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

INCREASED ELECTRICITY COSTS FOR AMERICAN FAMILIES AND SMALL
BUSINESSES: THE POTENTIAL IMPACTS OF THE CHU MEMORANDUM

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

OVERSIGHT HEARING

before the

COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

Thursday, April 26, 2012

__________

Serial No. 112-107

__________

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
73-981 WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, gpo@custhelp.com.

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
PJon 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 Thursday, April 26, 2012......................... 1

Statement of Members:
Hastings, Hon. Doc, a Representative in Congress from the
State of Washington........................................ 1
Prepared statement of.................................... 3
Markey, Hon. Edward J., a Representative in Congress from the
State of Massachusetts..................................... 4
Prepared statement of.................................... 6

Statement of Witnesses:
Bladow, Joel, Senior Vice President, Transmission, Tri-State
Generation and Transmission Association, Inc., Westminster,
Colorado................................................... 48
Prepared statement of.................................... 49
Response to questions submitted for the record........... 52
Corwin, R. Scott, Executive Director, Public Power Council,
Portland, Oregon........................................... 42
Prepared statement of.................................... 44
Crisson, Mark, President & CEO, American Public Power
Association, Washington, D.C............................... 21
Prepared statement of.................................... 23
Response to questions submitted for the record........... 27
English, Hon. Glenn, CEO, National Rural Electric Cooperative
Association, Arlington, Virginia........................... 7
Prepared statement of.................................... 9
Humble, Monty, President & COO, Brightman Energy LLC, Austin,
Texas...................................................... 30
Prepared statement of.................................... 31
Marks, Hon. Jason, Commissioner, New Mexico Public Regulation
Commission, Santa Fe, New Mexico........................... 12
Prepared statement of.................................... 14
Response to questions submitted for the record........... 19

Additional materials supplied:
Azar, Lauren, Senior Advisor to the Secretary, U.S.
Department of Energy, Statement submitted for the record... 76
Hastings, Hon. Doc, Chairman, Committee on Natural Resources,
et al., Letter to The Honorable Steven Chu, Secretary, U.S.
Department of Energy, submitted for the record............. 79
Public Power Council, Portland, Oregon, Statement submitted
for the record............................................. 82

OVERSIGHT HEARING ON ``INCREASED ELECTRICITY COSTS FOR AMERICAN
FAMILIES AND SMALL BUSINESSES: THE POTENTIAL IMPACTS OF THE CHU
MEMORANDUM.''

----------

Thursday, April 26, 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,
Bishop, Lamborn, Fleming, McClintock, Duncan of South Carolina,
Gosar, Southerland; Markey, DeFazio, Napolitano, Costa, Lujan,
and Garamendi.
The Chairman. The Committee will come to order. The Chair
notes the presence of a quorum, which under Rule 3(e) is two
Members, and we have vastly exceeded that.
The Committee on Natural Resources is meeting today to hear
testimony on an oversight hearing on ``Increased Electricity
Costs for American Families and Small Businesses: The Potential
Impacts of the Chu Memorandum.''
Under Rule 4(f), opening statements are limited to the
Chairman and the Ranking Member. However, I ask unanimous
consent that if any Members wish to submit an opening
statement, they have that statement to the Committee by the
close of business today. Without objection, so ordered.
The Chairman. I will recognize myself for five minutes.

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

The Chairman. Today's hearing is about protecting millions
of electricity consumers from potentially expensive Washington,
D.C. mandates put together under the cover of darkness and
without any input from those that are impacted.
This hearing will not only allow for those inputs to be
heard, but follows up on a bipartisan Pacific Northwest
congressional delegation letter that asked legitimate questions
about the Energy Secretary's March 16 Memorandum. The
Memorandum in question directs substantial changes to the Power
Marketing Administrations.
The core mission of the Bonneville Power Administration in
the Pacific Northwest and the other three PMAs is to provide
low-cost, renewable hydropower to millions of families and
small businesses, and to do so with sound business practices.
This mission has worked well for generations and nothing
seems to be broken, yet the Energy Secretary has chosen to rope
the PMAs into a larger ideological agenda, an agenda I believe
will raise energy costs during these troubling economic times.
Americans are already struggling to fill up their tanks due
to the rising price of gasoline. The last thing they need to do
is to pay more every time they switch on a light switch.
While some of the Memorandum's goals are laudable, the memo
raises serious concerns about the manner and scope of how it
would dramatically change the PMAs' missions.
For example, the Memorandum suggests that PMA missions and
rates should be changed to incentivize electrical vehicle
deployment, something that is normally handled at the local and
retail levels.
For example, family farmers in my rural District, in my
view, should not be forced to pay higher electricity bills so
that people in downtown Seattle can plug in expensive electric
vehicles just because the Energy Secretary says so.
This and other matters in the memo raise legitimate
questions as to whether the PMAs even have the legal authority
to implement these directives. Yet, the Energy Department has
bluntly refused to perform a legal analysis of what authorities
it has or does not have.
This continues the impression that unjustified Executive
Orders are a common practice within this Administration.
Many PMA customers, from those in big cities to those
served by rural electric cooperatives, from the Pacific
Northwest to the Southeast, believe that these directives will
increase their costs while providing little or no benefits to
them.
The Governor of South Dakota recently wrote a letter to the
Secretary stating, and I directly quote, ``The Department's
orders would essentially dismantle the Federal hydropower
system as it exists today and jeopardize the cost-based
structure which has been the cornerstone of affordable
electricity in South Dakota markets.''
The concerns bridge political parties. As I referenced
earlier, two weeks ago, 19 bipartisan Members from the Pacific
Northwest delegation wrote to Secretary Chu asking that no
actions be taken on these directives until the Department
proves it has worked in a robust and transparent process with
Congress and ratepayers.
Yesterday, this Committee was proud to work with our
colleagues from Montana, Mr. Rehberg and our colleague from
Washington State, Mr. Dicks, who led the effort in the House
Appropriations Committee, to approve an amendment to suspend
the Memorandum's new activities.
Secretary Chu issued this Memorandum. It is in his name,
which is why he was personally invited to testify today about
the potential to drive up electricity costs. It is unfortunate
that he is in Europe at a clean energy conference and has
declined to testify today and answer questions.
While Secretary Chu's personal electric bill may not
increase as a result of his memo, those testifying today will
explain firsthand how theirs probably will.
Their expert opinions should have been sought out prior to
the memo's issuance to help avoid this unfortunate situation,
and we welcome their testimony.
I also want to welcome members of the Northwest Public
Power Association and members of the Northern California Power
Agency that are here in Washington, D.C., and many of them are
in the audience today.
The electric bills of families and small businesses that
depend on power from the PMAs should not be increased because
the Federal Energy Secretary would like to toy and experiment
with various energy schemes and mandates.
American wallets are already being stretched thin as they
struggle to make ends meet in this difficult economy. The last
thing they need is another hastily written, unjustified
Washington, D.C.-knows-best mandate that inflicts further
economic pain and increases their power bills.
The American people deserve answers and transparency from
their Government. They also deserve the right to know why their
energy costs are increasing, and that is the reason for this
hearing today.
With that, I recognize the distinguished Ranking Member.
[The prepared statement of Mr. Hastings follows:]

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

Today's hearing is about protecting millions of electricity
consumers from potentially expensive Washington, D.C. mandates put
together under the cover of darkness and without any input from those
most impacted.
This hearing will not only allow for those inputs to be heard, but
follows up on a bipartisan Pacific Northwest congressional delegation
letter that asked legitimate questions about the Energy Secretary's
March 16 Memorandum, which directs substantial changes to the Power
Marketing Administrations (PMAs).
The core mission of the Bonneville Power Administration in the
Pacific Northwest and the other three PMAs, is to provide low-cost,
renewable hydropower to millions of families and small businesses. And
to do so with sound business principles. This mission has worked well
for generations and nothing seems to be broken, yet the Energy
Secretary has chosen to rope the PMAs into a larger ideological agenda.
An agenda I believe will raise energy costs during these troubling
economic times. Americans are already struggling to fill up their tanks
due to the rising price of gasoline, and the last thing they need is to
pay more every time they flip on the light switch.
While some of the Memorandum's goals are laudable, the memo raises
serious concerns about the manner and scope of how it would
dramatically change the PMAs' mission. For example, the Memorandum
suggests that PMA missions and rates should be changed to incentivize
electric vehicle deployment, something normally handled at the local
and retail levels. Family farmers in my rural district should not be
forced to pay higher electricity bills so people in downtown Seattle
can plug in expensive electric vehicles just because Secretary Chu says
so.
This and other matters in the memo raise legitimate questions as to
whether the PMAs even have the legal authority to implement these
directives. Yet, the Energy Department has bluntly refused to perform a
legal analysis of what authorities it has or doesn't have. This
continues the impression that unjustified Executive Orders are a common
practice for the Obama Administration.
Many PMA customers--from those in big cities to those served by
rural electric cooperatives, from the Pacific Northwest to the
Southeast, believe that these directives will increase their costs
while providing little or no benefits to them.
The Governor of South Dakota recently wrote a letter to the
Secretary stating that ``the Department's orders would essentially
dismantle the federal hydropower system as it exists today and
jeopardize the cost-based structure which has been the cornerstone of
affordable electricity in South Dakota markets.''
The concerns bridge political parties. As I referenced earlier, two
weeks ago, 19 bipartisan members from the Pacific Northwest
Congressional delegation wrote to Secretary Chu asking that no actions
be taken on these directives until the Department proves it has worked
in a robust and transparent process with Congress and ratepayers.
And yesterday, we were proud to work with our colleagues Denny
Rehberg from Montana and Norm Dicks from Washington State, who led the
effort in the House Appropriations Committee to approve an amendment to
suspend the memorandum's new activities.
Secretary Chu issued this Memorandum--it is in his name--which is
why he was personally invited to testify today about its potential to
drive up electricity costs. It's unfortunate that he is in Europe and
has declined to testify and answer questions. While Secretary Chu's
personal electric bill may not increase as a result of his memo, those
testifying to us today will explain firsthand how theirs will. Their
expert opinions should have been sought out prior to the memo's
issuance to help avoid this unfortunate situation. We welcome their
testimony.
The electric bills of families and small businesses that depend on
power from PMA's should not be increased because the federal Energy
Secretary would like to toy and experiment with various energy schemes
and mandates.
Americans wallets are already being stretched thin as they struggle
to make ends meet in this difficult economy. The last thing they need
is another hastily written, and unjustified Washington, DC-knows-best
mandate that inflicts further economic pain and increases their power
bills. The American people deserve answers and transparency from their
government. They also deserve the right to know why their energy costs
are increasing. This hearing is designed to help provide those answers.
______

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

Mr. Markey. Thank you, Mr. Chairman, very much. Mr.
Chairman, when it comes to modernizing America's electric grid,
our Power Marketing Administrations have and must continue to
play an important role in moving our nation toward a cleaner,
smarter, and more efficient electrical generation transmission
and distribution system.
Last month, Secretary Chu announced a vision of moving our
Federal Power Marketing Administrations forward to be leaders
in building America's powerhouse.
I believe that the devil is in the details on how we
accomplish these grid modernization goals and how we continue
to meet the Power Marketing Administrations' unique missions.
You cannot get anywhere without a vision and a plan. The
Secretary's announcement is a first step that lays the
foundation for renewable energy, energy efficiency, demand
response, smart grid, and other innovations to become
fundamental pieces of our electricity system.
The Power Marketing Administrations can and should work
toward those objectives. In fact, in testimony before the
Subcommittee, the Bonneville Administrator, Stephen Wright,
told us that they are already doing it. They are already doing
it, yet the Republicans oppose this vision.
Where Secretary Chu sees opportunity for efficiency and
improved access to transmission and increased market
competition, Republicans see a different opportunity.
They see an opportunity to restrict the ability of clean
energy and demand response to compete in the market. They see a
political opportunity to engage in conspiracy theories about
the Administration trying to raise energy prices.
The Republicans are so committed to the idea that
modernization equals higher energy costs that they wrote it
directly into the title of today's hearing.
Unfortunately, the Republicans have missed the point.
Better planning, wider coordination, and using the best
technologies are ways of ultimately reducing costs to
consumers.
Secretary Chu understood this, which is why he wrote it
into the second sentence of his memo, this is from Secretary
Chu, ``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.''
Here is the reality. The Chu memo is about competition. It
is about free and fair open markets. It is about economic
efficiency. It is about all the things Republicans pretend to
be for.
Today, Republicans did not invite their free market friends
from the Heritage Foundation and the Cato Institute to testify.
That would make it much stickier to defend inefficiency,
socialist power, and that is what all these Power Marketing
Administrations are, they are all socialists right to their
core, socialist power systems, and restrictions to free
competition, of all the things to a socialist in America, this
is at the top of the list, that I am very concerned about.
I hate to see it go undiscussed in terms of what we can do
to break down that socialistic Power Marketing Administration
rather than focusing upon competition, free market, and
innovation, which has to be the hallmark of what makes America
great, and anything that is socialistic has to be examined on
an ongoing basis to make sure that does not slow down the
growth, the efficiency and the innovation in our country.
Also, notably absent from our hearing today is a
representative from the Department of Energy. While I supported
the Chairman's request to the Secretary himself be here in
person today to explain his memo, I do not support the
Chairman's decision to not allow any other representative from
the Department to testify in his place.
He would have been great to have the number two guy from
the Department of Energy here, but no, he was not invited.
There are legitimate questions to be asked about exactly
how this vision can and should be implemented.
Not having the Department present to address those
questions makes this a venue ripe for conjecture and
misinformation.
I do hope we have the opportunity to hear directly from the
Department on this subject in the future.
Here is the bottom line the way I see it. Thomas Edison,
the father of the light bulb and the first power plant, would
still understand much of our electrical grid if he were alive
today.
We have a long way to go in adapting the infrastructure and
operating systems to allow a level playing field for new
companies, new businesses, new models, and new technologies to
take hold.
I thank the Chairman for calling this hearing, and I hope
this is the first of many Committee hearings that we can
examine the way in which we can look at our public Power
Administrations so that we can make sure they are positive
forces of change in operation of our nation's grid, and kind of
modify their socialistic origins to embrace this capitalistic
system within which we live.
I thank the Chairman.
[The prepared statement of Mr. Markey follows:]

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

Thank you, Mr. Chairman.
When it comes to modernizing America's electric grid, our Power
Marketing Administrations have and must continue to play an important
role in moving our nation towards a cleaner, smarter, and more
efficient electrical generation, transmission, and distribution system.
Last month, Secretary Chu announced a vision for moving our federal
power marketing administrations forward to be leaders in building
America's Powerhouse.
I believe that the devil is in the details on how we accomplish
these grid modernization goals and how we continue to meet the Power
Marketing Administration's unique missions.
But you can't get anywhere without a vision and a plan. The
Secretary's announcement is a first step that lays the foundation for
renewable energy, energy efficiency, demand response, smart grid, and
other innovations to become fundamental pieces of our electricity
system.
The Power Marketing Administrations can and should work towards
these objectives. In fact, in testimony before the Subcommittee, the
Bonneville Administrator--Stephen Wright--told us that they're already
doing it!
Yet Republicans oppose this vision. Where Secretary Chu sees
opportunity for efficiency and improved access to transmission and
increased market competition, Republicans see a different opportunity.
They see an opportunity to restrict the ability of clean energy and
demand response to compete in the market. They see a political
opportunity to engage in conspiracy theories about the Administration
trying to raise energy prices.
Republicans are so committed to the idea that modernization equals
higher energy costs that they wrote it directly into the title of
today's hearing.
Unfortunately, Republicans have missed the point. Better planning,
wider coordination, and using the best technologies are ways of
ultimately reducing costs to consumers. Secretary Chu understood this,
which is why he wrote it into the second sentence of his 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.''
Here's the reality: the Chu memo is about competition. It's about
free and fair and open markets. It's about economic efficiency. It's
about all the things Republicans pretend to be for. But today,
Republicans didn't invite their free-market friends from the Heritage
Foundation and the Cato Institute to testify. That would make it much
stickier to defend inefficiency, socialist power systems, and
restrictions to free competition.
Also notably absent from our hearing today is a representative from
the Department of Energy. While I supported the Chairman's request that
the Secretary himself be here in person today to explain his memo, I do
not support the Chairman's decision to not allow any other
representative from the Department to testify in his place.
There are legitimate questions to be asked about exactly how this
vision can and should be implemented.
Not having the Department present to address those questions makes
this a venue ripe for conjecture and misinformation. So I do hope we
have the opportunity to hear directly from the Department on this
subject in the future.
Here's the bottom line the way I see it: Thomas Edison--the father
of the light bulb and the first power plant--would still understand
much of our electrical grid if he were alive today. We have a long way
to go in adapting the infrastructure and operating systems to allow a
level playing field for new companies, new business models, and new
technologies to take hold.
I thank the Chairman for calling this hearing and I hope it is the
first of many the Committee holds to examine ways in which our Power
Marketing Administrations can be positive forces of change in the
operation of our nation's grid.
______

The Chairman. I thank the gentleman very, very much for his
remarks. Sometimes open remarks yield to new enlightenment, and
I see that we have a whole lot of common ground that I had no
idea we had before, and that will give us an opportunity to
pursue it in many, many ways.
To me, this is wonderful.
[Laughter.]
The Chairman. With that, I really want to welcome our
distinguished panel today. We have The Honorable Glenn English,
former Member of this body from Oklahoma, CEO of the National
Rural Electric Cooperative Association.
We have The Honorable Jason Marks, Commissioner of the New
Mexico Public Regulation Commission from Santa Fe, New Mexico.
Mr. Mark Crisson, CEO of American Public Power Association
here in Washington, D.C.
Monty Humble, President and Chief Operating Officer of
Brightman Energy in Austin, Texas.
Mr. Scott Corwin from my area in the Northwest, Executive
Director of the Public Power Council out of Portland, Oregon.
Mr. Joel Bladow, Senior Vice President of Transmission of
Tri-State Generation and Transmission out of Colorado.
Gentlemen, you have, I know, from time to time testified in
front of this Committee. We have the five-minute rule. Your
whole statement will appear in the record but I would ask you
keep your oral remarks to five minutes.
The timing lights are thus, when the green light goes on,
you have four minutes and you are doing well. When the yellow
light comes on, that means you have one minute left, and when
the red light comes on, sometimes horrible things happen.
I would just ask if you can keep your remarks to that, and
with that, I would like to recognize Mr. Glenn English. Mr.
English, you are recognized for five minutes.

STATEMENT OF GLENN ENGLISH, CEO,
NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION

Mr. English. Thank you very much, Mr. Chairman. I
appreciate that. Having known Mr. Markey for a long time and a
great admirer of certainly his diligence and his vigilance, I
have to say I was not certain--this is a revelation to me about
his looking after our concerns over socialism. Appreciate that,
Mr. Markey.
Let me just say, Mr. Chairman, perhaps to put this a little
bit in context and put it in a light that I am not sure I heard
either the Chairman or the Ranking Member touch on, I think
this goes back to the time in which rural electric cooperatives
were created, and PMAs were created.
This was a rather unique period in our history. I think it
may be a little lesson for us today.
What happened during those days in creating two tremendous
success stories for this country, making it possible to bring
electric power to rural areas of this nation where no one else
wanted to deliver and where many said it could not be done.
This was done through a partnership between Government and
its citizens, between those people who are directly impacted.
It gave people the opportunity to do it for themselves.
If you look at both electric cooperatives and the PMAs,
there is this element of doing it for yourself. It is the local
people coming together, banding together. They are the folks
that did this thing.
This is a tremendous success story, and I would suggest it
is a very good model to be used today. I do not hear that much
today.
What we hear today so often is let's get somebody else to
pay for it, and by the way, we will push it off on the kids, in
the form of a national debt, or get somebody else to pay for it
that is not me.
I can remember there was a Senator, Chairman of the Senate
Finance Committee, Chairman Russell Long, years ago, used to
talk about taxes. He said ``Do not tax you, do not tax me, tax
that fellow behind the tree.''
That is kind of the mentality, I think, we have this day.
Let's push it off on the kids, let's push it off on somebody
else, anybody but me pay for it.
Well, I think that is what we have to keep in mind as we
move forward with some of these institutions that have been
around a long time that have been great success stories.
I want to remind the Committee that electric cooperatives
and municipals primarily, there were some other folks involved,
too, but primarily those two groups made it possible to go out
and build these dams, and to get them paid for.
We agreed that indeed we would go forward and guarantee
that we would buy the power, not only buy it at market rates,
we would even buy it at above market rates, because we saw that
being very important to those communities.
The people who were being affected by the floods, the
people who were going to be benefitted by irrigation, the
people that were going to be benefitted by recreation, and only
the people that were going to be benefitted by a reliable
source of electric power were willing to pay more than market
rates because what they saw this as being is the future, an
investment. It has been a very wise investment indeed.
This whole premise was based on the fact this was a local
thing, local folks. The Federal Government came in and helped
make it possible.
This partnership was formed in order to create these
entities to have this tremendous success story. Ever since, Mr.
Chairman, what we have had is the local folks working with the
PMAs locally to try to determine how can we best impact the
lives of the customers of the PMAs, the citizens that are most
directly affected.
Throughout the years, that is the way it has worked. Any
time we have had improvements, yes, you have had
appropriations, but you have also had that compensated and paid
for with higher rates, and you have had the preference
customers that are willing to pay more to bring about those
kinds of improvements, doing it locally, the local people.
I agree, Mr. Markey, that without question, we need to move
forward and to improve the electric utility system of this
country.
I agree new technology has to come into play. I agree that
the PMAs can play a major role in making that happen.
We still have this fundamental issue. Who is going to pay
for it? That is what this is really all about--who is going to
pay for it?
I am not sure whether the Secretary has that tied down yet.
We do not know. In all honesty, that memo was a little bit
vague, but it certainly got the attention of preference
customers, certainly got the attention of electric co-op
members, because what they sense is somebody is going to make
those of us who are not receiving the direct benefits pay for
somebody else's benefits.
That we are seeing a change in policy that is coming about.
I hope that is not true. I hope that what we are going to see
is Secretary Chu recognizing the success that we have in the
past of those people who receive the benefits pay for the
investment.
If that should be the case, I think we have a great model
to follow. If that is the case, all those elements that Mr.
Markey was so concerned about and all those objectives that he
had, I think, can be reached.
I would suggest it is those people who are going to be
receiving the benefits that should they pay, be making the
investment so they can receive the rewards in the future.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. English follows:]

Statement of The Honorable Glenn English, CEO,
National Rural Electric Cooperative Association

Mr. Chairman and members of the Committee, thank you for holding
this hearing and for providing me the opportunity to testify. We
appreciate the committee's work to ensure that our federal hydropower
infrastructure and the Power Marketing Administrations remain a vital
part of America's energy backbone. It is most appropriate that this
hearing's focus will be mainly on the recent memo from Secretary of
Energy Chu to the administrators of the four Power Marketing
Administrations, or PMAs: Bonneville Power Administration headquartered
in Portland, OR; Western Area Power Administration in Lakewood, CO;
Southwestern Power Administration in Tulsa, OK; and Southeastern Power
Administration in Elberton, GA. Co-ops were some of the first
purchasers of federal hydropower, and today more than 600 rural
electric cooperatives are PMA power customers.
In my testimony, I want to highlight the importance of the PMAs for
both electric customers and taxpayers; discuss elements of Secretary
Chu's March 16 memo; and provide recommendations for how Congress and
the Administration can work with customers to strengthen the federal
hydropower resource and the PMAs
The Power Marketing Administrations are unique entities, spanning
geographically diverse regions of the nation. They also have differing
authorizing statutes, many of which have been layered over time as new
projects were constructed. Since each of these regions is so complex
and policies are developed in partnership with the federal power
customers, PMAs have been statutorily headquartered in the geographic
areas in which they serve, rather than in Washington, DC. Secretary
Chu's memo seems to bring an end to that practice, which is a big
concern to our members. The federal power customers and the electric
consumers they serve are not convinced that a ``Washington-knows-best''
approach will result in improved delivery of electricity.
The National Rural Electric Cooperative Association (NRECA) is the
national service organization representing the interests of cooperative
electric utilities and their consumers. Electric cooperatives are not-
for-profit, private businesses governed by their consumers. These
consumers are unique in the electric industry in that they are members
of their cooperative and therefore own their utility. There are more
than 900 electric cooperatives which serve more than 42 million
consumers in 47 states.
NRECA estimates that cooperatives own and maintain 2.5 million
miles or 42 percent of the nation's electric distribution lines
covering three-quarters of the nation's landmass. Cooperatives serve
approximately 18 million businesses, homes, farms, schools (and other
establishments) in 2,500 of the nation's 3,141 counties. Our member
cooperatives serve over 5.75 million member owners in Congressional
Districts represented on this Committee.
Cooperatives still average just seven customers per mile of
electrical distribution line, by far the lowest density in the
industry. These low population densities, the challenge of traversing
vast, remote stretches of often rugged topography, and the increasing
uncertainty in the electric marketplace pose a daily challenge to our
mission: to provide a stable, reliable supply of affordable power to
our members, your constituents.

The Role of Federal Hydropower
Historically, one of the keys to providing affordable electricity
by cooperatives across the country has been access to the electricity
produced at federal dams and marketed by the four Power Marketing
Administrations.
More than 600 electric cooperatives in 34 states purchase PMA-
marketed hydroelectric power. Other federal power customers include
municipal electric utilities, irrigation districts, tribes, and state
and federal installations such as universities and military bases.
According to statute, the price for the power is set at ``. . .the
lowest possible cost to consumers.''
The business relationship between electric cooperatives and PMAs
represents a longstanding partnership between electric cooperatives and
the federal government. It is a model that works well for providing
consumers across the country with reliable, affordable electricity. It
is also a good deal for taxpayers, as it provides a mechanism through
which federal investment is continually repaid by users of the federal
power system.
Hydroelectric power is produced at 134 federal dams that are
operated by the U.S. Army Corps of Engineers and the Bureau of
Reclamation. Power Marketing Administrations market that electricity at
a wholesale level at a price that pays for all of the taxpayers'
original investment, plus interest, and ongoing costs. Specifically,
the rates charged to federal power customers cover:
the cost of repaying capital investments including
renewals and replacements, with interest;
power-related annual operating and maintenance costs
of dam operations;
transmission and marketing of federal power;
and financial support of some non-power related
authorized project purposes.

Considerations for PMAs' continued strength
Secretary Chu's memo to the Power Marketing Administration heads on
March 16 proposed major changes to the way the PMAs do business. While
specific direction will be provided to each of the PMAs in subsequent
memos, there are guidelines which should be considered before issuing
any directives or changing the primary focus of the PMAs. Changes to
existing policy and direction should be made only after a full and open
public process with opportunities for the PMA customers to provide
input. We believe the Secretary should remember three simple
principles: affordability; fairness; and upholding the PMAs' core
mission.

Affordability
As not-for-profits, electric cooperatives provide the most
affordable and reliable electricity possible to their consumer-members.
Simply put, every time the input costs increase for a co-op, electric
bills must also increase to make up the difference. If changes are made
that increase the costs of PMA-marketed electricity, it stands to
reason that customers' cost-based rates would also increase.
There is no question that rising electric bills hurt American
families and businesses. Since the incomes of co-op customers lag 14%
below the national average, cooperatives work to keep rates affordable
for our consumermembers at all times. Since we are finally starting to
see signs of economic optimism after years of recession, this is no
time to be driving up the cost of electricity.
The March 16 memo recognizes that the so-called modernization
effort will likely be costly, and that costs will be ``phased in'' to
minimize disruption. Phasing in expenses does not address the issue of
increasing costs to consumers with no associated benefits. Any changes
to the PMAs' strategic planning processes should be considered
carefully, and new capital expenditures planned should be specifically
discussed with the customers who will pay those expenses.
While I am concerned about the rate-raising impacts of this memo
and its vague but expensive-sounding policies, the costs to the
American taxpayer are also unknown. It seems that Congress should give
this memo and future policies a good hard look before giving DOE and
the PMAs the go-ahead to proceed.

Fairness
Throughout Secretary Chu's memo, there are examples of how the PMAs
could be restructured to be more efficient. It is not clear from the
memo which parties will benefit from the changes proposed, or who will
pay for them.
The entire federal transmission system the PMAs use to market power
is paid for through rates charged to users and beneficiaries. We
support the construction of new transmission infrastructure--including
poles, wires, computers, people, and other components--where it makes
sense. These investments should be made to improve system performance
and reliability, not to give one type of generator or customer an
advantage. Further, the cost of those improvements should continue to
be borne by the beneficiaries. This long standing practice of assigning
costs based on benefits received should be maintained.

Uphold the PMAs' Core Mission
In his memo, Secretary Chu outlines that PMAs will become involved
in a wide range of businesses including test beds for cyber security,
advancing electric car deployment, and energy efficiency. These are
valid policy goals, and in fact they are ones that many of our member
co-ops are pursuing. But to ask existing consumers, and taxpayers, to
foot the bill for these pursuits is well outside the PMAs' mission. It
would be bad public policy to use the PMAs as technology laboratories,
forgetting their primary mission of marketing federal power.
Electric cooperatives are a good example of how the electric
utility industry is changing. We have members across the country that
are leading smart grid technology efforts; incorporating demand
response; and reducing load by incorporating energy efficiency
programs. We have cooperatives both developing renewable energy
projects and purchasing renewable energy of all kinds including wind,
solar, geothermal, biomass, and clean renewable hydropower. Electric
co-ops have either installed or contracted for more than 4,000 MW of
renewable capacity.

Improving PMAs and the federal hydropower resource
We need to take a step back, and identify how we could all
collectively work together to improve the PMAs and the federal
hydropower investment overall. Congress and this administration could
make a significant impact on the energy security of our country by
investing in the federal hydropower resource. Congress and the
Administration should:
Use existing authorities to prudently integrate newly
developed resources into the existing federal transmission
systems, while improving reliability and alleviating
transmission shortfalls;
Improve access to federal lands to speed construction
of transmission and distribution lines;
Recognize the importance of clean, renewable,
affordable hydropower as an important part of our nation's
energy policy; and
Make a greater federal commitment to our hydropower
resource. The President's Budget Request and appropriations by
Congress must prioritize the safety and efficiency of federal
dams and power-related resources as a priority.
The federal power program pays its own way. Unlike most other
federal programs, appropriations for the federal power program are
repaid to the U.S. Treasury by federal power customers. Historically,
deficit reduction measures have curtailed appropriations for the
federal power program, despite the fact that all of the costs of the
federal power program are repaid. These curtailments threaten the
reliability and efficiency of federal hydropower assets. However, the
federal power customers, in partnership with the PMAs and generating
agencies, have contributed funds to reduce this threat. Continued
federal appropriations must remain the primary support for sustaining
the federal power program, but should not preclude alternative funding
methods to complement these appropriations.
By working together, Congress, the Administration, and the federal
power customers can address the multiple goals of the federal
hydropower resource and the PMAs, and maximize the benefit of the
system for all.
______

The Chairman. The time of the gentleman has expired. Our
next witness is from New Mexico, and I want to recognize my
colleague from New Mexico, Mr. Lujan, for purposes of
introduction.
Mr. Lujan. Mr. Chairman, thank you very much. It is my
pleasure to introduce my colleague, Commissioner Jason Marks,
from New Mexico. Commissioner Marks and I both served in the
New Mexico Public Regulation Commission together before I was
elected to Congress.
It is essentially the equivalent of public utility
commissions across the country. The PRC is an elected body
which oversees utilities, telecommunications, insurance and
transportation, among other things.
Working together, we were able to make New Mexico a leader
in renewable energy generation by making it a part of the
state's energy portfolio and increasing the state's renewable
portfolio standard, a similar responsibility that Senator Udall
and Senator Bingaman are championing here in the Congress,
which we refer to as a renewable electricity standard.
We laid a strong foundation to encourage development of a
clean energy economy that creates good jobs in our communities
while making sure we never forgot about energy efficiency.
We can see those efforts starting to pay off in our state.
I want to thank my colleague, Commissioner Marks, for being
here today, and I look forward to his discussion today.
Thank you, Mr. Chairman, and I yield back.
The Chairman. Mr. Marks, you are recognized for five
minutes.

STATEMENT OF JASON MARKS, COMMISSIONER,
NEW MEXICO PUBLIC REGULATION COMMISSION

Mr. Marks. Chairman Hastings, Mr. Markey, members of the
Committee, thank you for this opportunity. I am honored to have
my first appearance in this August body introduced by my good
friend and colleague, Mr. Lujan from New Mexico.
As public utility commissioners, my colleagues and I are
charged with keeping electric rates affordable while
maintaining system reliability.
The West has a long tradition of states engaging regionally
with industry and others to discuss ways to better utilize the
electric grid to reduce costs.
A regional energy imbalanced market or EIM has been on a
collaborative agenda for several years after first being
introduced to us by industry. Commissioners quickly became
interested because of the potential to save large amounts of
money for the consumers in our states.
The Federal Government through the Power Marketing
Administrations can play a key role in western EIM discussions.
I welcome Secretary Chu's memo indicating WAPA's
participation and his leadership in directing the PMAs to work
with the states and others to achieve shared goals of
delivering reliable power supplies to consumers at low cost.
My written testimony describes the EIM concept in more
detail. To summarize, a western EIM would be voluntary for
participants, would not be an RTO or imply the subsequent
creation of an RTO, would only be pursued based on a solid
financial case with tightly controlled costs and assured net
benefits. Based on early data, it could save customers in
excess of $100 million annually with savings shared broadly
across the region.
Finally, an EIM needs critical massive participation in
order to be successful. The broader the participation,
including that of the PMAs, the more opportunities that arise
for cost saving transactions.
Today, the Western Interconnection has 37 separate
balancing authorities. Each balancing authority works
continuously and separately to ensure that electric supplies
are in balance in fluctuating real time demand.
An EIM, however, looks at the balance between demand and
supply across multiple BAs. Some imbalances will offset each
other. Remaining imbalances will be handled by dispatching the
lowest cost generation available across the broad region.
Cost savings to consumers will be realized from reduced
fuel costs, less wear and tear on generating plants from rapid
cycling, and reduced need for reserves.
Existing transmission lines will be utilized more fully
with appropriate compensation.
The larger the balancing footprint with a greater diversity
of resources and loads, it will make it easier and cheaper to
use variable generation resources such as wind power.
We need not fear that the EIM will somehow suck in the low-
cost electric resources from the region leaving customers
paying high market prices for their basic energy supply.
The decision on how much capacity to offer into the EIM
would be up to each public or investor owned utility that has
generation. Individual transactions would not happen unless
they were beneficial to both sides.
Besides, the EIM is not that kind of a power market. An EIM
would not be an RTO. It would not be centralized unit
commitments, day ahead markets, capacity markets, regional
transmission tariffs or so on.
If these other RTO aspects were on the table, many western
commissioners, myself included, would be among the most vocal
opponents.
Last year, an EIM costs/benefits study was performed by the
WECC. The WECC study came up with a very broad range for EIM
costs and a somewhat narrower range of benefits.
The PUC EIM group that I chair was formed to refine that
analysis. Our group has representatives from 13 states. We have
opened up our activities to any and all interested
stakeholders.
Working with DOE, we asked NREL to conduct a new analysis
of financial benefits using more sophisticated production cost
models. We have obtained informational bids for implementing
and operating an EIM from two qualified entities, the SPP and
the CAISO, based on a sample market design we commissioned.
At some point, we expect to hand this work back to industry
members of an EIM who will then make the actual decisions on
market design and governance.
The informational bids we received indicate the cost of
operating an EIM is about $28 million a year. NREL's
calculation of benefits will be released in May.
Until then, using the WECC benefits in conjunction with the
new cost information, it appears that there could be an excess
of $100 million in net financial benefits from an EIM.
Critical mass and continuity in an EIM are keys to cost
savings. Participation of the PMAs in a Western EIM would lead
to greater benefits and lower costs to the benefit of consumers
across the West, including those served by the PMAs' public
power customers.
Thank you. I am happy to answer any questions.
[The prepared statement of Mr. Marks follows:]

Statement of Jason Marks, Commissioner, New Mexico Public Regulation
Commission, and Chair, Western Public Utility Commissioners' EIM Group
(PUC EIM)

As public utility commissioners, I and my colleagues are acutely
concerned with keeping electric rates affordable, while maintaining
reliability. The west has a long tradition of states engaging
regionally with industry and other stakeholders to discuss ways to
better utilize the electric grid to reduce costs. The regional energy
imbalance market (EIM) concept has been on our collaborative agenda for
several years and grows out of other efforts to more closely integrate
western grid operations. It appears that at least $100 million in
annual cost savings (and quite possibly more) could be realized with an
EIM, with benefits to the customers of both investor-owned and public
power entities that choose to participate in such a voluntary market
for balancing energy.
The participation of the Western Area Power Administration in a
western EIM can lead to greater benefits for consumers across the west,
including those served by Western's public power customers. I welcome
Secretary Chu's memorandum indicating WAPA participation and directing
the power marketing administrations to work with the states and others
to formulate cooperative paths to achieving our common objectives of
delivering reliable power supplies to retail consumers at low costs.

The Function and Benefits of an EIM
Today in the Western Interconnection, we have 37 separate balancing
authorities. (Figure 1) Each works continuously to keep electric
generation in balance with fluctuating loads. The regional EIM being
considered will offer several advantages over this balkanized status
quo. (Figure 2)
The imbalances that must be addressed within each balancing
authority (BA) can be either too much or too little electric supply
relative to the real-time demand. By summing real-time demand and
supply across multiple BAs, we can expect that a portion of the
deviations will wash-out on their own, reducing the need for active
dispatch by the EIM operator. It's likely that often when one BA is
long, another BA will be short, and so rather than the first BA
curtailing generation at the same time as the second BA increases it,
we can let the excess supply in the first area meet the excess demands
in the second. Of course, the EIM will work within the physical
constraints of the transmission system and not just assume that any
positive imbalance in the interconnection can offset a negative
imbalance somewhere else. And also of course, generators will be paid
when their electricity winds up serving customers in another BA.
The second inherent benefit of a regional EIM is that the EIM
operator can address intra-hour balancing requirements using the lowest
cost generating resource from a broader range of options, thus lowering
the cost to electrical consumers. The customers of the utility needing
extra electricity in a balancing transaction will benefit by getting
the lowest-cost dispatch from across the whole region, instead of just
what would have been available within the BA. And the customers of the
utility that supplied the balancing electricity should also benefit by
the fact a sale that would not otherwise have occurred has now been
made, providing in most cases a revenue credit against the fixed costs
of the generating plant.
The larger footprint of a regional EIM, with greater diversity of
resources and loads, is also expected to make it easier and cheaper to
make use of variable generating resources such as wind power. An EIM
can also lead to more efficient use of the existing transmission
infrastructure.
To summarize, every five minutes, the proposed energy imbalance
market will dispatch the lowest-cost resources available to eliminate
generation and load imbalances across the EIM's footprint. Cost savings
come from reduced fuel costs, as the generating plants with the highest
efficiencies (known as ``heat rates'') and lowest cost fuels are used
more. Additional savings are expected from less wear and tear on
generating plants from rapid cycling and from reduced need for
reserves. Existing, but underutilized, transmission lines will be used
to carry the lower-cost electricity to where it is needed in the
region, and so the owners of those lines such as the Western Area Power
Administration (WAPA) will gain additional revenues that can be used to
reduce costs to their customers.

An EIM is not an RTO
The regional EIM that is being considered would be purely
voluntary. Each existing BA would be able to decide whether to join the
EIM and each utility or other owner of generation would be able to
decide how much--if any--of its plant capacities it wished to make
available to the EIM for dispatch.
The regional EIM would be a market for intra-hour balancing energy
only. The EIM would be a far cry from a full-fledged RTO (regional
transmission organization). The existing practices of self-generation
and bilateral contracts by each utility to meet its own capacity and
energy needs would not be disturbed. There would not be centralized
unit commitment, day-ahead markets, capacity markets, regional
transmission tariffs, etc.
If some of these other RTO aspects were on the table, many western
utility commissioners--myself included--would be among the most vocal
opponents. The vertically-integrated, cost-based model that we use
keeps electricity costs to consumers low and bypasses the capacity-
creation challenges we see in the organized markets. But that a western
EIM looks like one of the functions RTOs perform is not a good reason
to walk away from the potential of hundreds of millions of dollars in
savings to consumers across the west (outside of California) from more
cost-efficient intra-hour balancing.
Concerns have been raised that an EIM could evolve into an RTO over
time. Many parts of the west have particular reasons for being
suspicious of plans to form a western RTO. Legal provisions can be
crafted for the governance structure of an EIM to ensure that ``mission
creep'' does not occur, and to specifically protect EIM participants
from being involuntarily forced into RTO.

Cost Benefit Studies and the Formation of the PUC EIM Group
Last year, an EIM cost-benefit study was performed under the
auspices of the Western Electric Coordinating Council (WECC). The WECC
study came up with a very broad range for EIM costs and a somewhat
narrower range of benefits. (Figure 3) The WECC study results left open
the possibility that EIM could lead to significant savings. But if
actual costs came in at the higher end of the range, there would
negative economic benefits.
The PUC EIM group that I chair was formed in order to carry forward
and refine the analysis of an EIM. Our group commissioned the creation
of an illustrative market design. Then, using this design as a fixed
point of departure, we solicited informational bids from two existing
market-operators, the Southwest Power Pool (SPP) and the California
Independent System Operator (CAISO), on what they would charge to
implement and operate such a market. Concurrently, with the financial
assistance of the Department of Energy, we commissioned the National
Renewable Energy Laboratory (NREL) to conduct a more refined analysis
of potential EIM benefits using a new production cost modeling tool
called PLEXOS, running on a ten-minute timescale.
The PUC EIM group includes representative from 13 state utility
commissions. (Figure 4) We have opened up our activities to any and all
interested stakeholders. We have conducted an extensive series of
public webinars on each aspect of our project. We solicited and
addressed comments on the illustrative market design and we've also
begun loose coordination with WSPP, a membership organization that is
looking at governance options for a voluntary western EIM, with a
specific focus on preventing mission creep.
State utility commissioners recognize that, should a regional EIM
be created, market design and governance will be prerogatives of the
industry members. Our role in the process has been to facilitate, not
to dictate, because--representing the interests of millions of retail
electric consumers in the unorganized part of the west--we believe that
there are substantial amounts of cost savings that would be left on the
table if the EIM conversation was to stop.
The informational bids we have received from SPP and CAISO are both
significantly lower than the engineering estimates that came out of the
WECC study. (Figure 5) Because these are informational bids from
entities that currently own and operate platforms that can be adapted
to handle the business of a regional EIM, they can be given greater
weight than the earlier estimates, which were done in the abstract and
with uncertainty about whether market operations would be contracted
out to an existing entity. The cost of operating an EIM would be about
$28 million per year based on the SPP proposal.
The results of the PUC EIM engagement with NREL to calculate the
financial benefits of an EIM will be released in early May. NREL's
analysis using a 10-minute dispatch simulation could show higher
benefits than what was found in the WECC study, which was limited to
one-hour cycles. Using only the WECC benefits in conjunction with the
better information on costs that we have now obtained, it appears there
would be in excess of $100 million in net financial benefits from an
EIM.

Conclusion
Based on the information available to-date, a western EIM would
appear to be a very attractive option to improve the utilization of the
existing electric grid. Net financial benefits to electricity customers
appear to be in excess of $100 million a year, shared throughout the
region. Fears about excessive or runaway costs are being answered by
the illustrative market design and illustrative bid process undertaken
by the PUC EIM group, which has identified two potential vendors that
are willing and able to operate the market for relatively modest costs
and start-up fees. Governance alternatives that can provide necessary
reassurances against mission creep are being developed and shared with
interested stakeholders.
Two principles guide those of us involved in the EIM conversation.
The first is that the decision to proceed needs to be data-driven. An
EIM should be pursued if (but only if) it shows significant net
financial benefits to our constituents outside the margin of
forecasting error. The second is that participation in an EIM must be
voluntary. My expectation is that there will be a positive financial
case for both investor-owned and public power to participate in a
regional EIM.
An EIM needs a critical mass of participants in order to be
successful. The broader the participation of load and generation, the
more opportunities that arise for cost-saving transactions. Costs to
participants will be lower if the fixed costs of a single EIM can be
spread over a broader footprint. Conversely, alternatives in which
multiple balancing markets are operated will inherently lead to
increased fixed costs.
The Power Marketing Administrations are key players for this
initiative due to the PMAs size and scope, the public power
constituencies they serve, and their unique legal and regulatory
posture. While the detailed cost/benefit calculations have yet to be
prepared, we can safely assume that a larger footprint, with more
participants and more contiguity, will translate into greater economic
benefits and less cost per unit. I look forward to working with the
PMAs, and their customers in working together to achieve our common
goals of delivering reliable power supplies to all consumers at low
costs.

Figures follow.

[GRAPHIC] [TIFF OMITTED] T3981.001

[GRAPHIC] [TIFF OMITTED] T3981.002

[GRAPHIC] [TIFF OMITTED] T3981.003

[GRAPHIC] [TIFF OMITTED] T3981.004

[GRAPHIC] [TIFF OMITTED] T3981.005

Response to questions submitted for the record by Jason A. Marks,
District 1 Commissioner, New Mexico Public Regulation Commission

Below are my responses to the questionnaire forwarded by Chairman
Doc Hastings.
1. Commissioner Marks, the concept of an Energy Imbalance Market as
you heard today, can be controversial. Commissioner, what is
your response that this could increase rates for consumers?
Would you advocate for an EIM if it showed a negative benefit
for consumers?
The primary purpose for pursuing an energy imbalance market (EIM)
is to decrease costs and reduce the rates that consumers would
otherwise need to pay for their electricity. In theory, an EIM can
reduce costs by reducing the need to cycle plants inter-hour, reducing
reserve requirements, and by ensuring that incremental power needs are
supplied using the lowest-cost power available across a broader
footprint than a single balancing authority.
Results of a production cost modeling analysis of a Western EIM
were released earlier this month by the Department of Energy's National
Renewable Energy Laboratory. The technical assumptions and approach
used by NREL were peer-reviewed by a team of industry experts,
including representatives of several public power utilities. NREL
estimated the operating savings of an EIM at $167 million annually. A
supplemental NREL analysis using a different modeling approach
indicated savings in excess of $1 billion. The PUC EIM group is working
to understand the applicability of the higher savings estimate.
As I understand it, EIM skeptics do not allege that electric supply
costs would be increased with an EIM. The EIM skeptic case is that the
overhead costs of building and operating an EIM could exceed the
operation savings. The PUC EIM Group agrees that controlling costs and
having certainty about cost are critical aspects of deploying a Western
EIM. By seeking informational bids from existing entities that already
provide similar services, we have been able to remove much of the
uncertainty about out-of-control costs from the EIM decision-making
process. Based on the bid from Southwest Power Pool, which is the
higher of the two we received, annual costs for a Western EIM,
including amortization of start-up expenses, would be around $40
million. Thus, the information we have to-date suggests a positive
cost-benefit ratio of 4:1, with an almost certain likelihood of net
savings to the region's consumers.
My support and advocacy for a Western EIM is predicated on an
expectation of positive benefits for consumers. I would oppose an EIM
at this time if were likely that it would yield negative benefits to
consumers.

2. If the benefits of an EIM are shown, what effect is an EIM likely
to have on federal expenditures and revenues, if the PMAs were
to be involved?
The operation of an EIM relies upon moving low-cost power around
the region using the excess capacity of existing transmission lines.
EIM protocols under discussion would ensure that utilities'
transmission rights to serve their own customers' load, as well as
other contracted transfers would take priority on the transmission
system. EIM would not displace any other power transfers, but would
send power across transmission lines when surplus capacity was
physically available (and the transfer was economic). Under an EIM,
transmission owners would be compensated for this use of their
transmission lines and facilities. Revenues received for hosting EIM
power transfers would be additional or incremental to the compensation
transmission owners currently receive. The federal PMAs, as owners of
transmission lines and facilities, would be in line to receive some of
these new revenues when their facilities are used for EIM power
transfers.
Public power utilities that own significant transmission assets
could also expect to see additional revenues from the use of their
lines.
Secretary Chu's memorandum directs PMAs to incur short-term costs
for analysis and potential implementation of an EIM. Based on my
conversations with knowledgeable parties, I believe that such expenses
will not rise to a material level; rather I take the Secretary's words
as meant to show a definite commitment to the process.

3. What could this mean for the ability to integrate more system
efficiencies and renewable energy into the system?
Research and analysis we are receiving indicate that the reserves
needed to back up variable renewable energy generation sources are
significantly reduced with an EIM. An EIM would permit a greater amount
of renewable energy to be integrated into the Western grid, and would
lower the costs of doing so.

4. Commissioner Marks, whether it is an EIM, or more broadly, the
implementation of energy policy, what would you say is the role
of public outreach and comment?
As an elected utility commissioner, it is my business to not just
understand the legal, financial, and engineering context in which
energy policy is made and executed, but also to understand public
opinion and preferences. The general public is broadly and strongly in
support of initiatives to modernize our energy supply system.
Regardless of political affiliation, ordinary citizens in overwhelming
proportions (e.g., 90%) favor much more use of solar power and other
forms of clean renewable energy. Notably, public preferences in favor
of more renewable energy are sustained even after detailed, but
unbiased, information and education is provided about costs and other
constraints with renewables; see for example the results of the 2011
Arizona Public Service/Morrison study). Polling consistently shows that
electric customers are willing to pay a premium to accelerate the
deployment of cleaner power sources.
The public also generally supports technical innovation in the
power sector (albeit with some concerns over privacy when it comes to
issues like ``smart meters''). Thus, in many respects, the general
public is ahead of industry and even political leadership in wanting to
see our country move to a technologically-advanced energy economy built
on sustainable, non-polluting resources, and which provides well-paying
American jobs.
Unfortunately, the views and preferences of paid representatives of
entities with direct financial interest in the outcome of various
energy policy debates tend to dominate too many discussions at both
utility commissions and legislatures. We need to keep the public
closely involved in the development and implementation of energy
policy. And this involvement needs to be bi-directional, with both
outreach and education to communicate to the public, combined with
ample opportunities to receive feedback from consumers and others
affected by our policy decisions.
Thank you for the opportunity to respond to these questions. If you
have any other questions or need for more information, please feel free
to contact my office.
______

The Chairman. Thank you very much for your testimony.
Next, we will recognize Mr. Mark Crisson, CEO of the
American Public Power Association.
Mr. Crisson, you are recognized for five minutes.

STATEMENT OF MARK CRISSON, CEO,
AMERICAN PUBLIC POWER ASSOCIATION

Mr. Crisson. Thank you, Mr. Chairman. Good morning, Mr.
Chairman, members of the Committee.
I represent the American Public Power Association, which
represents the interests of over 2,000 community owned not for
profit electric systems throughout the country.
We are in more than 49 states and serve 46 million
customers.
We appreciate you making this a priority and taking the
time to explore the issues raised by Secretary Chu's
Memorandum.
Since two-thirds of our members do not generate their own
power and have to rely on wholesale power purchases, this is a
critical issue for our members.
We are very concerned about being able to secure an
affordable, low-cost supply of wholesale power.
We have 600 of our members in 33 states that purchase
wholesale power from the four Federal Power Marketing
Administrations.
The rates that our members pay for this power is cost
based. They pay all the costs of generation, including the
interest in the O&M associated with the projects.
This system of repayment of the Federal Government through
rates charged to power customers has worked well for decades.
This is known as the ``beneficiary pays principle.'' This is
fundamental to the success of the power marketing agencies.
Our concern is that the directives proposed in Secretary
Chu's memo would violate this principle, potentially increasing
costs to millions of ratepayers around the country.
The mission of the PMAs for decades has been to provide
affordable, reliable power from renewable resources consistent
with best business practices.
Any time there has been changes proposed to this mission
that might somehow change or jeopardize it, it has been done
with very careful evaluation, very rigorous scrutiny of the
potential impacts, and then only with congressional involvement
and approval.
The changes proposed in this memo, however, are done
without any customer or congressional input.
I am not going to summarize all of the changes proposed in
this memo in the interest of time, but let me just give a
couple of examples that concern us.
One is the mandated use of otherwise discretionary third
party transmission financing authority. The proposal is kind of
vague. We are not exactly sure what is going to happen here,
but there is the potential for all the costs of this
transmission being born by the customers of the PMAs without
any commensurate benefits.
Another concern we have is the idea of incentivizing
through rate design a number of activities, such as energy
efficiency, deployment of electric vehicles, which is really
more properly a retail activity, not a wholesale activity.
By the definition of ``incentive,'' that conjures the
notion of discounts or something that departs from cost based
rates. This is a real concern.
Finally, to the comments of Mr. Marks a moment ago, there
is a proposal for Western to pursue membership in something
called an ``energy imbalance market.''
I know this Committee does not deal very often if at all
with the issues of power markets and their operations. Let me
be clear on this point.
This market would be a bid based market. What that means is
that the participants in this market would bid into this
market. They do not have to bid their actual costs. They can
bid anything. The price that clears the market is the highest
of those costs, and everybody receives that.
Right out of the box, you have departed from cost based
rates and what has traditionally been a system that has worked
very well for decades. It is a major concern for us.
There is the study that was mentioned earlier about the
costs and benefits. Let me just say that there is a lot of
uncertainty about just what might happen in this case.
I would just mention that the WECC study that Mr. Marks
referred to indicated that under one scenario, there would be a
net cost of $1.25 billion to customers over ten years.
Those costs are deemed to be under estimated by a
subsequent review that was done by DOE's own Argonne Labs, who
feel that those costs are probably too low.
Public power utilities are industry leaders in a lot of the
areas that are discussed in the Chu memo. We support
renewables, energy efficiency. We understand the imperatives of
the 21st Century.
We think progress can be made here without jeopardizing the
legacy of our Federal PMAs and subjecting customers to higher
power costs.
Let's keep in mind that the PMAs have delivered in
abundance the most affordable, reliable renewable resource of
all, hydropower, for years.
We need to find a better way forward. We stand ready to
work with DOE to support new multi-purpose transmission
consistent with regional planning processes.
We urge DOE to expand the role for hydroelectric power as
part of the nation's clean energy portfolio.
Progress in these areas would do much to both support
renewable resource development and enhanced PMA affordability
and reliability.
We urge Secretary Chu and DOE to work with Congress, to
work with PMA customers, to ensure the PMAs can continue to
successfully provide low-cost, reliable hydropower for years to
come.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Crisson follows:]

Statement of Mark Crisson, President & CEO,
American Public Power Association

The American Public Power Association (APPA), based in Washington,
D.C., is the not-for-profit service organization for the nation's more
than 2,000 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 nonprofit, 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 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 APPA.
APPA participates in a wide range of legislative and regulatory
forums. It advocates 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 of APPA's members 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 and the Bureau
of Reclamation. 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 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
them. 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--the 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 1180 public power systems and rural electric cooperatives
in 33 states, serving over 40 million electricity end-users.
Electricity customers in the following states receive a portion of
their power from the PMAs: 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 PMAs, as described above, 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 essential hydropower services increase,
wholesale and retail electricity rates are raised correspondingly. APPA
has consistently opposed 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 so effectively for so long. Today,
however, PMA customers face a more subtle, yet equally problematic,
challenge.
On March 16, 2012, Department of Energy (DOE) Secretary Steven Chu
released a six-page memorandum outlining several proposed changes to
the PMAs. These proposed changes would impose unnecessary and
inappropriate cost increases on federal hydropower customers, and
therefore on millions of electricity customers. During a March 20,
2012, PMA budget hearing held by the Water and Power Subcommittee of
this committee, Subcommittee Chairman Tom McClintock (R-CA) questioned
who would pay for these proposed changes and whether the proposal would
force a shift from the ``beneficiary pays'' principle that has
consistently governed the PMAs' operation. Chairman McClintock's
question is well taken and APPA believes that the changes proposed by
Secretary Chu would in fact both increase costs to federal hydropower
customers and violate the historic, and highly effective, principles
under which the PMAs have operated.
Secretary Chu proposes the following four changes to the PMAs:
First, he would require the forced implementation of new
transmission through third party financing mechanisms (WAPA, SWPA) and
borrowing authority (WAPA). Section 1222 of Energy Policy Act of 2005
(EPAct05) authorizes WAPA and 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 within their systems. The Section 1222 authority
has never been used (although WAPA and SWPA are currently evaluating
applications for its use) and TIP has been criticized in a report by
DOE's Inspector General for mismanagement and not being operated in a
transparent and efficient manner.
Despite both the explicit flexibility in Section 1222 for the
relevant PMAs to exercise discretion regarding the use this authority
and the problems identified with the TIP program, Secretary Chu
nevertheless seeks to mandate 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
the customers, to balance the interests of their existing hydropower
customers with third party financing proposals. In this new centralized
mandatory regime directed from DOE headquarters, however, PMA customers
could be forced to take on the costs of all system-wide transmission
upgrades. Any benefit they would receive from these improvements would
certainly be incommensurate with the costs they would be forced to pay.
This is a blatant violation of the ``beneficiary pays'' principle,
which has consistently governed enhancements to PMA operations.
Secretary Chu also seeks legislation to grant WAPA a new borrowing
authority to finance capital expenses. Currently, WAPA finances
construction activities through annual appropriations and some customer
funding. By removing these established funding processes, which allow
for both congressional and customer input, decisions regarding capital
improvements to WAPA facilities also would be shifted to DOE
headquarters. APPA is concerned that removing Congress, the customers,
and stakeholders further from this decision-making process will result
in, again, a net increase in costs to be borne by WAPA customers for
which they would receive disproportionate benefits. Also unaddressed in
Secretary Chu's memo is the budget scoring problem these undertakings
would face and the budget offsets that would necessarily be required
for their implementation.
Second, Secretary Chu proposes to ``improve the PMAs' rate
designs.'' To do so, he envisions changing the PMAs' rate structures to
incentivize programs for energy efficiency and demand response, the
integration of variable resources, and preparation for electric vehicle
deployment. In this context, the word ``incentive'' is simply
synonymous with and a euphemism for cost-shifting. APPA is concerned
that both these ``incentives'' and the restructuring of the PMA rates
will artificially and inappropriately raise the cost of providing
federal hydropower, resulting in corresponding wholesale and retail
rate increases. This proposal essentially means 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 issues--the PMAs
provide power at wholesale, while retail decisions are made at the
local and state levels. In effect then, Secretary Chu's proposal would
substantially encroach on the jurisdiction of state utility
commissions, state legislatures, and local governments.
Secretary Chu's third proposal is to improve collaboration with
owners and operators of the grid through steps such as entering into an
energy imbalance market (EIM). Some western energy markets are
experiencing problems with the increased development of variable
renewable energy resources (i.e., wind and solar that vary depending on
the availability of the resource and therefore must be integrated onto
the electric grid whenever they are available, day or night) promoted
through federal tax incentives and renewable portfolio standards in
some states. Since the physics of electricity dictate that it must be
generated at the same time that it is used, integrating these variable
resources poses a challenge to maintaining electric reliability (i.e.,
ensuring that the lights stay on at all times) and to the cost of
electricity to consumers. Many of these resources are under development
even though the economic recession has reduced demand for electric
generation in many areas in the West. While there are several efforts
underway in the West to address integration of these variable resources
at reasonable and affordable cost to consumers, creation of an EIM is
being touted by wind developers and by the DOE as the only way to
handle renewable energy integration. Though DOE representatives express
interest in alternatives to an EIM, it appears that the EIM proposal is
being fast-tracked by DOE through its oversight of the PMAs.
It is against this backdrop that a variety of efforts have been
offered to address the problems associated with incorporating variable
renewable energy resources in the West. One of the proposals pushed by
wind generators initially via the Western Electric Coordinating Council
(WECC), a group that oversees electric reliability in the region, is an
EIM. As proposed, such an EIM would be a sub-hourly, real-time,
centrally-dispatched energy market intended to improve the integration
of increasing levels of variable generation from renewable resources.
The theoretical benefit of an EIM is that the larger array of
generation available for dispatch would provide a greater balance of
intermittent resources and reduce the need for backup power. 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 from the sources of generation to the demand for
power. Critical details of the EIM such as governance, the market
operator, market monitoring, and mitigation have not yet been
determined by either the stakeholders who have proposed it or DOE.
A major concern with the creation of an EIM is its potential to
quickly evolve into a Regional Transmission Organization (RTO). Public
power utilities located in areas of the country with electricity
markets run by RTOs and Independent System Operators (ISOs)--
collectively referred to as ``RTOs''--have experienced ongoing
difficulties that adversely affect the consumers they serve. These
problems include: complex and costly market-pricing mechanisms; price
volatility; an absence of cost-effective measures to assure generation
resource adequacy (i.e., the availability of back-up power); limited
data availability; increased participation by financial entities that
do not produce power or serve load (i.e.; customers); findings of price
manipulation without compensation to consumers; governance structures
that are not always responsive to stakeholder concerns; and, burdensome
administrative costs. The Federal Energy Regulatory Commission (FERC),
the entity in charge of regulating the RTO markets, has not recognized
or addressed these concerns despite its mandate under the Federal Power
Act to ensure that wholesale electricity rates are just and reasonable.
The creation of an EIM sets the West on the path to energy markets that
are subject to significantly increased jurisdiction by FERC, which
would in turn result in a loss of jurisdiction to state and local
authorities.
WECC's stated intent is that such an EIM would not be a federally
jurisdictional entity such as an RTO like those in the East. However,
this ignores the history of RTOs, which developed incrementally, step-
by-step, beginning with energy imbalance markets and expanding to
include other complex and costly markets. The only other case where an
EIM is operated without the more complex RTO markets is the Southwest
Power Pool (SPP), which recently filed a request with the FERC to
incorporate many of the problematic features of a full-blown RTO. This
is an example of how an EIM is likely to lead to an RTO and should
serve as a warning to the West to reject any EIM proposal. In the West,
an RTO was a central feature of Enron's business plan, but the proposal
was soundly defeated (except in California, which has an intrastate
RTO, known as the CAISO) in the lead up to passage of the Energy Policy
Act of 2005.
An EIM for the West would be costly and unnecessary. A WECC-
commissioned study found that the infrastructure and operating costs of
EIM (with the features proposed to WECC) implementation and operation
could, in some scenarios, outweigh the estimated benefits, with the net
costs potentially reaching $1.25 billion in net present value terms
over the first 10 years. These costs do not include the additional
costs incurred were EIM to expand into a full RTO. Secretary Chu argues
that an EIM ``should [ultimately] reduce costs for WAPA's customers.''
In describing this proposal, however, he admits that collaborative
processes such as an EIM will increase costs immediately in the near
term. Whether or not the costs of instituting an EIM do eventually
decrease, APPA believes that any increased costs are untimely and
unnecessary, especially when they will be passed along to PMA customers
via higher electricity rates. It is not necessary for consumers in the
WECC region to incur the costs associated with the creation and
operation of an EIM.
There are many efforts being undertaken or under development in the
West to integrate variable renewable resources that do not entail the
formation of a complex, centralized market. Such efforts include intra-
hourly scheduling and the Intra-Hour Transaction Accelerator Platform
(ITAP) to facilitate intra-hourly transactions, Dynamic Scheduling
Systems to allow participants to trade capacity and energy on a dynamic
basis, the use of reserve sharing to back-up variable resources, and
improved forecasting (to know when the wind will blow and the sun will
shine). These ongoing and planned initiatives will likely achieve the
majority of the benefits of an EIM at a fraction of the costs.
Moreover, two of the critical needs for integration of variable
resources--construction of transmission and ensuring sufficient
generation capable of providing ``fast start'' and ``flexible ramping''
(both needed to be able to bring power generation on and offline
quickly)--will not be resolved by the formation of an EIM.
Currently, electricity in the region is sold under regulated rates
that are based on costs. Utilities either provide generation from
resources they own or they purchase power through competitively
negotiated bilateral contracts for power. The movement from cost-based
to socialized market-based pricing will only lead to higher costs for
customers. In this proposal, Secretary Chu also recommends the PMA take
steps in addition to EIM such as coordination with balancing
authorities, cooperation between public and private power, and regional
planning. Such activities would result in significant duplication of
effort (and cost) because the PMAs are undertaking many (if not all) of
these steps already.
Secretary Chu's fourth and final proposal is for DOE to work with
Congress to ``modernize oversight'' of the PMAs. While noting the
complexity of the authorizing statutes of the PMAs, Secretary Chu urges
Congress to create revolving funds to be used for transmission
improvements within WAPA and SWPA (BPA already has a revolving fund and
SEPA has no transmission). Secretary Chu argues that WAPA and SWPA are
at risk for reliability problems if Congress does not grant them the
``financial rights and responsibilities to go along with their existing
responsibilities for keeping the lights on.'' APPA does not believe
that WAPA and SWPA have difficulty providing reliable, cost-based
power. New revolving funds for WAPA and SWPA will result in both
greater costs and an increase in bureaucratic top-down decision-making
with limited input from Congress or the customers. Increased costs mean
higher electricity rates. Moreover, adding to the already-complex
organizational structures of the PMAs when Congress has expressed no
desire to do so seems to be yet another flaw in Secretary Chu's
proposal.
In concluding his memo, Secretary Chu argues that ``the federal
government should be leading the way for a modern, secure, and reliable
electric transmission grid.'' Besides the four proposals outlined
above, he argues that the PMAs should: be ``test beds'' for
cybersecurity technologies; take greater advantage of ``clean'' energy
(over and above ``clean,'' renewable and low-cost hydropower); and take
greater advantage of modern communications and control technologies.
The Secretary clearly believes that aggressively forcing all PMA
customers (and possibly all taxpayers in general) to pay for the
integration and transmission of renewable resources, such as wind and
solar power, will result in a system-wide ``upgrade.'' APPA disagrees.
For an Administration that prides itself on an ``all of the above''
energy strategy, Secretary Chu's clear preference for enhancements to
unreliable wind and solar power--at the expense of hydropower and paid
for by hydropower customers--is contradictory.
Portions of Secretary Chu's memorandum do contain admirable goals.
However, the PMAs are currently taking many of the steps Secretary Chu
urges in his memo. Furthermore, the PMAs have consistently provided
clean, renewable, cost-based hydropower for decades under the principle
that enhancements to PMA operations should be paid for by the customers
who benefit from the improvements. Instead of allowing the PMAs to
coordinate with federal power customers to make well-thought out and
pragmatic improvements to the federal projects from which they receive
the benefits of hydropower services, Secretary Chu seeks to undertake
significant new programs without input from PMA customers or Congress.
These proposals will result in increased electricity rates for BPA,
WAPA, SWPA, and SEPA customers. APPA supports the current framework
under which the PMAs operate and will work to ensure these processes
continue unimpeded. These plans for the PMAs are untimely, unwise, and
unnecessary.
______

Response to questions submitted for the record by Mark Crisson,
President & CEO, American Public Power Association

Questions from Representative Jeff Denham
Given that California has already been implementing an overly
aggressive renewable energy mandate; wouldn't the ratepayers in
my district be stuck with an even bigger energy bill for little
to no benefit, especially since renewable energy is capital
intensive and expensive?
In addition to the state's renewable portfolio standard (RPS), we
understand that California has enacted a law requiring that 75 percent
of renewable energy resources used to meet that RPS largely originate
from in-state generation. Our members in California (one of the largest
energy markets in the Western U.S.) who purchase power from the Western
Area Power Administration (WAPA)--one of the four federal Power
Marketing Administrations (PMAs)--have expressed concerns that
additional integration of renewable energy and efficiencies envisioned
in the DOE memo may not materialize as DOE asserts because California
utilities will effectively be required to use in-state renewable to
meet the state's RPS mandate in the coming years. This adds to concerns
our California members share with consumer-owned utility systems across
the country regarding potential costs likely to be incurred by PMA
customers pursuant to the directives in the DOE memo. California
utilities that purchase WAPA power could end up paying for integration
of out-of-state renewables and, at the same time, be blocked from using
those renewables to meet the state's RPS mandates. As a result, they
could effectively be paying twice: once for renewable resources needed
to meet state RPS obligations and again for unneeded renewable
resources acquired by WAPA and unusable in the California market.
And, I want to make it clear for those in my district, aren't
ratepayers the ones that are going to have to pay the bill for
this administration's directive to the Power Marketing Agencies
that we are discussing here?
Yes, because the vast majority of electric utilities that purchase
PMA power are not-for-profit public power utilities and rural electric
cooperatives, any increases in operating expenses by the PMAs would be
passed on to the end-use electric ratepayers.
Doesn't this one-size-fits-all approach completely stifle the
flexibility needed to manage our local power areas in the best
manner to keep costs from overwhelming ratepayers, especially
during these tough economic times and in places like my
district where unemployment is high and power rates are already
taxing families' pocket books due to the state renewable
mandate?
The PMAs themselves are not government agencies in the traditional
sense of the term. They are instead government enterprises that serve a
specific purpose--marketing (and transmitting for three of the four)
federal hydropower--and whose services are paid for by the utilities
that purchase this resource for power use. Any of the costs associated
with running the PMAs--including the capital assets associated with
marketing and transmitting the power and the employees of the PMAs, are
paid for by the PMAs' utility customers and, in turn, their ratepayers,
as alluded to in your question above. This includes any debt, plus
interest, associated with the PMAs' capital assets. Therefore, the
general taxpayer does not pay for the PMAs to operate.
This arrangement, in place for decades, has resulted in an
extremely collaborative process between the PMAs themselves and their
utility customers that is regionally specific. In the WAPA region,
which covers much of the West, the utility customers interact with the
WAPA regional offices that market power from particular ``projects''
that typically involve several dams on a river system or systems. For
California, the hydropower marketed by WAPA is from the Central Valley
Project (CVP).
In addition, the PMA customers in each region have coordinated
heavily with their regional congressional delegations to report on the
status of this collaborative relationship between the PMAs and their
customers. To borrow an analogy from one of the other panelists at the
hearing on April 26, the PMA customers could be viewed as the
``shareholders'' of the PMAs, and their regional congressional
delegations as the ``board of directors.''
This context is necessary to understand the local (from the
perspective of the utility customers and ratepayers) and regional (from
the perspective of the PMAs) nature of this relationship and the way it
has worked to ensure the needs of the region are met at the lowest
possible cost. The not-for-profit nature of the PMA customer utilities
exposes their ratepayers to any price increases or volatility in the
PMA rates, which incentivizes the utilities to scrutinize the PMAs'
operations and expenditures. The PMAs in turn understand that if they
are not responsive to their customers their ``board of directors'' in
Congress may become involved. This has resulted in a unique and
beneficial situation for ratepayers in the PMA regions and a culture of
responsiveness that contributes to accountability and efficiency within
the PMAs. While there is always room for improvement, this
collaboration can result (and has resulted) in positive changes over
time.
Secretary Chu's memo is, therefore, a misguided attempt to take
these local and regional decision-making processes and turn them into a
top-down, Washington, D.C.-centric approach, which is unlikely to
result in the same collaboration and efficiency described above.
Instead, we believe that a one-size-fits-all approach such as that
delineated in the memo is likely to increase costs and decrease
efficiencies. As you note, this is particularly acute during a time of
economic hardship such as we are currently experiencing.
Has Congress provided the Department of Energy with the
authority to implement this over-reaching political initiative
by Secretary Chu that pushes a socializing agenda for America's
energy production and distribution grid?
APPA is currently working with other customer groups to review the
existing statutory authority that governs the operations of the PMAs,
and, in particular, WAPA (which the Secretary has stated will be the
first PMA to be ``modernized''). It is a more complex endeavor than one
might imagine because many of the projects (and even specific dams)
have their own organic statutes. The preliminary analysis indicates
that certain of the initiatives set out in the Secretary Chu memo could
conflict with the statutory obligations of WAPA.
Regardless of the statutory authority, however, from a historical
process and political standpoint, whenever the PMAs and/or their
customers--individually or collectively--have sought major policy
changes to these agencies, they have done so with congressional
oversight, debate, and approval. Therefore, whatever the limits of
DOE's statutory authority are, the Secretary's lack of consultation
with the congressional authorizing committees (and other relevant
committees) is, at the least, inappropriate.
Has the cost-benefit analysis of the Energy Imbalance Market
(EIM) shown to be the best option for the ratepayers? And, has
a full and complete study of the EIM been finished to make a
fully educated decision about such a major shift in energy
delivery, or is it just assumed by Secretary Chu to be in
ratepayers' best interests in his memo?
There has not yet been a cost-benefit analysis that accounts for
the full scope of all EIM costs and benefits. As described in greater
detail below, studies completed so far contain a number of
methodological flaws that are likely to overstate the benefits and
underestimate the costs. These studies, therefore, do not provide
support for the conclusion that an EIM will provide net benefits to
consumers, and it is therefore not possible to make any decision on an
EIM with certainty at this time.
Thus far the only fully completed analysis of the EIM costs and
benefits was commissioned by the Western Electricity Coordinating
Council (WECC) staff. The results of this analysis presented a range of
the present value of net benefits over a 10 year period, with a high of
$941 million in net benefits and of net costs of $1.25 billion. This
study, however, appears to have overstated the benefits and understated
the costs. The benefits analysis, performed by Energy and Environmental
Economics, Inc. (E3), found that the largest category of benefits,
accounting for 60 percent of the total benefits, is the reduction in
the need for ``flexibility reserves,'' which are extra generation
resources standing by to come on line quickly when wind or solar
resources drop off sharply, as occurs often. The reduction in
flexibility reserves was assumed to result from the reduction in such
variability from access to a larger array of renewable energy
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, a highly unrealistic assumption. An
April 2012 analysis by Argonne National Laboratory criticizes this E3
assumption, noting that the presence of transmission congestion would
negate this benefit.
The other source of benefits estimated by E3 was from the savings
resulting from the dispatch of lower cost generation resulting from a
centralized dispatch of all generation. But this benefit assumes that
if lower cost resources are used, these owners would sell power at a
price no higher than their costs and pass through the savings to
consumers, which ignores the fact that in centrally-operated
electricity markets, prices almost always exceed costs. In fact, the
study never looked at or calculated the prices that would be produced
by the EIM and paid for ultimately by consumers.
The costs analysis, performed by Utilicast, LLC, includes just the
infrastructure and staff costs incurred in the implementation of an EIM
by the market operator and market participants, which include local
utilities, balancing authorities, generation owners and transmission
providers. These costs, however, ignore the central fact that the
history of Regional Transmission Organization (RTO) development in the
East clearly shows that an EIM is highly likely to become a full RTO
over time (note that California has the only RTO in the West, the
California Independent System Operator). The complexities of the
constantly changing market rules, lengthy stakeholder meetings, Federal
Energy Regulatory Commission proceedings, and settlement talks that are
an inevitable part of an RTO will produce much greater infrastructure,
labor and time costs than estimated by Utilicast.
Since the completion of the WECC-commissioned benefit-cost analysis
last fall, the focus of the EIM discussion has shifted to the PUC EIM,
a group of individual state utility commissioners that was formed by
the Western Governors Association (WGA). The PUC EIM appears to be an
advocate of an EIM and is working on issuing revised benefits and costs
analyses. DOE's National Renewable Energy Laboratory (NREL) also
recently released a new benefits analysis, as requested by the PUC EIM,
containing the same flaws as the E3 study described above. Moreover,
when NREL could not produce significantly higher benefits, it created
an entirely new ``baseline'' assumption that current balancing
authorities dispatch generation only once an hour, which NREL
acknowledged is not accurate. PUC EIM is also attempting to replace the
WECC costs study with a much narrower version of the costs--one that
consists solely of the incremental market operator costs that would be
incurred if one or two existing RTOs, the Southwest Power Pool (located
in the middle of the country, not the desert Southwest) or the
California ISO were to operate the EIM. In addition to ignoring the
costs of moving to a full RTO despite being operated by an existing
RTO, these estimates also leave out individual utility infrastructure
and labor costs, and are therefore greatly understated.
Some of APPA's members in the Northwest, in conjunction with the
Northwest Power Pool, are undertaking a study of an EIM as well as
other alternative proposals to EIM that would potentially help to
integrate variable renewable generation. These studies are expected to
be completed at the end of the calendar year.
What is the problem that Secretary Chu is trying to fix with
the initiatives laid out in the March 16 memo? Is it a
transmission issue, and, if so, will this memo increase
transmission siting approvals and expedite the process to get
power lines built where they are needed? Also, Will there be an
improvement in power delivery reliability from this memo's
directives?
In response to your first question, we do not believe there is a
problem that needs fixing with regard to the PMAs. There is a
particular policy position that is implied in the DOE memo--the desire
for the PMAs to prioritize integration of variable renewable resources
potentially at the expense of the core mission of the PMAs to market
renewable hydropower. The integration of these resources has become an
operational concern across utilities, not just in the context of the
PMAs, because of their variability and the need to have back-up
generation to accommodate these variations. APPA's members in both the
PMA regions and in non-PMA areas are working with each other and with
other stakeholders to address these integration issues. These efforts
are ongoing and do not require DOE directives to proceed.
As you correctly surmise, one other challenge is accessing wind
generation, which is often located far away from population (or
``load'') centers. New transmission lines are sometimes required to
reach these resources, and the challenges associated with planning,
siting, and paying for transmission lines have not gone away. However,
the PMAs, as federal agencies, have the ability to site transmission
lines using federal eminent domain authority.
In terms of your question on reliability, hydropower can often be
one of the most reliable resources because, unless there are drought
conditions or other statutory constraints on the resource (such as
Endangered Species Act considerations, which are pervasive in some
parts of the country), it can almost be used as a large and resilient
``battery'' for the region, to be turned on and off relatively easily
if need be. For example, during the August 2003 Northeast blackout, the
Niagara and St. Lawrence hydropower stations of the New York Power
Authority remained in service, serving load in western New York,
despite system conditions that took other generators in the region off-
line. These hydro-electric resources were critical to the restoration
of the bulk power system in the rest of New York and Ontario, whereas,
for safety reasons, other types of power plants had to slowly be cycled
back on. The operational flexibility of these hydroelectric resources
were invaluable to the citizens of New York that summer, by helping to
restore the stability of the system and giving other resources the
ability to ramp back on. So, if the Secretary Chu memo detracts from
the core mission of the PMAs to market and make reliable federal
hydropower resources available to WAPA's customers, it is possible that
bulk power reliability could be adversely impacted in ways that are
difficult to foresee.
Furthermore, should the PMAs be used as the vehicle to site
transmission lines for wind generation, there is no guarantee that
those lines will be used to benefit regional reliability. For example,
a line being proposed in the SWPA territory (the PMA serving the
Arkansas Texas, Oklahoma, Missouri, Kansas, Louisiana region) to access
wind power, is a direct current (DC) line, which makes it primarily
able to deliver power from point ``a'' to point ``b'' unless special
interfaces are constructed to allow movement between this type of line
and an alternating current (AC) line. Alternating current lines, by
contrast, are typically used to enhance regional power flow and
reliability. The line in question is seeking to use the third party
financing authority created in the Energy Policy Act of 2005 as an
option for the PMAs. While APPA has supported this authority as an
option, it does not support its use to support ``fly-over'' projects
that provide little or no benefit to the regions through which they
pass. The line in question is still under review by SWPA.
______

The Chairman. Thank you very much for your testimony. Next,
I will recognize Mr. Monty Humble, who is President and COO of
Brightman Energy, LLC, out of Austin, Texas.
Mr. Humble, you are recognized.

STATEMENT OF MONTY HUMBLE, PRESIDENT AND COO, BRIGHTMAN ENERGY,
LLC

Mr. Humble. Thank you, Mr. Chairman, members of the
Committee. I appreciate being invited to testify here as a
member of the private business community.
I have educated myself to some extent on the issues here. I
will say the PMAs certainly have a reasonable concern about
exactly how this would be implemented, or the preference
customers do.
I hope that we will not lose sight of the larger issue
here, which is that our electric grid definitely needs to be
improved. There are issues of reliability, issues that impact
national security. There are inefficiencies in the grid, and
given the interconnected nature of the grid, a small problem in
one place can cascade into a very large problem for a large
number of people.
For example, in 2003, some untrimmed trees underneath
transmission lines in Ohio resulted in a cascade that took all
of seven minutes to affect 50 million people and cost $6
billion.
There is no way to isolate one part of the grid or one
group of customers from the rest of the grid. It is a national
problem and we are all in it together.
As well, there are new issues that we are discovering,
particularly the issues related to cyber security. Most of the
electric system relies on SCADA controls. The virus or worm
illustrated the damage that can be done by an attack on SCADA
systems.
Just last night as I was boarding a plane in Los Angeles to
come over here, a friend sent me an email detailing a security
hole in one company's SCADA systems, in effect, an unplugged
back door way into access the controllers.
There are a number of security holes that need to be
addressed. Again, they affect or potentially could affect our
entire electrical system, which in turn as the Defense Science
Board has pointed out, would affect all of our military
operations, particularly as we bring more military operations
back to the United States and operate from here.
At the same time, there are tremendous opportunities
available to us with respect to the electric grid. The grid,
first off, modernization would be an enormous economic
development opportunity. It would create jobs.
We found in Texas where we have chosen to invest about $8
billion in our grid that it has created a large number of jobs,
created a large amount of economic activity.
Brattle has done a study that indicates that national
investment would do the same thing.
The important thing to remember about the powers that were
given to the PMAs by the Congress in 2005, during a time when
the Republicans had the Majority, and again in 2009, during the
time when the Democrats had the Majority, those powers, Section
1222 of EPAct 2005 and Section 402 of the stimulus bill, both
require that the private capital that is attracted be attracted
in such a way that it not impact the preference customers.
The preference customers have a legitimate right not to be
asked to pay for new transmission upgrades that do not benefit
them.
I am sorry, I am losing my voice.
At the same time, we have an opportunity to attract large
amounts of private capital to the grid.
Last year, I delivered a letter to the Senate with 84
company signatures, the vast majority of those companies were
traditional utility companies or related utility companies.
They are eager to invest private capital in modernization of
the grid if they are not foreclosed from doing so.
I thank you very much for the time and the opportunity to
appear.
[The prepared statement of Mr. Humble follows:]

Statement of Monty Humble, President & COO of Brightman Energy LLC

Chairman Hastings, Mr. Markey, and members of the Committee, thank
you for inviting me to testify at this hearing today. The United States
transmission system needs serious attention, and this hearing will help
to provide that attention.
As I begin, I want to share two anecdotes with the Committee.
Unfortunately, these are neither fictional nor amusing. They are
stories that I have personally experienced as an energy developer who
is trying to invest private capital to produce electricity for which
there is a competitive market.
This winter, my company, Brightman Energy LLC was evaluating
whether to buy and complete development of a 100 megawatt wind energy
project in the Pacific Northwest. The project had all of its permits in
place, it was on private land, and the landowner was excited about the
potential royalties from a wind farm. It was in a rural area where jobs
are hard to find, and where land is cheap so the local governments
struggle to finance local schools and law enforcement. The power was
contracted to sell to a private utility company that had conducted an
auction for power, and the project that my company was considering had
been determined by the utility and its regulator to be an acceptable
supplier of power. We had a project that was built on private land by a
private developer and had a contract to sell power to a private utility
company. All the permits and approvals were in place. As we did our due
diligence on the project, we discovered that included in the project
budget was a line item for a payment of nearly $50 million to purchase
a transmission entitlement from the holder.
For those who do not know what a transmission entitlement is, let
me explain. In the Western Electricity Coordinating Council (basically
the area from the front range of the Rocky Mountains to the Pacific
Ocean and from northern Canada to the border with Mexico) a good deal
of transmission capacity sits idle most of the time. Ratepayers pay for
this idle capacity, but it is not available for use because someone has
the contractual right to use the transmission capacity. As a result,
even if the capacity is not being used by the entity that is
contractually entitled to use it, it sits. Since we have not perfected
the ability to store electricity in large quantities, denying
transmission access is the same as denying access to a resource.
In the case of the project that we were considering, the entity
that had the right to use the transmission line wanted to be paid tens
of millions of dollars in order to let the project use the transmission
line capacity that the seller was not using. Since the transmission
line was not subject to FERC jurisdiction, the seller was free to name
its price, any price, without oversight. In plain English, it was
charging monopoly rents because it could and because the transaction
was not subject to regulatory oversight, and let me be clear--the
payment did not cover the actual transmission tariff that was to be
paid to the owner of the transmission line. That was a separate charge
payable to the transmission owner.
One byproduct of this method of allocating transmission access is a
significant underutilization of transmission assets. Studies of
physical power flows consistently show that major transmission pathways
in the WECC are loaded at less than 75% of their capacity a significant
part of the time (see Figure 1 attached). This unused transmission
capacity represents economic inefficiency. It is paid for by
ratepayers. At the same time, ratepayers are also denied access to
competing sources of electricity that could compete in wholesale
markets and drive electricity prices down.
The second anecdote involves several projects that I have worked on
in Texas. For those of you who are not deeply familiar with the United
States electric system, there are three electrically isolated, separate
grids that provide electric service in the United States, the Eastern
Interconnect (which covers the United States from the Atlantic Ocean to
the front range of the Rocky Mountains with the exception of Texas),
the WECC (which I mentioned earlier), and the Texas interconnection
(also frequently referred to by the name of the operator of that grid,
Electric Reliability Council of Texas or ERCOT). Each of the three US
electrical grids is isolated from the other two--for reasons related to
the physical properties of electricity, it is not possible to have an
AC connection from one grid to the other (see Figure 2 attached).
As some of you may know, Texas has been very fortunate to benefit
from significant wind development, with over 10,000 megawatts of
installed wind generation capacity. While this has benefited Texas
consumers because we have a competitive market for electricity, and the
wind generators have to compete like everyone else for customers, it
has made it hard for developers like my company to make a profit for
our investors. As a result, we have considered various options to
export electricity generated in Texas. My company has also considered
building transmission lines to provide access for other wind developers
who wanted to export power. Each time I have suggested that we contact
Western Area Power Administration to see if Western would be interested
in participating in the development of transmission in ERCOT, I have
been told that Western would not be interested because a transmission
line in ERCOT would not connect up to the rest of Western's
transmission system.
I do not know whether this actually represents the position of
Western because I have never had a direct conversation with them, but
if it does (and presumably the people I spoke to would have some basis
for their statements), it seems like a very odd position for Western to
take since its Congressionally mandated service territory includes a
large part of Texas as you can see from the map attached as Figure 3.
Taken literally, Western would never build a transmission line in ERCOT
because that transmission line would never connect to the rest of the
Western system because it is not physically possible to connect an AC
line across the boundary from WECC to ERCOT. And yet Congress surely
had something in mind when it provided that almost one half of the
State of Texas would be within the Western service territory.
These two anecdotes illustrate fundamental issues facing the power
marketing administrations. In preparing to testify here today, I have
communicated with many people involved in the transmission business and
energy markets. Most of those with whom I spoke recognize that the PMAs
are taking steps to move beyond their historical roles, but there is a
feeling that the PMAs can take additional steps that would benefit
their customers, and more importantly, the end consumers--families and
small businesses--of power that the PMAs market. The additional steps
would include leadership in making changes in the way energy markets in
the West operate to encourage market competition and increased
efficiency in grid operations. These market oriented reforms would
reduce the cost of inefficient utilization of resources and reduce
costs to consumers.
Today the PMAs almost exclusively serve their preference customers,
and yet they hold powers that Congress has granted to them to do so
much more. Those powers were granted by both Republican majority and
Democratic majority Congresses. Section 1222 of the Energy Policy Act
of 2005 provided to Western the authority to enter into public/private
partnerships to build new transmission lines throughout the Western
service territory. Section 402 of the American Reinvestment and
Recovery Act provided new borrowing authority to Western to use for
development of new transmission assets. In each of these laws, Congress
very carefully considered the interests of the preference customers,
and directed that the new authorities be exercised only in ways that
could never cause the preference customers to experience increased
rates as a result of the Congressionally granted authorities.
Western has used these powers to begin construction of one
transmission line, and is exploring others, but there is a desire on
the part of private transmission developers to work with Western in
bringing additional private capital to transmission development in the
Western service territory. BPA is using its powers to integrate wind
energy into its transmission system and to construct new transmission
lines, but there is a feeling among many that BPA can do more to
encourage efficient, market driven, resource utilization decisions to
address imbalances in the market between generation and load.
Let me be clear--no one is advocating radical change. The private
participants are not seeking to make the PMAs subject to FERC
jurisdiction, nor are they advocating the creation of a new FERC
jurisdictional RTO/ISO in the parts of the PMA service territories
where one does not now exist. We do, however, feel that operational
changes, such as an energy imbalance market (which can be implemented
on a voluntary basis without creation of an ISO), would result in
greater efficiency and better resource utilization, saving money for
consumers and small businesses. These are not radical proposals. They
have been implemented successfully in the East, in Texas, and in the
Midwest.
Before I founded Brightman Energy, I had the great good fortune to
work for Boone Pickens, and I was lucky to have the opportunity to work
with him as he developed the Pickens Plan. You may remember that the
original Pickens Plan when it was announced in July 2008 focused
equally on renewable electricity and natural gas vehicles. What we
found when we researched renewable electricity was that the United
States had vast resources of wind and sunlight that could be employed
for the production of electricity, but that electricity could not be
delivered to customers in many cases because the transmission
infrastructure did not exist in the remote areas that were most
suitable for development of renewable resources. For over three years,
I was a frequent visitor to Washington seeking improved transmission
policies. During that time, I found myself working with other companies
that also had an interest in improving transmission policy. For
example, last summer I delivered a letter to the Senate leadership
signed by 84 companies who supported FERC Order 1000, which directs the
development of regional agreements for the planning and allocation of
costs for new transmission projects. Interestingly, most of those
companies were traditional utility companies, not renewable companies.
Time and time, we found that the concerns related to transmission
policy applied to transmission no matter what sort of electricity the
transmission wires carried.
The issues with the US transmission grid are well documented. They
include basic reliability issues like those that resulted in the 2003
blackout in the Upper Midwest and Mid-Atlantic regions. They include
concerns that the Defense Science Board has raised about the impact of
grid reliability on the ability of our military to perform its critical
missions. They include concerns about vulnerability of the grid to
cyberattacks and electromagnetic pulses. They include missed
opportunities to invest private capital in productive transmission
assets that would create jobs and economic efficiency. They include
well documented inefficiencies that increase costs to consumers and
small businesses due to waste of resources and impediments to
competition.
The federal power marketing administrations have service
territories that include all of the WECC and ERCOT footprints, with
over 32,000 miles of transmission lines. The WECC and ERCOT grids are
each self contained, but fully integrated within their respective
geographic boundaries. Each part of the WECC and ERCOT grid is
vulnerable to a malfunction elsewhere in that grid. The PMAs do not
operate in a vacuum, nor are they islands unto themselves, apart from
the main. Consequently, if the nation would be made better served, more
competitive, and more secure through changes to the bulk electricity
system, the PMAs will have to be a part of those changes.
According to a 2009 report on the transmission grid by the
Congressional Research Service,
The need for modernization is illustrated by the causes of the
August 14, 2003 northeastern blackout. The blackout, which
interrupted service to 50 million people in the United States
and Canada for up to a week, started with transmission line
trips (automatic shutdowns) and resulting overloads on the
FirstEnergy utility system in Ohio. The blackout was not the
result of insufficient transmission capacity or deteriorated
equipment as identified by the United States--Canada
investigating task force, the blackout was caused by factors
such as the following:
FirstEnergy and the NERC reliability region within
which it operated did not understand the strengths and
weaknesses of the FE system. FirstEnergy consequently operated
its system at dangerously low voltages.
FirstEnergy's system operators lacked the
``situational awareness'' that would have revealed the blackout
risk as lines began to trip. The operators were blinded by
monitoring and computer system breakdowns, combined with
training and procedural deficiencies which led to those
failures going undetected until it was too late.
FirstEnergy did not adequately trim the trees under
its transmission lines. As a result, three key transmission
lines tripped when they sagged (as the lines are designed to do
as they heat up with use) and came in contact with trees.
The Midwest Independent System Operator (MISO), the
RTO [regional transmission operator] that manages the grid in
FirstEnergy's service area, did not have the real-time
information necessary to assess the situation on FirstEnergy
system and provide direction to the utility.
Once the FirstEnergy system collapsed, overloads and power
swings spread out across the Northeast, causing a cascading
series of transmission line and power plant trips that left
tens of millions of people without electricity. One reason the
outage spread over such a wide area was because many power
plants were equipped with unnecessarily sensitive automatic
protection mechanisms that tripped the units prematurely. The
speed of the cascade allowed almost no time for manual
intervention. The elapsed time from the start of the cascade
(i.e., when failures began to radiate out from the collapsed
FirstEnergy grid) to its full extent was about seven minutes.

In summary, as discussed in the official blackout report and
other analyses, the 2003 blackout was not caused by a utility
having built too few transmission lines, or because power line
towers and substations were falling apart. The blackout was
apparently due to such factors as malfunctioning if not
obsolete computer and monitoring systems, human errors that
compounded the equipment failures, mis-calibrated automatic
protection systems on power plants, and FirstEnergy's failure
to adequately trim trees.

One part of a strategy for preventing repetitions of the 2003
blackout is to modernize the grid from a reliability
standpoint. This will not always entail building more power
lines. One analysis written shortly after the 2003 blackout
concluded that ``The common contributing factor to the recent
blackout, based on investigations to date, is confusion-
communication breakdowns both technical and human....[W]e
maintain that much can be solved by updating technology and by
changing procedures followed within the operating companies.
This fix is cheaper and much more immediate than huge
investment in new power lines. (emphasis added. Internal
footnotes omitted)
It only required seven minutes for a problem caused by improperly
trimmed trees to become a problem affecting 50 million people, and
costing an estimated $6 billion. It is not realistic to believe that
the PMAs can operate unconcerned about the rest of the electric grid.
Improved coordination between the PMAs and other grid operators and
owners is essential; given the balance of risks and costs, this is only
prudent.
A 2008 report from a Defense Science Board Task Force stated that

Military installations are almost completely dependent on a
fragile and vulnerable commercial power gird, placing critical
military and Homeland defense missions at unacceptable risk of
extended outage.
Specifically, the report noted that ``critical mission at
[Department of Defense] installations have expanded significantly in
recent years,'' rendering the current assumptions about the importance
of civilian grid reliability obsolete. Mission changes for the military
include both increased reliance on bases in the US for real time
support of combat operations, and increased roles for the military in
Homeland security, including both responses to terrorist attacks and to
natural disasters such as Hurricane Katrina. At the same time,
For various reasons, the grid has far less margin today than in
earlier years between capacity and demand. The level of spare
parts kept in inventory has declined, and spare parts are often
co-located with the operational counterparts putting both at
risk from a single act. In some cases, industrial capacity to
produce critical spares is extremely limited, available only
form overseas sources and very slow and difficult to transport
due to physical size.
The report identified four sources of risk to the grid that could
compromise national security by compromising the ability of the
military to fulfill its missions--overload, vulnerability to natural
disasters, sabotage or terrorist activity, including cyber attacks
aimed at the SCADA systems that operate the grid, and fuel supply
disruptions at generation facilities.
Each of these vulnerabilities has been seen in recent years. The
2003 blackout described above resulted in part from overloaded
transmission lines overheating and sagging into trees. Hurricane
Katrina wiped out much of the electrical system along the Mississippi
Gulf Coast, requiring substantial and lengthy rebuilding efforts to
restore power. The Stuxnet worm, although it was aimed at different
SCADA systems, clearly demonstrated the vulnerability of those systems
to cyber attack, and not all of the SCADA systems associated with
operations of the gird have been protected from potential attacks.
The Task Force noted that in addition to degrading national
military and homeland defense capabilities, failure of the grid
for any extended period could significantly affect national
economic and social stability. Pumps that move natural gas and
oil through pipelines rely on electricity, as do refineries,
communications systems, water and sewage systems, hospitals,
traffic systems, first response systems, border crossing
detection systems and major transportation hubs such as
airports.
Again, the PMAs are significant participants in addressing a
critical issue--national security--identified by the Department of
Defense.
A May 2010 study prepared by General Electric for the Department of
Energy determined that the WECC could save approximately $1.7 billion
per year in operating costs by improving coordination among WECC
operators so that spinning reserves (generating units that are
operating but not serving load in order to be available to prevent
blackouts that would otherwise occur from unexpected loss of
generation) could be shared over a wider area. The WECC has studied the
potential benefits of an energy imbalance market, which could address
this issue, and found that the potential benefits would be significant,
and would outweigh the costs of creating and administering such a
market. Further, implementation of an EIM would not require the
creation of an RTO/ISO entity subject to FERC jurisdiction. The Western
Interstate Energy Board, an adjunct to the Western Governors
Association, also prepared a study regarding the potential benefits of
creation of an EIM market.
With spinning reserves determined on a zonal basis [simulating
current, fragmented control areas], WECC simulated operating
costs were about $2 Billion higher than with the reserves
shared over larger regions for the 10% In-Area case. This is
expected to increase with higher penetration levels. In this
example, the total system spinning reserve was held constant.
It was simply allocated over multiple zones. As the statistical
analysis showed, the volatility and uncertainty are much higher
for the smaller balancing areas, which mean that even more
spinning reserve would be required to accommodate renewable
generation. This would drive costs up even more. Because of the
significant operating benefits of balancing area cooperation,
this may be a fertile area for further investigation in another
study.
The study also noted that the operational challenges associated
with meeting state mandated renewable portfolio standards in the WECC
could be ``likely insurmountable'' without additional coordination
between balancing areas in the WECC.
The economic benefits to consumers and small business of well
planned transmission system additions and operational changes have been
documented. According to The Brattle Group, those benefits include not
only improved reliability, but also less frequently recognized
benefits--additional market benefits such as enhanced market
competition and liquidity, additional reliability/operational benefits
such as insurance and risk mitigation cost savings, additional
investment and resource cost benefits such as capacity benefits, long-
term resource cost advantages and synergies with other transmission
projects, and external benefits such as favorable impacts on fuel
markets, environmental and renewable access benefits and economic
benefits from construction and tax collections.
The Brattle Group cites as an example the economic evaluation of
the Palo Verde-Devers Line No. 2 which indicates that the total
benefits of the transmission upgrade were more than double the benefits
considered in determining whether to build the line as show in the
attached Figure 5.
The State of Texas has made a substantial investment in new
transmission assets over the last three years. The Perryman Group, a
respected Texas based econometric firm that frequently advises state
leadership and the Texas Public Utility Commission, performed a study
of the expected economic impact of those transmission benefits and the
follow on economic activity. The findings of that report included the
following:
The combined construction impact of new power
transmission facilities as well as wind turbine construction
following the initial implementation of the CREZ initiative [an
$8 billion privately funded Texas transmission system
expansion] on business activity in Texas is projected to total
$30.6 billion in output (gross product) and some 383,972
person-years of employment. This economic activity leads to
notable incremental tax receipts over the development period;
[The Perryman Group] estimates the gains to include about $1.6
billion for the State and $329.1 million for various local
governments.
Another perspective is on a per-customer basis.
Depending on the levels of overall generation fuel prices, the
typical residential customer at project maturity will save
between $160.93 and $354.94 per year (fully adjusted for the
associated transmission costs), resulting in a stimulus to the
economy of $454.44 to $995.60 in total spending and $216.76 to
$478.03 in gross product. (emphasis added)
The CREZ transmission investment will also help
solidify Texas' position at the forefront of wind power,
renewables, and associated industries. Incremental gains in the
cluster stemming from the CREZ transmission investment could be
expected under reasonable assumptions to include $8.6 billion
in total annual spending, $3.8 billion in output (gross
product) per annum, and 41,181 jobs.
Another study performed by The Brattle Group to analyze the
potential effect of $12 billion to $16 billion annually of privately
funded transmission investments in the United States and Canada found
that the likely effect of those investments in the transmission grid
would be the creation of 150,000 to 200,000 full time jobs in the
United States and another 20,000 to 50,000 jobs in Canada, as well as
$30 billion to $40 billion in additional annual economic activity. An
additional knock on impact would be the creation of another 130,000 to
250,000 full time jobs as a result of new generation development that
would follow from the availability of new transmission. The Brattle
Group study also found:
In addition to these employment and economic stimulus benefits
from constructing the facilities and manufacturing equipment,
strengthening of the transmission grid provides important other
benefits, including:
Reduced transmission losses, production cost savings,
enhanced wholesale power market competition and liquidity, and
associated wholesale power price reductions;
The economic value of increased reliability,
insurance against high-cost outcomes under extreme market
conditions, and increased flexibility of grid operations;
Generation investment cost savings and access to
lower-cost renewable generation;
Reduced emissions and fossil fuel consumption; and
Economic benefits from increased federal, state, and
local tax income.
These simulations show that every $1 billion of U.S.
transmission investment supports approximately 13,000 full-
time-equivalent (``FTE'') years of employment and $2.4 billion
in total economic activity. If the $1 billion is spent over the
course of one year, this means the investment will support
approximately 13,000 FTE jobs in that year. Furthermore, our
analysis suggests that the average transmission investment from
2011 through 2030 will likely range from $12 billion to $16
billion per year or $240 billion to $320 billion over the next
20 years (in 2011 dollars) assuming current barriers to
planning, permitting, and cost recovery of regional
transmission projects can be overcome. A significant portion of
this range will depend on the scope of future renewable
portfolio standards and the type of renewable generation
projects that will be developed.

As summarized in the table below, this level of U.S.-wide
transmission investment supports 150,000 to 200,000 FTE jobs
and $30 billion to $40 billion in annual economic activity. The
table shows that approximately one-third of this employment
benefit is associated with the direct construction and
manufacturing of transmission facilities. Two-thirds of the
total impact is associated with indirect and induced employment
by suppliers and service providers to the transmission
construction and equipment manufacturing sectors.

[GRAPHIC] [TIFF OMITTED] T3981.006

As noted, a portion of the projected transmission
investments will also enable development of the renewable
generation projects needed to meet existing and potential
future state or federal Renewable Portfolio Standard (``RPS'')
requirements. This renewable generation investment is estimated
by various studies to support approximately 2.6 million to 5
million FTE-years of employment, or on average 130,000 to
250,000 FTE jobs during each year over the projected 20-year
renewable generation construction effort, in addition to the
direct impacts of manufacturing and constructing the
transmission itself. Additional employment benefits are
associated with the operations phase of these projects.
The Brattle Group report also found a wide range of additional
benefits that accrued to electric system customers who were not
directly benefitted by job creation or economic activity stimulated by
transmission investments.
Once transmission facilities are constructed and placed in
service, they support a wide range of additional benefits, from
increased reliability, to decreased transmission congestion, to
renewables integration, and increased competition in power
markets. These benefits of major transmission investments often
are wide-spread geographically across multiple utility service
areas and states, are diverse in their effects on market
participants, and occur and change over the course of several
decades. The benefits we derive from today's transmission grid,
such as the ability to operate competitive wholesale
electricity markets, could barely be imagined when the
facilities were built three or four decades ago.

It is important to recognize that the scope of transmission-
related benefits extends beyond the main driver of a particular
investment. For example, transmission investments are often
driven by the need to address reliability concerns and, thus,
help increase the reliability of the power system. Reliability
benefits were consequently often viewed as the primary source
of benefits. However, with the emergence of transmission
projects targeted to relieve transmission congestion or to
integrate renewable generation projects, it is increasingly
understood that transmission investments provide a wide range
of benefits, such as reducing the cost of supplying electricity
or allowing the integration of lower-cost renewable resources.
Thus, while many transmission investments may be driven
primarily by a single concern, such as reliability, congestion
relief, or renewable integration, the benefits of these
transmission investments generally extend well beyond the
benefit associated with the primary investment driver. For
example, reliability-driven projects will also reduce
congestion and often support the integration of renewable
generation. Similarly, a transmission project driven by
congestion relief objectives will generally also increase
system reliability or help to avoid or delay reliability
projects that would otherwise be needed in the future. It is
the interrelated but collateral nature of these benefits that
often makes them difficult to quantify. There are a number of
studies quantifying the economic value of benefits for
individual transmission projects, which we use to indicate the
potential magnitude of these benefits in the following
discussion.

The post-construction assessment of the Arrowhead-Weston
transmission line in Wisconsin, which was energized by American
Transmission Company (``ATC'') in 2008, provides a good example
of the broad range of benefits associated with an expanded
transmission infrastructure. The primary driver of the
Arrowhead-Weston line was to increase reliability in
northwestern and central Wisconsin by adding another high
voltage transmission line in what the federal government
designated at the time as ``the second-most constrained
transmission system interface in the country.''... By also
reducing congestion, ATC estimated that the line allowed
Wisconsin utilities to decrease their power purchase costs by
$5.1 million annually, saving $94 million in net present value
terms over the next 40 years. Similarly, ATC estimated that
$1.2 million were saved in reduced costs for scheduled
maintenance since the Arrowhead-Weston line went into service.
. .. The construction of the line supported 2,560 jobs,
generated $9.5 million in tax revenue, created $464 million in
total economic stimulus and will provide income to local
communities of $62 million over the next 40 years. The
increased reliability of the electric system has provided
economic development benefits by improving operations of
existing commercial and industrial customers and attracting new
customers. Lastly, the Arrowhead-Weston line also provides
insurance value against extreme market conditions as was
illustrated in a NERC report which noted that if Arrowhead-
Weston had been in service earlier, it would have averted
blackouts in the region which impacted an area that stretched
from Wisconsin and Minnesota to western Ontario and
Saskatchewan, affecting hundreds of thousands of customers.

The most commonly quantified ``economic'' benefits of
transmission investments are reductions in simulated fuel and
other variable operating costs of power generation (generally
referred to as ``production cost'' savings) and the impact on
wholesale electricity market prices (generally referred to as
locational marginal prices or ``LMPs'') at load-serving
locations of the grid. These production cost savings and ``Load
LMP benefits'' are typically estimated with production cost
simulation models that simulate generation dispatch and power
flows subject to defined transmission constraints. In a recent
assessment of RTO performance by the FERC, the majority of RTOs
cited reduced congestion as a main benefit from expanding
transmission capacity. For example, PJM noted that market
simulations of recently approved high voltage upgrades indicate
that the upgrades will reduce congestion costs by approximately
$1.7 billion compared to congestion costs without these
upgrades.

Transmission investments can enhance the competitiveness of
wholesale electricity markets by broadening the set of
suppliers that compete to serve load. While the magnitude of
savings depends on market concentration and how much load is
served at market-based rates (rather than through cost-of-
service regulated generation), studies have found that the
economic value of increased competition can reach 50% to 100%
of a project's costs. . .. Transmission expansion can increase
market liquidity by increasing the number of buyers and sellers
able to transact with each other. This will lower the bid-ask
spreads of electricity trades, increase pricing transparency,
and provide better clarity for long-term planning and
investment decisions. For example, we found that bid-ask
spreads for bilateral trades at less liquid hubs are 50 cents
to $1.50 per MWh higher than the bid-ask spreads at more liquid
hubs. At transaction volumes ranging from less than 10 million
to over 100 million MWh per quarter at each of more than 30
electricity trading hubs, even a 10 cent per MWh reduction of
bid-ask spreads due to a transmission-investment-related
increase in market liquidity saves $4 million to $40 million
per year and trading hub, which would amount to transactions
cost savings of approximately $500 million annually on a
nation-wide basis.

Transmission investments, even if not driven by reliability
concerns, will generally increase reliability on the power
system. This increase in reliability provides economic value by
reducing service curtailments and avoiding high-cost outcomes
during extreme system conditions. The cost of reliability
problems and their ``expected unserved energy'' can be measured
with estimates of the ``value of lost load,'' which can exceed
$5,000 to $10,000 per curtailed MWh. The high value of lost
load means that avoiding even a single reliability event that
would result in blackout is worth ranging from tens of millions
to billions of dollars. . .For example, the Chair of the
CAISO's Market Surveillance Committee estimated that if
significant additional transmission capacity had been available
during the California energy crisis from June 2000 to June
2001, its value would have been as high as $30 billion over
this 12 month period. Similarly, a detailed analysis of the
insurance benefit of a 345 kV transmission project found that
the project's probability-weighted savings from reducing the
impacts of extreme events equated to approximately 20% of the
project's costs.

Transmission projects can provide ``investment and resource
cost benefits'' by displacing or delaying otherwise needed
capital investment, allowing the integration of lower-cost
generation resources, and reducing the cost (or increasing the
value) of subsequent transmission projects. For example,
transmission investments that allow the integration of wind
generation in locations with a 40% average annual capacity
factor reduce the investment cost of wind generation by one
quarter compared to the investment requirements of wind
generation in locations with a 30% capacity factor.
Transmission investments may also allow the development of
generation with lower fuel costs (e.g., mine mouth coal plants
or natural gas plants built in locations that offer higher
operating efficiencies), better access to valuable unique
resources (e.g., hydroelectric or pumped storage options), or
lower environmental costs (e.g., better carbon sequestration
and storage options). . .. Additional generation capacity
investment savings also are provided by reducing losses during
peak load and, through added transfer capabilities, the
diversification of renewable generation. Recent studies show
that peak-loss-related capacity benefits can add 5% to 10% to
estimated production cost savings. The Eastern Wind Integration
and Transmission Study (``EWITS'') showed that regional
transmission overlays can increase the capacity value of wind
generation by roughly 5 percentage points (i.e., from an
average of 23% without regional transmission upgrades to 28%
with regional upgrades). Similarly, regional overlays can
diversify the geographic footprint of intermittent renewable
and balancing generation resources, which leads to lower
renewable balancing costs. . ..

Transmission investments often create benefits beyond reducing
the delivered wholesale cost of power. These ``external''
benefits include impacts on fuel markets (reduced fuel prices),
environmental benefits (reduced emissions), and reducing the
cost of public policy requirements (such as the cost of
renewable generation). For example, the Southwest Power Pool
estimated that transmission investment that allow for the
interconnection of additional wind generation would lead to a
reduction of regional natural gas prices, a customer benefit
that offset approximately one quarter of the transmission
costs.
In summary, the federal PMAs have been given significant powers by
the Congress in EPAct 2005 and ARRA, and those powers were designed by
Congress to permit the PMAs to attract private investments in
transmission without placing the preference customers at risk of higher
rates to pay for new projects that are not planned to provide new
service to the preference customers. The steps proposed by Secretary
Chu in his memorandum are modest, and seek the implementation of
operational changes that will provide well documented benefits to rate
payers. The new private investment in transmission that the PMAs can
attract will create jobs, stimulate additional economic activity, and
provide significant benefits and savings to ratepayers of all classes.
Again, thank you Mr. Chairman for holding this hearing today, and
giving me the opportunity to testify before the Committee on this
important subject.
I am happy to answer any questions you may have.

[GRAPHIC] [TIFF OMITTED] T3981.007

[GRAPHIC] [TIFF OMITTED] T3981.008

[GRAPHIC] [TIFF OMITTED] T3981.009

[GRAPHIC] [TIFF OMITTED] T3981.010

[GRAPHIC] [TIFF OMITTED] T3981.011

The Chairman. Thank you very much for your testimony. Next,
I will recognize Mr. Scott Corwin, Executive Director of the
Public Power Council out of Portland.
Mr. Corwin, you are recognized.

STATEMENT OF SCOTT CORWIN, EXECUTIVE DIRECTOR, PUBLIC POWER
COUNCIL

Mr. Corwin. Thank you, Mr. Chairman, members of the
Committee. I am Scott Corwin, Executive Director of PPC, as the
Chairman said.
We represent electric cooperative and public agency
utilities in the Northwest that have preference rights to buy
power from the Bonneville Power Administration.
It seems to us that while correctly noting that the PMAs
can be and are leaders in the new challenges facing the
industry, that the DOE memo represents to some extent a
solution in search of a problem.
To understand our concerns with the DOE memo, it is
important to understand that BPA is a statutory creature with
specific missions that are not supported by taxpayer dollars.
Customers pay for the costs incurred by this pass through
entity.
Because of the public and regional nature of the assets,
the process around them is very public and regional, and yes,
arduous.
We do not always agree in the region. All families have
their fights.
BPA, its customers, the states, the tribes, the Army Corps,
the Bureau, the Regional Northwest Power and Conservation
Council, and many others work together to fulfill increasingly
complex mandates, all while trying to ensure reliable,
affordable prices to bring benefits to citizens through cost
based power.
The region's congressional delegation functions as a type
of board of directors. They have a long history of working in a
bipartisan way for the good of the region. We very much
appreciate the letter they sent on April 11 expressing concerns
with the DOE Memorandum and some of their work just this week
on the appropriations language.
The PPC shares their concerns. We worry about the risk of
higher costs without reciprocal benefit. Redesigning rates to
achieve policy goals has the potential to impose costs on BPA
ratepayers without offsetting benefits, which is unfair to
citizens in the region.
Also, under statute, BPA has an imperative to achieve
objectives at ``the lowest possible rates to consumers
consistent with sound business principles.''
BPA's purposes can only be refined with specific authority
from Congress, preserving the core tenets of public preference
and cost based rates.
In several respects, the DOE Memorandum suggests new
missions for BPA that would raise questions as to whether they
are appropriate to the region or outside the agency's statutory
authority or may impose undue risks to consumers.
Examples, the section on improving PMA rate designs has the
look of planned rate increases that could conflict with BPA's
statutory mandate for cost based rates.
Electric vehicle deployment, for example, is being pursued
by retail utilities in the Northwest. It is not a necessary new
role for a wholesale power supplier.
The cumulative effect of statements directing PMAs to
centralize functions, implement new rate designs, and pursue
broader projects hints at an unnecessary and costly expansion
of regulatory reach, possibly despite the footnote in the memo
to the contrary, possibly suggesting a regional transmission
organization, an RTO, which has been carefully vetted and
rejected over many years in the Northwest because of costs,
operational and jurisdictional concerns.
Finally, because the memo reads as conclusory, there is
little recognition of what is already happening without new
statutes or directives.
BPA has the highest percentage of penetration of wind power
of any balancing authority in the entire country. It has seen a
ten fold increase on its system just since late 2006.
Just in the last year, BPA and its customer utilities
achieved 130 average megawatts of new energy efficiency. The
BPA has built and operates over 15,000 circuit miles of high
voltage transmission lines, and has 217 miles of new 500 KV
lines, 82 miles of 230 KV lines, and three new substations all
underway right now.
For 75 years, PMAs in partnership with their customers have
addressed new challenges, and there is more progress being made
every day.
We urge that future initiatives be regionally based,
consistent with current statutes and responsibilities, and that
they avoid creating costs to ratepayers without reciprocal
benefits.
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).
Since the beginning of the federal power program in the West, not-
for-profit rural electric cooperatives and public agencies have had the
priority or preference right to purchase federal power on behalf of
their consumers because they have a mandate to pass the benefits
through to the citizens who are their owners. In the Columbia River
Basin there are 130 of these utilities serving customers in seven
western states. They have a close and symbiotic relationship with BPA
and directly feel the brunt of increased costs passed through by BPA.
I thank you very much for the invitation today because it allows
the opportunity to testify about the way we do business, and on the
manner in which consumer-owned utilities work with Power Marketing
Administrations (PMAs). At their best, the PMAs reflect the essence of
the core customers they serve: utilities that are service-oriented,
cost-conscious, and consumer-focused because they are created for and
owned by the people they serve.
It is difficult to know exactly what to make of the Department of
Energy Memorandum to the PMAs sent on March 16 of this year. On a very
general level, one might view portions of the memo as posing questions
around new industry challenges that face many utilities. We do not
disagree that the PMAs can be, and are, leaders in the industry.
Indeed, the PMAs already are stepping up to meet new directions in
energy, as discussed below, including aggressive pursuit of new
technologies, integration of renewable resources, and visionary
achievements in energy efficiency. We note as well that the DOE Memo
aptly recognizes, at least at one point, the need for a continuing
commitment to cost-based rates.
However, the Secretary's memo also steps beyond a general
recognition of the PMAs direction and alludes to several ominous
directives that could add additional costs. Today, I would like to
explain our concerns, and why we view the memo as implying new
endeavors that could set the PMAs off-course from their core mission,
could increase costs to customers without reciprocal benefit, and could
do more harm than good by separating the PMAs from the important
regional deliberations that have guided them throughout history in
pursuit of their statutory goals.

The Regional 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.
It is the 75th Anniversary of BPA this year, and not coincidentally
it is also the 75th Anniversary of many of PPC's member utilities. Over
this time, the primary mission of BPA is and always has been to provide
reliable electricity at affordable prices. Throughout their history
they have accomplished this mission well, partnering with consumer-
owned utilities to bring economic benefit to citizens of the region
through cost-based power. Today, they continue to do so even as they
evolve to meet new challenges.

The Memo and BPA as a Pass-Through Entity
This impressive record of the PMAs, and their continued progress,
makes it difficult to know how to view a memo that seeks a new vision
for them. One could imagine a vision document with broad goals and a
process laid out in which to engage in further discussion. However, the
March 16 memo from Secretary Chu moved into fairly specific action
items, and alluded to future directives that did not appear to fully
recognize the regional dynamic of these entities or their current
activities. It seems in part to be a solution in search of a problem,
and is a threat of top-down approaches and more involvement from
Washington, D.C.
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 very much appreciate the letter that they sent on April 11,
2012 expressing concerns about the DOE Memorandum.
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.

Specific Concerns with the Department of Energy Memorandum
The March 16, 2012 memorandum released by Department of Energy
Secretary Chu outlines a vision and policy direction for the federal
Power Marketing Administrations (PMAs). While short on specific policy
prescriptions, the document raises significant concerns in a number of
areas with its promise of ``subsequent memoranda'' and ``directives.''

Cost Concerns in the Northwest
While the Northwest has been hit hard during the last few years
(Oregon and Washington unemployment stayed above the national average
at the end of March), BPA, with its relatively lower-cost power supply
and 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.

Scope, Legal Authority, and Regulatory Oversight
The core mission of each of the PMAs is to market power generated
at federal multi-purpose dams to public power systems. BPA is to do
this at ``the lowest possible rates to consumers consistent with sound
business principles.'' 16 U.S.C. Section 838g. Over the years, the
authority of BPA has been refined and expanded. But, in each case
Congress has given specific authority and direction to BPA.
Moreover, each refinement of BPA's mission has carefully respected
the core tenets of preference and cost-based rates, as well as BPA's
core role as a the key wholesale power supplier for vast areas of the
Northwest. In several respects, the DOE Memorandum suggests new
missions for BPA that would raise questions as to whether they are
appropriate to the region, are outside the agency's existing statutory
authority, or pose undue business risk to consumers. For example:
Technology--On page three of the memo, BPA and the
other PMAs are directed to serve as ``test beds'' for
innovative cyber security technologies. While BPA is certainly
feeling the brunt of new NERC reliability and security
standards, testing and proving technologies is a better role
for DOE labs, not an agency that has 100% of its costs
recovered from ratepayers.
Rates--On page four of the memo there is a
particularly concerning heading of ``Improving the PMA's Rate
Designs''. This calls for rates to ``incentivize'' several
policy objectives. This has the look of artificial rate
increases, and one wonders how this would not conflict with
BPA's statutory mandate for cost-based rates. Moreover,
initiatives in the memo, such as electric-vehicle deployment,
are being pursued by retail utilities in the Northwest, and are
not necessary new roles for this wholesale power supplier.
EIM--On page five, DOE discusses PMA participation in
a West-wide market to address energy imbalances resulting from
intermittent renewable generation. The value to BPA customers
of a west-wide, FERC jurisdictional market of this kind has not
been shown, and the concept raises multiple questions around
governance and legality of BPA participation. Instead, parties
within the footprint of the Northwest Power Pool are pursuing
capture of additional flexibility and capacity across their
systems to address energy imbalance. Part of that work includes
further coordination on a host of initiatives already underway
to create efficiencies among utilities.
FERC--The cumulative effect of statements throughout
the memo directing PMAs to centralize functions, implement new
rate designs, address ``rate pancaking'', and pursue broad
regional planning and coordination on operations of the grid
all hint at an unnecessary and costly expansion of regulatory
oversight and direction by both the Department of Energy and
the Federal Energy Regulatory Commission (FERC).
RTOs--Indeed, the above combination of elements in
the memo undermines its assurance in a footnote that it is not
proposing a move toward a Regional Transmission Organization
(RTO) in these regions. The RTO concept has been carefully
vetted and rejected over many years in the Northwest because of
cost and jurisdictional concerns.
Regional Process--Throughout the document, there are
conclusions reached as to policy direction that appear to skip
the usual regional analysis and collaboration in policy
development, and overlook the statutory limitations for PMAs on
cost recovery, mission, and geographic scope.

BPA and Customer Achievements to Date
The specter of BPA and the other PMAs being told to take steps to
support new directions that may or may not have value to regional
customers is all the more troubling given that BPA continues to achieve
so much in this arena 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). In March, BPA's system passed the
mark of 4,400 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 (Figure 1).
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.

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.
While it is unclear how the Department of Energy memo on PMAs may
be implemented, it raises significant concerns about potential costs
and regulatory burdens. Future initiatives must continue to be
consistent with each PMA's statutes and responsibilities, and must not
create costs to ratepayers without reciprocal benefits. With so much
progress already underway, it would be a shame to override regional
solutions in favor of one-size-fits-all proposals from D.C. that may,
in the end, not fit anyone.
Thank you very much for the opportunity to testify today. I look
forward to answering any questions.

[GRAPHIC] [TIFF OMITTED] T3981.012

The Chairman. Thank you very much, Mr. Corwin, for your
testimony. Next, I will recognize Mr. Joel Bladow, who is the
Senior Vice President, Transmission, Tri-State Generation and
Transmission out of Colorado.
Mr. Bladow?

STATEMENT OF JOEL BLADOW, SENIOR VICE PRESIDENT, TRANSMISSION,
TRI-STATE GENERATION AND TRANSMISSION

Mr. Bladow. Thank you, Mr. Chairman. My name is Joe Bladow
out of Colorado. I again appreciate the opportunity to testify
today and talk a little about the impact we see at Tri-State.
Up on the screen gives you a sense of how spread out we
are. We consist of 44 members that own us. We are not for
profit. There is about 1.5 million consumers that buy
electricity from our members.
You see how vast that geography is, about 200,000 square
miles in four states. In our spread out area, we have about
five consumers per mile of line. A typical investor owned
utility has about 40. You can see for us, keeping our costs
down and keeping it affordable for those folks is not easy and
very difficult at times to do.
There have been many concerns raised about the Chu memo,
and there are just a couple of points I would like to make.
One would be I have been in building transmission for about
30 years now. The issue you see in building transmission is who
is going to pay for it a lot. That has been mentioned before.
Will the beneficiaries pay for it or will they get somebody
else to pay for it, as Mr. English pointed out.
I think more transmission is better if the folks willing to
pay for it are the ones that pay for it. Just building
transmission for somebody else is not really good for the folks
that get stuck with the bill.
As a not-for-profit, every cost increase we have goes right
to our members' bills. If there are nuggets in Mr. Chu's memo
in terms of things we can do better to save a buck, if you
will, for our members, we will be supportive and will be
interested to see how we do that.
We are always looking to save the dollars, because that
goes right to the bottom line. There is no we save some dollars
and it goes to shareholders, no, it goes to our bottom line.
To date, there really is not enough information in that
memo to understand is there a buck to be saved or are there
just dollars to be spent.
Another thing is the leadership role of the PMAs. I would
distinguish between leadership role and experimental. The PMAs
are not DOE laboratories. When DOE labs do experiments, they do
a lot of science. Sometimes it works out, sometimes it does not
work out.
The PMAs have real assets, real customers. They operate
real systems. When things go bad, my consumers, our people's
lights go out. That means the cash registers do not work at the
local store, the schools let out. Those are things that we want
to avoid, but that is what happens when you experiment on a
real system.
We are real concerned about trying things out on an
operating utility, an operating system.
Tri-State amongst other utilities, the public power
sectors, invested a lot in renewables. We have paid our own way
to integrate wind, solar, distributed generation to our
members.
We pay for that, and that is fine, but we just do not want
to pay for other people's integration. Those who benefit need
to pay.
Another issue is all the costs that go into the PMA rates,
all the things they spend, we pay for as customers. There is no
side kitty of appropriated dollars. It all comes into our
rates.
Even the process of examining these efficiencies on a
national level, that will go into our rates. We will be paying
the cost of any type of public process and stakeholder on this.
We would much rather pay the cost on a more regional based one
that really identifies local issues and local problems.
Another issue that has been brought up is the energy
imbalance market and the benefits or perhaps problems with it.
Where it has been implemented in other parts of the
country, they always have built a foundation, and the
foundation is how are we going to use the transmission system
in order to enable the market.
In this case, there is a proposal for an energy imbalance
market without any foundation under it, and to put the
foundation under it, you have to basically have an RTO. You
have to have a transmission agreement in order to build an
energy imbalance market.
When engaged in that process and when asked the question of
an energy imbalance market how are we going to deal with the
transmission, the answer inevitably is we will get to that down
the road.
That is a very fundamental piece. Our concern is once we
understand the building blocks, we can then determine is that
good or bad. A lot of the cost savings that are referred to,
there may be general cost savings, the problem is there are
winners and losers, and when you are on the short end of the
stick and you are paying for somebody else, it does not look
like such a good idea, and that is one of our concerns.
We have had decades of relationship with Western Power
Administration. It has been very positive. We pay. We work with
them. They meet the needs of our consumers in the regions.
Hopefully going forward, and I appreciate the Chairman
calling this hearing, that we get that dialogue going again so
we can identify the true savings.
With that, I would be happy to answer any 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's
Senior Vice President for Transmission. I appreciate having the
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 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. Recently, we 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 developments on our member systems. Under
this policy our members have added, or are scheduled to add, another 42
megawatts of distributed local renewables to our portfolio. 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 a
similar generation portfolio.
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 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. Since it is
such a crucial 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.
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 and Wyoming in addition to 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 that as a
whole 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.
Secretary Chu's statement about WAPA's potential participation in
an Energy Imbalance Market (EIM) is an example of an additional cost
associated with his memo. The memo acknowledges ``WAPA[and its
customers] may incur costs during the initial transition to EIM. . .''
It is disconcerting that the Department of Energy is pushing WAPA into
an EIM--with its customers shouldering the costs--before the studies
indentifying the costs and benefits have been completed and peer
reviewed
While it is troubling in and of itself that our not-for profit
member systems could face rate increase(s) resulting from the Chu
directives--it is even more troubling that our members would shoulder
these costs for the benefit of for-profit utilities. Tri-State has
developed a significant renewable portfolio and our member-systems have
complemented this portfolio by developing distributed generation
projects working with local developers in the communities in which they
serve. Our members have borne the cost of this development and the
integration of these projects into our network. If the Chu memo is
implemented, our members will not be rewarded for this effort, but
rather would be required to help pay the costs for other utilities'
renewable integration costs. For example, in Colorado the majority of
the electricity demand is in the Denver Metropolitan Area. However, the
utility providing electricity to this region has almost no interstate
transmission connections which would help reduce their integration
costs. The Chu approach would reward this utility by allowing it to use
WAPA's interstate transmission system without compensating Tri-State
and WAPA's other customers that paid for the construction and continue
to pay for the maintenance of the system through their rates.
As disconcerting as it is that Tri-State and its member systems
could face increased rates as a result of the ``Chu'' Memo, we are
equally concerned about the effect that some of the directives could
have on the reliability of the Western Grid. WAPA has real wholesale
customers to serve, a real transmission system to maintain, and real
reliability obligations to comply with. It is not a ``laboratory'' like
Los Alamos or the National Renewable Energy Laboratory. We are
concerned about the Chu memo's apparent desire to turn WAPA into a
``test bed'' for conducting research on such things as cyber-security,
solar flares, and rate design. These actions not only take away from
its mission of providing cost-based federal power to its customers, but
could affect WAPA's commitment to reliability and undoubtedly, raise
customer rates in order to pay for the experiments. In addition to the
cost impacts, the human resources that maintain and operate WAPA's
extensive transmission system will be diverted to implementing these
new policy initiatives at the expense of the existing system and the
customers they serve.

Customer Collaboration and Congressional Oversight
Over the years, Tri-State and the other WAPA customers have had an
open dialogue routinely consulting with each other on operational,
planning and other matters affecting the PMA. However, when Secretary
Chu released his ``visioning'' memo--the ``vision'' was created and
presented without talking to any of the hundreds of existing federal
power customers, including Tri-State, that have existing systems that
utilize these resources. The Department of Energy (DOE) has indicated
that there will be stakeholder meetings to discuss the implementation
of the concepts in the memo. Given the complete absence of dialogue
between the customers and DOE prior to the release of the memo how
seriously should Tri-State and other customers take these meetings?
Will the process be a monologue from DOE to the existing customers and
not a dialogue with the existing customers that will shoulder the cost
burden of these experiments? If this consultation had occurred, the DOE
would have realized that creating rate structures that incentivize
certain retail consumer decisions is problematic, at best.
Traditionally, retail suppliers, consistent with governing body and
state regulations, have identified and determined which program best
meets the needs of their consumers. A ``one size fits all'' federal
mandate from the DOE on energy efficiency, demand response, and
electric vehicle programs preempts the local decisions and community
programs that are already in place and are the foundation of local
control. Tri-State's member systems have numerous programs--each
tailored to the local economies and consumers they serve--to help
reduce costs and create jobs. A top down approach is unnecessary and
counterproductive to the goal of providing our members with affordable
and reliability electricity in these tough economic times.
Assuming a new role as a clearinghouse for energy efficiency,
demand response and electric vehicles would be new for the PMAs. The
DOE has proposed establishing a revolving fund for WAPA and the
Southwestern Power Administration in order to pay for these new
functions. So, on the one hand DOE did not consult with WAPA's
customers before releasing its proposal to significantly realign the
mission of the PMAs and now it would like to implement these new roles
by establishing a revolving fund for two of the three PMAs, which would
take away Congressional oversight. Given the approach the DOE took in
releasing the Chu memo--Tri-State believes that establishing a
revolving fund for WAPA, and thus reducing Congressional oversight,
would not be a productive move at this time.

Conclusion
In general, the memorandum released by Secretary Chu on March 16th
envisions a future where WAPA and the other PMAs become the technology
and policy test beds for the industry with the development costs borne
by PMA customers. At a time in the utility industry where there has
been, and continues to be, rapid change with many new players and
market segments (renewable developers, demand service management
providers, smart meter deployment, independent transmission companies,
independent transmission operators, etc.), do the PMAs really need to
be ``re-directed'' away from their traditional mission of marketing and
delivering cost-based federal power from federal multi-purpose
facilities? I would suggest that utilities with load serving
obligations, as well as local governments and electric cooperative
boards, are the best entities to determine how much consumers are able
to afford in these anemic economic times--not the ``one size fits all''
mandated approach from the DOE.

[GRAPHIC] [TIFF OMITTED] T3981.013

Response to questions submitted for the record by Joel Bladow, Senior
Vice President, Transmission, Tri-State Generation and Transmission
Association, Inc.

1. Mr. Bladow, Page 2 of your testimony implies that Tri-State members
would wind up paying more to subsidize renewable energy
integration costs for IOUs. Would there still be an objection
if (a) there are any actual additional costs to WAPA from the
balancing electricity moving on a WAPA transmission line that
has a lot of left over physical capacity and (b) if WAPA
receives some payment for the use of this line from the EIM
transaction that it wouldn't have otherwise received?
Mr. Markey, Tri-State and the 44 member rural electric cooperatives
and public power districts (ppds) to which we provide wholesale
electricity have done much to develop the transmission and distribution
infrastructure in Colorado, Wyoming, Nebraska and New Mexico. Much of
this development has been in geographic areas once seen as unattractive
to other electric utilities. Since Tri-State and our member systems are
not-for-profit consumer-owned utilities, the development of this
generation and transmission network has manifested itself in the retail
electricity bills electric cooperative and ppd consumers pay each
month. These rates also include repayment for the development,
operations, maintenance, and replacement costs of significant portions
of the WAPA transmission system in our geographic area. Tri-State and
our members did not develop this infrastructure and support WAPA's
development because of a promised return on investment, but because
they were necessary to provide affordable and reliable electricity to
our membership. None of the analysis or proposals for markets in Tri-
State's area has factored in the concept that WAPA or Tri-State would
get transmission revenue for use of their large interstate transmission
systems. The economic analysis is based on the free use of the
transmission system by the energy imbalance market. If implementation
of the EIM were to pay WAPA, or Tri-State their tariff rate, as all the
existing customers pay, Tri-State would have no objection to the
additional use of the transmission system and the lower average cost
all users would pay.
______

The Chairman. Thank you. Thank you all very, very much for
your testimony. We will now begin the rounds of questioning,
and I will recognize myself for five minutes.
My first question is to Mr. Corwin and Mr. Bladow. Under
Federal law, the PMAs have to sell hydropower at cost best
rates within sound business principles. These rates apply to
the capital investment, to the transportation infrastructure,
and interest in operation and maintenance.
It has been said that the Chu memo and the directives from
the Chu memo will run contrary to these cost based statutes.
Since both of you represent a number of utilities, could
you explain how that would happen? Mr. Corwin, I will start
with you.
Mr. Corwin. Thank you, Mr. Chairman. That is correct. The
rates are set on a cost basis for the Bonneville Power
Administration and other PMAs because these are again pass
through entities. There is no other place for the costs to go
but to the ratepayers and public agencies and cooperatives have
to pass those on to them.
The Chu memo in a couple of places certainly points in a
different direction, especially the rates' incentive portion of
the memo, mostly pages four and five is where they dive into
that.
You can envision a whole host of scenarios, and Mr. Bladow
just described a couple, where you have folks having to pay for
projects where there has not been proven reciprocal benefit
back to that set of customers.
Mr. Bladow. I would add to that. They talk about
eliminating pancaking for Western Area Power Administration's
case, which really means we will blend the rates amongst
various projects. Western is made up of numerous independent
projects.
When you do that, you in essence are shifting costs between
projects. It still may be cost based on paper, but reality,
what you have done is you have added costs that do not benefit
the one entity, and you end up shifting that.
That is our concern with the costs.
The Chairman. Thank you for that. My next question is for
Mr. English and Mr. Crisson.
The PMAs, the four PMAs, while they are created by
Congress, are all different, the complexity of those four are
all very different, but there is at least a commonality that I
have heard throughout my experience here and what I have heard
today.
Those commonalities are cost based rates, the beneficiary
pays, and whatever decisions or changes, they should be
regionally based decisions.
Do you agree basically with that concept of how the PMAs
are? Mr. English, we will start with you.
Mr. English. I definitely do, as I said in my testimony,
Mr. Chairman, basically this is a long history here, and this
is a partnership. It was established as a partnership. We need
to keep that in mind. It has been tremendously successful.
Each PMA as you point out is different. It is unique. It
has special problems. That partnership between the local PMA
and those customers that are using that power has been a great
way in which we can deal with local problems.
The Chairman. Mr. Crisson?
Mr. Crisson. Yes, Mr. Chairman, I would agree with that
assessment. Most of the PMAs can look to a situation where the
customers and the PMA itself enjoys a very good working
relationship, a collaborative relationship, in which they
discuss issues of mutual concern.
There have been times when the roles, authorities,
responsibilities of the PMAs have been changed, but in my
experience, that is usually a prolonged, multi-year process
that involves significant dialogue and discussion within a
region, involvement of Congress, and then ultimately
authorization by approval of Congress.
The Chairman. To the extent that the Chu memo deviates from
that basic concept, what effect would that have in your view on
the ratepayers? Mr. English?
Mr. English. I think it has the potential of having an
enormous impact on the local ratepayers. Again, as I stated in
my testimony, our major concern here is this is getting to be a
huge cost shift, that the PMA customers are basically being
placed in a position to pay for benefits for people who are not
customers.
This is a major break with what has been the history of
this program and what it has been all about. Quite frankly, the
issue of fairness these days does not get discussed much. That
is terribly unfair, and certainly contrary to what I think were
implied promises made by the Federal Government back when PMAs
were started and we agreed to pay higher than market rates.
The Chairman. Real quickly, Mr. Crisson, do you agree with
that?
Mr. Crisson. I would concur with that. This memo has been
characterized as a vision statement. I would argue it is more a
series of directives. There are a lot of unknowns and
uncertainties here. We are very concerned about what might come
out of all this.
The other clear concern we have about this is it signals a
different way of doing business. We have a good working
relationship. We have a collaborative relationship. We do not
want that to change.
The Chairman. Thank you very much. My time has expired. I
recognize the gentleman from Oregon, Mr. DeFazio.
Mr. DeFazio. Thank you, Mr. Chairman. Thank you for holding
this very important hearing.
I would note we did send a letter raising a number of
issues that have been discussed here, a number of the members
of the Northwest Delegation sent to Secretary Chu. We have had
no response. I would hope if we do receive a response, perhaps
we might then invite them to come and elaborate upon that at a
future hearing.
The Chairman. Will the gentleman yield?
Mr. DeFazio. Yes.
The Chairman. Listen, we are going to start this process,
and talking to those that are affected, I am quite frankly
surprised there has not been a response to our letter. Yes, we
will follow up accordingly.
Mr. DeFazio. Thank you, Mr. Chairman.
We have particular problems with wind integration in the
Northwest. In reading Mr. Humble's testimony here, I am just
curious. You are not specific. Would you care to be specific
about who held the right to the transmission capacity, who
tried to, as you said, extort monopoly rents?
Mr. Humble. That is covered by a non-disclosure agreement.
I cannot do that.
Mr. DeFazio. All right. There is no implication that this
was a result of the policies of our power marketing agency, the
Bonneville Power Administration, is that correct?
Mr. Humble. I do not think the Bonneville Power
Administration sanctioned it. No, sir.
Mr. DeFazio. OK. The energy you were going to generate, can
you disclose, was that going to be--I assume it was going to be
dispatched to California. That seems to be the big market.
Mr. Humble. That is correct.
Mr. DeFazio. OK. Here is the issue, in the Northwest, we
have a peculiar problem called ``high wind/high water.'' We
have little too much wind, at the same time, we sometimes have
too much water, and then we have a salmon issue and a judge who
wants to take out our dams. We have to be very careful how we
manage those dams.
I think our regional Power Marketing Administration is
trying to work with the wind developers. We are definitely not
anti-wind. We have to figure out how to integrate them.
You are pointing to times where the system is under
utilized, but there are also peak times where the system is way
over utilized in terms of transmission.
I would ask Scott Corwin if you would care to perhaps
elaborate on our particular problem. I do not see the Chu memo
as being helpful. He mentions wind integration, but I do not
see any helpful suggestions or guidance there.
Mr. Corwin. Thank you, Congressman. I do not see any
either, especially with respect to the over supply situation
that you mentioned, where you have a whole lot of hydro coming
down a system and fish constraints on the system, and then wind
power coming on in the low load hours.
There are pieces that people are working on to get at some
of the issues and the efficiencies that Mr. Humble mentions,
but what we are doing in the Northwest is trying to do it on a
regional basis, getting folks together, getting the different
balancing areas, the different generators together around the
room to see how they can coordinate and try to capture
efficiencies.
We are not looking for a top down solution or a west-wide
market on that at the moment.
Mr. DeFazio. We are still paying how much more because of
the last west-wide market created by California in the Enron
era? We are still stuck with some contracts.
Mr. Corwin. Yes. That was the last time our rates went up
46 percent at BPA.
Mr. DeFazio. We are very skeptical of RTOs. I helped lead
the fight against the RTO in our region. I do believe we are
working in good faith with an extraordinary amount of wind
development in the region now.
Since Mr. Humble cannot be specific, whatever particular
entity held whatever particular transmission right to access
perhaps then the high voltage interstate grid, that is an
interesting issue. I cannot really address it if I do not know
more specifics and how we could make the system more efficient
there.
I have suggested in talking to some wind developers in the
past, you know, you are getting a tax subsidy. You get a
production tax credit.
We have problems with our high water where we are
fulfilling your contracts but those developers then cannot
collect their tax subsidy. We have to curtail, and that is a
problem for developers because they have certainly penciled out
this whole thing depending upon that commitment when they
generate.
I think there are ways perhaps to modify if we ever do deal
with production tax credits again legislatively, mandatory
curtailment, things like that. You are raising other issues
that I cannot quite get at because I do not understand the
legal barriers there.
I think this really merits a lot more discussion, Mr.
Chairman.
The Chairman. I agree with the gentleman on that. His time
has expired. I recognize the gentleman from Louisiana, Mr.
Fleming.
Dr. Fleming. Thank you, Mr. Chairman. I thank the gentlemen
for joining us today on this.
Several times in this Committee, I have cited a quote by
Secretary Chu made in 2008, when he shared his intentions to
``Somehow figure out how to boost the price of gasoline to that
of the level of Europe.''
I find it ironic that he conveniently cannot be with us
today to defend his memorandum and instead he is traveling in
Europe where, of course, gasoline is today $8 a gallon.
Fundamentally, Secretary Chu and I disagree on the role of
Government and how it best serves the people. In my opinion,
he, as well as President Obama and Secretary Salazar, are out
of touch with the American people who are desperate for lower
energy costs.
I find his Memorandum to be another example of how this
Administration seeks to ensure the rising costs of energy.
On the one hand, Secretary Chu is willing to commit
taxpayer dollars to a now bankrupt Solyndra, and on the other
hand, is trying to change some of the most fundamental
functions of PMAs.
His response to these criticisms, of course, is to simply
not appear in this hearing today.
Let me see if I get this right. I listened carefully to
your testimonies. The way PMAs have worked for years is to
decentralize the authority over the electricity production,
that there is a collaborative relationship between the
authorities and the customers, and that it has been a win-win
situation for decades, that there is tremendous efficiencies
enjoyed.
At the same time, customers are willing to pay a premium
price for electricity for some other tradeoff's, all very
voluntarily.
What I understand from Secretary Chu's Memorandum is
instead, we begin to centralize all of this. We begin to
potentially shift costs to other areas, and certainly, we bring
out of touch the customer with the authority somehow perhaps
transferring costs or maybe even transferring wealth, if you
will, to others, where there is no accountability for that
cost.
Mr. English, I would love to have your perception and
certainly let me know where I am wrong on that.
Mr. English. I do not think anyone can say you are wrong
because quite frankly we do not know what this memo means at
this particular point.
I have to say that we are alarmed because of the fact that
we fully recognize that now the preference customers are
getting great benefits for investment they made years ago. We
gambled. We paid higher than market prices at that point. We
helped pay off the debt to make sure the dams did get built.
This was kind of a little do it yourself project. Now, we
are getting the benefits because you have very reasonably
priced power, no question about it.
In fact, we think there could be far more power generated
through these facilities, but we do not find a great deal of
enthusiasm for making the kinds of investments and upgrades to
improve that overall efficiency.
I do not think there has ever been a reluctance on the part
of preference customers in stepping up and helping pay for
that, to pay for it.
What we are talking about here is a different ball game, I
think. What we are concerned about here is that this is looked
upon as a cash cow. We will go raise money off preference
customers to go pay for other projects that we know we cannot
get paid for any other way.
With tight budgets, that is a tempting target. No question.
You are right, it totally destroys what has been a very
effective relationship locally, dealing with a lot of very
individualistic problems faced by local PMAs.
Dr. Fleming. If I understand this correctly, you had the
preference customers who paid higher than market rates to
really invest in the future?
Mr. English. Exactly.
Dr. Fleming. That is to say we are going to take out the
capital costs, we are going to do this because we know down the
road that we are going to lower our costs, we can then, of
course, be more competitive in the marketplace. We can pass the
savings along even to our customers.
Now that they have done the deal, now the Government is
reneging on this by saying as you say we have all this cash, we
can now invest it using the values that we in Washington
perceive as being good, such values as perhaps investing in
Solyndra like companies, which of course did not turn out very
well, did it?
In fact, I think if I understand correctly, there was a
total of $34 billion from the stimulus that went into all sorts
of alternative energy and ``investments,'' much of this which
has turned out into bankrupt companies.
What I foresee and what I think you are telling me here is
those who made the good business decisions and are now
benefitting from it, Washington is now breaking the deal and
want to put our hands, we in Washington, our hands in the till,
pull the money out and put it into other things that are
unproven, perhaps even dangerous for the future.
Mr. English. Let me just say I do not know if I would go
quite that far, but we are fearful. Let me also say that I
think what we are also laying on the line is that was a darn
good business model to follow. People reaping the rewards.
We fully understand today, today's society, we do not have
many people who want to pay for anything that they get, any
benefits. I want free lunch. That is what we used to call it
back in my days, free lunch.
In this case, we are suggesting that it was a good model
for preference customers years ago, this would be a good model
for folks today who may want to expand and go into new ventures
to follow as well.
This partnership between Government and private folks makes
sense, but they ought to pay for it, not somebody else.
Dr. Fleming. Thank you. I yield back.
The Chairman. The time of the gentleman has expired. The
Chair recognizes the gentlelady from California, Mrs.
Napolitano.
Mrs. Napolitano. Thank you, Mr. Chair. Very interesting
conversations. I certainly wish somebody, Secretary Chu or his
folks would be here to listen and understand what some of the
concerns are from the witnesses.
To Mr. Corwin, it is my understanding that BPA has a
revolving fund that allows the agency to move forward with
capital projects. Do you believe their ability to self finance
has removed any oversight by Congress and its customers?
Mr. Corwin. No, it has not. We do a lot of customer
oversight. I spent most of last week in customer oversight over
there on the capital spending process at BPA.
Mrs. Napolitano. Right. I agree with that. Mr. Crisson, as
has been mentioned, my concern personally is that if the
Administration does not ask for funding or if Congress does not
authorize funding and the power users do not want to pay for it
and there is no ability for Western to effectively manage aging
infrastructure, how do you believe we can effectively manage
the issue of aging infrastructure? How do we propose to deal
with it?
Mr. Crisson. Congresswoman, we are not saying there should
not be any way to proceed with financing infrastructure. Our
concern with the Chu memo is the directive nature of it.
Mrs. Napolitano. Can we call him ``Secretary Chu?'' He does
have a title.
Mr. Crisson. Secretary Chu. The concern there is because
the memo is not very specific, we are very concerned that
proceeding with what is outlined there may produce significant
costs, where the benefits are not clear, and raising a
situation where the customers may pay for benefits that are not
commensurate with what they are receiving.
Mrs. Napolitano. You are concerned about the transparency
of the memo, to be able to have people who are actually
operators have input? Am I correct?
Mr. Crisson. I think that is a good way to put it, yes,
ma'am.
Mrs. Napolitano. Thank you. The Secretary's Memorandum
outlines some very good goals. As Ranking Member of the
Subcommittee on Water and Power, I agree with some of the
points he has made.
In order for a process to be successful, it is imperative
that we ensure our constituents are included in the process.
I am sending a letter. I understand Mr. DeFazio has already
sent a letter, to which he has had no reply. I am sending mine.
I am hoping we get a reply because there are some issues, some
questions that we have.
We agree with some of the points that you have made, but I
still have an issue with the infrastructure itself because I
visited a couple of the PMAs. There is aging infrastructure,
and there is a need for it, and you are being asked or the PMAs
are being asked to receive renewables, and yet there is not
that infrastructure ready to be able to be implemented or at
least connected.
Those are issues that I have great concerns about. I am
sorry Mr. DeFazio left. I was going to ask him. If California
did not have the need, what would you do with that power.
Sorry, I am from California.
Anybody want to address that?
Mr. English. Ma'am, I will take a crack at that. Let me
just say here I think there are some other issues.
We are involved in renewables, electric cooperatives are,
big time. We would argue probably we are doing on a per capita
basis as much if not more than anybody else in the industry. We
are very proud of that.
We believe in efficiency. We think efficiency has a big,
big role to play.
Mrs. Napolitano. And you are.
Mr. English. Exactly. Thank you. The point that we are
getting to here is this thing--I probably should not say it--
there is suspicion, as I said, that the Secretary is really
looking for a cash cow, looking for a way to ride on the backs
of the PMAs to accomplish a task for other people other than
the beneficiaries.
You are talking about that aging infrastructure. You are
absolutely right on, and we agree. We think following that same
model that we had in the past, and which we have that
partnership between the Federal Government and the preference
customers, should be followed to seriously upgrade those
facilities.
Mrs. Napolitano. Right. I do believe the stakeholders have
to be involved.
Mr. English. You are right.
Mrs. Napolitano. That is something that we are very, very
concerned about. I just want the politics left out of it. This
water has no color. It is our economy.
Mr. English. Amen.
Mrs. Napolitano. With that, I yield back.
The Chairman. I thank the gentlelady. The Chair now
recognizes the gentleman from Colorado, Mr. Lamborn.
Mr. Lamborn. Thank you, Mr. Chairman. Mr. Bladow, thank you
for coming here from Colorado. Good to see you, and all the
other witnesses as well.
Were the PMA customers at all consulted on this proposal?
Since they are the ones who are going to be asked to pay for
PMA programs, it seems they should have some kind of
involvement in this whole process. Has that happened up until
now?
Mr. Bladow. Mr. Lamborn, no. From Tri-State's perspective,
we are one of WAPA's largest customers, and we are very
disappointed that there was no reaching out, no discussion to
help understand what issues we are trying to address, and what
may be important to us.
It seems to be somebody else's agenda to set the course. It
is important for us that we get involved and make sure that
whatever process the Department does follow, they have
indicated they will have a stakeholder process, that we are
actually involved and they are actually willing to listen to
what the needs are, not what they perceive the needs are.
Mr. Lamborn. OK. Thank you. The Chairman asked you about
cost sharing. Let me drill down a little more specifically.
Who would pay the costs if there are hard costs, and there
sounds like there are, with this proposal?
Mr. Bladow. At the end of the day, all of the PMAs' costs
are recovered through rates. Even the Federal appropriations
they may get is rolled into the rates.
Whatever comes out of this, we will end up paying in our
rates and our consumers will pay in their rates, all of the
preference customers, so for us, it is very important to make
sure we have some insight and have some ability to influence
where those dollars are spent, and make sure the benefits flow
from whatever dollars they spend.
Mr. Lamborn. Would one alternative, if not the ratepayers,
the only other alternative that I am aware of would be an
appropriation from Congress.
Mr. Bladow. Yes, it is either the ratepayers or the
taxpayers have to pay, as Mr. English said, somebody else has
to pay.
Mr. Lamborn. All right. Thank you. For Mr. Crisson or Mr.
English, I am concerned that sometimes we have well intended
but maybe unrealistic bureaucratic fiats coming down from on
high, telling the private sector, telling the economy how they
should operate with the goal of saving money, but those who are
actually on the ground doing the business day to day may not
agree there is a tangible cost savings at the end of the day.
Is it possible that is what is going on here?
Mr. Crisson. Yes, Mr. Congressman. It is possible.
Certainly, the memo was directive in nature. It was not very
clear. We are very concerned about exactly what might come out
of that.
Let me just say, I think I speak for my members when I say
we are not adverse to exploring a lot of the things that are
suggested in the memo. In fact, a lot of the PMAs are doing
this already.
It is the way we go about it that is important. For
example, taking a transmission project, Mrs. Napolitano was
talking about a minute ago, if we had a process in which there
was a rigorous examination of the costs and benefits, there was
input from the customers who are ultimately going to have to
pay for this, there was agreement there was a positive
analysis, that the risks were manageable, that it was a product
of a regional planning process that not only addressed needs
for renewables but reliability, congestion management, I think
our members' reaction to that would be very positive.
We are the ones responsible at the end of the day for the
reliability of the system. We want to see the right investments
made.
The way we are going about it in this memo is a concern.
Mr. Lamborn. Mr. English, let me transition my next
question, although feel free to address this one as well.
When I see in the Secretary's memo on page four, among
other things, he wants to start preparation for electric
vehicle deployment, once again, well intended, but not
something that the free market is really responding to.
I look at the volt. Some of the car companies, maybe it was
the pressure from the bailouts. I do not know. They are
producing vehicles that the public is not really responding to,
is not buying.
Yet, that is going to be something that the Secretary wants
you to start paying money apparently to start preparing for.
What is your response?
Mr. English. Well, I do not think this is the result of
some bureaucratic exercise, no. I think without question what
we have here is a political objective, and I think we ought to
recognize it as such. That is what it is.
I agree with the political objective. I think we need
electric cars. I think we need to certainly fully develop all
of our renewable resources, electric cooperatives are doing it,
and let me also say I think we are rather foolish in trying to
say that hydro is not a renewable. It is, and we ought to take
credit for it.
I think we ought to fully utilize every bit of electric
power we can get out of those facilities, and that should count
toward our overall effort. Makes sense.
In this particular case, as was pointed out, basically what
this comes down to is a question of who is going to pay for
this. That is what we are talking about.
It is an objective we want to make, I do not think folks
feel very comfortable they are going to be able to bring a big
dollar item before this Congress, gets taxes increased, to be
able to pay for it, or to increase the deficit. It is not
likely to happen.
I think what we have is well, those preference rates over
there are pretty good, pretty reasonable. It will not hurt to
jack those preference rates up in order to pay for this
particular political objective.
It may be an expedient way to deal with it, but I have to
say it certainly is not a fair way and completely destroys this
relationship that you have locally that has been a tremendous
success.
If something has worked and it has worked well, why not use
it as a model rather than blow the thing up. That is what I am
afraid we are doing.
Mr. Lamborn. Thank you all.
The Chairman. The time of the gentleman has expired. The
Chair recognizes the gentleman from New Mexico, Mr. Lujan.
Mr. Lujan. Thank you, Mr. Chairman. Mr. English, do you
support Federal investment in infrastructure across America?
Mr. English. I think we need to invest in our
infrastructure all across America. There is no question. I
would wholeheartedly agree with all those who say our grid
needs to be substantially upgraded and improved. There is no
question about it.
I would wholeheartedly agree that we need an investment
with regard to the generation of electric power in this
country.
I think we need to approach it on the basis of a sound
energy policy rather than bits and pieces that quite frankly
probably have a lot of political objectives tied to them or who
is supporting it and who is not.
Mr. Lujan. Should the Federal Government invest in
transmission projects across America?
Mr. English. As far as investing, again, I would go back to
the model that we used whenever you developed electric
cooperatives in this country. It would be great if you could
make loans to do that where necessary.
I am not sure how much is going to be necessary. The big
problem you have in transmission in this country right now is
getting right-of-way.
Mr. Lujan. You support low interest loans and grants for
Federal transmission projects?
Mr. English. I think it makes sense. It makes sense, yes,
particularly at these times of low interest rates. We ought to
be investing like crazy.
Keep in mind, that is not your problem. Your problem is
siting.
Mr. Lujan. I appreciate that. This Committee passed a
measure that would fund an effort to be able to provide Federal
guaranteed loans to transmission projects in the country. I am
glad to see we are on the same page. We need to maybe get you
back over here. We will find a way to do that.
Mr. Bladow, when you are putting the contracts together,
and I cannot see the witness, I apologize, when you are putting
projects together or your contracts associated with rates for
co-op members in the 44 coops that you represent, do you go get
input from the co-op members before you put the contract
together?
Mr. Bladow. Yes, what we have is our Board of Directors is
made up of a representative from every one of our members.
Mr. Lujan. Those are elected members. Do you go to the
members around the country when you put those contracts
together before they are presented to the Board for approval?
Or does the staff of Tri-State put together a contract and
proposes it to the Board for consideration?
Mr. Bladow. What we do is, for example, right now, we are
actually examining extending our contracts with our members,
and on the committee looking at that, we have Board members
from our members, not Tri-State Board members, but members, and
we also have managers, and we also have Board members.
We always try to have a very good cross section. We assume
that our member representatives, whether it be a Board member
or manager, is looking to their communities and getting input
from their communities and what is important to them, so we can
bring all that together.
Mr. Lujan. Before it is adopted, you show it to them,
right?
Mr. Bladow. Before it is adopted, our Board shows it to our
members' Boards.
Mr. Lujan. Should not this memo be shown to you before it
is issued as a directive? This is not a directive, everybody.
It is not.
The Secretary talks in this memo about the importance of
making sure we are modernizing our grid.
Last time I checked, the complexity associated with the
deliverability of power in this country, there are computers in
there, some of them are older, some of them are newer. There is
access to the outside world via the Internet through broadband
connections.
If there was a cyber attack that was issued on any one of
us anywhere in the country, I am terrified of what would
happen, and what that could do to destroy commerce in America.
I think all we are asking here, Mr. Chairman, is what can
we do to do things smarter, and how can we do these
collectively with taking the rhetoric out.
The importance of transmission projects in the country,
making sure we are truly doing the right things.
Are you all aware of ``line lost?'' Is that a term that is
familiar to everybody?
Mr. Chairman, ``line lost'' is a term with the electrons as
they are moving through these power lines that we lose every
day.
How much in rates do you account for line lost? Mr. Bladow?
Mr. Bladow. Well, when we set our rate, we account for how
much we lose.
Mr. Lujan. Ten percent? Is that about the average?
Mr. Bladow. Typically, it is about five percent.
Mr. Lujan. Five to ten, I think, is what I see across the
country.
Mr. Chairman, you want to talk about a hidden cost to
American taxpayers, to American consumers, to American
businesses, we are just losing electrons because of old
infrastructure. There has to be a smarter way to do it.
Commissioner Marks, I apologize. I did not have time to get
to all these questions. I will make sure I submit them to you.
As we talk about the questions that this conversation
brings up, if you could explain, you talk about advocating for
EIM.
What does this mean to the ability to integrate more system
efficiencies and renewable energy into the system, and what
would you say about the role of public outreach and comment?
Mr. Marks. Mr. Lujan, as you correctly point out, this is
not about fiat. This is about asking the PMAs, which sit in the
middle of all other customers just geographically, to say work
with your neighbors for mutual benefit. We are not asking
anyone to pick up someone else's costs. We are asking folks to
work together for ultimate savings.
As my colleagues on this panel recognize, we are all trying
to integrate more renewables. We know wind, which is big in the
Northwest and it is big in Colorado and Wyoming, it is
intermittent.
If we can spread that intermittency across more customers,
across the West, it is cheaper for all of us to integrate.
This is a matter of working together for mutual benefit
instead of hiding in our own bunkers.
Mr. Lujan. Appreciate it. Mr. Chairman, I appreciate the
time. The memo also says it looks like there is room to create
some regulatory certainty with looking at these old statutes
from 1902 and trying to reduce them.
I think that is something we can agree on as well, we can
find some efficiencies that maybe we can work on together, Mr.
Chairman.
The Chairman. The time of the gentleman has expired. The
Chair recognizes the gentleman from California, Mr. McClintock.
Mr. McClintock. Thank you, Mr. Chairman. First, I would
like to ask unanimous consent to submit for the record letters
from the Northern California Power Agency, the Balancing
Authority of Northern California, which represents the Modesto
Irrigation District, the Cities of Redding and Roseville, and
the Sacramento Municipal Utilities District.
They are extremely concerned with the impact that the Chu
memo policies will have on consumer electricity rates, which I
might add are already amongst the highest in the nation.
The Chairman. Without objection, they will be part of the
record.
[NOTE: The letters submitted for the record have been
retained in the Committee's official files.]
Mr. McClintock. That leads me to my first question,
gentlemen. What does this mean to the bills that my
constituents would be getting from their electricity utilities?
Mr. Crisson. Mr. McClintock, part of the concern we have is
we do not know the extent of the impact because of the
uncertainty.
We are very concerned about some specific language in the
Secretary's memo.
One example would be the direction to incentivize----
Mr. McClintock. I want to get to that in a second.
Basically, are my constituents' bills going up or going down as
a result of these policies?
Mr. Crisson. I think it is much more likely they will go
up.
Mr. McClintock. How much? A lot or a little?
Mr. Crisson. It depends on the extent to which the memo is
implemented. It could go up a lot.
Mr. McClintock. I wonder what is going on really here. Is
this not an ideological preference by elements on the radical
left for wind and solar electricity above all other sources,
regardless of the costs, and the costs are considerable?
It is expensive in its own right. Affordable electricity
has been around for 170 years, and in 170 years of research and
development and God knows how many billions of dollars of
subsidies, we have not yet invented a more expensive way of
producing electricity, just on its own.
Then on top of that, you have to factor in the transmission
costs because of the low output of wind and solar and because
of the remote locations most of these facilities are on.
We have to pay a premium for special high tension
transmission lines over vast distances, solely to accommodate
solar and wind. We have land costs which are considerable. Just
to replicate the power output of the Diablo Canyon nuclear
facility in California, we would have to add some 36 solid
square miles of solar panels, and it is unreliable.
The moment that a cloud passes over a solar array or the
wind drops off from a wind farm, the power drops to zero. When
that happens, we have to be able to instantly replace that
power or the grid collapses.
In addition to the wind and solar facility, we have to have
back-up facilities available, ready to come on line in an
instant, which often means running gas and coal fired plants,
keeping them at ready stand-by for that moment when the clouds
pass over solar arrays.
This is enormous expense. There is no possible way anyone
in his right mind would actually pay for this.
What do you do? You have to do two things. You have to hide
the actual cost of this from consumers, and at the same time,
you have to artificially increase the price of conventional
electricity supplies that are vastly less expensive.
Hydroelectricity, natural gas, coal and nuclear.
Is that essentially what is going on here?
Mr. Crisson. Let me respond in this way. We are very
concerned about the increasing cost of integrating renewables
into our system. When we talk to our members, this has risen to
the top of their list.
As you approach double digits in terms of percent capacity
represented by wind, for example, you get this increasing
amount of variable generation, much of it off peak, which means
it does not coincide with the need for load, so it represents a
real problem as to how you use it in a cost effective fashion.
Mr. McClintock. Is that essentially what is going on here,
are we hiding the cost of wind and solar from consumers?
Mr. Crisson. I find it very puzzling and confusing that an
Administration that touts an all-of-the-above energy policy
would favor providing incentives for intermittent wind and
solar at the expense of hydropower and hydropower customers.
Mr. McClintock. That is because this has nothing to do with
science or with the economies. It has everything to do with a
religious fervor on the radical left.
I do agree with the Ranking Member on one point, this is a
battle of two visions. I find the vision of this Administration
dreary and depressing.
It is a future of increasingly severe Government induced
shortages, higher and higher electricity and water prices,
massive taxpayer subsidies to politically well connected and
favored industries, and a permanently declining quality of life
for our children who are going to be required to stretch every
drop of water and every watt of electricity in their bleak and
dimly lit homes.
Mr. Chairman, I know you share with me a different vision,
of clean, cheap and abundant hydroelectricity. Great new
reservoirs for water storage, a future where families can enjoy
the prosperity of abundant electricity, a nation whose children
look forward to a green lawn, a backyard garden, affordable air
conditioning in the Summer and heat in the Winter, and brightly
lit homes and cities, and abundant affordable groceries.
This is a battle of two very different visions. It is a
choice that must be made not only by this Committee or this
Congress but by the American people.
The Chairman. The time of the gentleman has expired. I
certainly agree with that concept. The Chair recognizes the
gentleman from California, Mr. Garamendi.
Mr. Garamendi. I am trying to understand what this is all
about. Is this about the generation of hydropower, gentlemen,
or is this about the transmission of electricity in the Western
United States? Which of the two is it?
Mr. English. It is who is going to pay. That is what it is
about, who is going to pay. Is it going to be the preference
customers who made the investments so many years ago, who have
followed a policy throughout their history in which they worked
with the local PMAs to deal with their local problems, and they
pay for whatever improvements and costs they might have.
The issue that we come down to is with regard to any
additional benefits that may go to people who are not those
preference customers, who is going to pay.
Is that cost going to be shifted off to the preference
customer, and are they going to have to pay for benefits that
others may enjoy or is it going to be those who get the
benefits.
Mr. Garamendi. I thank you for that description. Can you
tell me who the others are?
Mr. English. That is the whole point. I do not think anyone
knows at this particular point. I think what we are talking
about is what is going to be the policy.
The alarm and the concern, at least from our point of view,
from the rural electric's point of view, is the fact that since
the very passage of the legislation here in this Congress
establishing building those dams, establishing the PMAs,
providing flood control for local people, providing irrigation
to local people, providing recreation to local people, and
providing electric power to local people, those folks will pay
for those benefits.
That has been what we have been doing throughout history.
We paid above market rates.
The second issue here is it appears that we are
interrupting what has been that history, that relationship
between those customers and the PMAs and dealing with local
problems.
It appears that what we are getting into here are
additional areas that may benefit people other than the local
folks. It appears. Let me just say this.
I think to be honest about this, none of us know right now.
We just do not know. The only thing we are saying is the
Secretary's memo is out of whack with the way we have been in
business up to this point.
Mr. Garamendi. Thank you. We just do not know?
Mr. English. We just do not know.
Mr. Garamendi. OK. We ought to do our best to find out how
the Secretary would implement this, and who is to pay.
All of the fuss and fury and interesting political
statements that have been made here about policies and religion
really are not yet appropriate.
What is appropriate is for us to understand that changes
are afoot, that solar and wind is very much of the all-of-the-
above strategy. Correct, Mr. Chairman?
As is hydro and other sources of power.
The question really is how to integrate all of the above
strategies, which I hear from my colleagues all of the time,
into the power available, electrical power available, across
the United States and particularly across the Western United
States, and how to do it in a way that is fair and equitable,
taking into account the history and in some cases the
additional cost that may be incurred in the transmission of
that power.
So I think this hearing could be extremely useful in
ferreting out the underlying concerns which I believe all of
you have expressed, at least what I have heard by watching and
attending half a dozen other meetings, and then moving toward a
rational discussion, absent all of the religious fervor, and
figuring out how to make it happen.
Now, so you have had your comments. If any of the others
would like to take 18 seconds to add.
Mr. Corwin. I can try in 18 seconds.
I think it is true there is not a lot of clarity here yet,
but the linkages, since you have talked about transmission
versus power, in some of the examples in the memo are ominous,
and there is linkage.
I answered a question earlier about the revolving fund, but
there is process to try to oversee that, but will they listen?
There is not a lot of actual oversight or power by the
customer. So does limited borrowing authority for BPA, for
example, get used to bring those new resources to load, or does
it get used for reliability purposes or for core customers to
move power to load?
And those are tough questions.
Mr. Garamendi. Excuse me. The Chairman is about to hammer
us both down, but before he does----
The Chairman. You are right.
Mr. Garamendi [continuing]. Those are all legitimate
questions, and this is a really important issue, and the memo
does put on the table--excuse me, Mr. Chairman, if I might--
does put on the table an important series of issues. It sets
out proposals or directions, but does not define the outcome.
It is up to us to try to do that in a rational, thoughtful way
so that we can achieve an ``all of the above'' strategy that is
fair and equitable to everybody.
Thank you, Mr. Chairman, for the extra time.
The Chairman. The time of the gentleman has expired. I
would just note that it has been noted several times. I know
you had other meetings. Since that initial memo, there has been
absolutely no follow-up for any clarification. Mr. DeFazio
brought up the issue that 19 bipartisan Members from the
Northwest sent a letter immediately after the memorandum, and
we have had no answers.
So while we welcome that dialogue, frankly, the dialogue
has not been there at all.
Dr. Gosar. Mr. Chairman.
The Chairman. The gentleman from Arizona, Mr. Gosar.
Dr. Gosar. Thank you.
Mr. English, as a former Congressman, you are very aware of
how Congress authorized the power projects and the PMAs that we
are talking about today. When it came to changing the PMAs, the
missions, Congress even stepped in, in 2005 and 2009.
Regardless of how you feel about it, it had its oversight and
they stepped in and made those changes.
Then comes this Chu memo which seeks to radically change
the PMAs by administrative fiat, and with little input from
customers and Congress. Do you agree with that statement?
Mr. English. I think that that statement is a fair
statement. I am concerned that this is not business as usual.
Dr. Gosar. Well, I mean, precedence gives us that
denotation, right? When you see an Administration leading by
administrative fiat, the apple does not fall far from the tree,
does it?
Mr. English. Right, and having been around this town for a
long time and the fact that both Democrats and Republicans here
in Congress from the areas that were affected, I do not believe
were aware that the memo was coming. You know, as I said, it
raises red flags, and I think that is what you are hearing us
all say. We are alarmed. We do not know for sure exactly how
this is going to proceed. We do not know if it is a trial
balloon just to see, you know, how people react to it. If so,
well, they have gotten a strong reaction, I think.
Dr. Gosar. Oh, I see this over and over again. I mean, I
have seen this from dictations from the Department of Justice.
I have seen this all the way across the board and very astute
about that.
And, by the way, I am a dentist impersonating a politician.
So I mean, I am a businessman, and so I understand some of
these things. But do you believe that Congress should be giving
up its role in oversight?
Mr. English. Oh, absolutely not.
Dr. Gosar. It should be fighting in every aspect for it,
right?
Mr. English. Exactly. I had oversight responsibilities when
I was here in Congress. I believe strongly that that is
something that Congress does not do enough of. That is my
personal belief. We need to do more of that. Congress should,
as opposed to legislating. I think there is a lot of work to be
done in that area, and I think in cases like this, as I said,
if Congress does not engage, if people do not speak out, then I
do not see that we have any complaint.
Dr. Gosar. Well, you know, when I was listening to the
Ranking Member talking about the socialistic aspect, I thought
to myself, boy, that is quite the opposite of what I am seeing
here for those, you know, like California that has not
advocated an ``all of the above'' policy, they have predicated
certain energy policies. They want people or States like
Arizona to carry their water in more than one way.
So I find it very offensive into that aspect.
Mr. English. Can I very quickly make a comment on that?
Dr. Gosar. Sure.
Mr. English. Let me just say very quickly I think the issue
that we have here is that this was a partnership. It started
out as a partnership. Historically it has been a partnership,
and the concern is that that partnership is going to be
disturbed, you know, due to the fact the memo seems to be out
of character with what we have historically done, Congress and
the customers.
Dr. Gosar. So then it becomes a business model, does it
not?
Mr. English. It does.
Dr. Gosar. So let's say that I am a dentist and I have a
practice. Somebody wants to come in. They have to purchase into
that agreement, do they not?
Mr. English. They do.
Dr. Gosar. That is common sense application.
Mr. English. You are right.
Dr. Gosar. So it seems to me like that when we have new
players on the field, they have to buy their way into the
system.
Mr. English. Well, we would like to think so. As I said, we
have been paying for this for years. Customers have so new
people coming in the field, they ought to get to enjoy the
opportunities to invest the same as those who have been
preference customers.
Dr. Gosar. Well, I am glad that you say that, you know,
because this Administration believes that Big Brother knows
everything and should dictate everything, and I kind of want to
go back that ever since this Chu memo in my State, everybody
has been in an uproar because if we look at water policy
throughout the United States, Arizona is very elaborate at
having one of the most elaborate water policies throughout the
country and very dynamic in how they understand that
utilization of water. Banking, our canal system is probably one
of the best around in the world today.
But everybody in my State started screaming because they
knew exactly where this was coming. You know, the State does a
pretty good job, and I think, Mr. Marks, you kind of represent
what you do in New Mexico, and that is with our Corporation
Commission. You know, they are very dynamic about understanding
the intricacies, and are you not a little possessed, I mean,
kind of upset, Mr. Marks, that somebody would tell you how to
do your business that is very specific to New Mexico or to
Arizona versus what you would have up here in the Northwest, a
business model?
Mr. Marks. Mr. Gosar, yes. I mean, that is one of the
reasons why the State Commissioners, we do not like this RTO
idea, which the other tiers do not like, but we also do not
want to just close our minds to ways to save money.
Dr. Gosar. But is there not a better way instead of being
dictatorial about it, is to come in and embrace true leadership
which brings parties to the table to ask solutions instead of
demanding them?
I am a little bit tired of the one size fits all, and it
seems like it is characteristic of this Administration over and
over and over again, that we have to read what is in the
communication. And do you know what? Leadership comes with a
cost, and it comes with communication, and we ought to be
asking for it.
And that means you. I mean from you representing a State
because I know from my Corporation Commission they demand
nothing less because it is an intricate relationship on the
State's rights and into a region's rights. And the Federal
Government does not know all, and I think that is what is so
offensive because of what we see for Main Street America.
Mr. Marks. Congressman, I have colleagues on your
Commission, and your Commission and my Commission, we share the
feature of being elected, and so we know we have to answer to
our voters, to our constituents, to the people. That is what we
all need to do, and we need to solicit their input.
And my Commissioner group brings in folks from the
different Commissions, and we are opening ourselves up to
consultation, dialogue with the various industry and other
stakeholders, consumer stakeholders, because I agree with you.
It cannot be top-down. It needs to be collaborative.
Dr. Gosar. But that is exactly what this memo----
The Chairman. The time of the gentleman has expired.
The Chair recognizes the gentleman from Utah, Mr. Bishop.
Mr. Bishop. First of all, I would like to thank the
gentlemen who are here on the panel. I have done some work in
the past with rural electrics and co-ops, but at the same time
this is not an area of my expertise. So I have found this
fascinating.
Mr. Chairman, you know, when we were serving on the
Transition Team, we tried to change our rules to make it
possible for greater control, greater attendance at these
committees. One of the things I find sad is that we need
greater attendance on these committees because this is the
exact kind of information that I think all of the Members here
need to have.
And I promise I will not ask a question in the last five
seconds of my time.
There are a couple of things that I see are overarching in
the discussion we have had today. The first one is even though
no one knows where this is going, there seems to be, for lack
of a better word, a lack of trust in the future that we go. And
we recognize that once a bureaucracy or administration starts
down a path, changing that path becomes extremely difficult.
So I think what you are doing is raising some concerns and
red flags now before we get further down that path, and I think
that is appropriate to do so.
I find the questions come in a couple of areas. I think,
Mr. Bladow, you mentioned that the issue is whether the
ratepayers pay for these improvements or taxpayers pay for the
improvements. I think one of the concerns I do have is that if
it is the ratepayers who are paying, that is, in essence, some
kind of a hidden tax and a hidden tax that goes on a separate
group as opposed to across the board, which is what a tax
increase or a tax benefit would do. It becomes something
hidden, and it is something that is not paid by necessarily
those who can most effectively agree with it.
So let me ask you, Congressman, in your written testimony
you mentioned that rural co-op customers' income is
approximately 14 percent below the national average. Do you see
anything in this proposal by the Secretary that takes that
factor into account?
Mr. English. I do not think so. As I said, just having been
around this town a while and certainly had dealings with the
government for over 35 years, what this looks to me like, what
it smells to me like is that the preference customers have a
very good rate as far as electric power they have. It does not
matter that they earned it.
Mr. Bishop. So this becomes what, in essence, would be
somewhat of a hidden tax?
Mr. English. Yes. We are a cash cow. We are a minority. So
it is easy to target us.
Mr. Bishop. And I realize that the fact that there are
rural co-ops in the first place is because of unique
circumstances and situations about the demographics as well as
the geography that created them.
The second issue is, in lack of a better term, maybe simply
the concept of power. Mr. Crisson, does this proposal by the
Secretary in your estimation empower local efforts or does it
consolidate power back in Washington as to make future
decisions?
Mr. Crisson. Yes, sir. That is one of our concerns, is that
it is very directive, top down in nature, and it seems to
discount and undermine the partnership, the collaborative
relationship that exists in all PMA regions between the PMAs
and its customers.
Mr. Bishop. All right. Let me ask because I am going to
quit this one on time here. I am sorry, but we will do that.
You mentioned in your testimony that power customers do
subsidize other purposes of dams, such as irrigation and
recreation. Are you concerned though, and I think the
Congressman also mentioned this, that there will be additional
purposes added into this proposal other than the traditional
ones that are subsidized by your ratepayers?
Mr. Crisson. Yes, that is one of our primary concerns.
Mr. Bishop. Can I ask you a specific one as well from your
written testimony? You mentioned that in the 2005 Act, Section
1222 gave some flexibility and authority on problems that would
be identified by the TIP Program, but you see these programs
rather being mandated by administrative fiat.
Has Section 1222 been effectively used, that section?
Mr. Crisson. At this point, not to my knowledge, no.
Mr. Bishop. And the same kind of consideration about the
FERC's role, that it is supposed to be recognized to address
concerns as to wholesale electric rates to make sure they are
just and reasonable. Is that another thing that has been
effectively addressed in this proposal or is that still
something that is outstanding?
Mr. Crisson. No, we are concerned that it puts just and
reasonable rates at risk.
Mr. Bishop. All right. I thank you.
I think in the discussion here there has been something
that has been some overarching themes that are coming through
here dealing with power, in essence, dealing with rates, who
actually pays it, whether it is hidden tax, dealing with other
opportunities we have of going forward, and all I can say is
that is one of the reasons why I still use legal pads when I
try to write something.
Thank you. I will yield back.
[Laughter.]
The Chairman. The gentleman yields back his time. The Chair
recognizes the gentleman from California, Mr. Costa.
Mr. Costa. Thank you very much, Mr. Chairman. I am sorry I
have not been able to participate in this hearing to the degree
I would like to because I am very concerned about the potential
impact that the proposed Chu memo might have on Western Power
and utilities that I represent.
The gentleman from New Mexico, Mr. Jason Marks, I
understand has been having the good opportunity to answer a lot
of the questions here this morning. Are you a supporter of the
memo, as I understand it?
Mr. Marks. Mr. Costa, I am not here to defend the entire
memo, but I support the aspects of Secretary Chu's memo that
support the project that I have been working on, which----
Mr. Costa. All right. Well, hold on there for a second,
and, Mr. Chairman, I am sure it has been already suggested
here, but let me add my voice to that. I think we need to have
the Secretary here to explain the whole proposal because I
think that the department, at least from my perspective, has
not done a good job as it relates to explaining the rollout of
the memo, the purpose, and if you have already made that
determination----
The Chairman. Would the gentleman yield?
Mr. Costa. Yes.
The Chairman. There have been several exchanges on that. In
my opening statement, I mentioned very specifically that since
Secretary Chu was the author, that is why we invited him
specifically, and then there has been follow-up with letters,
particularly from the Northwest, on a bipartisan basis where we
have not gotten an answer.
Mr. DeFazio and I had an exchange on that. The intent is
when we get some more information, we will move accordingly.
I yield back.
Mr. Costa. All right. Well, to reclaim my time, I would add
my signature to that letter if it is still available as a
remedy. The Secretary and the department need to brief members
of this Committee because of the impacts.
In terms of the initiatives that have been laid out in the
memo, again, Mr. Marks, what are we trying to fix?
Mr. Marks. Mr. Costa.
Mr. Costa. Briefly.
Mr. Marks. I am not known for that, unfortunately, but, Mr.
Costa, we are not talking about new generation. We are not
talking about new renewable energy mandates in this memo. This
memo is we have some existing constraints on an existing
system. How can we use it better?
Mr. Costa. Well, let me stop you there.
Mr. Marks. How can we save money?
Mr. Costa. Let me stop you there because in California, as
you know, I mean, we have had a devastating attempt on a regime
in 2000-2001 that dramatically raised rates, and we are still
trying to come back from. So there is a lot of fear that this
is, you know, as Yogi Berra once said, deja vu all over again.
Utilities in the central and Northern California, as well
as in the Pacific Northwest, are working together to identify
all the tools in our energy toolbox, such as intra-hour
scheduling, new electronic bulletin boards to facilitate energy
transmission agreements, better integrate our renewal resources
into the grid. So I am at a loss and I do not expect you to
answer for the Secretary, but why this regional approach among
utilities working together is, I think, more viable than a top
down approach that I think the Secretary Chu's memo suggests.
Mr. Marks. From our perspective, those initiatives you
mentioned, those are some things that we have been looking at
as well. The region, and I am talking about the bigger region,
the entire West has been looking at those things. I have been a
Commissioner----
Mr. Costa. But we are doing those things.
Mr. Marks. We are still studying them, Mr. Costa.
Mr. Costa. No, but I am talking about my utility companies
are doing these things, and they see this as really an attempt
to tell them how to operate. I mean, they have a lot of
motivation to do this in California. We have an AB-33 approach,
as you may know, to obtain 30 percent renewable portfolios by
the year 2020, and we have a lot of good practices that we have
done, but this is very frustrating.
What is likely to be the cost of a West-wide EIM, and who
will pay those costs? Have you made any determinations on that?
Mr. Marks. Yes, Mr. Costa. We have solicited informational
bids from two market operators, one of which is the California
ISO. The other one is the SPP, and the SPP is the easiest to
explain. They have said $28 million a year, and that combined
with the benefits that we have seen suggest that their
potential net benefits are over $100 million a year.
Mr. Costa. Well, I would like to look at those numbers. My
time has expired, but, Mr. Chairman, I have some additional
questions that I would like to submit on behalf of the Modesto-
Turlock Irrigation District as well as other utilities in the
San Joaquin Valley so that we can get answers to those
questions.
I understand the other witnesses who have testified here
today share similar concerns as members of the Committee. So I
have not asked you those questions, but clearly, we need to
have the Secretary testify before the Committee and get a far
better understanding of what is being proposed, and I would
work with you and, I think, a bipartisan effort on this to
ensure that. It would be very helpful in trying to get to the
bottom of this.
The Chairman. As we normally do at the end, further
questions will be submitted. I will ask the witnesses to
respond.
The Chair recognizes the gentleman from South Carolina, Mr.
Duncan.
Mr. Duncan of South Carolina. Who has waited patiently, Mr.
Chairman, and do not mind at all because this area of power
generation is important to me.
First off, let me just say that SEPA is an important power
provider to my constituents, especially my rural cooperatives,
and Northwest South Carolina, Third Congressional District.
We understand that. There is another issue with power
generation that I would just like to mention. It may be a
little off subject, but I think it definitely has bearing here,
and that is the Corps' management of the lakes, especially Lake
Hartwell, I will point that out, that we are seeing the lake
levels on Lake Hartwell diminish, the downstream flows that
really are affected by policies, not only with just DOE but the
Corps of Engineers itself, FERC, EPA.
There is a Savannah River study that we are waiting on. It
is costing the taxpayers millions of dollars to study the
downstream flows to protect the sturgeon that have not been
seen or breeds at different times.
There are just a lot of different factors there that are
affecting that Corps lake, and affecting the quality of life,
economic development, all these things.
For the record, I just want to mention I believe the
private sector can better manage those lakes, better manage the
power output of the hydro dams there, can better manage the
economic benefit, and definitely yield a good return to the
taxpayer.
The rates that are charged by SEPA are turned around and
used to repay the debt of building those dams on that lake.
We are seeing Secretary Chu wanting to increase these rates
to in my opinion to redistribute the wealth, to take those
rates, that wealth, created through rate increases and fairly
and equitably to use them, in the gentleman from California's
words, redistribute that to other power sources that they
particularly believe in, and that is wind, solar, other green
energies.
They want to hold up the Dutch as an example of a country
that generates its power through wind. You know what, wind and
solar are intermittent.
I think the other gentleman from California made a
tremendous point there about the intermittency of wind and
solar. Cloud cover, the wind stops.
The best replacement source for the Dutch is the
hydroelectric power they buy from Norway, Sweden and some of
the other countries. They need 24/7 baseload power so that
switch cuts on power, cuts on the lights, cuts on whatever in
their homes.
They get that baseload 24/7 power from hydro primarily.
We are sitting here seeing the Secretary wanting to
increase rates to support an energy source, green energy wind
and solar, that as the other gentleman from California said, is
not close to transmission lines and other things.
I appreciate your comments, and the gentleman from the
West, the Northwest, saying you all have reinvested in your
transmission lines. You have done things right. You do not
necessarily need to increase your rates to do that.
I guess the point I wanted to make is we are seeing--Mr.
Garamendi said policies that define an outcome, they are trying
to define the outcome for us. They are trying to push us toward
more wind and solar hydrogen.
I do not necessarily agree that man made global warming. I
do not believe we are running out of the resources God gave us
in this country. I do not agree with the President when he says
he wants to increase American energy production and less
dependence on oil.
I believe we have those resources here. I think this is
about a lot of different political philosophies.
I want to ask Mr. Corwin just one quick question. Under the
Federal law, Power Marketing Administrations have to sell
hydropower at cost based rates with sound business principles.
I am a business man. I think you guys can apply sound
business principles that say this is what it costs us to
generate power, this is what it costs us to transmit that
power, this is what our overhead margins are to pay the
salaries of the guys operating it, and anything over that we
are going to use to pay back our debt.
How does injecting this memorandum and this policy by
Secretary Chu affect the way you will run your business and how
will it run contrary to the cost based rate structures that you
have now?
Mr. Corwin. We are hoping that it does not get implemented
in a way that disallows us to continue that. It has worked very
well just as you described.
The mandate is for cost based rates throughout history.
That has served us well in keeping the system running for
customers.
Mr. Duncan of South Carolina. My time is about out. I will
say anything above cost rate structures that you have where you
cover your costs and you cover your debt rate payment means a
tax increase on the constituents of the Third District that are
buying power.
They do not want to see their taxes go up either through
paying higher rates or paying higher taxes to benefit Solyndra
and other businesses that are not proven.
Do not take our tax dollars and make investment decisions
for us. Let us make those decisions ourselves.
With that, Mr. Chairman, I yield back.
The Chairman. The gentleman yields back. I did note he was
very patient here, and I do very much appreciate that.
I want to ask just a clarification. We heard a great deal
about the PMAs and how they are organized. The essence of how
they are all organized is they would pay back whatever loans
they got from the Federal Government through whatever activity,
whether it is electricity, irrigation, and so forth.
The clarification I want, because I may have heard
something different, is the exchange between Mr. Lujan and Mr.
English.
Mr. Lujan was talking in terms of loans and grants, and he
also said Federal guarantees. Mr. English, your response to
that was affirmative, and yet that seems contrary to what you
have said the historical model was, where there was no
guarantees.
Which is it?
Mr. English. Well, I think the issue was that we have
appropriations and we pay back through those rates, the rate
increase. That is the model that has been used, and as far as
the PMAs, that is absolutely true.
I believe what he was asking and he did not specifically
restrict this to PMA transmission, he is talking about
transmission in general.
We certainly believe even through the electric cooperative
program that there should be investment by the Federal
Government through guarantees in general.
As far as the PMAs are concerned and particularly as far as
the model that we have used in the past, as far as preference,
there is no question we have had appropriations, and we have
incorporated that into the rates, and that has been paid back.
That has been a tremendous success, and anything,
transmission or otherwise, related to the PMAs to benefit the
customers of PMAs, I think that model should be followed.
The Chairman. That still should be followed.
Mr. English. Yes.
The Chairman. It is very subtle, but it is a very extremely
important policy decision if that should be deviated from.
Mr. English. Exactly. I would also say, Mr. Chairman, that
as we talk about--this has troubled me just a little bit. We
have talked about transmission within the context of the PMA,
which historically speaking has meant within the local
membership there, the local customers, and within that region,
as opposed to going beyond that region, which is a much larger
transmission problem that this country faces.
That is obviously where we are going to have to take on
something much larger.
Congressman Lujan, I think he did not qualify that and say
he was talking about preference or PMA transmission. He was
talking about transmission generally.
The Chairman. What I heard, and I appreciate we probably
hear different things, I heard it as it relates to PMAs.
Mr. English. That was my error. I appreciate the Chairman
raising that so I could clarify it.
The Chairman. OK. Listen, I want to thank all of you. As so
many times happens when we have hearings like this, there are
follow up questions.
I would ask if you get follow up questions, please respond
in a very, very timely manner.
I want to again thank all of you. I think this has been an
extremely informational hearing, and I suspect we will hear
more about this as more information comes in front of us.
With that, thank you all. The panel is dismissed. Without
objection, with no more business, the Committee stands
adjourned.
[Whereupon, at 12:07 p.m., the Committee was adjourned.]

[Additional material submitted for the record follows:]

Statement submitted for the record by Lauren Azar,
Senior Advisor to the Secretary, U.S. Department of Energy

Chairman Hastings, Ranking Member Markey, I submit this testimony
for the record 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. The Memo outlines broad concepts for
achieving these goals in a manner that will be customized to reflect
the uniqueness of each PMA. DOE will begin its review to address the
goals of the Memo with the Western Area Power Administration (WAPA).
The core of this process will be a robust collaboration among each PMA,
its stakeholders, customers, and its congressional delegations. DOE
intends to move sequentially and will assess our approach to the other
PMAs in light of our experience with WAPA. We hope to initiate the WAPA
review soon and anticipate it will take until late 2012 to complete.

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,
thus forcing them to 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 electrons but also includes all facets of generating, delivering,
and consuming electricity.)
The Secretary has expressed his continued commitment to comply with
all applicable laws relating to the rates for the sale of electricity
to preference customers, which include cost-based rate structures. 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 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 to,
among other things, ensure the PMAs are complying 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. 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 eliminates barriers to 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 transmission 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. Furthermore, the overwhelming
majority of the proposed activities described in the Secretary's Memo
relate to the PMAs' obligations and goals for transmission and not to
the marketing of federally generated power to the preference
customers.\7\

TODAY'S ELECTRICITY MARKETPLACE
Today's electricity marketplace differs markedly from that of even
10 years ago. For example:
(1) State Renewable Portfolio Standards (RPS): Thirty-seven
states8 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.
(2) Security threats: 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, as well as its interest in 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.
(3) Technological Advances: As consumers adopt new
technologies and practices such as rooftop solar, electric
vehicles, and demand-response applications both the
transmission grid and the electricity marketplace will face
challenges and opportunities.
To effectively respond to the continued changes in the electricity
marketplace, DOE is considering potential actions the PMAs can
implement, 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 marketplace. 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.

CONCLUSION
As I stated at the beginning of my remarks, as we consider these
issues, DOE intends to work closely with each PMA, its stakeholders,
customers, and Members of Congress. This will be a robust collaborative
process that is sensitive to the unique character and enabling statutes
of each PMA.

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\ BPA is unique for two reasons. First, it has a few non-preference
customers who are grandfathered and able to purchase federal
electricity. Second, 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\ As a consequence, the Secretary's Memo will have minimal
applicability to the Southeastern Power Administration, which
owns and operates no transmission.
\8\ In addition to these 37 states, the District of Columbia and
Puerto Rico both have an RPS.
______

[A letter to The Honorable Steven Chu, Secretary, U.S.
Department of Energy, from The Honorable Doc Hastings,
Chairman, Committee on Natural Resources, et al., submitted for
the record follows:]

[GRAPHIC] [TIFF OMITTED] T3981.014

[GRAPHIC] [TIFF OMITTED] T3981.015

[GRAPHIC] [TIFF OMITTED] T3981.016

------

[A statement submitted for the record by the Public Power
Council, Portland, Oregon, follows:]

Public Power Council

82S NE Multnomah, Suite 122S

Portland, OR 97232

503.S95.9770

Fax 503.239.5959

Key Concerns with DOE Memorandum on PMA Policy

April 2012

On March 16, 2012, Department of Energy Secretary Chu released a
memorandum outlining a vision and policy direction for the federal
Power Marketing Administrations (PMAs). While short on specific policy
prescriptions, the document raises significant concerns in a number of
areas.
Scope, Mission and Legal Authority of the PMAs
The core mission of each of the PMAs is to market power generated
at federal multipurpose dams to public power systems at the lowest
possible rate consistent with sound business principles. Over the
years, the authority of the PMAs has been refined and expanded. For
instance, BPA has authority to acquire resources (with a prescribed
priority for resource selection) to meet the load of regional
utilities, operate a program to enable the residential and small farm
customers of the region's private utilities to share in the benefits of
the hydropower system, and to mitigate the impacts on fish and
wildlife. Yet, in each case Congress has given specific authority and
direction to BPA.
Moreover, each expansion of BPA's mission has still respected the
core tenets of preference and cost-based rates, as well as BPA's role
as a wholesale power supply entity. In several respects, the DOE
Memorandum suggests new missions for BPA that are outside the agency's
existing statutory authority:
BPA and the other PMAs are directed to serve as
``test beds'' for innovative cyber security technologies.
Testing and proving technologies is a role for DOE labs, not an
agency that has 100% of its costs recovered from ratepayers.
DOE is calling for changes in BPA rate design to
``incentivize'' policy objectives. By definition, an incentive
is a payment that is greater than simple cost-recovery--which
conflicts with BPA's statutory mandate for cost-based rates.
DOE implies that BPA should participate in a West-
wide market to address energy imbalances resulting from
intermittent renewable generation. By law, BPA is restricted to
operations within the watershed of the Columbia and Snake
Rivers.
BPA and the other PMAs are being told to take steps
to support, encourage and facilitate renewable generation--even
when that renewable generation is not being used by BPA
ratepayers. This is all the more troubling given that BPA has
already achieved the highest rate of wind penetration of any
balancing authority in the country.
Some of the directed rate incentives--like electric
vehicle deployment--are issues for retail electric utilities,
not wholesale power and transmission providers like BPA.
Throughout the document, BPA statutory limitations on cost
recovery, mission and geographic scope are either blurred or ignored.

Regulatory Oversight
In several respects, Secretary Chu's memorandum envisions a world
in which BPA and the other PMAs are subject to expanded regulatory
oversight and direction by both the Department of Energy and the
Federal Energy Regulatory Commission (FERC):
Although the document states in a footnote that
creation of and participation in a Regional Transmission
Organization (RTO) is not being advocated, there are several
policy initiatives advanced that clearly lead towards that
conclusion. The memorandum calls for elimination of rate
``pancaking,'' merging of balancing authorities, formation of
an ``energy imbalance market,'' and broad regional transmission
planning. Each of these elements leads to discussion of an
RTO--and the full jurisdiction of FERC that would result. The
Northwest has repeatedly rejected RTO formation, because of
both cost concerns and the fear of ceding control to FERC.
The memorandum also implies a number of rate design
elements that the PMAs will implement. In several cases these
rate issues are outside the scope of BPA's authority, and in
each case the policy's inclusion is being pre-determined
without any regional discussion and outside the lawful rate-
setting process.
DOE appears focused on one-size-fits-all solutions,
rather than deferring to regionally-derived (and less
expensive) alternatives. Just as the Northwest Power Pool is
reviewing and implementing tools to better address energy
imbalances resulting from intermittent renewable generation,
the DOE memo implies a mandate for a West-wide, market-based
``solution.''

Cost Concerns
BPA, with its lower-cost power supply and legally mandated
provision of cost-based rates, has been an important economic engine
for the Northwest. The DOE memorandum ignores the legal requirements
for cost-based rates, and may lead to additional costs on BPA customers
without providing corresponding benefits, and also risks sacrificing
the low-cost rates that have been a lifeline for the Northwest economy:
The memo suggests various initiatives--like a West-
wide energy imbalance market--that appear to decide on a policy
approach irrespective of cost. BPA should focus on the least-
cost means of achieving policy objectives that fall within its
statutory authority.
BPA is told to provide ``incentives''--payments in
excess of costs--in redesigning its rates to achieve various
policy goals.
The important rate design issue of ``cost
causation''--costs are paid by the parties that cause the
action--is repeatedly ignored. Instead, BPA appears to be
directed to pursue policy objectives that would impose costs on
BPA ratepayers without providing offsetting benefits.

Conclusion
While the broad policy goals of the memorandum may be laudable, DOE
appears to be unconcerned that its policy goals may be moving BPA in a
direction that is outside the agency's statutory mission, increases
FERC jurisdiction and reduces regional oversight, and imposes
unwarranted costs on Northwest ratepayers.