stakeholders''--PMA 
customers. APPA and its PMA customer members urge DOE to take the time 
to engage in a dialogue with the groups that will be primarily affected 
by any changes to the PMAs. Only through steps such as these can DOE 
hope to foster meaningful change in this area.
    Should DOE refuse to pull back from the path they have taken thus 
far, APPA would ask the Committee to consider legislative remedies, 
including language similar to a provision in Chairman Hastings' new 
hydropower bill, the Saving Our Dams and New Hydropower Development and 
Jobs Act, which would prohibit DOE from implementing the March 16 Memo 
and/or language such that was included in the House-passed version of 
the Energy and Water Development Appropriations bill for FY 2013 to 
prohibit the use of funds to implement the memo. While the latter is 
outside of this Committee's direct jurisdiction, we recognize that a 
strong dialogue on this issue has occurred between this Committee and 
the Appropriations Committee, and would urge such dialogue to continue 
as opportunities arise when the appropriations process is reengaged in 
2013.
    We greatly appreciate the Committee's interest in this important 
issue and the efforts you have undertaken to date.
                                 ______
                                 
    The Chairman. Thank you, Mr. Crisson, for your testimony.
    And I will recognize Mr. Scott Corwin, Executive Director 
of the Public Power Council out of Portland, Oregon, hello.

STATEMENT OF R. SCOTT CORWIN, EXECUTIVE DIRECTOR, PUBLIC POWER 
                   COUNCIL, PORTLAND, OREGON

    Mr. Corwin. Thank you, Mr. Chairman, Ranking Member Markey, 
members of the Committee. It is nice to be with you again. 
Greetings from the Northwest. I am the Executive Director of 
the Public Power Council, and we represent preference 
customers, the utilities that purchase power from the 
Bonneville Power Administration. Our members are cities, public 
utility districts, and rural electric cooperatives spread all 
across the Northwest.
    I stated previously that some of the Secretary's goals are 
certainly laudable. And, in fact, there is already a lot of 
work in the Power Marketing Administration regions on some of 
these areas involving a lot of the parties. So at the Committee 
hearing on April 26th I did observe, I thought, the March 16th 
memorandum appeared to be a solution in search of a problem, 
since the Power Marketing Administrations are already leaders 
in pursuit of forward-looking energy policy.
    Their leadership arises, however, from the region, and is 
derived from the many statutory directives that they already 
follow. While the Department has offered varying explanations 
for its initiative, and has conducted several workshops in the 
footprint of the Western Area Power Administration, I don't see 
more clarity or compelling rationale today than there was at 
the beginning of the process for another DOE process on these 
matters, targeting Power Marketing Administrations.
    PPC has closely monitored the WAPA efforts, since the 
Department stated that BPA might be the next focal point. And 
as part of our monitoring, I attended the workshop in Loveland, 
Colorado, and read the other materials. And I drew a couple of 
conclusions from those.
    First, I think that DOE is now only beginning to understand 
the relationship between the PMAs and their customers. Power 
Marketing Administration customers are not just another 
stakeholder group. Our relationship with the agencies is 
embedded in statute. We are legally and contractually bound to 
repay the cost of the Federal hydropower system. And this is a 
partnership. And DOE's failure to understand that dynamic up 
front, I think, was a key problem.
    Second, DOE does not seem to fully understand the rate-
setting standards for the PMAs, or their importance. We do 
appreciate that the Department acknowledged up front the 
importance of cost-based rates. But the statutory rates--go 
beyond simply cost-based rates. The key is, what are those 
costs? Federal law requires PMA rates to be the lowest possible 
rate consistent with sound business principles. So costs are 
incurred only when they produce reciprocal and necessary 
benefit.
    Third, I think the initiatives, policies, and processes 
arising from the memorandum are duplicative of our existing 
efforts, as I noted. And this appears to be the case in WAPA, 
from what I have seen. But I know it would be the case with 
respect to BPA. If applied to BPA, we would be creating added 
efforts and processes that parallel efforts already underway. 
We would have the same people who are already struggling to 
keep up with the workload on these very complex issues, 
discussing the same topics at redundant meetings, putting 
enormous strain on limited resources, and I believe threatening 
the progress that is underway on the very matters of interest 
to the Department of Energy.
    In light of these and other concerns, PPC appreciates and 
extends its thanks to the many Members of Congress, especially 
those from the Northwest, who have raised these concerns with 
the Department. And especially, also, the Chairman's recent 
bill that Mr. Crisson mentioned, putting a restriction on 
funding in the bill. That also provides many good provisions 
for promoting renewable hydropower.
    To conclude, the Power Marketing Administrations and their 
utility customers and, indeed, many other regional parties, 
have worked very well together for 75 years in a regionally 
focused, bipartisan, collaborative process of policy-making. 
And, in fact, many of us will be at Bonneville Dam this 
Saturday to note at an event the 75th anniversary of the 
Bonneville Power Administration. Together, the PMAs and their 
customers have created an impressive record, and continue to 
address the many new challenges facing the energy industry, 
with more progress being made every day. A DOE role that is 
supportive, rather than prescriptive, would allow us to 
continue to get the job done right.
    Thank you very much for the opportunity to testify today.
    [The prepared statement of Mr. Corwin follows:]

 Statement of R. Scott Corwin, Executive Director, Public Power Council

    Good morning, Chairman Hastings, Ranking Member Markey, and Members 
of the Committee. My name is Scott Corwin. I am the Executive Director 
of the Public Power Council (PPC). We are a trade association 
representing the consumer-owned electric utilities of the Pacific 
Northwest with statutory first rights (known as ``preference'') to 
purchase power that is generated by the Federal Columbia River Power 
System and marketed by the Bonneville Power Administration (BPA).
    At the Committee's April 26 hearing, I observed that the 
Secretary's March 16 memorandum appeared to be a solution in search of 
a problem. The power marketing administrations already are leaders in 
pursuit of forward-looking energy policy. But, their leadership arises 
from regional initiatives that are derived from the many statutory 
directives they already follow. While the Department has offered 
varying explanations for its initiative, issued additional written 
materials, and conducted several workshops in the footprint of the 
Western Area Power Administration (WAPA), there is no more clarity, nor 
compelling rationale, today than there was at the beginning of this 
process.
    A variety of justifications have been given--ranging from renewable 
energy development to electric system reliability. However, these 
justifications do not hold up in light of a factual review of the 
status of other processes already underway in the PMA regions. While 
meetings and conferences on energy topics in all corners of the country 
have grown exponentially in recent years, implementation of the 
Memorandum's objectives appear to have created another set of meetings 
that were mostly for information only, or were redundant of other 
efforts, or both.
    As you know, the Department's efforts to date have focused on the 
WAPA. While BPA has not been a direct participant in this process, PPC 
has closely monitored this effort since the Department has stated that 
BPA could be the next focal point. As part of our monitoring efforts, I 
attended the July 31, 2012 DOE workshop in Loveland, Colorado. The 
conclusions I have drawn from that session and my observation of the 
rest of this initiative are:
        1.  DOE is only now beginning to understand the relationship 
        between the PMAs and their customers. PMA customers are not 
        simply another stakeholder group. Our relationship with the 
        PMAs is embedded in statute. We are legally and contractually 
        bound to repay the costs of the federal hydropower system. In 
        many cases, we also shoulder the costs of other features of the 
        multipurpose dams that generate federal hydropower. This is a 
        partnership, and DOE's failure to understand that dynamic up-
        front was a key flaw in this exercise.
        2.  DOE does not fully understand the rate-setting standards 
        for the PMAs or their importance. We appreciate that the 
        Department has acknowledged the importance of cost-based rates. 
        But the statutory rate standards go beyond simply ``cost-based 
        rates.'' Federal law requires PMA rates to be ``the lowest 
        possible rate consistent with sound business principles.'' This 
        more detailed definition makes clear that: costs should be 
        incurred, and added to PMA rates, only when they produce 
        comparable and necessary benefits; PMAs policy and acquisition 
        decisions should be ``least-cost'' and PMAs should be 
        conservative in their business decisions. A proper application 
        of this standard would obviate some of the policy initiatives 
        outlined in the Secretary's memo.
        3.  The initiatives, policies and processes arising from the 
        Memorandum would duplicate existing efforts. At the beginning 
        of this process, PPC and others noted that some of what DOE 
        seemed to be driving toward was already underway in the 
        Northwest. The closer I review this effort, the more apparent 
        it becomes that, if applied to BPA, we would be creating new 
        efforts and processes that parallel efforts already underway. 
        We would have the same people, discussing the same topics, 
        putting enormous strain on limited resources. What this tells 
        me is that DOE wasn't able to understand what is occurring in 
        the region, or it doesn't like the expected conclusions and is 
        hoping a second bite of the apple will produce a different 
        answer.
    PPC appreciates and extends its thanks to the many members of 
Congress of both parties, especially those representing us in the 
Northwest, who have weighed in with the Department of Energy regarding 
the Memorandum. We also offer our thanks to members of the 
Appropriations Committee for including funding prohibitions in 
legislation and to Chairman Hastings for his recent introduction of 
H.R. 6247 doing the same, and including many other provisions 
beneficial to clean, renewable hydropower.

Background on the Nature of PMAs
    For generations people have gathered around the great waters of the 
Northwest for food, for transportation, for irrigation, for recreation, 
and then for power. As in other areas with great waterways, this 
uniquely public resource of navigable water creates a unique source of 
clean and renewable power to be shared among the citizens of the region 
from whence that power was derived. Thus were formed the Power 
Marketing Administrations to ensure the power value of these public 
resources was sent to those within the region best able to pass the 
benefits through to the end consumer.
    The PMAs and the treasured assets with which they are entrusted, 
being funded regionally, are not just another tool for federal policy 
pursuit. These are statutory creatures with a rich history from which 
evolved specific missions, specific goals, and specific purposes. 
Because of the public and regional nature of the assets, the process 
around them is very public and regional. In a sense, the people were 
asked to take ownership and stewardship of the mission for these local 
assets, and their representatives in Congress likewise work to protect 
the assets and the needs of the citizens within the region.
    BPA and its customers have worked and struggled together with the 
Army Corps of Engineers and the Bureau of Reclamation to keep this 
power supply reliable and affordable while fulfilling myriad statutory 
and regulatory mandates. We have nurtured this incredible renewable 
resource of hydropower, and it has helped enable new renewable 
resources. We have achieved staggering levels of energy conservation to 
make more efficient use of existing resources. And, we have become the 
world's foremost experts in anadromous fish passage.
    In recent decades, we've been faced with a host of new challenges 
in the form of volatile energy markets, transmission constraints, new 
intermittent generation, environmental concerns including emissions and 
renewable portfolio standards, a renewed focus on system reliability, 
energy security concerns, and unstable economic conditions. The PMAs 
have met these challenges and are forging ahead into the new frontier 
as well as any large utility can in this setting.
    This Saturday, there is a celebration at Bonneville Dam marking the 
75th Anniversary of BPA. Over this time, the primary mission of BPA is 
and always has been to provide reliable electricity at affordable 
prices. Throughout this history the agency has accomplished this 
mission well, partnering with consumer-owned utilities to bring 
economic benefit to citizens of the region through cost-based power. 
Today, BPA must continue to pursue its core obligations as it evolves 
to meet new challenges.
    To fully understand why consumers are very concerned about 
potential changes to the mission or function of PMAs, one must truly 
understand how PMAs work with their customers. While federal in nature, 
BPA is not supported by taxpayer dollars. Rather, customers pay for all 
of the power costs incurred by BPA. The agency is a pass-through entity 
with respect to its costs and obligations. And, consumer-owned 
utilities likewise must pass costs on to their consumers. Because of 
this, extensive regional processes have grown up around budget and rate 
setting, and any major policy that the agency pursues.
    Power costs borne by PMAs are borne by the region, so the regional 
view weighs heavily in the decision-making. Along with this regional 
consideration is a close relationship with the region's representatives 
in Washington, D.C.--the Northwest Congressional delegation. In a 
simplified analogy, if the power customers who have paid for the 
Federal Columbia River Power System are the shareholders, the region's 
Congressional delegation is viewed as the Board of Directors. These 
directors have a long history of working in a bipartisan way for the 
good of the region. The Northwest Congressional delegation has 
responded time and again to defend the value of the Columbia River 
system.
    We have found that directives from outside the region rarely work 
as well as solutions crafted by regional parties with knowledge of the 
unique nature of each power system. Lending context to ratepayer 
concerns about the DOE memo is the long history of proposals to shift 
the mission of the PMAs, and shift the value from these regionally 
funded entities. Over the years this has taken the form of federal 
deficit reduction proposals that would have the effect of imposing a 
regional tax to benefit the federal budget. It has also taken the form 
of pressure from FERC and others to create new forms of standardized 
markets or bureaucratic institutions that threatened to add higher 
costs to customers in exchange for worse access to power from the 
federal system.

Cost Concerns
    While the Northwest has been hit hard during the last few years, 
BPA, with its legally mandated cost-based rates, has been an important 
economic engine. Any additional costs on BPA customers without 
corresponding benefits risks sacrificing the power rates that have been 
a lifeline for the Northwest economy. After recovering some from the 
enormous increase following the West Coast energy crisis in the last 
decade, BPA power rates have started to go up again with an almost 
eight percent increase last year, and potential for a double digit 
increase next year.
    Under statute, BPA has an imperative to focus on the least-cost 
means of achieving policy objectives that fall within its authority. 
Redesigning rates to achieve various policy goals has the potential to 
threaten the important rate design principle of ``cost causation'' in 
which costs are paid by the parties that cause the action. Direction to 
pursue policy objectives that would impose costs on BPA ratepayers 
without offsetting benefits is a dangerous threat to the region.

BPA Processes and Customer Achievements
    BPA continues to achieve greatly in the areas of the Memorandum's 
focus without new statutes or directives.
          BPA has achieved the highest rate of wind penetration 
        of any balancing authority in the country (42 percent by 
        generation to peak load). This spring, BPA's system passed the 
        mark of integrating 4,700 megawatts of wind generation, and 
        expects to have 5,000 megawatts of this variable resource 
        connected to its system by 2013, several years ahead of 
        estimates. This is a ten-fold (1000 percent) increase over the 
        amount of wind on the BPA system in August of 2006.
          BPA and its customer utilities achieved 130 average 
        megawatts of energy efficiency last year, exceeding targets and 
        adding to the nearly 5000 average megawatts of efficiency 
        achieved by the Northwest region since passage of the Northwest 
        Power Act in 1980. In addition, BPA now has a tiered rate 
        structure that effects efficiency, and there are dozens of 
        demand response projects underway in the Northwest.
          BPA owns and operates over 15,000 circuit miles of 
        high voltage transmission lines. The agency responds to new 
        needs and requests through extensive regional processes that 
        analyze many considerations such as environmental impact, 
        system operational impact and reliability, cost, risk, 
        potential for recovery of cost, feasibility, and alternative 
        options. As of the start of the fiscal year, BPA had underway 
        217 miles of new 500 kilovolt lines, 82 miles of rebuilding for 
        230 kilovolt lines, and 3 new substations.
          BPA and its customers are involved in myriad 
        processes developing solutions to issues relating to energy 
        efficiency, integration of renewable resources, development of 
        possible imbalance services constructs or imbalance markets, 
        open access tariff development, network open seasons for 
        transmission development, transmission planning and cost 
        allocation, associated rate case and budget setting processes, 
        and many other efforts.

Conclusion
    The Power Marketing Administrations and their utility customers 
have worked well together for 75 years in a regionally focused process 
of policy development. These processes are reflective of a 
collaborative spirit, and of the many operational, economic, and 
political dynamics unique to each region. Together, the PMAs and their 
customers have created an impressive record in addressing the many new 
challenges facing the energy industry, with more progress being made 
each day.
    Future initiatives must continue to be consistent with each PMA's 
statutes and responsibilities, and must not create costs to ratepayers 
without reciprocal benefits. Previously, I testified to the lack of 
need for the DOE Memorandum and to some of our concerns about its 
implications. The process to date has not changed our view in both of 
those respects.
    Thank you very much for the opportunity to testify today. I look 
forward to answering any questions.
                                 ______
                                 
    The Chairman. Thank you very much for your testimony. I now 
recognize Ms. Lauren Azar, the Senior Policy Advisor to 
Secretary Chu.
    Ms. Azar, you are recognized for 5 minutes.

   STATEMENT OF LAUREN AZAR, SENIOR POLICY ADVISOR TO ENERGY 
 SECRETARY STEVEN CHU, U.S. DEPARTMENT OF ENERGY, WASHINGTON, 
                              D.C.

    Ms. Azar. Thank you. Mr. Chairman, Ranking Member Markey, 
thank you, thank you, for inviting me to speak about the 
Secretary's memo setting forth his foundational goals for the 
Power Marketing Administrations. I am Secretary Chu's Senior 
Advisor.
    I arrived here 15 months ago from the great State of 
Wisconsin, where I was a Commissioner at the Public Service 
Commission, overseeing the electric, natural gas, water, and 
telecommunication industries. As a Commissioner, my charge, 
among other things, was to ensure that the electric customers 
had a safe and reliable and affordable electricity at their 
disposal. While I was a Commissioner, I chaired the efforts of 
the Midwest ISO to determine how 12 Midwestern States and 1 
Canadian Province would pay for needed transmission. I also 
organized and led the 38 States east of the Rockies in the 
interconnection-wide transmission planning that was funded by 
Congress.
    Prior to serving as a Commissioner I was an attorney in 
private practice at a corporate law firm where I had 
represented both utilities and customers.
    Three of the four PMAs own and operate 33,700 miles of 
transmission lines that comprise a significant portion of the 
Nation's power grid. As part owners and operators of the 
Nation's grid, the Federal Government must maintain its aging 
facilities and, if necessary, update and replace them for the 
benefit of their consumers. The Federal Government can and 
should be leading the way in ensuring that our Nation has a 
reliable transmission grid that supports a competitive 
marketplace.
    The PMAs have two primary obligations: one is marketing 
electricity to preference customers at the lowest possible 
rates consistent with sound business practices--today I am 
going to call those cost-based rates; and two, maintaining and 
operating their portion of the transmission grid.
    Let's talk about the marketing of the power. Beginning in 
the late 1800s, the Federal Government began to build dams with 
hydroelectric power. Congress mandated that the electricity 
generated be sold to preference customers at cost. DOE will 
comply with all applicable laws relating to the rates for the 
sale of electricity for preference customers, which includes 
the obligation to sell at the ``lowest possible rates to 
consumers consistent with sound business practices.''
    But the overwhelming majority of the proposed activities in 
the Secretary's memo relate to the PMA's obligations and goals 
for transmission. To bolster the competitiveness of the 
electricity marketplace, we need to ensure the grid's 
resilience. And Congress, in 1992 and 2005, passed 
comprehensive legislation creating obligations on grid 
operations and reliability. The Secretary's memo is intended, 
among other things, to ensure that PMAs are complying with 
those obligations.
    In meeting those obligations, the Federal Government must 
respond to a rapidly changing electric industry. Today's 
industry differs quite markedly from that of even 10 years ago.
    And examples include, number one, security threats and 
natural disasters. Our Nation faces increasing security 
threats, and the electric sector is no exception. Congress has 
mandated a hardening of our electric infrastructure against 
physical threats, natural disasters, and cyber attacks.
    Number two, technological advancements. Consumers are using 
more technologies that create challenges and opportunities for 
the transmission grid. Examples include large electric water 
heaters used as storage devices, rooftop solars, electric 
vehicles, and demand response applications.
    Three, removal of portfolio standards that have been 
enacted by the States. Thirty-seven States have enacted RPSs, 
either standards or goals. The transmission system must be 
flexible enough to accommodate these new sources of generation 
that are mandated by the States. While the Secretary's memo 
asks the PMAs to effectively respond to these continued 
changes, our overall goal is to keep consumers' bills as low as 
possible, while ensuring our Nation has the infrastructure it 
needs to remain competitive in a global marketplace, and 
accommodate regional choices to meet customers' demand.
    Now, let's turn to the implementation of the memo and WAPA. 
WAPA and DOE had jointly convened a team which is charged with 
preparing recommendations to the Secretary. So far, the team 
has received extensive input from preference customers, 
stakeholders, Tribes, and Congress through the following: six 
listening sessions, five workshops, two webinars, three 
sessions for House and Senate staff. We have received over 100 
written comments online.
    Based on the results of this outreach, WAPA's own internal 
reviews and reports, external resources, and their own 
expertise, the joint Western and DOE team will be deliberating 
and developing a set of draft recommendations. They will be 
sending those recommendations to the Secretary after folks have 
an opportunity to comment on them. And they will be potentially 
revising them based on the comments they receive. The team 
intends, as I just indicated, to publish those draft 
recommendations in the Federal Register, so everybody knows 
what they are.
    This work has been and will continue to be a robust, 
collaborative process, sensitive to the unique character of 
each of WAPA's regions.
    And I look forward to answering your questions. Thank you.
    [The prepared statement of Ms. Azar follows:]

      Statement of Lauren Azar, Senior Advisor to the Secretary, 
                       U.S. Department of Energy

    Chairman Hastings, Ranking Member Markey, thank you for the 
opportunity to testify on the Federal Power Marketing Administrations 
(PMAs), and specifically, Secretary Chu's March 16, 2012 Memorandum 
(Memo) setting forth ``foundational goals'' that the Department of 
Energy (DOE) is considering for the PMAs. In order to address these 
goals, DOE intends to work with each PMA sequentially to develop 
tailored approaches to ensure each region has the infrastructure 
necessary to power the U.S. economy. DOE has begun this work with the 
Western Area Power Administration (WAPA) and our approach to the other 
PMAs will be revised in light of our experience with WAPA.

PMA PRIMARY MISSIONS: POWER MARKETING AND TRANSMISSION
    The PMAs have two primary obligations: (1) marketing electricity to 
preference customers so as to encourage the most widespread use of 
federal power at the lowest possible rates to consumers, consistent 
with sound business principles,\1\ and (2) maintaining and operating 
their portion of the Nation's transmission grid.\2\ Below, I will 
describe these obligations and how they relate to the Secretary's Memo 
in more detail, but it is important to note from the outset that the 
overwhelming majority of the goals set forth in the Memo relate to the 
PMAs' transmission infrastructure and not to the marketing of federally 
generated power to the preference customers.

Power Marketing
    Beginning in the late 1800s, the federal government began to build 
dams with hydroelectric power generation. The dams were initially built 
primarily for flood control, navigation, or irrigation, while in some 
systems the selling of the electricity was a secondary consideration. 
Today, the electricity generated by these federal facilities is 
incredibly valuable: with water as its fuel source, it is generally 
inexpensive \3\ and produced without air-pollution emissions. As the 
demand for clean energy grows, so does the value of these federal 
assets. The Secretary is committed to taking good care of the federal 
hydropower system and the clean energy it represents.
    Congress has mandated the electricity generated by federal 
hydroelectric plants be sold at cost. Congress also specified who in 
each region should get priority access to this federal electricity, 
namely the ``preference customers.''\4\ Understandably, the preference 
customers have a strong interest in protecting their ability to 
purchase cost-based, clean federal electricity. Other consumers in the 
PMA regions, however, do not have access to this federal electricity, 
and therefore must build their own generation or purchase electricity 
on the open market.\5\ To be clear, preference customers also rely on 
the open market to purchase electricity over and above their allocation 
of federal hydropower to fulfill their customers' electricity needs. 
Hence, both preference and non-preference customers benefit from a 
robust and competitive electricity marketplace. (Herein the 
``electricity marketplace'' refers not only to the buying and selling 
of electricity but also includes all facets of generating, delivering, 
and consuming electricity.)
    The Secretary has expressed his continued commitment to driving 
down consumers' bills while ensuring we have the infrastructure we need 
to power the U.S. economy. DOE will comply with all applicable laws 
relating to the rates for the sale of electricity to preference 
customers, which includes the obligation to sell at the lowest possible 
cost consistent with sound business principles. This commitment will 
not waiver as the individual plans are developed. The DOE will continue 
to support the PMAs' fundamental obligations to operate and maintain 
the federal hydropower assets and sell their power to preferred 
customers at cost.

Transmission
    In addition to selling federally generated electricity, three of 
the four PMAs (WAPA, BPA, and SWPA) own and operate 33,700 miles of 
transmission lines that comprise a significant portion of the Nation's 
power grid.
    To bolster the competitiveness of the electricity marketplace and 
to ensure the grid's resilience, Congress in 1992 and 2005 passed 
comprehensive legislation creating obligations on grid operations and 
reliability. As explained below, the Secretary's Memo is intended, 
among other things, to ensure the PMAs are complying with these 
obligations. In cases in which Congress exempted the PMAs from some of 
these requirements, DOE has further required that the PMAs comply with 
transmission requirements, to the extent allowed under the PMAs' 
enabling statutes, to enable market competition and ensure grid 
resilience. That policy remains in place to this day.
    As part owners and operators of the Nation's transmission grid, the 
federal government must maintain its aging facilities and, if 
necessary, update or replace them for the benefit of their consumers. 
The Secretary is committed to ensuring the PMAs' transmission is 
managed to support cost-effective transmission expansion, grid 
reliability and open, non-discriminatory access consistent with the 
PMAs' statutory requirements. The federal government can and should be 
leading the way in ensuring that our Nation has a reliable transmission 
grid that supports a competitive marketplace.
    To be clear, anyone using the PMAs' transmission lines pays for 
that use, whether or not they are preference customers. As is true for 
any transportation system supporting a marketplace, at a minimum, our 
Nation's transmission system should accomplish the following for the 
electricity marketplace:
          Efficiently and reliably deliver electricity;
          Eliminate barriers to competition and operate in a 
        non-discriminatory fashion; and
          Accommodate the emergence of new technologies and 
        market opportunities/segments.\6\
    The proposals described in the Secretary's Memo would seek to 
accomplish all of these goals, through actions that are in harmony with 
the PMAs' enabling statutes. And as mentioned previously, the 
overwhelming majority of the proposed activities relate to the PMAs' 
obligations and goals for transmission and not to the marketing of 
federally generated power to the preference customers. As a 
consequence, the Secretary's Memo will have minimal applicability to 
the Southeastern Power Administration, which owns and operates no 
transmission.

TODAY'S ELECTRICITY MARKETPLACE
    Today's electricity marketplace differs markedly from that of even 
10 years ago. For example:
        (1)  Security Threats and Natural Disasters: It should come as 
        no surprise that our Nation faces increasing security threats 
        and the electric sector is no exception. By establishing an 
        electric reliability organization and mandating the enactment 
        of reliability standards, including cybersecurity standards, 
        Congress has mandated a hardening of our electric 
        infrastructure against physical threats, natural disasters, and 
        cyber attacks. Protecting the transmission grid is particularly 
        important. Blackouts not only threaten human health and safety, 
        but also cause immense economic injuries to our Nation's 
        businesses.
        (2)  Technological Advances: As consumers adopt new or 
        improving technologies and practices such as large electric 
        water heaters used as storage devices, rooftop solar, electric 
        vehicles, and demand-response applications both the 
        transmission grid and the electricity marketplace will face 
        challenges and opportunities.
        (3)  State Renewable Portfolio Standards (RPS): Thirty-seven 
        states \7\ have now enacted RPS standards (mandatory) or goals 
        (voluntary). In other words, 37 states have decided to 
        incentivize the production of electricity from renewable 
        sources, which often are variable resources. The electricity 
        transmission system should be flexible enough to accommodate 
        these new sources of generation into the grid.
    The Secretary's memo asks the PMAs to effectively respond to the 
continued changes in the electricity marketplace to better serve their 
customers and stakeholders within the limits set by their enabling 
statutes.

CONSUMERS' BILLS
    The evolving nature of the electricity system requires the owners 
and operators of the transmission grid to adapt. As owners and 
operators of a significant part of the transmission grid, the PMAs 
should explore more effective ways to invest in the future and keep 
pace with the changing industry. Our overall goal is to keep consumer 
bills as low as possible while ensuring our Nation has the 
infrastructure needed to remain competitive in a global economy and 
accommodate regional choices to meet consumer demand.

JOINT OUTREACH TEAM
    WAPA and the DOE have jointly convened the Joint Outreach Team 
(JOT), which is charged with preparing recommendations to the Secretary 
in response to his Memo. The JOT held six listening sessions and five 
substantive workshops throughout WAPA's service territory soliciting 
comments from customers and stakeholders on the issues presented in the 
Memo. Additionally, over one hundred written comments have been 
submitted on-line through [email protected]. In advance of the workshops and 
listening sessions, JOT held a webinar for registered participants and 
those unable to participate in the workshops and listening sessions. 
JOT also held a webinar after the workshops and listening sessions 
providing a high-level summary of those sessions. JOT also held a 
separate tribal conference call and will shortly be holding a separate 
tribal webinar as part of its government-to-government consultation 
plan.
    Based on the results of the workshops and listening sessions, input 
received online and through webinars, WAPA's own internal reviews and 
reports, external resources, and their own expertise, the JOT will 
deliberate and develop a set of draft recommendations to the Secretary. 
Though not legally required, the JOT intends to publish those draft 
recommendations in the Federal Register asking for public and 
congressional comments. After receiving the comments and revising the 
draft recommendations, the JOT will submit its final recommendations to 
the Secretary.
    In addition to the JOT outreach, DOE and WAPA held three 
informational sessions for House and Senate staff during which the 
workshops and listening sessions were summarized and questions 
answered.
    This work has been and will continue to be a robust collaborative 
process sensitive to the unique character of each PMA. I look forward 
to answering your questions.

ENDNOTES
\1\  This standard--to encourage the most widespread use of Federal 
        power at the lowest possible rates to consumers, consistent 
        with sound business principles--is often simply referred to as 
        ``cost-based rates'' or ``at cost''. The truncated versions are 
        used hereafter.
\2\  The PMAs have many responsibilities beyond these two missions. For 
        example, BPA has a third primary mission: fish and wildlife 
        protection.
\3\  The relative expense of federal hydropower differs from system to 
        system. As a consequence, it is not ``inexpensive'' for every 
        system.
\4\  ``Preference Customers'' refers to municipalities and other public 
        corporations and agencies.
\5\  There are exceptions. BPA and WAPA have a few non-preference 
        customers who are grandfathered and able to purchase federal 
        electricity. Certain non-preference customers of BPA receive, 
        from the power revenues, annual benefits for their rural areas.
\6\  These bulleted items refer to both legal requirements and policy 
        goals.
\7\  In addition to these 37 states, the District of Columbia and 
        Puerto Rico both have an RPS.
                                 ______
                                 
    The Chairman. Thank you very much for your testimony. And I 
will recognize Mr. Jim Baak, the Director of Policy for 
Utility-Scale Solar in San Francisco.
    You are recognized for 5 minutes.

  STATEMENT OF JIM BAAK, DIRECTOR OF POLICY FOR UTILITY-SCALE 
  SOLAR, THE VOTE SOLAR INITIATIVE, SAN FRANCISCO, CALIFORNIA

    Mr. Baak. Mr. Chairman, Ranking Member Markey, members of 
the Committee, good morning and thank you for inviting me to 
participate in this hearing on the Secretary's memorandum to 
the PMAs. I am representing The Vote Solar Initiative. It is a 
non-profit, non-partisan, foundation-funded organization 
working to promote rooftop and utility-scale solar deployment 
in America. As a Director of Policy for Utility-Scale Solar, I 
am involved in regional and State transmission planning efforts 
throughout the Western interconnection.
    But the testimony I am providing today also reflects the 
input and views of many members of the Western Clean Energy 
Advocates, a large and diverse coalition of renewable energy 
developers and advocates, independent transmission developers, 
environmental organizations, consumer advocates, energy 
efficiency proponents, and other stakeholders who support clean 
energy development.
    There is very little disagreement in the utility sector 
that the Nation's grid is aging and in need of modernization. 
The grid today was never designed to support modern demands 
such as a reliance on digital technology, integration of 
variable resources, threats from cyber attacks, smart grid 
technologies, and a host of other innovations that are underway 
or on the horizon.
    The PMAs operate a significant amount of electric 
transmission. The measures identified by the Secretary are 
being undertaken by all operators of electricity grids 
throughout the country. The PMAs must not be the weak link in 
the grid. Indeed, many of the PMAs are undertaking the measures 
that are outlined by the Secretary. From DOE and Western 
meetings that took place over the course of the summer, it was 
evident that the preference customers support the substance of 
the Secretary's memo. There was obviously disagreement over the 
process and the tone of the memo, but I am not here to address 
the process or the actions of the Department of Energy, but to 
focus on the substance of the memo, and benefits and 
consequences of not modernizing the grid.
    The PMA's role extends beyond just supplying hydropower to 
preference customers. There is no dispute that the PMAs have an 
obligation to provide reliable, cost-based Federal hydropower 
to preference customers. PMAs also have an obligation in an 
increasingly interdependent grid to all users of the grid to 
ensure reliable, cost-effective operation of the grid. And we 
saw evidence or the consequences of the lack of cooperation a 
year ago with the black-outs in Southern California and 
Arizona.
    And the PMAs also have an obligation to support national 
and regional energy security and climate goals.
    The essential question in this discussion should be, what 
are the consequences of not modernizing the grid? Without 
undertaking these measures, can the PMAs continue to reliably 
operate the grid, given the historic changes that are taking 
place in this country? If the PMAs do not undertake these 
measures, will it prevent them from fully benefitting from a 
more efficient and cost-effective grid enabled by an energy 
imbalance market?
    Without the measures, how can the PMA support national 
energy security and climate goals and the actions of other 
Federal agencies, such as the Department of the Interior's 
solar programmatic environmental impact study and the rapid 
response team?
    How will the preference customers be able to cost-
effectively comply with the RPS, or renewable portfolio 
standards or climate policy requirements, such as those that 
are mandated in California?
    And finally, we know that hydro resources are diminishing. 
In the Sierras, reports to Governor Brown indicate that there 
is less snowfall and earlier snow melt-off. But there is also 
increasing use of wind, solar, and geothermal. How will 
preference customers be able to access other affordable sources 
of energy without these modernizations?
    Undertaking these measures will result in significant 
benefits throughout the entire country. Just as an example, in 
the West, the solar industry has been growing tremendously in a 
down economy. It is projected by 2016 there will be 100,000 
jobs in the solar industry, alone. There are already 2,500 
solar companies with projects worth a projected $3 billion. 
There is an additional $10 billion of solar projects that are 
in the works now. And in the wind industry, there are 30,000 
jobs and 128 manufacturing facilities in the Western 
interconnection alone, representing $60 billion in capital 
investment. We applaud the DOE's efforts and we encourage the 
DOE, the PMAs, and the preference customers to work together to 
realize these benefits.
    Nothing here takes away from the PMAs' primary obligations 
to deliver cost-based, economical hydropower from Federal 
projects to their customers. To the contrary, we believe these 
changes that are outlined by the Secretary are absolutely 
necessary to ensure their ability to continue to meet their 
obligation into the future, and do their part to ensure 
continued reliable and cost-effective operation of the entire 
grid.
    Thank you again for inviting me to testify before this 
Committee, and I look forward to your questions.
    [The prepared statement of Mr. Baak follows:]

  Statement of Jim Baak, Director of Policy for Utility-Scale Solar, 
                       The Vote Solar Initiative

New Demands on Old Infrastructure
    The Power Marketing Administrations (PMAs) operate a significant 
amount of transmission in the US and are an integral part of an 
increasingly interdependent grid. While the system has operated to meet 
the demands of the past, the existing electric grid is not designed to 
meet the demands of the 21st century economy. Increasing reliance on 
digital technology, integration of variable resources, threats from 
cyber attacks, development of smart grid technologies, and a host of 
other innovations are stressing an aging electric transmission 
infrastructure.
    There is very strong agreement among those in the utility sector 
that the grid needs to be modernized to keep pace with these changes to 
continue to deliver reliable, cost-effective electricity to consumers. 
The measures outlined by Secretary Chu in his memorandum explore these 
options, and are in large part already being implemented or considered 
by grid operators throughout the country.
    It is therefore imperative that the PMAs keep pace so they are not 
the ``weak link'' in the grid. Failure to keep pace with grid 
modernization efforts will result in increased costs to consumers, 
including preference customers, stemming from reduced reliability, 
increased security risks, and inefficient and more costly operation of 
the grid.

Messages From the DOE/Western Workshops--There is Agreement on the Need 
        for Grid Modernization and Enhanced Coordination and Planning
    Vote Solar participated in the Department of Energy (DOE) and 
Western Area Power Administration (Western) jointly hosted Workshop 
``Defining the Future'' in Rancho Cordova, California.\1\ There were a 
large number of Western's preference customers in attendance, with a 
relatively small number of other stakeholders participating.
---------------------------------------------------------------------------
    \1\ This workshop was one of a series of stakeholder workshops and 
listening sessions hosted by the DOE and Western.
---------------------------------------------------------------------------
    During the workshop, some objected that the process was not very 
open or transparent. There were also objections to the tone of the memo 
and what was perceived as top-down control by DOE. There were also 
objections that the DOE is misinformed about the condition of Western's 
grid.
    However, we did not hear any major objections to the overall goals 
of the memo, nor did we hear disagreement over the value of the 
measures outlined by the Secretary. In fact, we heard that Western and 
its customers are already doing many of the things outlined in the 
Secretary's memo. From the descriptions of the upgrades and programs 
being undertaken by Western and the individual preference customers, 
it's evident that they share the same goals outlined by the Secretary.

PMA's Obligation Extends Beyond Preference Customers
    The PMAs have an obligation to continue marketing and delivering 
reliable, renewable, cost-based Federal hydropower to their customers--
that message is clear and undisputed. But, as is the case with Western, 
they also have an obligation to the American citizens that funded the 
projects that provide their customers with low-cost hydropower. As part 
of an interconnected and highly interdependent grid, all of the PMAs 
have an obligation to all users of the electric grid, as does every 
transmission operator. Finally, as agencies of the Federal government, 
the PMAs have an obligation to support the efforts and programs 
established by the Administration, Congress, and other agencies of the 
Federal government that support national energy, economic and 
environmental goals.
    Preference customers are obligated to serve the interests of their 
citizen-owners, and that is as it should be. But the PMAs play a larger 
role as major transmission service providers. While PMAs are involved 
in many transmission planning and coordination activities, they need to 
be looking at the broader regional and long-term implications.

Consequences of Business-As-Usual
    As the Secretary outlined in his memo, the nation faces significant 
new challenges that the existing electric grid was not designed to 
handle efficiently or effectively. The central question in this 
discussion is this: What are the consequences of not doing the things 
outlined by the Secretary in his memorandum?
    While Western and the other PMAs have undertaken some of the 
modernization measures outlined in the memo, they may not take into 
account the broader regional implications, and they may not support the 
many efforts underway or being planned for the broader Western 
Interconnection.
    For example, how do the modifications undertaken or underway by 
Western support the Department of the Interior's (DOI) Solar 
Programmatic Environmental Impact Study (SPEIS)? Will they allow 
preference customers to fully benefit from a west-wide Energy Imbalance 
Market (EIM)? Do they support the more aggressive Renewable Portfolio 
Standard (RPS) Governor Brown has suggested for California, or the 
expansion of renewable energy being studied by Western Electricity 
Coordinating Council for the 2013 Regional Transmission Expansion 
Planning process? How well do Western's planning efforts mesh with FERC 
Order 1000 regional and interregional planning requirements?
    Finally, there is the issue of cost. What will be the impacts on 
rates if Western does not fully participate in initiatives like a west-
wide EIM that will support more a efficient and less costly grid? If 
climate change continues unabated, how much low-cost hydropower will 
continue to be available to Western's customers and what will be the 
price? What's clear is that there will be more renewable energy in the 
generation mix throughout the West--without adequate preparation, will 
Western be able to cost-effectively integrate larger amounts of 
renewable energy and bring those benefits to its customers?

Supporting National and Regional Goals
    FERC has recently issued orders on integrating variable resources 
and developing regional and interregional plans, including 
consideration of public policy requirements for the first time. Federal 
efforts to slow climate change, promote the development of the 
country's vast homegrown, inexhaustible renewable resources, wean off 
of imported energy and enhance our energy security and other federal 
goals will benefit greatly from these proposed changes. Already the 
country is benefiting from the economic activity generated from these 
policies.
    For example, the transition to a clean energy economy will continue 
to yield dividends to both rural and urban America. Despite the worst 
recession since the Great Depression, renewable energy has emerged as a 
strong economic force, growing and creating jobs for Americans. The 
solar energy industry alone is projected to support upwards of 100,000 
jobs by 2016 in the 15 states Western serves. Already there are more 
than 2,500 solar companies in these states, with more being added each 
year. The approximately 1,800 MW of installed solar capacity in these 
states in 2010 is valued at over $3 billion. There are an additional 
26,800 MW of large-scale solar projects under construction or in 
development in these states, representing over $10 billion in 
additional investment.
    There are also over 30,000 MW of wind power in the states served by 
Western, representing approximately $60 billion in capital investment 
and 65% of all the wind built to date in the U.S. The capital 
investment from wind projects has helped reinvigorate the manufacturing 
sector in the region with the creation of 128 manufacturing facilities 
in Western's service area. In 2011 alone, the wind industry was 
responsible for over 30,000 good paying manufacturing, construction and 
other jobs in these states. For rural economies in these Western 
service area states, the investments result in annual economic benefits 
including more than $210 million in county property taxes and close to 
$90 million in lease payments to land owners--an important factor for 
continuing the region's rich heritage in farming and ranching.
    The PMAs can and should play a role in supporting these and other 
national and regional goals.

PMA Leadership is Needed
    We applaud DOE's leadership on this issue. We strongly believe the 
measures outlined in the Secretary's memo will greatly improve 
reliability, reduce costs and bring about significant economic 
benefits. We encourage DOE, the PMAs and their customers to work 
together to implement these measures.
    We support the recommendations outlined by the Secretary to help 
guide PMA planning to meet their obligations to their customers. In 
particular, we encourage the PMAs to undertake the following measures:
          Maximize efficient operation of the PMAs' grids via 
        consolidation of their Balancing Areas
          Eliminate rate pancaking across the PMAs' grids
          Implement conditional firm service rates to allow for 
        fuller utilization of existing transmission resources
          Implement advanced technologies such as 
        synchrophasors
          Improve coordination with neighboring Balancing 
        Authorities (BA), as recommended in the FERC/NERC September 8, 
        2011 Blackout report
          Participate in the development and implementation of 
        a west-wide Energy Imbalance Market (EIM) (Western and BPA)
          Participate more actively in the Regional 
        Transmission Expansion Planning process and Scenario Planning 
        Steering Group effort (Western and BPA)
          Continue to participate in the development of 
        regional and interregional planning efforts in compliance with 
        FERC Order 1000, identifying opportunities for PMAs to support 
        regional and interregional goals
          Use Section 1222 funding, leveraging private sector 
        financing to support regional and national goals, such as 
        building transmission to Solar Energy Zones that have been 
        identified by the Bureau of Land Management (BLM)
          Actively support efforts of other federal agencies, 
        such as Department of the Interior's Solar Programmatic 
        Environmental Impact Studies (SPEIS) and Restoration Design 
        Energy Project (RDEP), the Department of Energy's SunShot 
        Vision Study, implementation of FERC's Variable Energy 
        Resources Integration Order, and support for the Rapid Response 
        Transmission Team efforts. For example, BLM lacks the 
        transmission expertise to evaluate transmission capacity to 
        serve the proposed SEZs. Western should lend its expertise to 
        BLM in screening SEZs for access to existing or planned 
        transmission capacity.
    Nothing here takes away from the PMAs' primary obligations to 
deliver cost-based, economical hydropower from federal projects to 
their customers. To the contrary, we believe these changes are 
absolutely necessary to ensure their ability to continue to meet their 
obligations into the future and do their part to ensure continued 
reliable and cost effective operation and enhancement of the entire 
grid.
    Thank you for the opportunity to comment.
                                 ______
                                 
    The Chairman. Thank you, Mr. Baak, for your testimony.
    I will now recognize W. Kent Palmerton, the General Manager 
of the Power and Water Resources Pooling Authority out of 
Carmichael, California.

  STATEMENT OF W. KENT PALMERTON, GENERAL MANAGER, POWER AND 
   WATER RESOURCES POOLING AUTHORITY, CARMICHAEL, CALIFORNIA

    Mr. Palmerton. Mr. Chairman, Ranking Member Markey, thank 
you for allowing me this opportunity to testify before you 
today on behalf of the Power and Water Resources Pooling 
Authority. I am its General Manager. The Pooling Authority is a 
publicly owned joint powers authority serving the aggregated 
electric needs of its eight irrigation districts and six other 
water districts, collectively known as its ``participants.''
    Virtually all of the electricity provided by the Pooling 
Authority is used by its participants for pumping water and for 
water treatment activities. Participants, particularly the 
participants in the Central Valley, deliver water to growers 
that farm over 1 million acres in California. Our diverse 
membership includes: the Glenn Colusa Irrigation District north 
of Sacramento; the Sonoma County Water Agency on the coast; the 
Santa Clara Valley Water District in the Silicon Valley; and 
the Arvin-Edison Water Storage District south of Bakersfield in 
the San Joaquin Valley.
    Each participant has a Western allocation for power, which 
they have assigned to the Pooling Authority. Each participant 
also has one or more contracts with the Bureau of Reclamation 
for water supply from the Central Valley Project, the CVP. The 
Pooling Authority relies on Western power for approximately 50 
percent of our energy needs on an average year. And in wet 
years that can grow as much as 90 percent, as our loads are 
inversely proportional with the amount of surface water that is 
available to us.
    As you can see, the future of how Western's power is used, 
and how it is brought into question by the Secretary's memo, is 
of critical importance to our participants. There are many 
problems with the primary thrust of the Secretary's proposal, 
which is to use Western power--or at least it promotes the use 
of Western power--to integrate renewable energy resources into 
the grid.
    Most importantly, Western does not operate the dams. That 
is done by Reclamation. As is in the case for most Reclamation 
projects, power generation is a secondary or even a tertiary 
purpose of the projects. In the case of the CVP, our 
authorizing legislation states that the project is to be used 
first for river regulation, improved navigation, and flood 
control.
    Second, for irrigation and domestic uses. The power 
generation is a byproduct of water releases made for the CVP 
project priority uses. Federal law does not allow power 
generation to impair the efficiency of the CVP for water 
delivery purposes. In our view, any change in the CVP statutory 
priorities would violate existing water contracts, existing 
power contracts, and would require congressional legislation--
pardon me.
    Further, changes to Western operations that shift emphasis 
away from current statutory duties, including power deliveries 
to its customers, in favor of priorities that have been 
identified in the Chu memo will raise our costs. Higher costs 
means higher water delivery costs. It means an impact to the 
economy of the farming communities in the Central Valley.
    The impact of the Secretary's proposal to cost shift the 
impact--pardon me. The impact of the Secretary's proposal is to 
cost shift to Western customers by authoring the operation of 
the Federal dams. And since water delivery obligations are the 
basis of how the CVP is optimized, using hydropower to 
integrate renewable resources will shift water release patterns 
in a manner that we expect to erode the benefits of the CVP to 
the Pooling Authority and our farm communities.
    The Secretary's memo implies that Federal hydro facilities 
are ideal for integrating renewable resources. For that reason, 
DOE is urging Western to participate in an energy imbalance 
market, or an EIM. An EIM would not save our participants any 
money. It may, in fact--and we expect it to increase our cost.
    Hijacking the CVP hydrogeneration to create an EIM and 
socialize the cost of integrating renewable resources would 
violate most, if not all, of CVP water obligations and 
contracts that exist today or might exist in the future.
    Although we believe that the Chu memo was ill conceived, 
the Secretary should be pleased that the goal of increased 
renewable development is a goal we all share. The Pooling 
Authority is on track to meet its 33 percent renewable resource 
penetration, as the California RPS requires. And even a small 
entity like the Pooling Authority is expected to spend millions 
of dollars to meet that goal.
    In the interest of time, I would be happy to answer 
questions if you have any for me, particularly as it relates to 
the trade-off between investments and transmission and the use 
of generation for integrating renewable resources. Thank you.
    [The prepared statement of Mr. Palmerton follows:]

           Statement of W. Kent Palmerton, General Manager, 
              Power and Water Resources Pooling Authority

    Mr. Chairman, on behalf of the Power and Water Resources Pooling 
Authority, or the ``Pooling Authority,'' I greatly appreciate the 
opportunity to testify before the Committee on Natural Resources, with 
respect to the issues raised by the March 16, 2012 Memorandum issued by 
Secretary of Energy Chu (``Chu Memo'') on potential reforms to the 
Power Marketing Administrations, including the Western Area Power 
Administration (``Western'').
    The Pooling Authority is a joint powers agency that was formed by 
eight Irrigation Districts pursuant to California law. The Pooling 
Authority is a publicly-owned retail electricity provider that serves 
the aggregated electric energy needs of its eight Irrigation District 
members, as well as six other types of water districts. Collectively, 
we refer to these 14 districts as the Pooling Authority's Participants. 
Virtually all of the electricity provided by the Pooling Authority is 
used by its Participants for pumping water and water treatment.
    The Pooling Authority's Participants are diverse, and include the 
Glen Colusa Irrigation District located amidst the rice fields north of 
Sacramento, the Sonoma County Water Agency which spans from world-
famous Napa Valley to the Pacific coast, the Santa Clara Valley Water 
District serving part of the Silicon Valley, and the Arvin-Edison Water 
Storage District which supports the agriculture in the southern San 
Joaquin Valley. The Pooling Authority's retail electric load varies 
depending upon hydrological conditions, which can greatly affect 
pumping to serve our Participants and their growers. The Pooling 
Authority's electric load ranges between approximately 300 and 500 
gigawatt hours of energy per year, with a peak load of nearly 110 
megawatts during the summer irrigation season in dry years.
    Using this power, Pooling Authority Participants deliver water to 
growers that farm over one million acres of farmland in California's 
Central Valley. All totaled, the Pooling Authority's Participants 
deliver over 3.85 million acre-feet of water annually for various 
purposes.
    The retail customer load that the Pooling Authority serves consists 
mainly of the pumping and water treatment load of its 14 Irrigation and 
Water District Participants. Each Participant has a Western allocation 
for power that they have assigned to the Pooling Authority. In the 
aggregate, the Pooling Authority represents nearly 7% of the Western 
Base Resource power allocations. Each Participant also has one or more 
contracts with the Bureau of Reclamation for water supply from the 
Central Valley Project (``CVP''). The Pooling Authority relies on its 
Western Base Resource contract for approximately 50% of its energy 
needs across all water conditions. In wet years, the Western Base 
Resource may serve more than 90% of the Pooling Authority's aggregate 
load requirements. As you can see, the future of Western, which has 
been brought into question by the Secretary's Memo, is of critical 
importance to the Pooling Authority Participants and their water 
customers.
    My message today is simple. Changes to the PMAs that shift emphasis 
away from their statutory duties, which include power deliveries to 
their customers, will raise costs to the Pooling Authority. Higher 
costs to the Pooling Authority means higher water delivery costs to the 
farm communities that Pooling Authority Participants serve. Our 
communities have struggled in the depressed economic climate of the 
past several years. Pooling Authority Participants cannot afford the 
increased costs that would likely flow from shifting Western's mission 
away from service to its customers and toward the purposes set forth in 
the Chu Memo, namely integration of renewable resources.
    Although the Chu Memo was short on specific proposals, the goals of 
a modern and secure infrastructure, increased renewable resource 
development, and transmission improvements are goals the Pooling 
Authority shares. But we are already doing all of this and more, and we 
achieve these goals using our existing partnership with Western. These 
goals include: (1) Grid Modernization--In the Western Sierra Nevada 
Region, Western customers formed a partnership with Western and the 
Bureau of Reclamation (``Reclamation'') to prioritize and fund 
improvements to and modernization of federal generation and 
transmission, with customer dollars not reliant on annual 
appropriations. The Western system is reliable and modern, due in large 
part to the partnership between Western and its customers, and without 
using taxpayer dollars; and (2) Renewable Resources Development--the 
Pooling Authority is pursuing and will comply with California's 
aggressive renewable energy goals to achieve 33% renewable resources by 
2020. Even a relatively small entity like the Pooling Authority will 
invest millions of dollars beyond our base costs for power to achieve 
these goals. Changes to Western will actually disrupt Western 
customers' ability to comply with California's renewable energy 
mandates, and will likely increase the use of fossil fuels to 
supplement Western's carbon-free hydropower.
    In my time here today, I would like to emphasize just a few of the 
issues raised in the Chu Memo.

Reoperations of the Central Valley Project (``CVP''), Versus the 
        Statutory and Practical Limitations on How Federal Dams are 
        Operated.
    The Chu Memo makes passing remarks that Western should engage in a 
centralized dispatch to better integrate Variable Energy Resources 
(``VERs'')--Renewables. The Secretary goes on to imply that federal 
hydro facilities are ideal for integrating VERs. Notwithstanding our 
objections based on the potential cost increases to our Western power 
deliveries, the plain fact is that Western does not operate the federal 
dams; this is done by the Bureau of Reclamation (Reclamation).
    Further, power delivery is a secondary, or even tertiary purpose of 
Reclamation in its operation of the CVP. The CVP authorizing 
legislation states that the project is to be used, first, for river 
regulation, improved navigation, and flood control; second for 
irrigation and domestic uses. Generation of electricity is a by-product 
of water releases made for the CVP project priority purposes. Federal 
law forbids power generation to impair the efficiency of the CVP for 
water delivery purposes. Any change in the CVP's statutory priorities 
would require congressional action.

Impacts on Water Deliveries
    As the Committee is aware, California has long-standing disputes 
over water usage, which are not the purpose of this hearing. In order 
to achieve their objectives, the Secretary's proposals are likely to 
involve reoperation of federal generation. Under existing operations, 
power output from the CVP is already optimized to provide flexible 
peaking and ancillary service capability to existing power customers. 
It is difficult to envision how reoperation of the CVP would avoid 
trampling arrangements with existing customers like the Pooling 
Authority, which were developed through a thorough public process and 
are embodied in existing contracts.
    What the Secretary is proposing is a cost shift to the Pooling 
Authority and other Western customers by fundamentally alternating how 
federal dams are operated in order to firm up renewable resources. And 
since water delivery obligations form the basis on how the CVP is 
optimized today, using federal hydroelectric resources to integrate 
wind and solar generation may shift water release patterns in a manner 
that could erode the benefits of the CVP to the Pooling Authority and, 
therefore, to the farm communities that we serve.

Using Western to Build Transmission
    California utilities are building transmission at a tremendous 
rate, primarily to interconnect new renewable resources and comply with 
state law. Evidence of this fact is that the Pooling Authority's 
transmission costs have roughly tripled in the last five years as new 
transmission is added to the system.
    Secretary Chu's Memo suggests that Western should take a leadership 
role to improve the transmission infrastructure in the West. The 
Secretary does not explicitly explain what a ``leadership'' role might 
entail. Our concern is that Western customers will be called upon to 
pay for this leadership, either through cost responsibility for new 
transmission, or by the diversion of attention and resources from 
Western's core mission.
    Western's costs have always been allocated upon a principle that 
the ``beneficiary pays'' for new investment. Any use of Western to 
facilitate the development of new transmission must follow that 
principle. Further, this principle is not a vague notion of quantifying 
indirect benefits, but allocates cost responsibility to the direct 
users of the facilities. The Pooling Authority, as a direct user of 
existing transmission of Western-Sierra Nevada Region, pays for the 
cost of that transmission system. The Pooling Authority should not be 
forced to pay for a transmission line from Wyoming to California that 
interconnects wind resources, unless the Pooling Authority has 
contracted for those wind resources. Given that it is unlikely that 
these resources would qualify toward California Renewable Portfolio 
Standard credit because of limitations in state law, we are highly 
concerned about the prospect that Western will be used to spread 
transmission costs across the region. Such a result would eviscerate 
entirely the concept of ``beneficiary pays.''

Conclusion
    I would like to conclude with the following observations and 
recommendations.
    First, any effort to expropriate the value of the federal assets 
from Western customers in favor of renewable resource developers is a 
cost shift that Pooling Authority Participants, and the communities 
they serve, simply cannot afford.
    Second, given that power generation from the CVP is constrained by 
statutory purposes and operated by Reclamation, it seems likely that 
some of the main objectives in the Secretary's Memo are outside of DOE 
control and contrary to law.
    Finally, given that the Pooling Authority and others in California 
must already achieve by state law many of the objectives the Secretary 
espouses, it is difficult to see what benefits the Memo's proposals 
would bring with respect to the CVP.
    The Chu Memo seems to be a solution in search of a problem, and an 
expensive one at that. The Pooling Authority urges the Secretary to 
start over, and work with the Pooling Authority and other Western 
customers as partners to craft improvements to PMA operations that work 
within the statutory and operational limitations of federal projects, 
and which appropriately reflect the roles of the PMAs to market power 
to its customers.
                                 ______
                                 
    The Chairman. Thank you, Mr. Palmerton, for your testimony.
    And I will recognize Mr. Joel Bladow, the Senior Vice 
President of Transmission of the Tri-State Generation and 
Transmission Association out of Westminster, Colorado. And you 
are recognized for 5 minutes.

STATEMENT OF JOEL BLADOW, SENIOR VICE PRESIDENT, TRANSMISSION, 
   TRI-STATE GENERATION AND TRANSMISSION ASSOCIATION, INC., 
                     WESTMINSTER, COLORADO

    Mr. Bladow. Thank you, Mr. Chairman, Ranking Member Markey. 
I appreciate the opportunity to provide testimony concerning 
the directives articulated in the Secretary's memo. And, 
really, the proposal unilaterally restructured the PMAs, and it 
really concerns us. As this process started, we weren't sure 
how the listening sessions would go. And now that they are 
done, and I have attended, it gives us great concern.
    A little background on Tri-State. We are a not-for-profit, 
member-owned G&T. Tri-State covers four States: Colorado, 
Wyoming, New Mexico, and parts of Nebraska. We have been a 
partner in the Federal power program for over 60 years now. And 
it was around before we were, and we have had a great 
partnership over the years.
    I think it is important to understand some of the basics. 
And a lot of the other panel members articulated things about 
WAPA and the Federal power program. But people, I think, have 
made a mistake. They continue to refer to--there is a power 
marketing and delivery of preference power mission and there is 
a transmission mission. And the reason WAPA has a transmission 
system is to deliver Federal power. It is kind of like saying 
we are going to work on the engine in your car. The engine is 
part of the car. You can't do things with the engine and not 
impact the rest of the vehicle. It's the same with the PMAs. 
You can't go and say, ``We are only going to touch the 
transmission,'' because it is linked with the power generation, 
and they work together. That is how they were designed.
    The Federal power program, it has been a success for almost 
100 years. As I said, we have partnered with it for over 60 
years. And we have put in millions of dollars and hundreds of 
millions of dollars into supporting the program. And we have 
this partnership that goes way back, and I think that is a real 
important aspect of it is not just the Federal grid, it is not 
just the customer grid, it has been a partnership. So simply 
saying the Department of Energy is going to restructure WAPA or 
move them to do things differently, it really doesn't work.
    One of the things that we discovered in the listening 
session is WAPA has already shortened a time they require for 
people to schedule power. The challenge is nobody else around 
them has done that. Therefore, it is meaningless. So one 
utility cannot march out in front of everybody else and decide 
that they are going to change the way the grid is operated, 
because nobody else is out there with them. It just doesn't 
work. It has to be done in partnership. And Western has been 
very active and very involved in meeting the goals of the 
utility industry and the challenges.
    Another thing I would focus on is WAPA is an operating 
entity. The Department of Energy has other functions. For 
instance, renewable energy gets--I think it is $2.4 billion 
this year to promote and help assimilate renewables. They spend 
about $150 million a year on policy development, very good 
activities. There is a place for them. But WAPA is an operating 
entity. When you take a handful of key people--and there is a 
whole bunch of them--working on this initiative, when we are 
trying to hook up load, when we are calling WAPA, a lot of key 
decisions have been delayed because those folks are busy 
working on this initiative. There are impacts with that, and 
they concern us.
    In terms of the process, one of the things I see is DOE 
defined the road we are on, and then went out and asked for our 
input on that road. They may be on the wrong road. One of the 
things that was clear at the listening session I was at, and we 
started at 8:00 in the morning and finished at 8:00 at night. 
And I would say the 80 people there were power customers of 
WAPA and very concerned about what may happen to their costs 
and the impacts on their system and the long-term partnership.
    But it is important to--you know, we are giving feedback on 
DOE's road and not giving feedback on what could we all do 
together. One of the strong messages that came out by all the 
participants was a ``Don't divert WAPA resources in order to 
start new missions. It is really up to the Department of Energy 
and Congress to allocate new resources if you want them to have 
a new mission. Otherwise, you are going to impact, really, 
constituents out there and consumers' electric bills, as well 
as their reliability.''
    Another thing that I think was loud and clear is in 100 
years of the program, it is very difficult to have 5 or 6 
meetings over about a 3-month span and understand it fully, and 
understand it enough to make a lot of changes without having a 
lot of unintended consequences. The process is moving extremely 
fast for a program that has been around so long, and it is 
extremely complex. The industry is changing and has a lot of 
moving parts.
    So what I would emphasize is we are willing to work 
together to identify common ground where we can work and look 
at changes. But the way it is now, the changes have been 
somewhat defined, and whether you agree to them or not, they 
seem to be going in that direction. And that is our concern.
    And I appreciate the opportunity, I would be happy to 
answer questions.
    [The prepared statement of Mr. Bladow follows:]

    Statement of Joel Bladow, Senior Vice President, Transmission, 
        Tri-State Generation and Transmission Association, Inc.

    Mr. Chairman, Ranking Member Markey, my name is Joel Bladow. I 
currently serve as Tri-State Generation and Transmission Association 
Inc.'s Senior Vice President of Transmission. I appreciate having 
another opportunity to testify before the committee on the impact the 
``Chu Memorandum'' will have on Tri-State's ability to provide 
affordable and reliable electricity to small businesses and residential 
consumers throughout the Intermountain West.

Tri-State Background
    Tri-State is a not-for-profit wholesale electric cooperative based 
in Colorado. Our mission is to provide reliable, cost-based wholesale 
electricity to our 44 not-for-profit member systems (electric 
cooperatives and public power districts) while maintaining high 
environmental standards. Our members serve 1.5 million predominantly 
rural consumers over 200,000 square miles of territory in Colorado, 
Wyoming, Nebraska and New Mexico. To meet our membership's electricity 
needs, Tri-State generates, or purchases power produced by coal, 
natural gas, and hydropower, as well as from intermittent renewables 
like solar and wind. Since the end of 2010, we have integrated just 
over 30 megawatts of solar from the Cimmaron Solar facility in Northern 
New Mexico and 50 megawatts of wind from Duke's wind farm in 
Burlington, Colorado. Tri-State recently signed a 20 year agreement to 
purchase all 67 megawatts of generation from the Colorado Highlands 
Wind Project located in Logan County, Colorado. In addition to these 
larger scale projects, Tri-State's Board of Directors has established 
policies to encourage local renewable energy projects on our member 
systems. Under this policy our members have added, or are scheduled to 
add, another 42 megawatts of distributed renewable generation 
resources. Tri-State is not unique with respect to the integration of 
traditional sources of coal, natural gas, federal hydropower and 
intermittent resources. Other customers of the Western Area Power 
Administration (WAPA) have undertaken similar initiatives and have 
comparable generation portfolios.
    We are proud of the great strides we have taken to integrate 
intermittent renewable and local distributed generation into our 
production fleet. However, our most important source of renewable 
generation is still the reliable, dispatchable hydropower generated at 
the multi-purpose projects of the U.S. Army Corps of Engineers and 
Bureau of Reclamation and marketed by WAPA. Hydropower purchased from 
WAPA accounts for approximately 12% of our generation needs. Given that 
it is an important component of fulfilling our mission to provide 
affordable and reliable electricity to the rural membership we serve, 
we are very concerned about the directives for WAPA and the other power 
marketing administrations laid out in the Chu memo of March 16th, 2012.

Affordability and Reliability
    As I noted, Tri-State's 44 members serve the predominantly rural 
areas of our four state service territory, which includes New Mexico, 
Nebraska, Wyoming and Colorado. On average these member systems serve 
five consumers per mile compared to 37 consumers per mile served by 
investor owned utilities. Many of the tribal customers served by our 
member systems reside in the poorest economies in the country. We are 
similar to other electric cooperatives nationwide who collectively 
maintain 41% of the electric distribution network, yet only have 12% of 
the consumers to shoulder the costs of building and maintaining this 
infrastructure. In times of economic recovery our consumers--whether it 
be the residential customer struggling to pay their mortgage, or the 
small business struggling to meet payroll--cannot be burdened with 
additional costs leading to unaffordable electricity. Unfortunately, we 
believe the Chu memorandum will add costs to our consumers' electricity 
bill, not reduce them. The DOE/WAPA sponsored workshops and listening 
sessions on the Chu Memo that took place this summer have not reduced 
our concerns over the DOE undertaking initiatives that may compromise 
the fundamental core principle of providing affordable electricity.

DOE/WAPA Workshops
    During June and July 2012, the DOE and WAPA jointly sponsored 
workshops to discuss and further explain WAPA's future mission as 
outlined in the Chu Memo. These meetings were billed as an opportunity 
to discuss the memo in an ``open and transparent'' manner. In other 
words, the sessions were an opportunity for DOE to collaborate with 
customers and other interested parties on the initiatives laid out in 
the memo. Unfortunately, they focused on what the DOE thought the 
future should be as opposed to listening to the participants to better 
understand what the people most directly impacted by Secretary Chu's 
proposed realignment of the agency thought.
    As Tri-State noted in the submission of its comments, the DOE/WAPA 
workshops were,--to put it lightly--disorganized. This appeared to be a 
direct result of a goal to get the workshops done quickly as opposed to 
a focus on collaborating with customers and stakeholders to identify 
and prioritize issues and concerns of impacted consumers. It was clear 
from the meeting I attended that significant resources and cost, on 
both WAPA and the participants' parts, were expended on this effort. It 
is shame that time was not allowed to conduct a more meaningful, 
collaborative process that could have built support for important 
changes as opposed to a top-down, time constrained process that has no 
support from those it will impact the most.
    Given the superficial nature of the DOE workshops and listening 
sessions that transpired over the summer--Tri-State remains concerned 
about the initiatives highlighted in the Chu Memo and the associated 
costs. It is important to re-emphasize that the Federal power system 
operates under the fundamental principle that the beneficiary pays for 
the initiatives from which it benefits. Therefore, the existing Federal 
power customers should see no harm to their rates as a result of these 
initiatives; if the initiatives do not benefit existing customers, the 
funding should come through the form of non-reimbursable 
appropriations. One customer should not be burdened with the 
subsidization costs of an initiative which solely benefits another 
customer.
    If DOE publishes a report proposing new initiatives for WAPA based 
on the findings of the DOE listening sessions and workshops, or other 
feedback collected since the issuance of the Chu Memo, these 
initiatives should be non-reimbursable appropriations unless they can 
specifically demonstrate direct benefit to Federal power customers. As 
operators of the Federal transmission grid, WAPA has an obligation to 
deliver electricity generated at Bureau of Reclamation and U.S. Army 
Corps of Engineers facilities at a cost-based rate. This rate ensures 
recovery of operation, maintenance and investment costs (principal and 
interest to the U.S. Treasury). If there is excess transmission 
capacity available for purchase, it is WAPA's obligation to offer it on 
a non-discriminatory basis via the OASIS. The additional revenues 
realized from such sales should be used to help pay for the 
transmission system that is used and not diverted to pay for other 
public policy initiatives.

Conclusion
    Little has changed since Secretary Chu released his March 16th, 
2012 memo outlining new initiatives for WAPA and the other three 
Federal power marketing administrations. If anything, the series of 
workshops and listening sessions have only hardened our view that DOE 
embarked upon this mission without a fundamental understanding of 
WAPA's mission and the underlying statutes providing the framework for 
its mission. As I noted during my last testimony, WAPA is a real 
utility with real obligations to its customers, not a test-bed for 
policy initiatives and technology deployment. Many of the new missions 
outlined in the Chu memo are better suited for implementation by retail 
utilities, not a wholesale supplier such as WAPA. If the DOE is really 
interested in implementing changes that benefit consumers and the 
nation, a fresh start at examining WAPA's future is in order, not the 
continuation of the present top-down unsupported initiative.
    Thank you, Mr. Chairman. I'd be happy to take any questions from 
the committee.
                                 ______
                                 
    The Chairman. Thank you very much for your testimony. We 
will now start the round of questioning. I will recognize 
myself first.
    This is to Mr. Crisson and Mr. Corwin. Apparently, the 
Secretary's staff is--in the memo it says something to the 
effect that they want to bring the PMAs into the 21st century.
    Now, when you say things like that, you imply that there is 
something lacking or outdated. Do you believe that the PMAs are 
outdated, Mr. Crisson and Mr. Corwin?
    Mr. Crisson. No, Mr. Chairman. We do not believe the PMAs 
are outdated. In fact, I think if--the time it has taken to 
look at the status quo, what the PMAs have been able to 
accomplish in the last few years, it is a--I think a very 
exemplary record. They have dealt with challenges ranging from 
maintaining and operating a reliable transmission grid to, I 
think, successfully conferring the challenges of integrating 
renewable resources.
    So, no, I think that is an overstatement and is inaccurate.
    The Chairman. Mr. Corwin?
    Mr. Corwin. Yes, and I just build on that with an example 
for BPA. For example, I think they have been innovators. They 
are in the public eye. They know they are. And their 
capability, for example, on wind integration has led the 
country. They have put in systems of forecasting, balancing, 
the physical connections, the manpower, the expertise, the 
software, overlaying that over the existing hydropower system 
and nuclear resource. And they have done that going from about 
almost no wind to 4,700 megawatts integrated in their system, 
all in a matter of several years, which is really incredible, 
and doesn't sound like a stodgy Federal agency to me.
    The Chairman. Thank you for that. Another question for both 
of you. I come from the Northwest, as you know, and hydropower 
is a very big part of our electricity. Do either of you have 
any concerns about the Chu memo, as it would potentially impact 
hydro in the Northwest and other places, Mr. Crisson and Mr. 
Corwin?
    Mr. Crisson. Well, Mr. Chairman, I think our fundamental 
concern is the potential impact on costs of the hydropower. As 
a number of witnesses have pointed out, the statutory 
requirements are for the rates of that hydropower sold to our 
customers to be as low as possible, consistent with sound 
business practices.
    But there are also potentially, I think, operational 
impacts on the system. Mr. Corwin can probably elaborate, I 
think, on some difficulties that have been experienced as a 
hydrosystem or any other operational system is used to 
basically plug the gaps in the variable output of renewable 
resources. Some of these consequences can be predicted. Some of 
them, I think, are unintended but, nonetheless, they are very 
real.
    So, for example, in the Northwest this past year--or it was 
2 years ago--they had a significant amount of surplus hydro, to 
the point where it necessitated shutting down other generation 
in the region, including the wind resources. In return, they 
were basically sued by the wind developers, because they wanted 
to continue to receive production tax credits. So there are 
some fairly kind of perverse results than can occur when you 
have that much renewables on a hydro system, and particularly 
in the Northwest.
    The Chairman. Real quickly, Mr. Corwin. I have questions 
for the other witnesses.
    Mr. Corwin. Sure, yes. I would concur with that. There is 
the integration of the transmission system and the hydropower 
system that Joel mentioned. And so we are doing a lot already. 
And the real question that arises from the memo is if you are 
going to do something different, or something more, what 
exactly is that, and how will that impact the system?
    The Chairman. Mr. Baak, speaking of hydro, do you believe 
that hydro is renewable?
    Mr. Baak. I believe that hydro is a clean source of 
energy----
    The Chairman. No, no, Mr. Baak, it is a pretty 
straightforward question. Do you believe it is renewable?
    Mr. Baak. I believe it is renewable, yes.
    The Chairman. It is renewable. OK. Ms. Azar, you heard the 
testimony of your fellow panelists, and a lot of it focused on 
the process. In your oral testimony you talked about the number 
of meetings which, of course, is quantity and potentially not 
quality. How do you respond to what has been said here by some 
of the other Members?
    And let me ask this question in this regard. Is your 
December 31st deadline still the deadline?
    Ms. Azar. Yes. The----
    The Chairman. Yes, it is. OK, now----
    Ms. Azar. The Western DOE team that is working on this is--
--
    The Chairman. Yes, OK. That is your deadline. Now, you have 
heard from people that are concerned about the deadline as far 
as quality, rather than quantity. How do you respond to that?
    Ms. Azar. The Western DOE team has not asked for an 
extension. If they do, I am sure the Secretary would consider 
it.
    Right now--and I want to emphasize that the folks that are 
working on this are a team comprised of Western employees and 
DOE employees. They pick their own team. They are working very 
extensively. And they are using the input that they received at 
the listening sessions and workshops.
    Let me give you some actual numbers, so that you get an 
idea----
    The Chairman. Well, my time has expired.
    Ms. Azar. Oh, drat.
    The Chairman. So I don't have other time. But if you want 
to submit that for the record, I would be more than happy----
    Ms. Azar. I would love it.
    The Chairman. But what I would like--and maybe this is an 
opening for somebody else--I heard very distinctly there is a 
problem with the process, and the process meaning the quality 
of the process. Your response was quantity. With that, I will 
recognize the Ranking Member.
    Mr. Markey. Thank you. The production tax credit for wind 
expires on December 31st this year. And the Democrats want to 
extend it. Otherwise, there is going to be an increase in the 
cost for wind generation in our country. So I would like to 
just go down the line.
    Would raising taxes on the wind industry increase or 
decrease rates for consumers? Just right across. Would it 
increase or decrease? Mr. Crisson?
    Mr. Crisson. All things being equal, I think it would 
increase.
    Mr. Markey. Increase? Yes. Next?
    Mr. Corwin. I believe so.
    Mr. Markey. Excuse me?
    Mr. Corwin. I said yes, I agree with that.
    Mr. Markey. Increase? Yes.
    Ms. Azar. I would need to answer that for the record.
    Mr. Markey. OK. Yes, sir?
    Mr. Baak. It would increase, yes.
    Mr. Markey. Increase, yes. Yes, sir?
    Mr. Palmerton. I suppose it would increase it.
    Mr. Markey. OK, thank you.
    Mr. Bladow. Increase.
    Mr. Markey. It would what?
    Mr. Bladow. Increase.
    Mr. Markey. OK. Thank you. So, now, let's just say here 
that is what Governor Romney's proposal is. He has been very 
clear. He wants to raise taxes on the wind industry if he 
becomes President, even though it will kill 40,000 jobs. He 
also wants to keep $40 billion worth of tax breaks for the oil 
industry, while killing the tax breaks for the wind industry, 
which will raise costs of wind generation for all of the 
consumers out in these public marketing authorities.
    So now, let's do some more PMA arithmetic. Here is our sink 
or fly formula. Generation plus transmission equals rates. 
Let's talk generation. The Western rates are 1.6 cents per 
kilowatt hour. Again, that is only for generation, 1.6 per 
kilowatt hour. Doesn't include transmission, but that is 
incredibly low, cheap power. Wow, wow from New England.
    Now, isn't it true that the Chu memo is chiefly about 
transmission, and the grid, and not about generation? Can we 
all agree that the Chu memo is not suggesting that anyone lose 
that capability to buy cheap Federal power at the cost-based 
rates I just mentioned? Is that correct, Ms. Azar?
    Ms. Azar. That is correct, the----
    Mr. Markey. OK, 1.6 cents. So, everyone is keeping their 
cheap generation, which, by the way, is the largest piece of a 
customer's electrical bill.
    Now, let's get back to the arithmetic again. Transmission--
average transmission costs for Western's preference customers 
in 2011 were .46 cents per kilowatt hour. That was 15 percent 
more than the customers paid in the PJM Eastern United States, 
which serves all the parts of 14 Eastern States and the 
District of Columbia. It is 51 percent more than the customers 
paid in the Midwest market. It is 140 percent more than 
customers paid in the New York market.
    Ms. Azar, is it possible that the PMAs may be able to 
actually do better than they currently are when it comes to 
providing reliable low-cost, secure transmission?
    Ms. Azar. Yes. We hope part of this initiative will result 
in capturing efficiencies that are going to drive down the cost 
for the consumers.
    Mr. Markey. It just seems like, you know, you can't have it 
both ways. You can't believe in Darwinian capitalism on the one 
hand, and then over here say, ``No, we want a Socialist 
system,'' and then within the Socialist system say, ``Now we 
don't have to improve,'' because obviously they are falling 
behind where there is capitalism. So that is creating some real 
problems.
    So, here is the formula: cheap generation plus lower, long-
term transmission costs equals reduced cost to consumers. Is my 
arithmetic right, Ms. Azar?
    Ms. Azar. You are generalizing, but yes.
    Mr. Markey. So one of your overall goals in the Chu memo is 
to reduce cost?
    Ms. Azar. Absolutely.
    Mr. Markey. So it is arithmetic, then. The goal is cheaper 
rates for consumers. And we did that in New England, actually. 
Transmission costs are higher in New England than Western, but 
that is because we have spent money upgrading transmission in 
the last few years. That has allowed us to save money 
elsewhere.
    See, you have to think of it as an integrated subject of 
reducing costs for consumers. Because of the upgrade, we have 
about 2,000 megawatts of demand response online. We have 
drastically reduced our reliance on coal and oil. We have 
brought online more than 1,000 megawatts of new natural gas. 
Peak demand has dropped 9 percent, 3,000 megawatts of wind are 
being developed. And now we see the arithmetic in action. Total 
electricity costs in New England are at their lowest point 
since 2003 because we think of it as an integrated subject, not 
separate subjects, which is, of course, what the Socialist 
system that they have in these government-run systems, you 
know, ignore.
    So, all we are trying to do is just add a little bit more 
of the modernization of the innovation that, whenever you see a 
Socialist system, you know they are going to resist it because 
they don't want to be part of the whole.
    So, I yield back the balance of my time.
    The Chairman. The gentleman yields back his time. I 
understand that Mr. Costa has to leave, and the gentleman would 
like to submit questions for the record. Is that correct?
    Mr. Costa. Thank you, Mr. Chairman. That is correct, 
although I am informed that in the regular order, that Mr. 
Kildee would be willing to yield----
    The Chairman. OK, then. We will go regular order.
    Mr. Costa. OK.
    The Chairman. With that, we will recognize the gentleman 
from Colorado, Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman. I would like to thank 
Chairman Hastings for holding this important hearing on 
Secretary Chu's memorandum that could increase energy rates for 
millions of American families. In light of this 
Administration's and Secretary Chu's troubling energy policies, 
it is imperative that the Committee vet the objectives laid out 
in this memorandum. With that, I want to thank the witnesses 
for providing valuable testimony so we can illuminate these 
issues.
    Mr. Bladow, at the end of the day, what would be the 
implementation of the Chu memo directives--what would they mean 
for United Power customers?
    Mr. Bladow. Those customers would be in your district, Mr. 
Congressman. And if implemented the way I understand some of 
them, they would shift some costs to those customers. I think 
it would add to their cost.
    In terms of cost we pay to WAPA, I am not sure where the 
1.6 cents comes from, but we pay over $.04 for WAPA power. And 
so there may be some averaging going on there that really isn't 
reflective of what each pays. But when we pay those costs, when 
you have perhaps electric vehicles or a shift and add more 
renewables, and the guys adding the renewables through an EIM 
process do not pay for their transmission, those costs have to 
be absorbed by somebody. It would be Tri-State, and we would 
end up passing that along to our members, which include United 
Power.
    Mr. Coffman. So it could mean increased utility costs. 
Also, what about reliability of the grid? Would that also--
would that be at stake?
    Mr. Bladow. I----
    Mr. Coffman. First to the cost, and then to the grid.
    Mr. Bladow. You know, I think reliability can be impacted, 
if not implemented correctly. As others have pointed out, there 
are many processes going on. And having another duplicative 
process that overlays it can lead to confusion and probably 
reduce the reliability.
    Mr. Coffman. OK. It is my understanding that, after the Chu 
memo was released, that DOE and WAPA led a series of joint 
workshops and listening sessions in such places as Loveland, 
Phoenix, and other parts of the West to gather input and 
collaborate with interested stakeholders on the initiatives 
outlined in the memo. What was your impression of these 
workshops and listening sessions?
    Mr. Bladow. Again, my concern with the sessions is they 
started down a road and asked us for input on the direction 
they were taking, not sitting down and asking us what are the 
important issues of the day that we should come together, 
identify, and solve. So the whole goal was, ``How do we solve 
the issues we have presented?'' Whether or not they need 
solving, or whether or not they are the right issues didn't 
seem to be the point. And that is our concern.
    Mr. Coffman. OK. Did Tri-State, as one of WAPA's largest 
customers, have any advance notice of the directives laid out 
in the Chu memo before it was released on March 16th?
    Mr. Bladow. No, we had absolutely no knowledge or were 
asked for any input.
    Mr. Coffman. WAPA is a real utility, and with customers and 
obligations to maintain the integrity and the reliability of 
the Western electrical grid. Are you concerned that by 
implementing the directives of the Chu memo, WAPA would be 
departing from its mission of providing cost-based power to its 
customers, which would possibly affect the reliability of the 
Western grid?
    Mr. Bladow. You know, one of our concerns is--you saw it 
with outage on September 8th of 2011, where the Western 
Electric Coordinating Council, the one overseeing the 
reliability, really had too many missions. And I think there 
was some confusion. And that is one of our concerns. If WAPA 
becomes less of an operating agency--keep the lights on, 
operate things--and becomes more of a policy-driven 
organization, we will end up in a situation where they won't do 
either job very well. And that very much concerns us.
    Mr. Coffman. OK. I see the Chu memo calls for the 
establishment of a revolving fund to help implement its 
initiatives. How does the creation of a revolving fund for WAPA 
affect the oversight responsibilities of Congress and WAPA's 
customers?
    Mr. Bladow. Well, I think it significantly reduces the 
oversight that Congress would have with a revolving fund on 
WAPA. They do have some of those funding mechanisms today, and 
I think there is less input and less responsiveness to 
customers, because the money, you might say, flows at their 
discretion, at DOE's discretion, and a lot of the oversight is 
reduced.
    Mr. Coffman. Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman yields back his time. The Chair 
recognizes the gentleman from Michigan, Mr. Kildee.
    Mr. Kildee. I will yield.
    The Chairman. The gentleman from California is recognized.
    Mr. Costa. Thank you, Mr. Chairman, and thank you, 
Congressman Kildee, for yielding, given my time situation.
    I would like to change the focus of the questioning as it 
relates to the Chu memo to an area that I have been working on 
for many years. And that is the potential impacts--I say 
potential impacts--to what I believe are some of the largest 
power users in California, which is both the Federal and State 
water projects, otherwise referred to as the Central Valley 
Project, the CVP, or the State Water Project.
    And, Ms. Azar, I will get to a couple questions I have for 
you in a moment. But first of all, Mr. Palmerton, what we are 
talking about here, I believe, to put it in context, is public 
power agencies, and transferring a cost, if the Chu memo were 
successful, to public water agencies.
    And we are talking about wholesale versus retail, in terms 
of the eventual cost of that water to those public water 
agencies who are now paying some of the highest costs for 
water, at least in California, not only in terms of their 
maintenance and the operation of their projects for both the 
Federal water project and the State water project, but also the 
costs that are then also passed on. Part of those costs are for 
the repayment of the projects that were built over a period of 
time, and that is required to be paid for the cost either to 
the Federal or State government for those projects, but also 
they have additional costs above and beyond that.
    Now we are talking about passing an additional cost. And 
these are to farmers and ranchers who are trying to grow food.
    Mr. Palmerton, what do you think would be the impact on the 
irrigation and water districts your authority serves if the Chu 
amendment were implemented in its current form? Quickly.
    Mr. Palmerton. Quickly, we pay about 3\1/2\ to 5\1/2\ cents 
for Western power during an average year or a dry year, 
depending on what----
    Mr. Costa. You are paying wholesale rates or regional 
rates?
    Mr. Palmerton. Those would be wholesale rates from Western.
    Mr. Costa. Right.
    Mr. Palmerton. So any time that that supply is disrupted, 
it is being replaced by higher-priced power. In 2008, Western 
cost 5.5 cents, and it was having to be replaced with $.10 
power.
    Mr. Costa. So you would have to pass those costs on to----
    Mr. Palmerton. Those costs are passed on directly in the--
--
    Mr. Costa. To the farmers and ranchers for how much acre 
foot they pay for water.
    Mr. Palmerton. Exactly.
    Mr. Costa. In some cases they pay as--anywhere from $30 per 
acre foot to as much as $130 an acre foot, depending upon the 
water district you are at.
    Is the authorizing legislation for the Central Valley 
Project consistent with the initiatives in the Chu memo, in 
your opinion?
    Mr. Palmerton. Not as I understand them at all.
    Mr. Costa. Is the Pooling Authority doing anything now to 
integrate renewables into the energy supply? And are you 
subject to California's 2030 law that requires 30 percent 
renewables by the year 2020?
    Mr. Palmerton. Yes, we are purchasing renewables, we are 
looking at solar, and we have a number of small hydro projects 
and gas projects.
    Mr. Costa. Even though, by the definition of that State 
law, hydropower is not considered renewable, right?
    Mr. Palmerton. That is correct.
    Mr. Costa. Which I would take issue with, because I believe 
it is renewable----
    Mr. Palmerton. I----
    Mr. Costa [continuing]. As the Chairman stated. What is the 
Pooling Authority and the Western Area Power Administration 
doing to upgrade this Central Valley Project grid?
    Mr. Palmerton. We participate directly with Western 
initiatives. Individually, our districts do not participate in 
building transmission.
    Mr. Costa. Ms. Azar, as a Senior Policy Advisor, is it the 
Department of Energy's view, or have you examined, how the 
changes in the Power Marketing Administration will affect the 
cost of power for the need of management and delivery of water, 
this wholesale of water, to the water districts which then pass 
those costs on to the farmers and ranchers that purchase that 
water?
    Ms. Azar. There are no changes to the Power Marketing 
Administration's mission here. This memo--let me just quote the 
last two sentences of the memo. ``Just as DOE is calling on the 
private sector to help our Nation win the future, DOE and the 
PMAs must do the same. The Federal Government should be leading 
the way for a modern, secure, reliable electric 
transmission''----
    Mr. Costa. OK. Well, my time has expired, and you have read 
your last sentence. Let me ask you, then, in the final-final, 
then do you believe it is appropriate for some Federal 
customers, like my constituents with the Central Valley 
Project, to bear a greater cost to facilitate the delivery of 
renewable energy that will primarily be used elsewhere?
    Ms. Azar. That is not what this initiative is about.
    Mr. Costa. Well, it seems like that might be, in the law of 
unintended consequences, a potential impact.
    Ms. Azar. Folks here are assuming quite a lot with regards 
to what the joint Western-DOE team is going to be 
recommending----
    Mr. Costa. Would you say categorically that it would not 
then increase the cost?
    Ms. Azar. Our goal is to actually drive down the cost to 
consumers by capturing efficiencies, and ensuring we invest in 
our infrastructure for the future.
    Mr. Costa. My time has expired, but would you please look 
at that as a potential outcome? If you say it is not intended 
to be an outcome, then I think it would be important to look at 
it so that we can make sure it is not an outcome.
    The Chairman. The time of the gentleman has expired. The 
Chair recognizes the gentleman from Arizona, Mr. Gosar.
    Dr. Gosar. Mr. Palmerton, I want to go back to the 
gentlelady's comments. I am from Arizona, so these are very 
similar irrigation-type situations. Can you comment on those, 
in regards to raising irrigation costs?
    Mr. Palmerton. Yes, I can. The Federal hydro system is 
optimized for a number of purposes: releasing water, 
environmental purposes, and other arrangements. If you are 
going to integrate renewable resources and use the generation 
capability of Western--actually, the Bureau of Resources--that 
change will change the operation of the project, it will 
decrease the net amount of energy available to sell to 
customers, and it will have to be--energy would then have to be 
replaced at different times, typically at much higher costs, 
and those costs have to then be passed on to our customers. And 
that raises the cost of food and the cost of agriculture, in 
particular, for our organization.
    Dr. Gosar. So, Ms. Azar made the comment--do you agree--
that we are misinterpreting the language of the bill?
    Mr. Palmerton. Well, Ms. Azar spoke of three items: 
security threats, technology advantages, and RPS. And for 
technology advantages and RPS, I think it is a question of 
transmission investment versus generation. And any time that 
you are going to use generation and move it to integrate 
renewable resources, you are having to move the water, because 
that is how you generate the power with a hydro project. When 
you move the water, you change the balance. When you change 
that entire relationship, we expect costs to increase.
    So, if there is efficiency in the transmission system, that 
is investing in transmission infrastructure. We believe the 
beneficiaries should pay. My customers that have no benefit 
from an increased transmission system from Wyoming to 
California shouldn't have to pay for that.
    Dr. Gosar. I guess they don't realize that whiskey is for 
drinking, water is for fighting over.
    Mr. Palmerton. That is true.
    Dr. Gosar. Mr. Crisson, I want to go back to a comment that 
was made earlier by my colleague here behind me, in regards 
to--because I think it needs mentioning again. Actually the Chu 
memo proposes ``reforms that would limit Congress' ability to 
oversee power administration and its revenue.'' Should Congress 
have a legislative and oversight role in the new authorities 
laid out by the Chu memorandum? And how so?
    Mr. Crisson. Yes, sir. We believe that Congress should play 
a role here. Simply going by precedent, every time there has 
been a change in the mission of the PMAs, or change in their 
authorities, Congress has played an integral role there. It is 
really a good way to work through the issues, and make sure 
there is transparency and a public airing of the concerns that 
the customers have. So, we think Congress should play a key 
role.
    Dr. Gosar. Mr. Bladow, you made a couple of comments that 
the path has already been pre-set, and you were never included 
in this direction. Given that opportunity, what would you see 
as a forecast that you could see in going down from the PMA 
standpoint?
    Mr. Bladow. Could you clarify that?
    Dr. Gosar. Yes. They said that--you made the comment that 
they have picked the road, and they are asking you to comment, 
instead of asking you what is the road. Tell me what you see, 
from your insights, on that road.
    Mr. Bladow. I mean what we heard, in terms of feedback at 
the session in Loveland, there is concern about the reliability 
of the system, in terms of all these renewables coming on. But 
the thing people want to know is how are we going to integrate 
them without shifting costs around, as opposed to let's figure 
out how to integrate. Things like an energy imbalanced market 
in the West, some folks think it is the greatest thing ever; 
other folks think, you know, it is a big cost shift.
    And that is really one of the issues that I saw, was let's 
come together and identify how we do this, and who is going to 
pay for it. Because beneficiary pays sounds good. But WAPA had 
a call on Friday, from the joint team, and they said, ``But we 
really haven't defined who the beneficiaries are yet.'' And so, 
if you start spending money, and you have a very broad 
definition of ``beneficiary,'' everybody is going to get swept 
up in that, and start paying.
    So, those are some of those foundational issues that--what 
are the key issues out there? Is it integrating renewables? Is 
it reliability? They have pre-defined a few of them that we 
don't necessarily feel are the right ones to go on.
    Dr. Gosar. So, at those listening sessions, would you 
quantify the majority of those that were there share your 
views?
    Mr. Bladow. Yes. Actually, even the folks who were non-
customers, I think, were concerned about WAPA resources being 
diverted to new initiatives and not being replaced with 
additional appropriations or staffing in order to take over 
what they are doing today. That was expressed even by non-
customers, just average stakeholders.
    Dr. Gosar. Well, that is the same thing that we heard from 
Arizona. So very, very consistent. Thank you very much. I yield 
back.
    Mr. McClintock [presiding]. Mr. Kildee.
    Mr. Kildee. Thank you very much, Mr. Chairman. Ms. Azar, 
what have been the most effective and productive steps the 
outreach team has taken to hear from customers and other 
stakeholders? And has the team made an effort to consult with 
the travel groups on this topic?
    Ms. Azar. Thank you. And let me just first say that the 
joint Western and DOE team determined what the outreach was 
going to be. And I spoke with one of the team members yesterday 
and asked how this outreach effort compared with others that 
Western normally holds, and he said this was extraordinary, as 
far as the amount of outreach that has been done with the 
customers, stakeholders, and Tribes.
    Though I don't want to focus on numbers, I do want to give 
you some statistics, because I think it does reflect how 
extraordinary this is. At the listening sessions there were 568 
folks registered for those. There were six of those. Workshops, 
there were five of them. There were 553 registered. We had a 
webinar last week, 192 folks participated. The website--and 
mind you, regardless of what folks thought of the workshops, 
they had the opportunity to submit any comments they wanted on 
the website.
    And, you know, the Western-DOE joint team is committed to 
reviewing all of those and determining how best to implement 
the Secretary's memo. We don't know what they are going to be 
recommending. And until we do, I think some of the comments 
today here are premature.
    Mr. Kildee. And your contacts and your efforts to consult 
with the tribal groups?
    Ms. Azar. Yes, a conference call was held very early on for 
tribal consultation. The Tribes did participate in the 
listening sessions and workshops. But we are going to hold a 
separate webinar for the Tribes. That has not been scheduled 
yet, but they will be holding that, I am assuming, in the next 
few weeks.
    Mr. Kildee. Have you had any feedback from the tribal 
areas, that they feel they have really been treated properly, 
and have had the opportunity to give their input?
    Ms. Azar. Well, let me say, first of all, I am not part of 
the joint Western-DOE team, so I am not sure what the Tribes 
have been telling those members. I can tell you I went to the 
listening sessions, which were, essentially, the public hearing 
sessions. And I had Tribe members come up to me and give me 
specific input on this initiative. So I do know that they were 
engaged and provided their input.
    Mr. Kildee. I appreciate that. In my 36 years in Congress, 
I have been trying to make sure that every area of our national 
life, that the Native Americans are really given full 
participation in any of these studies or outreaches. And so to 
any degree that--in your area you can encourage--I don't know 
what influence you have directly, but encourage the inquiry 
among the Tribes, I would appreciate that very much.
    Ms. Azar. Thank you.
    Mr. Kildee. And I yield back, Mr. Chairman. Oh, Mr. Markey.
    Mr. Markey. I thank you. I would just like to say this, we 
really don't have these region-wide power marketing 
authorities, the Federal marketing authorities in the Northeast 
or the Midwest. But if any of you at any point in time would 
like to talk about moving toward a privatized system, away from 
this public and kind of Socialist system, to move toward what 
we have in the Northeast and the Midwest, which is really much 
more capitalistic, my door is always open. I am ready to have 
the conversation at any point in time that you would like to 
move foward. I say the same to any Member that is interested in 
doing that. I am ready to talk about it. So I thank the 
gentleman for yielding.
    Mr. Kildee. Thank you.
    Mr. McClintock. Let's have that conversation. Mr. Kildee, 
you have concluded?
    Mr. Kildee. I have concluded, yes.
    Mr. McClintock. Great, thank you. Mr. Tipton?
    Mr. Tipton. Well, thank you, Mr. Chairman. I am delighted 
to hear Mr. Markey is embracing capitalism. We need to do the 
same thing with the health care proposal, as well.
    I would like to go ahead and ask a question of Mr. Bladow 
and Mr. Crisson. It is a follow-up, actually, to Mr. Markey's 
comments. Do you believe that the Chu amendment will reduce 
costs to consumers?
    Mr. Crisson. Well, no, sir, we don't. There is, I think, a 
lack of specificity in the proposals. And so, given some of the 
unknowns, it is hard to know, but we are very concerned about 
the process, which we really think is the issue. The customers 
have not been involved in helping to identify the goals and 
work toward those ends.
    As was pointed out by a number of panelists, on a broad, 
kind of conceptual level, some of the goals are laudable. But 
we are not sure how they are going to be attained. And so we 
are very concerned that we do it within the statutory mandatory 
framework, it requires rates to be kept as low as possible, 
consistent with sound business principles.
    Mr. Tipton. Good.
    Mr. Corwin. Do you want Mr. Bladow or me?
    Mr. Bladow. You know, I think Mr. Crisson hit it well. I 
don't know that there is enough specificity to say every point 
is going to raise rates. There is certainly the potential 
there, and the devil is in the details. And since we are not 
quite sure of the details, we are concerned.
    Mr. Tipton. You know, Mr. Chairman, I think that is what 
really concerns me. We all just came off of a month of working 
back in our districts. My communities over in Mesa County, 19.5 
percent real unemployment. Pueblo County, 12.2 percent 
unemployment. These people are struggling right now. And we 
seem to continue to want to pursue policies of taxation via 
regulation that are driving up costs, ultimately, to consumers, 
money that they can never recoup, that is taking money away 
from their ability to be able to feed their families and keep a 
roof over their heads.
    And so, Ms. Azar, I would like you to be able to maybe 
address what you said earlier and I think that is admirable--
the goal is to be able to reduce costs. So you did a cost 
benefit analysis.
    Ms. Azar. Ultimately, our goal is to reduce costs. We do 
not know----
    Mr. Tipton. I know the goal. But when you are putting out a 
memorandum that is going to have an impact----
    Ms. Azar. Right.
    Mr. Tipton [continuing]. Did you perceive that with some 
sort of a cost benefit analysis to see if that is the proper 
path to pursue?
    Ms. Azar. We don't know what the recommendations are going 
to be on implementing the memo. The memo's goal is to ensure 
that we have the infrastructure we need for the 21st century. 
We can't afford not to have that infrastructure.
    So, part of this is to make sure that we have a grid that 
is resilient and flexible. And ultimately, we are going to have 
to wait to see what the joint team recommends.
    Mr. Tipton. Are we saying that the power authorities have 
failed in that mission to be able to upgrade their facilities?
    Ms. Azar. No, absolutely not. In fact, let me just----
    Mr. Tipton. Great. Then why are we----
    Ms. Azar. Let me just quote the memo.
    Mr. Tipton. Why are we kind of throwing this up into the 
wind, as another potential regulation, when you have not 
identified the cost, what the impacts are going to be? When I 
take you to Grand Junction, Colorado, Pueblo, Colorado, people 
can't afford their homes right now, and we have a potential 
cost that you can't identify.
    Ms. Azar. That is the reason we absolutely need to look at 
the costs and make sure that the costs are as low as possible.
    Mr. Tipton. OK, I would like to actually go back to----
    Ms. Azar. That is precisely what this is about.
    Mr. Tipton [continuing]. Mr. Bladow, because when we are 
going back to those hearing sessions--we have all sat through a 
lot of hearings and had a lot of feedback from my customers 
from listening sessions out of this Administration: ``They 
listen, but they don't hear.'' It does not flow, actually, back 
into the policy. ``Thank you for your comments,'' and they 
ignore them.
    So, would you like to speak a little more, Mr. Bladow, 
perhaps, about some of the hearings?
    Mr. Bladow. Well, again, I think the challenge we had is 
they are going down a road, and we are trying to identify 
things in the path they have decided is the right path to be 
on. And it is kind of tough to--as somebody said, the train is 
going down the tracks, and you may want to try to push it down 
another track. But they are not seeming to want to go on a 
different track.
    So, again, some of the things they have identified, as Mark 
pointed out, and at a high level, the concepts sound good. But 
as you look at the details below them, they have the potential 
to impact costs and shift costs around. Maybe they lower costs, 
on average, for a lot of people. But it could increase them for 
a number of other folks. And we tend to be in the area where 
the costs are increasing, given our membership out in the rural 
areas, where it is pretty sparse, and it is hard to serve those 
folks cost-effectively. Very----
    Mr. Tipton. You know, I applaud what you do. I represent 
rural America, trying to deliver cost-effective energy to 
people that are struggling right now. And I agree with you. I 
think this policy of get on, get out of the way, or we are 
going to run over the top of you is not the best policy 
approach that we can possibly have. Let's stand up for the 
consumers, the people that are struggling in these communities 
right now. And I look forward to having the opportunity to work 
with you.
    And, Mr. Chairman, I yield back.
    Mr. McClintock. Mr. Holt, do you want to get settled first? 
You are up, if you would like to be recognized, OK. Mr. Holt.
    Dr. Holt. Yes, Mr. Chairman, if I may be recognized.
    Mr. McClintock. Go ahead.
    Dr. Holt. Thank you. Forgive me for coming in to the middle 
of the discussion, but I suspect and I understand this has not 
been covered so well yet.
    Congress set up the current structure of the Power 
Marketing Administrations, in which the Federal Government owns 
the transmission assets, and costs are passed directly through 
to consumers on a cost basis. But it is the Federal Government 
that shoulders the risk. Taxpayers don't get at the profits 
from assuming the risk.
    Let's turn to Ms. Azar. If Federally owned transmission 
lines were to fail, who is liable?
    Ms. Azar. Ultimately, the Federal Government owns these 
assets, and we are responsible for the liabilities. Ultimately, 
the----
    Dr. Holt. This might be shorthand--we might shorten that by 
saying ``the taxpayers.''
    Ms. Azar. Yes. Now, let me just be clear. The preference 
customers, if they remain as customers, will pay for it. But 
the preference customers can leave, and that leaves us, or the 
taxpayers, holding the bag.
    Dr. Holt. So, who likely would be called to face Congress 
if there were a major failure?
    Ms. Azar. Well, the Secretary of Energy is responsible for 
the PMAs. And that is why he sent out this memo saying that we 
need to make sure that we have the grid that is reliable and is 
ready for the 21st century.
    Dr. Holt. Secretary Chu, yes.
    Ms. Azar. Correct.
    Dr. Holt. So, the assets of the PMAs were built with 
taxpayer dollars, the PMAs continue to receive ongoing taxpayer 
support through annual appropriations and other mechanisms. And 
if and when these aging systems fail, the buck stops with the 
Secretary of Energy, Secretary Chu.
    Ms. Azar. Yes. Let me just note that, because 
appropriations haven't been sufficient, the Federal Government 
has actually had to go out and get loans from the customers to 
keep the grid up.
    Dr. Holt. So, Secretary Chu should be, must, needs to be 
exercising his PMA authority. I think, following your line of 
comments here, it would be irresponsible for him not to.
    Ms. Azar. Congress has mandated that the Secretary--the 
buck stops with him.
    Dr. Holt. Mr. Baak--forgive me, I am not sure of the 
pronunciation--does it make sense to you that the Department of 
Energy is using PMAs and their public assets to advance our 
Nation's broader energy interests?
    Mr. Baak. Yes, absolutely. I think that the PMAs operate a 
significant portion of the transmission grid, and a grid is 
highly interdependent. And I think that the upgrades that were 
discussed in the memorandum are also modernizations that are 
taking place throughout the rest of the grid. All of the grid 
operators are looking at the same set of modernizations.
    Dr. Holt. One thing that might help bring renewable energy 
to the PMA service areas is new transmission. Western has the 
authority to help finance new transmission.
    Now, last October in this Committee, the Majority, the 
Republicans, reported out a bill that would repeal the 
borrowing authority that Western currently has to help provide 
financing for transmission servicing renewable energy projects.
    Mr. Baak, how many solar jobs have been added in the last 
year?
    Mr. Baak. Well, I can't speak to how many jobs, 
particularly in the last year. But by 2016, as I mentioned in 
my testimony, there are projected to be 100,000 jobs in the----
    Dr. Holt. Do you think repealing the borrowing authority, 
if that legislation were to go through and become law, would 
create jobs or destroy jobs?
    Mr. Baak. It would definitely destroy jobs. One of the 
biggest inhibitors to developing large-scale solar has been 
access to transmission. So that borrowing authority has been 
really critical for a lot of developers to be able to create 
those projects and the jobs that go with them.
    Dr. Holt. And would repealing the borrowing authority, as 
the Republicans are still trying to do, increase or decrease 
rates, do you think, for consumers?
    Mr. Baak. I believe that would increase rates to consumers.
    Dr. Holt. OK. Well, you make some statements that can be 
put into some pretty convincing arguments against what we have 
heard from the other side. Thank you.
    Mr. McClintock. Mr. Lamborn.
    Mr. Lamborn. Thank you, Mr. Chairman. And thank you all for 
being here. I apologize for having to leave for a while. I was 
here earlier, but I was hosting an event that had been 
scheduled some weeks ago, so I had to leave for a little while. 
So thank you for being here.
    And I do have to say, right off the bat, I am a satisfied 
WAPA and Tri-State customer, as are many of the people in the 
Fifth Congressional District of Colorado.
    Now, I have several questions. And, Ms. Azar, if I can ask 
you first, Secretary [sic] Baucus recently urged Secretary Chu, 
in a letter about 2 weeks ago, to delay the implementation of 
any final recommendations impacting WAPA until, and I quote 
``at least February 2013,'' after the elections. Will the 
Secretary comply with this request?
    Ms. Azar. I have not talked to the Secretary about that.
    Mr. Lamborn. OK. So you are unsure about that.
    Ms. Azar. Correct.
    Mr. Lamborn. OK. I was hoping that the answer would be 
that, yes, this would be delayed. But I guess I will just 
accept that for now.
    Shifting gears, Mr. Bladow, thank you for being here. Some 
of you discussed the issue of imposing an energy imbalance 
market mechanism to help integrate variable wind and solar 
power generation into the grid. This is a central directive in 
the Chu memo, and a potentially costly one.
    Mr. Marks talks about the benefits of $100 million in 
annual cost savings to the customers if this mechanism is used. 
I wonder about the validity of that conclusion. It seems that 
Secretary Chu is already determined that it is a fait accompli 
that there are benefits to an EIM. What do you think about 
that?
    Mr. Bladow. Well, in our opinion, the jury is still out on 
that. There has been studies that show they can benefit $1 
billion or you could lose $1 billion. You know, with that type 
of money in line, you want to be a little more certain of just 
what it is people are proposing. The proposals shift around a 
bit.
    An energy imbalance market, typically you identify who is 
going to pay what for transmission, that is your foundation. 
And then you put a market on top of--you might say the rules of 
the road. The energy imbalance markets that have been proposed 
in the West, they don't identify how the transmission is going 
to be treated. They assume it is free. Since then, they have 
talked about, well, maybe we should pay a little. But the 
analysis doesn't count on any payments going to transmission 
owners. And so, from our perspective, we kind of scratch our 
heads because we don't know how it works.
    So, the analysis that has been done to date is really 
lacking. It needs a lot more thorough treatment of a lot of 
these complex issues around it. And to date they really haven't 
done those. ``They,'' meaning the number of entities that are 
looking at the various options.
    Mr. Lamborn. OK, thank you. And, Mr. Crisson, you mentioned 
that the Chu memo undermines hydropower and its customers by 
benefitting wind and solar power. Can you explain that 
statement of yours?
    Mr. Crisson. Yes, sir. We are concerned that, given the 
intermittent nature of wind and solar power, the hydro system 
in the case of PMAs has to be operated to fill the gaps in 
their output. And so, basically, you are using two sets of 
capacity, two different sets of power plants, to provide the 
load to the customers. We think that is an inefficient use of 
capital. And because you have a situation where solar and wind 
are more expensive than the hydropower, it is going to add to 
the cost that consumers ultimately pay.
    In addition to that, you have some operational issues that 
we have talked about a little bit earlier in the hearing that 
can result in suboptimal operation of the hydrosystem, in some 
cases shifting the water so that water users are impacted, as 
Mr. Palmerton has testified.
    So, we think there are all kinds of impacts as a result of 
that operation.
    Mr. Lamborn. Will those result in, potentially, anyway, 
costs in the electric bills to rate payers?
    Mr. Crisson. Certainly, yes.
    Mr. Lamborn. And are you saying it is because of two 
reasons, the inefficiencies, number one, and that it is kind of 
a cash cow that is being tapped into to pay for this, number 
two?
    Mr. Crisson. Well, that is certainly one way to look at it. 
The hydro customers are certainly writing the checks, you know, 
for the operation of the PMA system. Correct.
    Mr. Lamborn. Well, just for the record, I would like to say 
I think hydropower is a good, clean source of electricity. It 
is cheap, it is available, it is already online, and we 
shouldn't do anything to its detriment.
    Thank you all for being here. And, Mr. Chairman, I yield 
back.
    Mr. McClintock. My turn. The gentleman from New Jersey just 
asserted that repealing WAPA loan guarantees would cost jobs. I 
was just wondering. How many jobs are at Solyndra these days? 
Oh, wait. I think I know the answer to that question. Zero. But 
we are a half-a-billion dollars deeper in debt from that one 
scam, alone.
    Ms. Azar, Congress is vested with the authority and the 
responsibility to make law. The Chu memo appears breathtaking 
in its policy implications. And love it or hate it, it is a 
legitimate object of Congressional inquiry. I have to say that 
the consistent refusal of the Secretary to respond to requests 
by this Committee to discuss that memo bespeaks either an 
autocratic contempt for the legitimate constitutional authority 
of Congress, or an utter lack of confidence in supporting his 
position. I am just wondering. Which is it?
    Ms. Azar. We welcome the oversight of Congress of this 
memo. And, in fact, I am delighted that I was invited here with 
regards to that----
    Mr. McClintock. Then may I suggest the Secretary appear in 
person, as he has been invited on numerous occasions, so that 
we can actually have a discussion with the gentleman who 
originated that memo?
    Ms. Azar. The Secretary asked me----
    Mr. McClintock. I guess that is a rhetorical question. My 
clock is running.
    Ms. Azar. OK.
    Mr. McClintock. Mr. Bladow, we are told that we need to 
phase out coal and natural gas and hydro-electricity in favor 
of wind and hydro. And the Chu memo would dramatically alter 
PMA's operations to accomplish this goal. And I would like to 
nail down just one more time the impact that this has on 
consumers.
    First of all, just from an engineering standpoint, how do 
wind and solar generating costs compare with gas and coal and 
hydro--and, for that matter, nuclear--on a per kilowatt basis?
    Mr. Bladow. Well, typically, they are higher, depending on 
how much support they are getting, whether it is production tax 
credits or the----
    Mr. McClintock. Oh, no, no. I am talking about the actual 
engineering costs before government comes in and distorts those 
costs.
    Mr. Bladow. Their costs are typically higher. They are----
    Mr. McClintock. Much higher, or just a little higher?
    Mr. Bladow. Right now they are considerably higher than 
gas, given the low price of gas----
    Mr. McClintock. OK, considerably higher. We keep hearing of 
the need for grid reliability. How reliable are wind and solar 
power, compared to hydro, coal, gas, and nuclear?
    Mr. Bladow. Well, their name, intermittent resource, I 
think defines that they come and go as the sun shines and wind 
blows. And we have some in our system, and that is our----
    Mr. McClintock. So now, we have an integrated grid. So we 
have to immediately replace that water or that electricity when 
the wind suddenly dies off or a cloud passes over a solar 
array, we have to be instantly ready to bring replacement power 
online. How do we do that?
    Mr. Bladow. We do that by making sure there is extra 
capacity available, so as----
    Mr. McClintock. Well, what does that mean, exactly, if you 
have a gas generator, for example, that you are using as stand-
by?
    Mr. Bladow. It means it is idling, waiting to be moved.
    Mr. McClintock. So you are running it--ready at a moment's 
notice to deliver that power. Correct?
    Mr. Bladow. Yes, that is how you do it.
    Mr. McClintock. So we are basically paying twice for the 
power. We are paying once for the gas turbine to be generating, 
ready to flip that switch, and then we are paying again the 
much higher cost of wind and solar. Is that correct?
    Mr. Bladow. That is correct.
    Mr. McClintock. OK. Well now, how about transmission cost? 
Can we transmit wind and solar power long distances over the 
existing transmission system?
    Mr. Bladow. We can transfer a certain amount of it. The 
challenge is as you get more and more of it, and you have the 
intermittent nature, how does that--how do you engineer--how do 
you----
    Mr. McClintock. But don't you have to have high tension 
lines in order to transmit that power?
    Mr. Bladow. Yes, you have to have high voltage lines.
    Mr. McClintock. So we get hit three times. Once, the 
inherent, much higher cost of wind and solar. Second, we get 
hit because we have to run back up capacity that is reliable 
the moment that wind and solar dies off. And, third, we have to 
add new transmission--high tension, expensive transmission 
lines in order to transport that wind and solar, usually from 
long distances, because it is hugely land inefficient, and we 
have to move it long distances to the urban areas where it is 
needed. Is that all correct?
    Mr. Bladow. That is correct.
    Mr. McClintock. So we are whacked three times for the 
power. We are literally paying three times for the power. What 
consumer in his right mind would voluntarily bear such costs? I 
think that is rhetorical.
    I will go on to the final point, and that was what was 
raised by the Ranking Member. He said ending the production tax 
credit would--which is a direct subsidy--would increase the 
cost of wind generation. Does it actually increase the cost of 
wind generation itself, or does it simply shift the cost from 
the taxpayer to the consumer, so the consumer is getting more 
accurate price signals about what that power actually costs?
    Mr. Bladow. Yes, it actually just shifts it to the 
consumer, as opposed to the taxpayer.
    Mr. McClintock. Thank you. My time has expired. Mrs. Noem?
    Mrs. Noem. Well, thank you, Mr. Chairman. And I appreciate 
you holding this hearing today. This memo has created a lot of 
conversation in South Dakota and has a lot of concern.
    Ed Anderson, who is the manager of South Dakota Rural 
Electric Association, was invited to testify today. And so, Mr. 
Chairman, he, unfortunately, wasn't able to attend. So I would 
like to have his testimony submitted for the record.
    Mr. McClintock. Without objection.
    Mrs. Noem. Thank you.
    [The prepared statement of Mr. Anderson follows:]

            Statement of Edward Anderson, General Manager, 
                South Dakota Rural Electric Association

    Mr. Chairman and members of the committee, thank you for allowing 
me the opportunity to appear on behalf of the 31 rural electric 
cooperatives who are members of South Dakota Rural Electric 
Association. SDREA is a member services organization that represents 
all electric cooperatives operating in the state of South Dakota. Our 
member systems provide service to nearly 300,000 consumers and operate 
in every county in South Dakota. Our members maintain 65,000 miles of 
power line and yet serve just 2.3 consumers per mile, compared to 26 
consumers per mile for investor owned utilities and 45 consumers per 
mile for municipal electric systems. The demographic and geographic 
challenges our members face to deliver cost based power to their 
member's demands constant vigilance, ingenuity and an unwavering 
commitment to the partnerships that support the delivery of reliable 
and affordable power. The initiatives outlined in the March 2012 ``Chu 
memo'' will do nothing to support or advance that commitment.
    While I will not address each of the initiatives outline in 
Secretary Chu's memorandum, a few stand out as proof that the 
administration and Secretary Chu know little about the federal power 
marketing administrations and their relationships with their preference 
customers. They know even less of the preference customer's efforts 
over the last several decades to work with the PMAs' and the agencies 
who oversee the federal hydropower system to maintain a reliable and 
robust power generation and delivery system. Both Secretary Chu and Ms. 
Azar have made statements suggesting that the PMAs' suffer from 
significant infrastructure degradation problems. That is simply not 
true. What possible sense would it make for my members to allow a 
system that is so critical to the delivery of reliable power to their 
members to fall into a state of disrepair? Through their rates they 
have supported a consistent and aggressive program of infrastructure 
maintenance and expansion to meet growing needs at no cost to the 
federal treasury. That's right; the federal power program pays its own 
way. And when the Western Area Power Administration has faced budget 
challenges in the past my members have voluntarily stepped in and 
supported amendments to long term power purchase agreements to help 
Western address those challenges. That should give you a sense of the 
relationship that exists between my members and Western. It is a 
relationship that has taken years and the efforts of many hard working 
intelligent people from Western and their preference customer base to 
develop. Secretary Chu's efforts to take the PMAs' well beyond their 
statutory mission, sending rates on an upward path in the process, 
threatens to fracture a public/private partnership that should be used 
as a model for developing other similar partnerships.
    Secretary Chu's memo also indicates that he will push the PMAs' 
into a wide range of industry related activities including energy 
efficiency programs, demand response programs and integration of 
renewable resources. Had he taken the time to ask a few questions he 
would have discovered that electric cooperatives have been promoting 
energy efficiency and demand response programs for decades and I know 
that Western, working with electric cooperatives and others, doesn't 
need to be pushed into variable resource integration with thousands of 
megawatts of installed renewable resources already integrated into 
their system. Forcing the PMAs' to step beyond their current mission 
into these areas will only duplicate existing highly successful 
programs at significant cost to the end consumers.
    Let me finish by noting that I attended two of the workshops that 
the Department of Energy staged to seek input on the Chu memo. The 
process could be described as frustrating at best. It became abundantly 
clear early on that the word ``staged'' would be important in 
describing the process. The purpose of the workshops was to publically 
roll out the Chu initiatives, not to seek the advice and consent of 
those who will be affected. The path that Secretary Chu is on is 
clearly not government by the people, but is a perfect example of the 
imposition of government upon the people, with little or no discernable 
benefit to the people, but will most certainly be paid for by the 
people. This is not good government.
    Thank you again Mr. Chairman and members of the committee for 
allowing me to speak with you today.
                                 ______
                                 
    Mrs. Noem. You know, I have been meeting with many 
utilities across South Dakota the last several months, just 
discussing some of the challenges that they face. One of them 
was telling me just a week-and-a-half ago that they have had a 
30 percent increase in their rates that they have had to pass 
on the last 3 years to their customers that they can directly 
attribute just to regulations that they are forced to comply 
with that come from the Federal Government.
    They are very unhappy with the way that the meetings and 
the listening sessions were conducted by the Department of 
Energy as they were held throughout the area that is going to 
be impacted by the memo that was put out by Secretary Chu. They 
felt as though they were staged, that they were events where 
the Department of Energy was dictating and delivering 
information, but not necessarily seeking advice or asking for 
comments or questions. And so I will pass those concerns on to 
you, and maybe you could deliver those to the Secretary as 
well, and to the Western Area Department of Energy that was 
conducting those meetings.
    One of the biggest concerns that comes out of the memo is 
obviously the need for infrastructure upgrades and problems 
where there have been gaps in delivery and failures that have 
been put upon them. And as they have approached the Department 
of Energy asking where the concerns are, they have not received 
much feedback, as far as specifics on where the concerns lie, 
and where the concerns lie within WAPA.
    And so, with that, my question for you, Ms. Azar, is how 
long, first of all, will the comment period be when the draft 
first gets published? Will you have a comment period? And how 
long will it be?
    Ms. Azar. You know, that is up to the Western-DOE joint 
team. I believe they have indicated it is going to be the 
standard 30 days that is required by the AVA.
    Mrs. Noem. And then will you allow comments when a final is 
proposed?
    Ms. Azar. They are following, my understanding is, the 
standard Western practice, which is you get to respond to the 
draft recommendations, and then Western makes a decision. And 
they will be publishing--well, they will be sending their 
recommendations on to the Secretary.
    Mrs. Noem. OK. So the final is not necessarily debatable, 
or no input given once that comes out the door?
    Ms. Azar. I understand that is not their normal practice.
    Mrs. Noem. OK. Mr. Bladow, I would like you to answer some 
of the concerns that I was just talking about. The rationale 
advanced by the Department of Energy for this effort was 
transmission failure, and concerns for that into the future. 
And so, my understanding is that, in our region, WAPA has a 
higher reliability rating than virtually any other utility. Is 
this correct?
    Mr. Bladow. Yes. I think WAPA's system, and the area I 
operate also, has an extremely high reliability. The customers, 
in the partnership with WAPA over the years, have funded--I 
know in the Pick-Sloan program--over half-a-billion dollars of 
upgrades and improvements and new equipment in that system.
    So, to me, it is one of the state-of-the-art--it is a good, 
solid system. And I think the reliability figures you quoted 
really highlight that.
    Mrs. Noem. Yes, that is one of the reasons I wish Ed 
Anderson was able to be here, because he did speak about the 
fact that the utilities continuously invest in their 
infrastructure when they have an, on average, 2.3 customers per 
mile that they are trying to serve. Their infrastructure is 
critically important for them to do their job and to even 
remain.
    But the issue that this memo has brought up is that it has 
indicated that the Western Area Power Administration is falling 
down, and that is a concern that they have. And, Mr. Bladow, is 
that true?
    Mr. Bladow. No, I don't think it is true at all. I think 
the PMAs have done a really exceptional job of keeping their 
system up. And it is always a balance. Everything can't be 
shiny new all the time. You really need to balance, replacing 
the critical components, not just because of age, but because 
of failures and conditions. And you want them to last as long 
as possible, balancing that as you hit that 30 percent rate 
increase. You need to make sure that you only replace it when 
it needs to be replaced and not before, and balance that.
    So, that is an effort we are all after. Because our 
consumers hold us accountable for that reliability----
    Mrs. Noem. Well, who is the best person to make that 
decision, somebody in Washington, D.C. or somebody who is 
actually out there looking at the transmission lines and 
judging their ability to continue to deliver the power?
    Mr. Bladow. I think it is very much the people on the 
ground who can judge which lines are the most important and 
which facilities need to be replaced.
    Mrs. Noem. Ms. Azar, just another question. I know 
Secretary Chu said in the memo that some areas are doing an 
admirable job of delivering and implementing DOE's goals, but 
that some can do better. And when describing the memo's primary 
objective, you acknowledged that one or more PMAs may already 
be accomplishing the directive. Why do you believe a mandate is 
necessary?
    Ms. Azar. First of all, the only mandate that is in here is 
to make sure that we have a flexible and resilient grid. The 
PMAs, the joint team, is going to be defining what that means 
for them. I would love the opportunity to speak on the record 
with regard to the aging asset issue, if somebody would give me 
that opportunity.
    And if you look on Western's website, they actually have a 
wonderful piece that says, ``Look, here is what the Secretary 
was talking about, and here are the things we have already been 
doing.''
    The joint team between Western and DOE, they are not going 
to be recommending duplicative processes--at least I hope not--
but they are going to say, ``You know what? We can all do 
better. And how can we do better in this situation and make 
sure that, indeed, we have the infrastructure for the 21st 
century''----
    Mr. McClintock. Thank you. The gentlelady's time has 
expired. Mr. Gohmert.
    Mr. Gohmert. Thank you, Mr. Chairman. I appreciate you 
being here, each of you. I know it is an imposition.
    But, Ms. Azar, I had heard you mention earlier about energy 
efficiency, if I understood correctly, along with new and 
improved infrastructure, were ways that we could hold down 
costs.
    As I understand it, one of the things that this 
Administration keeps pushing is the idea of more wind and solar 
power.
    I live in East Texas. And we have rural electricity users 
who are quite concerned that they are going to be forced to pay 
for extravagant efforts at making things more efficient 
somewhere else that they will not see any benefit from. But I 
am curious. When it comes to wind energy, how do you make wind 
energy more efficient?
    Ms. Azar. That is not what this initiative is about. And 
let me just say this.
    Mr. Gohmert. So is there no way to make wind more 
efficient?
    Ms. Azar. Absolutely not.
    Mr. Gohmert. OK.
    Ms. Azar. This is about Western as the transmission 
operator. And there are 37 States that have enacted RPSs. As a 
consequence, there is lots more renewable generation being 
built all over this Nation.
    Mr. Gohmert. Right.
    Ms. Azar. And it is creating----
    Mr. Gohmert. And that is what we are getting to here when 
we are talking about PMAs. We are talking about, again, people 
that may have to pay in rural areas for things that they are 
getting no benefit from. And it seems ironic that, after all 
these years of hearing how much more efficient it is to live in 
a city, to then put the burden on people living in rural areas 
for things they don't see any benefit from--I mean, for 
heaven's sake, when it comes to wind energy, as I understand 
it, there is no way yet to hold electricity. There is no gray 
battery, nothing that just will hang on to electricity until it 
is ready for use.
    And until that happens, I mean, there is no way that I can 
see that we don't get into a situation of being triple-hit with 
costs, just so that we can say, ``We are using wind. We are 
using these resources,'' solar--most places where we live, it 
gets dark at night, and solar is not much help because you 
can't hold the energy.
    So, even in Washington, where there is so much hot air and 
wind, it drops dramatically when we are not in session. There 
is no regular source anywhere in the country of wind that will 
keep the windmills going, that will keep the electricity 
generated. And so, it just seems ridiculous, until such time as 
we have some means of holding electricity, that we would keep 
blowing these vast amounts of monies and demanding Americans 
pay for this.
    And it seems to me, as I get around my 12 counties, we have 
more and more single moms trying to make it. Because I hear 
over and over, for God's sake, for my family's sake, ``Would 
you please stop the increase in the electricity and gasoline 
prices?'' Well, you know, the Interior Department has something 
to do with the price of gasoline, as well.
    But for electricity, it just doesn't seem to make sense 
that we would keep on with this effort of wind and solar. Give 
us something that will hold electricity, and then let's talk 
about all these other resources. Otherwise, it just seems like 
we are penalizing people like single moms that can afford it 
the least. They are hanging on with their fingernails.
    But new and improved infrastructure, if I understood, Ms. 
Azar, you correctly, that was one of your steps to avoid 
increased costs. But I am having trouble understanding how you 
get to new, improved infrastructure without increased costs. Or 
are we just going to borrow more money, where is that going to 
come from?
    Ms. Azar. There is a variety of answers to that, but let me 
just give you one, which has to do with the aging 
infrastructure. It is much like your car. You know, when you 
have a car, the older it gets, the more expensive, the more you 
have to pay for maintenance on that. There are----
    Mr. Gohmert. I am working on----
    Ms. Azar. Yes----
    Mr. Gohmert. I am hoping I can get a car that will run on 
natural gas before long.
    Ms. Azar. Well, that is----
    Mr. Gohmert. And a lot of those problems are going to go 
away, because we won't have to use ethanol in a compressed 
natural gas car that keeps destroying the energy and running up 
the costs you are talking about.
    Ms. Azar. I would love----
    Mr. Gohmert. So I really understand. The requirements that 
this Administration has put on--and in fairness, some of it 
started before this Administration, but it does require 
enhanced maintenance costs. But I understand where you are 
going.
    But still, in the process--and I understand the whole thing 
pay me now, pay me later, but it is just that now, as my friend 
from California--it is like pay me triple now for single 
benefits later.
    My time has expired.
    Mr. McClintock. That concludes the Committee's questions. I 
would like to thank the panel for their valuable testimony 
today. Members of the Committee may have additional questions 
for witnesses. We would ask that you respond to those in 
writing. The hearing record will be open for 10 business days 
to receive responses. And if there is no further business, 
without objection, the Committee stands adjourned.
    [Whereupon, at 1:21 p.m., the Committee was adjourned.]

                                 
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