[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
AMERICAN ENERGY SECURITY AND INNOVATION: THE ROLE OF A DIVERSE
ELECTRICITY
GENERATION PORTFOLIO
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY AND POWER
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
MARCH 5, 2013
__________
Serial No. 113-12
Printed for the use of the Committee on Energy and Commerce
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
RALPH M. HALL, Texas HENRY A. WAXMAN, California
JOE BARTON, Texas Ranking Member
Chairman Emeritus JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
TIM MURPHY, Pennsylvania GENE GREEN, Texas
MICHAEL C. BURGESS, Texas DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee LOIS CAPPS, California
Vice Chairman MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi JOHN BARROW, Georgia
LEONARD LANCE, New Jersey DORIS O. MATSUI, California
BILL CASSIDY, Louisiana DONNA M. CHRISTENSEN, Virgin
BRETT GUTHRIE, Kentucky Islands
PETE OLSON, Texas KATHY CASTOR, Florida
DAVID B. McKINLEY, West Virginia JOHN P. SARBANES, Maryland
CORY GARDNER, Colorado JERRY McNERNEY, California
MIKE POMPEO, Kansas BRUCE L. BRALEY, Iowa
ADAM KINZINGER, Illinois PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida PAUL TONKO, New York
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
Subcommittee on Energy and Power
ED WHITFIELD, Kentucky
Chairman
STEVE SCALISE, Louisiana BOBBY L. RUSH, Illinois
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois JERRY McNERNEY, California
JOSEPH R. PITTS, Pennsylvania PAUL TONKO, New York
LEE TERRY, Nebraska EDWARD J. MARKEY, Massachusetts
MICHAEL C. BURGESS, Texas ELIOT L. ENGEL, New York
ROBERT E. LATTA, Ohio GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington LOIS CAPPS, California
BILL CASSIDY, Louisiana MICHAEL F. DOYLE, Pennsylvania
PETE OLSON, Texas JOHN BARROW, Georgia
DAVID B. McKINLEY, West Virginia DORIS O. MATSUI, California
CORY GARDNER, Colorado DONNA M. CHRISTENSEN, Virgin
MIKE POMPEO, Kansas Islands
ADAM KINZINGER, Illinois KATHY CASTOR, Florida
H. MORGAN GRIFFITH, Virginia JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California (ex
FRED UPTON, Michigan (ex officio) officio)
C O N T E N T S
----------
Page
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 1
Prepared statement........................................... 3
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 4
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 5
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 6
Prepared statement........................................... 8
Witnesses
Mark C. McCullough, Executive Vice President, Generation,
American Electric Power........................................ 10
Prepared statement........................................... 12
William M. Mohl, President, Entergy Wholesale Commodities........ 33
Prepared statement........................................... 35
Benjamin G.S. Fowke, III, President and CEO, Xcel Energy......... 45
Prepared statement........................................... 47
Marc S. Gerken, PE, President and CEO, American Municipal Power,
Inc............................................................ 50
Prepared statement........................................... 52
Robert Gramlich, Interim Chief Executive Officer, American Wind
Energy Association............................................. 76
Prepared statement........................................... 78
Answers to submitted questions............................... 125
John C. McClure, Vice President, Government Affairs, and General
Counsel, Nebraska Public Power District........................ 82
Prepared statement........................................... 84
Submitted Material
Statement of the American Public Power Association, submitted by
Mr. Whitfield.................................................. 111
Statement of the American Chemistry Council, submitted by Mr.
Whitfield...................................................... 115
Article entitled, ``California Girds for Electricity Woes,'' Wall
Street Journal, February 26, 2013, submitted by Mr. Whitfield.. 117
Article entitled, ``In New England, a Natural Gas Trap,'' The New
York Times, February 15, 2013, submitted by Mr. Whitfield...... 119
Charts on Virgin Islands, submitted by Ms. Christensen........... 122
Map of fuel diversity regions.................................... 124
AMERICAN ENERGY SECURITY AND
INNOVATION: THE ROLE OF A DIVERSE ELECTRICITY GENERATION PORTFOLIO
----------
TUESDAY, MARCH 5, 2013
House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:04 a.m., in
room 2322 of the Rayburn House Office Building, Hon. Ed
Whitfield (chairman of the subcommittee) presiding.
Members present: Representatives Whitfield, Scalise,
Shimkus, Pitts, Terry, Latta, Cassidy, Olson, McKinley,
Gardner, Pompeo, Kinzinger, Griffith, Barton, Rush, McNerney,
Green, Doyle, Barrow, Christensen, and Waxman (ex officio).
Staff present: Nick Abraham, Legislative Clerk; Charlotte
Baker, Press Secretary; Allison Busbee, Policy Coordinator,
Energy and Power, Annie Caputo, Professional Staff Member;
Patrick Currier, Counsel, Energy and Power; Andy Duberstein,
Deputy Press Secretary; Tom Hassenboehler, Chief Counsel,
Energy and Power; Heidi King, Chief Economist; Ben Lieberman,
Counsel, Energy and Power; David McCarthy, Chief Counsel,
Environment and the Economy; Mary Neumayr, Senior Energy
Counsel; Chris Sarley, Policy Coordinator, Environment and the
Economy; Tom Wilbur, Digital Information Technology; Jeff
Baran, Democratic Senior Counsel; Greg Dotson, Democratic Staff
Director, Energy and Environment; Kristina Friedman, Democratic
EPA Detailee; and Caitlin Haberman, Democratic Policy Analyst.
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. I would like to call the hearing to order
this morning, and certainly want to thank our witnesses for
being with us, and after opening statements, of course, I will
be introducing each one of you. We certainly look forward to
your testimony.
At today's hearing, we are going to be focusing on the role
of a diverse source of fuel for electricity generation. We
frequently all hear a vocal chorus about the need for ``all of
the above'' to meet our Nation's demand for electricity at an
affordable cost so that we can be competitive in the global
marketplace, create a strong economy, and create jobs.
But I think it is also important that we be realistic, and
we know that there are people in the administration, that are
political leaders around the country, that there are national
and international environmental groups, that there are
nonprofit groups and others who really do have a desire to stop
the use of fossil fuel and production of electricity. Just
yesterday, for example, Mayor Michael Bloomberg of New York--
and I didn't say this, but the article said that he was
gleefully writing the obituary for coal, and he was quoted as
saying ``It used to be said that coal is king, and regrettably,
coal remains king in Nations like India and China.'' But then
he went on to say ''Here in the United States, I am happy to
say that the king is dead. Coal is a dead man walking.''
Now, the mayor says that he supports natural gas, but he
gives millions of dollars to groups that want to reduce the use
of hydraulic fracturing. And of course, he made his money and
he can spend his money any way that he wants to, but I think it
is important that we have a national discussion about the
reality of trying to eliminate fossil fuel as a source for
electricity generation.
Robert Mann, the Sierra Club President, was quoted as
saying ``Fossil fuels have no part in America's energy future.
Coal, oil, and natural gas are poisoning us. The emergence of
natural gas as a significant of our energy mix is particularly
frightening, because it dangerously postpones investment in
clean energy at a time when we should be doubling down on wind,
solar, and energy efficiency.''
The EPA, without question, has established an unmistakable
trend line. Coal is being taken out of the national fuel mix
and EPA is methodically establishing a regulatory framework to
dramatically reduce fossil fuel use throughout the economy.
EPA's regulatory framework is taking fuel choice decisions away
from the private sector, while it bases those decisions on a
single determinate, the environment, climate change, so forth,
but ignoring equally important national goals and energy
security, economic growth, lower consumer costs, and electric
reliability, I believe, will lead to serious problems in
America. In fact, we already see signs of it. A few days ago,
there was an article--which I have a copy here--that said
``California is weighing how to avoid a looming electricity
crisis that could be brought on by its growing reliance on wind
and solar power. Even though California has a lot of plants, it
does not have the right mix. Many of the solar and wind sources
added in recent years have actually made the system more
fragile.'' Those are not my words, those are the words of the
author. And then in the New York Times, ``Electricity prices in
New England have been four to eight times higher than normal as
the region's reliance on natural gas for power supplies has
collided with a surge in demand for heating.''
This is a little harbinger of things to come. The Northeast
is littered with coal plants that have been retired. Gas
pipeline capacity is inadequate, and without nuclear power
plant at Indian Point, New England would have been toast. And
then we have the energy bill 2007 that prohibits the use of
fossil fuel for providing electricity to government buildings
new and modified by the year 2030. We have greenhouse gas
regulations that will not allow you to build a new coal-powered
plant in America if they are finalized, and now they are
thinking about applying that to existing.
So I think this hearing is a great place to have an honest
discussion about the reality of trying to meet the electrical
needs of America without fossil fuels, nuclear power, and those
fuels that provide our base load needs. I, for one, believe we
do need all of the above, but I think that it is wrong that
people in America and groups in America are trying to
absolutely stop the use of fossil fuels.
I see my time is expired. At this time, I recognize the
gentleman from Illinois, Mr. Rush, for his opening statement.
[The prepared statement of Mr. Whitfield follows:]
Prepared statement of Hon. Ed Whitfield
American electricity is like the American people--our
strength is in our diversity. And that is the topic of
discussion for today's hearing, which is entitled ``American
Energy Security and Innovation: The Role of aDiverse
Electricity Generation Portfolio.''
Americans are fortunate to have a variety of electricity
sourcesavailable to us. Each source brings its own unique mix
of assets and liabilities. Some are inexpensive, while others
are not. Some are reliably available 24 hours a day and seven
days a week and ideal for baseload power, while others are not.
Some can be quickly ramped up or down to match quick changes in
demand, while others cannot. Some can be located almost
anywhere, while others are geographically limited. Some can be
easily integrated into the existing electric grid, while others
would necessitate costly new infrastructure investments.
As a result, there is no one ideal means of generating
electricity. The best approach for affordability and
reliability is a broad mix of generation sources, be it coal,
natural gas, nuclear, or renewables. Each source can serve a
purpose in the electricity mix, and each has strengths that can
compensate for the other's weaknesses. And the best way to
strike the right balance is through market forces--not
government mandates or other market distorting policies.
Of course, Washington State is not Kentucky, and Kentucky
is not Texas. The best generation mix will vary significantly
from region to region, which is why Congress needs to be
cautious about imposing onesize- fits-all measures such as
federal renewable portfolio standards, and the EPA should be
considering the impacts of its regulations on fuel diversity,
especially as it relates to baseload power.
The ideal electricity mix will also vary over time. That is
why we need the flexibility to allow the mix to change with the
times and with the inevitable fluctuations in the price of
various electricity sources. This is becoming increasingly
important as EPA regulations limit the options of resources and
technologies available for utilities.
The best way to deal with the electricity challenges of
today and tomorrow is to expand the options available, not to
reduce them. That is why I believe that EPA's regulatory
assault on coal is bad policy. Coal is the leading source of
electricity generation in the U.S., and it certainly remains
the fastest-growing source of energy for China and many of our
other global competitors. We gain nothing when we foreclose the
option of new coal-fired generation by regulating it out of
existence.
Government should not tilt the playing field against coal,
nor should it tilt it in favor of other sources like wind and
solar. The reality is that these non-hydro renewables are
neither cheap nor reliable at the present time, which is why
they are so heavily reliant on federal subsidies. The
government should not be intervening on behalf of wind and
solar or any other fuel source for that matter. Sound energy
planningmeans that you don't rely on one energy source, in
essence putting all of your eggs into one basket.
Federal policies should encourage an all-of-the-above
approach to electricity production that takes advantage of all
affordable domestic energy resources. Rather than pursuing
policies that could limit the diversity of energy resources,
the U.S. instead should be pursuing opportunities to transition
to the most advanced generation fleet in the world, inclusive
of all affordable and reliable resources and technologies.
# # #
OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. I want to thank you, Mr. Chairman, for holding
today's hearing, and Mr. Chairman, I commend you for allowing
the Minority side to invite witnesses who have had success in
renewables so that today's panel actually reflects the title of
this hearing, and we are hearing from a diverse energy source
base, besides just coal and nuclear.
Mr. Chairman, I believe in a truly ``all of the above''
energy policy, and fortunately, Mr. Chairman, we are indeed
seeing more diversity in the Nation's electric generation
portfolio, as we move towards more natural gas and renewable
energy and away from our heavy reliance on carbon-intensive
coal.
In 1993, Mr. Chairman, coal was responsible for 50 percent
of the electric generation in the U.S., while natural gas
accounted for less than 15 percent. However, the Energy
Information Agency reports that in 2012, there was indeed a
shift in electricity generation away from coal-fired
generation, which declined by 12.5 percent, and towards cleaner
sources of electricity, including natural gas, which increased
by 21 percent, wind generation, which increased by 16 percent,
and solar generation, which increased by over 138 percent in
just a single year. Mr. Chairman, due to this shift in 2012,
coal accounted for 37 percent of the Nation's electric
generation. Natural gas accounted for 30 percent. Nineteen
percent came from nuclear, and 12 percent of the Nation's
electric portfolio came from renewable sources, including
solar, hydropower, and wind. In fact, Mr. Chairman, the wind
industry experienced rapid growth in 2012, and for the first
time, wind was responsible for the largest increase of adding
capacity, with 12,600 megawatts of added generation. Wind power
is very important to my home State of Illinois, and in fact,
there are up to 13 international wind companies headquartered
in the city of Chicago alone. So I am very pleased to have
witnesses here today who can discuss the importance of
investing in renewable sources of energy, whose costs continue
to fall and capacity continues to rise.
Mr. Chairman, the EIA also notes that U.S. energy-related
combustion emissions was expected to decrease by 3.4 percent in
2012 to the lowest levels since 1994. This is as a result of
the increased use of renewable energy, the transition from coal
to natural gas, and also due to the slow economic growth. While
energy-related carbon emissions have declined 11.5 percent
since 2005, they are still 5.4 percent above 1990 levels, and
Mr. Chairman, without significant policy action, the EIA
expects U.S. carbon pollution emissions to increase by 6
percent between 2012 and 2020.
This is precisely why the new source performance standards
are so very, very critically important. These standards, which
are mandated by law, will require new facilities to install the
best demonstrating technologies while also taking into account
cost and allowing States to show flexibility. Implementing
these proposed standards will ensure that the power generation
industry has regulatory certainty and will avoid penalizing
companies who have made significant investments into their
future, while not allowing the can to constantly be kicked down
the road.
So Mr. Chairman, I look forward to today's hearing, and I
look forward to the challenges and opportunities that are
before us of maintaining fuel diversity in the Nation's
electricity generation portfolio. With that, I yield back the
balance of my time.
Mr. Whitfield. Thank you, Mr. Rush.
At this time, I recognize the gentleman from Texas, Mr.
Barton, for 5 minutes.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Mr. Chairman. I won't use that
entire time.
I have served in Congress and on this committee for over a
quarter of a century, and when I first got elected, we had
wellhead prices on natural gas, we had the Fuel Use Act that
said you couldn't use natural gas for new power plant
electricity generation. The general economic model was that
electricity generation was a natural monopoly and had to be
regulated very heavily at the State and federal level. That has
evolved in the last 25 years, and we are now at a point where
we still allow States that wish to, to regulate their
electricity markets, but we also accept that a true market can
function, and in Texas, we have deregulated the wholesale
generation of electricity. We still regulate the wholesale
transmission and the retail distribution, but we have a
thriving wholesale generation market in which we have power
plants, independent power plants that are owned by companies
all over America generating and selling electricity. We also
have the largest wind generation capacity in the country, and
as a consequence of that, with the subsidies that we have been
providing to wind power, which I support to some extent, have
had the situation where wind generators have priced their
product negatively into the market simply to get the subsidy to
keep their wind turbines turning.
So economic theory for electricity generation is a big
deal, and we have an excellent panel today to discuss where it
is today. I look forward to hearing that, and now would like to
yield 1 minute to Mr. Scalise of Louisiana.
Mr. Scalise. I want to thank my colleague from Texas for
yielding, and first, before we talk a little bit about ``all of
the above'' energy, I want to welcome Mr. Mohl for being here,
speaking on behalf of Energy Wholesale Commodities, which is a
Fortune 500 company based in Louisiana. We are proud to have
them there. Appreciate the work you are doing in nuclear power
specifically, which you are going to be talking about, I
believe, today.
You know, when we talk about ``all of the above,'' what we
mean is truly all of the different sources of energy, and when
you look at the portfolio that this country uses today, the
things that actually run America, that help us not only enjoy
our daily lives and increase our standard of living, but also
to produce things. If we are going to be able to be a
manufacturing country and actually create jobs here, it is
going to take energy to do it, and under the current breakdown
we have today, roughly 87 percent of the electricity that is
generated in this country comes from coal, from nuclear power,
and from natural gas, and unfortunately, all three are under
attack by this administration. The war on coal has been duly
noted, you know, you see so much coal being exported because
you can't even use it in this country today, yet it represents
over 37 percent of the electricity that is generated. How you
can continue to enjoy the standard of living we have as a
country today when the administration is attacking 37 percent
of that resource, and then in addition, it is all of the other
things that are produced in this country. You can't just do it
on wind and solar. We support the advancement of those
technologies, but when 87 percent of your electricity comes
from the other sources and you are going after them, that is
truly the government picking winners and losers and ultimately,
the losers are families who are paying higher electricity costs
when this kind of policy goes into effect.
So we are going to continue to push an ``all of the above''
energy strategy. It is not only good for America, it helps
families and it helps the ability for our economy to create
jobs and compete. So I appreciate all the panelists today,
especially you, Mr. Mohl, for what you have to say as well, and
with that, I would yield back to my colleague from Texas, Mr.
Barton.
Mr. Barton. I am going to yield the remaining time to Mr.
Shimkus of Illinois.
Mr. Shimkus. Thank you, Joe, for giving me the time.
The ``all of the above'' should be all of the above. I
think my friend, Mr. Scalise, said it well.
You know, the State of Illinois is a 50 percent nuclear, 50
percent coal, so we have the benefits, but we are both being, I
think, disenfranchised in both those generating sectors.
Natural gas, there is going to be a big natural gas plant in my
State. It is going to be very, very helpful, but that commodity
product is going to go where that commodity product can be
used. I will just end with high electricity prices hurt
everybody. They hurt jobs and the economy, they hurt the poor
rural folks, expensive gas and the like, so an ``all of the
above'' strategy should be a lower cost fuel for everybody,
whether electricity generation or liquid transportation fuels.
Thank you, Joe, and I yield back.
Mr. Barton. Yield back, Mr. Chairman.
Mr. Whitfield. Thank you.
At this time, I recognize the gentleman from California,
Mr. Waxman, for 5 minutes.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you very much, Mr. Chairman.
Today the subcommittee is going to look at the electric
utility industry and America's evolving electricity generation
portfolio. There is no question that a significant transition
is underway, and today's hearing is the first in a series.
Cheap natural gas is also helpting to transform our
electricity sector. This market reality is driving a shift away
from the use of polluting coal to generate electricity. Even
boosters of coal acknowledge that it is not cost effective to
build new coal plants today.
State and federal renewable energy policies are paying off.
We have doubled our capacity to generate renewable electricity
from wind and solar in just 4 years. This has cut pollution and
invigorated clean energy manufacturing. The cost of renewable
energy is rapidly declining. Wind power is already cost
competitive with fossil fuel generation in some parts of the
country. Last year, for the first time, wind power added more
electricity generation capacity than any other resources.
Nearly half of all new generation capacity came from wind.
These changes are positive developments, but we will hear
today that controlling carbon pollution would reduce the
diversity and resilience of our energy supply.
I have exactly the opposite view. In this committee, we
like to pretend that there is no connection between how we
generate our energy and climate change. But the fact is,
climate change is the biggest energy challenge we face as a
country. We can't have a conversation about America's energy
policy without also having a conversation about climate change.
In November, the International Energy Agency concluded that
if the world does not take action to reduce carbon pollution
before 2017, that it will be impossible to prevent the worst
effects of climate change because of the carbon dioxide
emissions that would be locked in by the energy infrastructure
existing at that time.
That means the energy policy decisions that we make today
will have a real and direct impact on whether we can prevent
the worst impacts of climate change in the future. Every
decision to build a new fossil fuel-fired power plant poses
climate risks. We need to understand and weigh those risks.
Otherwise, we are going to be locking in infrastructure
that will produce carbon pollution for decades to come, or
creating stranded investments that must be shut down before
they have served their useful life.
Ideally, this committee would listen to the scientific
experts and enact a responsible energy policy that recognizes
the reality of climate change. But as the President said in his
State of the Union Address, he will act if we don't. EPA's
proposed carbon pollution standard for new power plants is a
good first step. It is a fuel-neutral standard that requires
new plants to keep their pollution below a specified level.
The proposed standard provides compliance flexibility and
incentives for the deployment of carbon capture and
sequestration technologies. Both natural gas and clean coal can
meet this standard, which creates a level playing field for
fossil fuel-fired generation.
Some utilities don't like this proposed rule. The question
we should ask them is how can they reconcile unrestrained and
ever-increasing carbon pollution with the scientific reality of
climate change?
I am glad we are providing a forum to hear from the
electric utilities today. I know we are going to have a second
hearing to hear from federal and State electricity regulators.
That will help us get another valuable perspective on the
issues facing the electricity sector.
But we also need to hear from the scientists who can
explain to us why EPA should take action to address climate
change. Chairman Whitfield, I would like to make a request at
this time that you schedule such a hearing as a third in this
series to ensure that the subcommittee hears all sides of the
issue.
If you want an ``all of the above'' portfolio, well, we
have got to have policies that will encourage alternatives to
fossil fuels. And by denying the tax breaks for wind and solar
energy, by subsidizing oil, by ignoring the full consequences
of fossil fuels and the impact they have and the cost they have
on public health and the environment, we are not giving a level
playing field. We are skewing our policies to more fossil fuel
pollution that will cost us in the climate problems for years
to come.
I yield back my time.
[The prepared statement of Mr. Waxman follows:]
Prepared statement of Hon. Henry A. Waxman
Today, the Subcommittee is going to look at the electric
utility industry and America's evolving electricity generation
portfolio. There is no question that a significant transition
is underway and today's hearing is the first in a series.
Cheap natural gas is also helping to transform our
electricity sector. This market reality is driving a shift away
from the use of polluting coal to generate electricity. Even
boosters of coal acknowledge that it is not cost-effective to
build new coal plants today.
State and federal renewable energy policies are paying off.
We have doubled our capacity to generate renewable electricity
from wind and solar in just four years. This has cut pollution
and invigorated clean energy manufacturing. The cost of
renewable energy is rapidly declining. Wind power is already
cost competitive with fossil fuel generation in some parts of
the country. Last year, for the first time, wind power added
more electricity generation capacity than any other resource.
Nearly half of all new generation capacity came from wind.
These changes are positive developments, but we will hear
today that controlling carbon pollution would reduce the
diversity and resilience of our energy supply.
I have exactly the opposite view. In this Committee, we
like to pretend that there is no connection between how we
generate our energy and climate change. But the fact is,
climate change is the biggest energy challenge we face as a
country. We can't have a conversation about America's energy
policy without also having a conversation about climate change.
In November, the International Energy Agency concluded that
if the world does not take action to reduce carbon pollution
before 2017, then it will be impossible to prevent the worst
effects of climate change because of the carbon dioxide
emissions that would be locked-in by energy infrastructure
existing at that time.
That means that the energy policy decisions that we make
today will have a real and direct impact on whether we can
prevent the worst impacts of climate change in the future.
Every decision to build a new fossil fuel-fired power plant
poses climate risks. We need to understand and weigh those
risks.
Otherwise, we are going to be locking in infrastructure
that will produce carbon pollution for decades to come or
creating stranded investments that must be shut down before
they have served their useful life.
Ideally, this Committee would listen to the scientific
experts and enact a responsible energy policy that recognizes
the reality of climate change. But as the President said in his
State of the Union Address, he will act if we don't. EPA's
proposed carbon pollution standard for new power plants is a
good first step. It is a fuel-neutral standard that requires
new plants to keep their pollution below a specified level.
The proposed standard provides compliance flexibility and
incentives for the deployment of carbon capture and
sequestration technologies. Both natural gas and clean coal can
meet this standard, which creates a level playing field for
fossil fuel-fired generation.
Some utilities don't like this proposed rule. The question
we should ask them is how they can reconcile unrestrained and
ever-increasing carbon pollution with the scientific reality of
climate change.
I am glad we are providing a forum to electric utilities
today. I know we're going to have a second hearing to hear from
federal and state electricity regulators. That will help us get
another valuable perspective on the issues facing the
electricity sector.
But we also need to hear from the scientists who can
explain to us why EPA should take action to address climate
change. Chairman Whitfield, I would like to make a request at
this time that you schedule such a hearing as the third in this
series to ensure that the Subcommittee hears all sides of the
issue.
If you want an all-of-the-above portfolio, we've got to
have policies that will encourage alternatives to fossil fuels.
And by denying the tax breaks for wind and solar energy, by
subsidizing oil, by ignoring the full consequences of fossil
fuels and the impact they have and the cost they have on public
health and the environment, we are not giving a level playing
field. We are skewing our policies to more fossil fuel
pollution that will cost us in the climate problems for years
to come.
I yield back my time.
Mr. Whitfield. Thank you very much.
At this time, I would like to introduce our witnesses. We
have a distinguished panel of witnesses. I am going to
introduce all of them except for one, and then I am going to
call on----
Mr. Waxman. Mr. Chairman, may I just comment that I wish I
could stay here to hear all the witnesses. I did get a chance
to review your testimony, but we have several subcommittees
meeting at the same time, so I will be back and forth.
Mr. Whitfield. OK, thank you.
First of all, we have Mr. Mark McCullough, who is the
Executive Vice President, Generation, at American Electric
Power. We have Mr. William Mohl, who is the President of the
Energy Wholesale Commodities that Mr. Scalise referred to. We
have Mr. Benjamin Fowke, who is President and CEO, Xcel Energy.
We have Mr. Marc Gerken, President and CEO, American Municipal
Power. We have Mr. Robert Gramlich, who is the Interim Chief
Executive Officer of the American Wind Energy Association.
At this time, I would like to recognize the gentleman from
Nebraska, Mr. Terry, for the introduction of our last witness.
Mr. Terry. Thank you. I want to introduce someone I
consider a friend, and I pick his brain on electrical
generation issues as they come up, and that is John from
Nebraska Power, John McClure, Nebraska Public Power District.
He is the VP and General Counsel of Nebraska Public Power, a
very diverse energy group. I yield back.
Mr. Whitfield. That was a wonderful introduction, Mr.
Terry. Thank you.
Once again, welcome to all of you. I am going to call on
you and each of you will be given 5 minutes. There is a little
box on the table that will turn red when your time is up, and
obviously, we will let you go over a little bit, maybe, but not
too far. But Mr. McCullough, thanks for being here, and we look
forward to your testimony.
STATEMENTS OF MARK C. MCCULLOUGH, EXECUTIVE VICE PRESIDENT,
GENERATION, AMERICAN ELECTRIC POWER; WILLIAM M. MOHL,
PRESIDENT, ENTERGY WHOLESALE COMMODITIES; BENJAMIN G.S. FOWKE,
III, PRESIDENT AND CEO, XCEL ENERGY; MARC S. GERKEN, PE,
PRESIDENT AND CEO, AMERICAN MUNICIPAL POWER, INC.; ROBERT
GRAMLICH, INTERIM CHIEF EXECUTIVE OFFICER, AMERICAN WIND ENERGY
ASSOCIATION; AND JOHN C. MCCLURE, VICE PRESIDENT, GOVERNMENT
AFFAIRS, AND GENERAL COUNSEL, NEBRASKA PUBLIC POWER DISTRICT
STATEMENT OF MARK C. MCCULLOUGH
Mr. McCullough. Good morning, Chairman Whitfield, Ranking
Member Rush, and distinguished members of the Subcommittee on
energy and Power. Thank you for inviting me here today, and for
this opportunity to offer the views of American Electric Power
on this very critical issue. We applaud your efforts to examine
energy diversity, and are encouraged that you have identified
the importance of innovative technology as part of the
solution.
AEP has long been an industry leader in technology
development and fuel diversity planning, which has led to
dramatic improvements in the reliable, efficient, and clean
production and delivery of our product. Recent AEP initiatives
include Mountaineer Plant's 2009 startup of the world's first
carbon capture and storage demonstration at a coal power plant,
and the commissioning of an ultra-supercritical John W. Turk
coal power plant, one of the world's most efficient coal power
plants. AEP has also demonstrated industry leading technologies
in energy efficiency and grid intelligence.
Energy diversity plays an important role in reducing the
potential exposure of our company and our customers to major
fluctuations in markets, costs, regulations, and electric
demand. This allows for the use of the lowest cost resources
possible while enabling rapid response to demand changes.
However, policies that could prevent the construction of new
base load generating units or force the retirement of existing
capacity could lead to significant shifts to this balanced
energy mix and reduce capacity diversity.
For example, the proposed CO2 NSPS for new
sources effectively prohibits the construction of any new coal-
fired power plant because of a lack of commercially available
CO2 control technology. Due to these regulations, as
well as numerous other challenges facing nuclear energy, our
Nation's electric grid will become increasingly reliant on a
single fuel for new base load generation capacity, likely
eliminating both diversity and flexibility in new power plant
builds. Federal policy should support fuel diversity, not
preclude it.
The importance of fuel diversity cannot be overstated
given. Too great a reliance upon any one energy source creates
a significant risk of exposure to electricity price spikes and
supply disruptions. Among other benefits, coal and nuclear
plants buffer against fuel supply disruptions because they can
inventory months of fuel on site, a fundamental value to any
energy security solution with national security benefits.
Over the past 12 years, AEP has added more than 5,000
megawatts of natural gas fuel diversity, enabling our company
to switch between fuel sources based on price fluctuations.
While we recognize the value that natural gas brings to the
diversity equation, AEP is concerned that a prolonged ``dash''
to gas will lead to over reliance on one fuel and have adverse
consequences for the balance and diversity of the power sector
and the economy.
With the current low cost of natural gas, coal, and
uranium, now is the ideal time to look to the future and adjust
the focus of technology development to truly innovative,
revolutionary paradigms for energy conversion and use. We
support commercialization of Small Modular Reactor, or SMR,
technology for the next generation of nuclear power. For fossil
fuels, the United States must invest in technologies that show
promise of a step change move of the needle regarding cost,
fuel efficiency, and environmental performance. With success,
technologies like chemical looping and other new revolutionary
technologies will enable our next generation of power plants to
use coal with extremely high efficiency and ultra-low
emissions, while producing a pure stream of CO2 with
no added energy penalty. These technologies can open a vast,
yet untapped, oil reserves in this country to enhanced oil
recovery production by making enormous quantities of low-cost
CO2 available for EOR purposes, bringing an even
higher level of energy security.
However, these technology innovations require attention now
to enable industry to overcome the high cost of
commercialization. Encouragingly, as stated in the CURC-EPRI
Technology Roadmap, the necessary funding to develop and
commercialize these concepts is not beyond the levels invested
in recent years with DOE's Fossil Energy clean coal programs.
This funding just needs to be focused on the proper
technologies. Similarly, SMR development could address nuclear
risk that prevents its broad deployment today.
In summary, AEP urges the development of federal polices
that promote fuel diversity to use gas, coal, nuclear, and
renewable energy in revolutionary ways that minimize volatility
and environmental impacts, while increasing energy efficiency.
This not only addresses energy and economic security in the
U.S., but brings technology solutions to the globe, where real
emission impacts can be realized. It is important, as U.S. is
now less than 12 percent of global carbon emissions and is
getting less every year.
Thank you, chairman and members, for the opportunity to
participate in this important hearing.
[The prepared statement of Mr. McCullough follows:]
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Mr. Whitfield. Thank you, Mr. McCullough, and now Mr. Mohl,
you are recognized for 5 minutes.
STATEMENT OF WILLIAM M. MOHL
Mr. Mohl. Good morning, Chairman Whitfield, Ranking Member
Rush, Vice Chairman Scalise, and members of the committee. My
name is William Mohl and I am the President of Entergy
Wholesale Commodities. I appreciate the opportunity to discuss
the importance of nuclear generation to a diverse electricity
generation portfolio. My company's view and my personal
perspective is that all fuel sources have something to offer,
and a diverse portfolio is key to a reliable electric grid.
This general approach to national energy policy is consistent
with the supply planning principles of many electric utilities
where generation portfolio decisions reflect the consideration
of numerous factors and numerous risks.
Entergy is one of the largest nuclear operators in the
United States. We currently operate 11 nuclear power facilities
in New York, Vermont, Michigan, Massachusetts, Arkansas,
Louisiana, and Mississippi. Entergy was the first U.S. utility
to voluntarily stabilize greenhouse gas emissions, and has
earned local, national, and international recognition for its
leadership on a wide range of issues, including those related
to environmental policy and corporate governance.
Nuclear plants are an essential part of this Nation's
energy portfolio. Regional electric grids require a mix of base
load, load-following, and peaking facilities. While each
regional electric system has its own unique characteristics, in
general, coal and nuclear plants have long supplied base load
power, while natural gas-fired units have been used as the
predominant source of load-following and peaking capacity.
There are 103 operating nuclear power plants in the United
States, generating approximately 20 percent of the Nation's
electricity. Those nuclear plants operate as base load, high
capacity factor units that power and help stabilize the
electric grid in or near many major American cities. Throughout
the Nation, nuclear generators help keep wholesale electricity
prices lower than they otherwise would be.
A simple way of looking at the economic value of the
existing nuclear generation fleet is to consider the potential
cost of replacing it. Using data from the Energy Information
Administration, we have calculated that replacing the 100,000
megawatts of nuclear capacity with new combined cycle
technology gas plants would cost more than $110 billion. To put
that number in perspective, in 2011, American utilities
invested slightly more than $30 billion in transmission and
distribution facilities, less than 1/3 of the nuclear for
combined cycle replacement cost. Moreover, this replacement
cost estimate does not include any costs of expanding pipeline
capacity to serve new gas-fired plants. The adequacy of
pipeline capacity is a key consideration, as was recently
demonstrated in New England.
Nuclear power is also a crucial contributor to maintaining
America's air quality. Nuclear generation produces virtually no
carbon emissions. Since 1995, nuclear plants in the U.S. have
prevented the release of over 11 billion metric tons of carbon
dioxide into the atmosphere. As reliable sources of base load
generation, nuclear plants provide a foundation in the power
supply portfolio to support emerging wind and solar power
projects, which are characterized by intermittent availability.
Safe operation of our facilities is our top priority.
Entergy has made capital investments of more than $300 million
to upgrade safety and security systems at its Northeast and
Midwest merchant nuclear plants. We ensure safety and security
through a defense-in-depth approach that integrates constant
training, robust design, multiple layers of redundant safety
systems, comprehensive plant security, and detailed emergency
planning.
We believe the fuel diversity, economic, reliability, and
environmental benefits of nuclear power are clear, but every
source of energy has advantages and disadvantages. The bottom
line is that America needs a balanced portfolio that includes
all existing generation technologies while continuing to focus
on the development of new technologies for power supply
resources. Nuclear plants are a critical part of that diverse
portfolio and provide critical reliability, economic, and
emissions benefits to the United States. To preserve those
benefits for the public, we have to maintain our primary focus
on safety while engaging with policy makers, and especially
regulators, to ensure that market rules foster open competition
and that regulation is rational and evidence-based.
Thank you for the opportunity to testify today. I look
forward to answering your questions.
[The prepared statement of Mr. Mohl follows:]
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Mr. Whitfield. Thank you, Mr. Mohl.
Mr. Fowke, you are recognized for 5 minutes.
STATEMENT OF BENJAMIN G.S. FOWKE, III
Mr. Fowke. Thank you, Chairman Whitfield, Ranking Member
Rush, and members of the subcommittee for the opportunity to
testify at today's hearing. My name is Ben Fowke, and I am
Chairman, President, and Chief Executive Officer of Xcel
Energy. We are a public utility holding company headquartered
in Minneapolis, Minnesota. We serve 3.4 million electric
customers and 1.9 million gas customers in eight States
throughout the upper Midwest, Colorado, panhandle of Texas, and
New Mexico.
The topic of today's hearing could not be more important at
this critical juncture for the energy sector. We all share the
goal of satisfying the country's growing energy demands in the
least expensive, most reliable, and cleanest way possible. Xcel
Energy has been successful in pursuing a strategy that has
reduced customer risk and promoted clean energy while
maintaining reliable service at a competitive price. Fuel
diversity is an important part of that strategy. Our system is
a strong example of an ``all of the above'' strategy.
Xcel Energy owns a power generation fleet that includes
more than 17,000 megawatts of electrical capacity from sources
including coal, natural gas, nuclear, wind, hydro, biomass and
solar. We are unique among utilities in our commitment to
renewable energy.
Today, we have about 4,900 megawatts of wind on our system.
We are also leaders in energy efficiency and innovative State
emission reduction and fleet modernization programs.
Our strategy has put us on track to reduce our carbon
dioxide emissions over 20 percent from 2005 levels by 2020. At
the same time, we have been able to maintain power prices at or
below the national average.
We are achieving these remarkable results by maintaining a
robust, diverse system. Although clean energy plays an
important role in our electric system, we do continue to rely
on coal and nuclear power to provide the low-cost base on which
our system depends.
These reliable energy sources have not stood in the way of
our environmental achievements: Our company has been able to
achieve significant emissions reductions despite the recent
addition of Comanche 3, a large coal plant in Colorado. We are
also in the process of extending and uprating our three nuclear
plants for another 20 years of service. Coal and nuclear energy
remain critical to the efficiency and reliability of our
system.
For that reason, we have been proactive in seeing the need
either to invest in coal fleet improvements or to retire and
repower aging coal plants through programs like the Colorado
Clean Air-Clean Jobs Act and the Minnesota Emission Reduction
Program. Like many utilities, we have taken advantage of low
natural gas prices to serve growing customer demand and allow
replacement of aging coal plants. However, because of our
renewable portfolio, we have been able to avoid becoming too
reliant on natural gas. Wind energy acts as a natural hedge
against fuel price risk, reduces our emissions and meets our
customers' interest in clean energy.
In fact, wind is key to our strategy. We recently
contracted for wind power in Colorado at a price that is
competitive with natural gas-fired generation even at today's
low gas prices. As a result, we're now integrating wind at
levels that we never before imagined--up to 57 percent of our
energy in Colorado in the peak hour. Our annual average wind
energy will reach 20 percent this year in Colorado and 14
percent in Minnesota. Now, the integration of these renewables
is manageable, but it is not free. At the penetration rates we
have achieved, and look to expand, our customers bear
increasing costs of ensuring system reliability.
With the help of the wind development community, we are
working to modify federal renewable policy to ensure some
benefits flow directly to utilities responsible for integrating
wind on their systems and, by extension, their customers.
Importantly, these changes, which we call the Customer
Renewable Credit, would constitute just a small fraction of the
current cost of federal incentives flowing to renewable energy.
Much of our diversification strategy results from our long-
standing desire to prepare for federal regulation of carbon
dioxide emissions. Without passing judgment as to the wisdom of
such regulation, we do believe there are principles that should
guide government action in this regard. These principles
include the belief that legislation is better than regulation;
State flexibility is key; and Early Action Credit is essential.
Because future legislation is uncertain, we are preparing for
EPA's regulation of carbon dioxide from existing power plants.
We hope that the EPA will allow States to develop diverse
emission reduction strategies like those that have been
successful in Colorado, Minnesota, and elsewhere.
For my company, it is most critical that carbon dioxide
regulation gives credit to States and energy companies that
have already acted early to address carbon issues. Many
customers are already are paying for clean energy programs and
should be rewarded for having done so.
We believe with these approaches to policy, the Nation can
assure continued diversity of its energy resources and achieve
what Xcel Energy has been working towards in our States for
more than a decade: clean energy and environmental improvement
at a competitive price.
Thank you for the opportunity, and I am happy to take any
questions you may have.
[The prepared statement of Mr. Fowke follows:]
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Mr. Whitfield. Thanks, Mr. Fowke.
Mr. Gerken, you are recognized for 5 minutes.
STATEMENT OF MARC S. GERKEN
Mr. Gerken. Good morning, Chairman Whitfield, Ranking
Member Rush, and the subcommittee members. I am Marc Gerken,
CEO of American Municipal Power, and I am pleased to have the
opportunity to appear before you to discuss the importance of
the electric sector's fuel diversity. My remarks will focus on
the role hydropower can play in these diverse resource
portfolios, and also the challenges that are faced in the
development process.
Ohio-based AMP is a wholesale power supplier and service
provider for 130 municipal electric systems in seven States.
Collectively, AMP serves more than 625,000 meters and has had a
system peak in 2012 of 3,500 megawatts. Last year, AMP had
power sales revenue of about $775 million and total assets of
about $5.5 billion.
AMP is currently constructing four hydro projects on the
Ohio River at existing U.S. Corps of Engineers locks and dams.
These projects total more than 300 megawatts and a $1.6 billion
investment, which represents the largest deployment of new run-
of-the-river hydropower in the country today.
One of our projects is the Smithland project in Chairman
Whitfield's district. Another is the Willow Island project in
Representative McKinley's district. The power from these
projects will benefit our members in districts of dozens of
Members of Congress, including Representatives Griffith, Latta,
and McKinley. Importantly, AMP's projects are resulting in
around 1,200 jobs through a period of 4 years, as well as
contracts with major vendors in over 12 States in this country.
Our hydro projects are part of AMP's overall ``all of the
above'' energy strategy, which embodies the importance of fuel
diversity. AMP works with the nationally recognized firm of
SAIC to develop strategic long-term power supply resource plans
for each one of our members, and that is a key component in our
ability to undertake generation investments, and that our
members are able to take a longer term look at these
investments because they care about the long-term future of
their customers.
AMP has long used the term ``diversified'' to describe our
portfolio, which includes to own, operate, and then purchase
output from natural gas, coal, hydropower, wind, solar, diesel,
and landfill gas generating facilities, as well as strategic
wholesale market purchases and a robust energy efficiency
program. Our projects represent fuel technology and geographic
diversity, and will yield long-term risk-balanced portfolio
with predictable rates.
Run-of-the-river hydro projects are capital-intense, but
have many positive attributes, as I listed on pages 7 and 8 of
my written testimony. I would ask you to look at those, because
I think as a renewable, hydro does set itself apart from wind
and solar when it comes to load dispatch and other things.
Of the more than 80,000 dams in the United States, the more
than 78 gigawatts of hydropower available today are provided by
just 3 percent of these dams. In an April, 2012, report by
DOE's Oak Ridge National lab, found that adding power to the
national non-powered dams has a potential to add 12 gigawatts
of new capacity. Additionally, the National Hydropower
Association job study shows that between 230,000 and 700,000
jobs could be created through the development of new
hydropower.
Despite hydropower's positive attributes, the role as a
diverse energy portfolio in the process from inception to
construction for the new facilities is extremely challenging.
Most developers don't enter the regulatory process with
unreasonable expectations. We understand the need to balance
the environmental protection with development. One of the key
challenges is to keep costs down and stay on schedule, which
makes the regulatory process very critical. Developers must
carefully time the required modeling studies, the site
assessments, because the studies have seasonal and weather
limitations. A hydropower developer must also have significant
capital, millions of dollars for larger projects to cover the
costs through permitting. Of the regulatory process, we found
that the critical path sometimes is strictly the PJM
interconnection, in our case, that could take 24 months and
commonly is filled with delays in that process.
AMP's experience has been--with hydropower projects on non-
powered core dams, key regulatory approvals are FERC license
and the Corp's 404 and 408 permits. Some of these studies
required--are required in the FERC process are repeated in the
Corps process.
In order to obtain a 404 permit, applicants must
demonstrate that the discharge of dredged and fill material
would not significantly impact or degrade the national waters,
and there is no--and also that there is no practical
alternatives to damaging the aquatic environment. Prior to the
issuance of the 404 and 408 permits, approvals must be provided
by the Corps to ensure that the locks and dams are not
compromised. AMP was the first entity required to obtain a 408
permit in lieu of--as well as a 404 permit. We saw considerable
delays. We witnessed delays in financing, which cost us
significant dollars, and we see the need to streamline that
process.
What can be done to improve the process and bring more
hydropower online is to help diversify the national energy
portfolio. AMP is pleased that a bipartisan legislation
sponsored by Representative McMorris Rodgers has been favorably
considered in the House. The Hydropower Regulatory Efficiency
Act will improve the process for smaller hydropower projects
and require study of additional improvements to a broader
scale.
I believe that fuel diversification is paramount to our
Nation's energy security. This includes ensuring that
reliability and affordability are considered in rulemakings,
impacting existing generation resources, and that more
efficient regulatory processes are in place to help facilitate
the development of new infrastructure to meet our Nation's
energy capacity and reliability needs. I commend the
subcommittee for reviewing this topic, and I wish to thank you
very much, and will be happy to respond to questions.
[The prepared statement of Mr. Gerken follows:]
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Mr. Whitfield. Thank you, Mr. Gerken.
Mr. Gramlich, you are recognized for 5 minutes.
STATEMENT OF ROBERT GRAMLICH
Mr. Gramlich. Thank you, Chairman Whitfield, Ranking Member
Rush, members of the subcommittee. I appreciate the opportunity
to be here today to represent the views of the American Wind
Energy industry.
As you have heard today from the electric utilities on the
panel, diversity is a crucial issue for the electric industry.
As you have also heard, when utilities seek to diversify, wind
power is a natural choice. Wind power tends to be the next
least cost source of new electric generation capacity behind
natural gas. It serves as a natural hedge, or insurance policy,
because fuel price risk is zero.
Wind energy production has grown dramatically in the last
decade. Today wind projects in 39 States and Puerto Rico offer
enough energy to power nearly 15 million American homes. At
least 66 electric utilities bought or owned new wind power
installed in 2012, up by 50 percent from just a year ago. Last
year alone, $25 billion in private investment went into
building new U.S. wind projects. Wind projects in the U.S. have
brought economic growth to rural communities; roughly $400
million in property taxes or similar payments to communities;
and annual lease payments to farmers and ranchers of around
$120,000 per turbine over the turbine's lifetime. Already, Iowa
and South Dakota produce enough wind energy to meet more than
20 percent of their electricity needs, and wind energy produces
more than 10 percent of the electricity in 9 States.
Grid reliability benefits greatly from fuel diversity. Just
like the Mississippi River takes water from many States and
tributaries and keeps a steady flow into the Gulf of Mexico,
the grid takes power from many sources to meet total demand.
The grid can provide reliable energy as long as enough power is
available from the diverse generation sources across the wide
geographic areas of our power grids. Wind power has been an
important part of that diverse portfolio, providing energy at
many geographic points around the grid, helping grid operators
meet demand.
Diversity promotes reliability because there is operational
risk for all resources on the system, whether it is from a
mechanical failure or natural causes. In many cases, what
affects other resources does not affect wind energy. Wind
turbines continued to operate after Hurricane Sandy, the
Japanese tsunami, and the freak cold snap in Texas in February
2011. During the Texas cold snap, some 50 conventional power
plants abruptly shut down due to the cold weather, contributing
to rolling blackouts. But wind turbines continued to produce as
expected. Water savings from wind energy are another important
benefit for utilities and policy makers, especially with large
parts of the country still facing a persistent drought.
Fuel diversity requires continued attention and support
from Congress, utilities, and state regulatory commissions.
Without that attention, there would be a tendency to rely on a
single resource and effectively put all of the Nation's
electric resource ``eggs in one basket.'' At the federal level,
the primary means of supporting fuel diversity has been tax
credits. Tax credits played a major role in bringing down the
cost of shale gas, and they are rapidly bringing down the cost
of both wind and solar energy. The U.S. wind energy industry is
now getting back to work building turbines and projects after
the recent extension of the production and investment tax
credits. The primary challenge is that renewable tax incentive
support has been sporadic and unpredictable. With more policy
certainty, like that enjoyed by other energy sources, the wind
energy industry could invest in the remaining cost and
performance improvements needed to finish the job of becoming
fully cost-competitive.
Diversity through wind power development has held rates
down for homes and businesses across the country. Wind energy
costs have fallen by \1/3\ in the last 4 years, and the
technology continues to improve. Over the long term, wind
energy's zero fuel cost protects consumers from fluctuations in
the price of other fuels. Wind power is an important component
of a diverse domestic energy portfolio that promotes economic
growth, energy security, and a clean environment.
Again, thank you for the opportunity to be here today. I
look forward to answering your questions.
[The prepared statement of Mr. Gramlich follows:]
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Mr. Whitfield. Thank you very much.
Mr. McClure, you are recognized for 5 minutes.
STATEMENT OF JOHN C. MCCLURE
Mr. McClure. Good morning, Chairman Whitfield----
Mr. Whitfield. Be sure and turn your microphone on if it is
not.
Mr. McClure. Good morning, Chairman Whitfield, Ranking
Member Rush, members of the committee. I am John McClure, Vice
President and General Counsel with Nebraska Public Power
District. I am here today substituting for our CEO, who
unfortunately broke a bone on Sunday and was unable to travel.
I appreciate being able to appear before you today to discuss
some of the significant challenges facing the electric utility
industry.
Everything we do in society, whether it involves commerce,
communication, comfort, or convenience, has one or more crucial
ties to the electric system. Consequently, it is imperative to
understand the consequences of policies and regulation, since
electricity usage impacts everything we do.
I am here today on behalf of the Alliance for Fuel Options,
Reliability, and Diversity, or AFFORD, as we call ourselves. We
are a group of consumer-owned electric utilities serving in 14
States, and have recently published a white paper which details
our concerns. Our message is simple: there is no single option
for producing electricity, and due to regional differences and
other considerations, public policy should encourage electric
utilities to pursue diverse fuel mixes that account for local,
regional and national circumstances. A ``one size fits all''
energy policy will not work in the electricity sector. The
chart in the back of the room does a great job describing how
different the regional mixes are around the country, and that
is worth 10,000 words that are not in my testimony in terms of
educating us about the diversity around the country.
NPPD is primarily a wholesale power provider, and we have a
diverse generation mix, especially compared to those in our
region. Due to the proximity of low cost Wyoming low-sulfur
coal, coal is a popular choice for fuel. Several large and
small utilities in the region receive 75 percent or more of
their electricity from coal-fired generation. At NPPD, we get
approximately 60 percent from coal, with the remaining mix
being nuclear, hydro, wind, and natural gas.
During the past 2 years, NPPD has been planning for the
future. We began a customer and stakeholder process designed to
promote dialogue about the choices and consequences of power
supply and demand side options. We found customers expect the
following from their power supplier: affordability, high
reliability, fast outage restoration, and environmental
stewardship. Achieving all of these is no simple task, as some
choices may serve one or more of the criteria, but may
challenge others.
The final product of our effort will be a new integrated
resource plan, and must consider numerous areas of uncertainty
facing our industry. Some of the key drivers of uncertainty
include future regulatory requirements for fossil fuel, nuclear
and renewables. One specific uncertainty involves the future
price of carbon emissions. As you well know, a number of
utilities have decided to close older, smaller coal plants
because the known cost of more stringent environmental
regulations and the unknown cost of future carbon restrictions
is deemed either too high or too uncertain to continue with
coal.
You also know that natural gas is the current fuel of
choice for new generation. Its environmental characteristics
are superior to coal and its widespread development has created
a plentiful near term supply with attractive pricing.
While the supply and price of natural gas has been a game
changer and is a critical part of a diverse fuel mix, it is not
a silver bullet. What many do not realize is that coal remains
a more competitively priced fuel for certain regions of the
country due to the proximity of supply, especially in the
central and western U.S. Natural gas may be a great option if
your power plant is located near a robust network of gas
pipelines, but unfortunately many of the existing coal plants
do not have access to pipeline capacity to convert from coal to
natural gas.
As was mentioned earlier, we have been through other period
of major changes. At one time, gas was taken out as a fuel
option. Now, many of us are concerned coal is going to be taken
out as a fuel option. We need all of the above. As the owner
and operator of a nuclear power plant, we believe this, too,
must be part of our Nation's mix. Nuclear remains an important
part of a carbon free generation mix, but significant expansion
is now less likely and again reinforces the need for diversity.
Wind and solar receive considerable attention, and like
many other fuels, are significantly impacted by natural
regional attributes and infrastructure availability. Some of
the areas with the greatest wind potential are relatively
remote and have limited transmission.
In summary, as you work through these challenging issues,
it is critical that policies be developed that promote
reliability and affordability through fuel diversity. Thank you
for the opportunity to testify today.
[The prepared statement of Mr. McClure follows:]
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Mr. Whitfield. Mr. McClure, thank you, and thank all of you
for your testimony.
At this time I will recognize myself for 5 minutes of
questions.
Mr. McCullough, you had mentioned the Turk plant in
Texarkana, Arkansas, and I would ask you from the time you
obtained the first permit or applied for the first permit, how
long did it take to complete the construction of that plant and
begin operation?
Mr. McCullough. We applied for the first permit in the fall
of 2006, and the unit went commercial in December of 2012, so
over 6 years.
Mr. Whitfield. And now is that technology--would you say
that is one of the cleanest coal burning plants in America?
Mr. McCullough. It is.
Mr. Whitfield. Would you say it is one of the cleanest coal
burning plants in the world?
Mr. McCullough. It is.
Mr. Whitfield. And you know, our carbon emissions in the
U.S. are at the lowest point in 20 years, and as someone
indicated in their opening statement, the U.S. today has less
than 12 percent of global emissions. We are responsible for
less than 12 percent. With that ability to build a plant that
clean, if the greenhouse gas regulation--when it becomes final,
would you be able to build that plant in America today?
Mr. McCullough. We would not build that power plant.
Mr. Whitfield. You would not legally be able to meet the
emissions standards, would you?
Mr. McCullough. I can't answer that question entirely. That
may be true. The economics of the overall situation--when you
add CCS to Turk, because CCS would be required, it is not
commercially available, so we would not be able to meet----
Mr. Whitfield. Plus it was the first time that EPA ever
required one fuel source to meet the emissions standards of
another fuel source, so coal has the emissions standards of
natural gas.
So the thing that bothers me, all of us talk nonstop about
``all of the above,'' but we do know that there is a concerted
efforts by groups, individuals, and others in the country to
eliminate some fossil fuels from being used for generating
electricity. And of course, I am from an area of Kentucky that
uses a lot of coal, but it is more than just that. In my
opening statement, I talk about in New England they are talking
about how natural gas prices are eight times higher because of
lack of pipeline capacity.
Mr. Mohl, you talked about the importance of nuclear
energy, and yet, they are talking about in New York State they
are trying to close down the plant--the nuclear plant; that if
that were not in operation, as they say, New England would be
toast. And then in California, it talks about California is
weighing how to avoid looming electricity crises brought on by
its growing reliance on wind and solar power.
So when we are out here trying to stimulate the economy,
create jobs, compete in the global marketplace, I mean, we have
to have all of the above, and in my humble view, it is
irresponsible for groups out there trying to deliberately shut
down the use of fossil fuels, which is one of the base loads of
our electricity needs.
One of the comments that you made, Mr. Gramlich, you had
talked about the increasing costs--you were talking about the
use of wind is not free--the increasing costs, and you
specifically mentioned system reliability. Would you just
elaborate on that a little bit for me, please?
Mr. Gramlich. Well, we get questions about reliability a
lot, as everybody does. It is crucial. I used to work for one
of the largest grid operators in the country, and it always
sort of seemed to me that the grid could sort of be viewed as
taking from really a thousand sources or more of energy and
then trying to meet aggregate supply with--aggregate demand
with aggregate supply. So wind energy fit very nicely, I
thought then, and think now, into that portfolio. Not as a
single bullet, not to run a whole system on, not to be relied
on by itself, but as part of that diverse portfolio.
Mr. Whitfield. But what do you mean by increasing the cost
of the system reliability?
Mr. Gramlich. I think that comment was about if you have a
large grid operator like the one I described, you can add wind
energy, significant amounts of it, without the need for
significant additional reserves. There are reserves or back-up
capacity for all resources, because any of the resources you
have heard about today or on the grid can go down from time to
time. It does not mean they are unreliable. It does not mean I
am saying any of those resources are unreliable or wind is. But
when they are operating, the grid can use them and you need a
good grid operator with the right tools to keep the system----
Mr. Whitfield. You know, in the fiscal cliff legislation
there is $12 billion of production tax credits for wind energy,
and in your comments, you had mentioned that shale gas would
not have been successful without equivalent types of production
tax credits. Would you provide the committee with a detailed
analysis of what you were referring to with that comment,
please?
Mr. Gramlich. I would be happy to.
Mr. Whitfield. Thank you very much. My time is expired.
At this time I recognize the gentleman from Illinois, Mr.
Rush.
Mr. Rush. Thank you, Mr. Chairman.
Mr. Gramlich, wind power is very important to my home
State, and as I mentioned in my opening statement, 13--at least
13 international wind companies that are headquartered in
Chicago. Last year, I am sure you witnessed me battling
Congress at the end of the year to extend the production and
tax credit, and many arguing that wind is not really a viable
source of energy and investing in wind is not worth the money.
It is money wasted.
For this hearing, can you discuss the benefits of investing
in wind on both the federal level as well as the private level,
and what are some of the advantages of investing in wind,
especially as it relates to job creation, electricity
diversification and reliability, and implications for
addressing climate change. I am not sure, I was in India
several weeks ago, and we had a chance to visit the GE facility
there in New Delhi, and we--they showed us some technology that
was dealing with this issue of reliability. I don't know if you
are familiar with that, but in their technologies that are
being developed that would address some of the issues of our
reliability.
Mr. Gramlich. Sure. Yes, I witnessed that debate about the
PTC in the last Congress. We are proud to be saying with that
extension, the industry is getting back to work in creating a
lot of jobs, 75,000 jobs in the industry. Importantly, we have
really brought the manufacturing of the wind turbines to this
country. Nearly 70 percent of the 8,000 parts in a turbine are
made here. We have nearly 500 manufacturing facilities around
the country, including in Illinois. So we are very proud of the
jobs that we are creating in our industry, as well as the rural
economic development that our projects are creating in the
communities where wind is being developed, rural Illinois and
much of the rest of----
Mr. Rush. Are we exporting that technology?
Mr. Gramlich. I am sorry--oh, exporting. Not so much, but
in some cases, yes. One of the great strategic advantages of
wind energy is these parts are very big, if you have seen them
on the highway, which means we have a great opportunity to
produce here what we deploy here. That is a large reason why we
have so much domestic production of this technology, compared
to other manufacturing sectors that maybe are shipping abroad,
and wind energy--it is most of--if we keep deploying it here,
we are going to be making most of it here.
Mr. Rush. How has the wind industry grown in terms of both
generation capacity, as well as private investment, and why is
it important for policy makers to understand the trajectory of
wind power and its potential for the future?
Mr. Gramlich. As I said in my testimony, the industry is
responsible for about $25 billion in private investment in this
country. Last year, that is investment that would not have
otherwise occurred, and there are significant jobs, as I
mentioned before, that are resulting from that. The tax credits
have been critical to keeping that investment going, and
hopefully they will continue.
Mr. Rush. Mr. Fowke, in the brief period of time that I
have left, in your testimony you noted that your facilities are
on track to reduce carbon emissions by over 20 percent from the
'05 levels by year 2020, while in the same time, you have been
able to maintain power prices at or below the national average.
What kind of strategies have you implemented to achieve these
goals and are these measures measures that can be replicated at
other facilities?
Mr. Fowke. I think so. I mean, first, we are very fortunate
to be in a very rich wind area, so that helps us with bringing
in wind at a basically very competitive price. Our average wind
portfolio is at $40 a megawatt hour, which is very close to
parody with natural gas as an energy source.
The second thing we did is we got started early. We started
repowering older coal plants that were relatively small, and we
realized that the additional capital improvements wouldn't make
sense in the long term. That said, we also built a new coal
plant at the same time a few years ago. It came online in 2010,
which is a supercritical coal plant, very efficient, and it
allowed us then to retire those other, older coal plants, go to
natural gas in some of them, and still have a good balance of
fuel.
So if you get started early--and we have been working on
this since 2002--you can do things typically at a better price
point than trying to do everything all at once, which is one of
the concerns we see with some of the regulations, is that if
you try to do everything at once, you can't find the labor, you
can't find the materials, et cetera. So the combination of
effectively deploying an ``all of the above'' strategy is how
we maintain our competitiveness.
Mr. Whitfield. Gentleman's time is expired.
At this time I recognize the gentleman from Texas, Mr.
Barton, for 5 minutes.
Mr. Barton. Thank you, Mr. Chairman. I want to make a brief
comment before I ask questions.
I think it is important--not necessarily for this panel, I
think they get it, but maybe for the audience that will review
the record--how important it is to have a robust energy market
in America because we have based our energy policy generically
on markets in this country. Today, we have got a situation
where America is literally being reindustrialized in front of
us. Companies are moving back to America. Manufacturing plants
are moving back to America. Jobs are being created in America.
I think the principal reason is because our energy markets are
so robust and so diversified that we have got the lowest
overall energy prices in the world. This committee can take
credit for that. We have consistently, you know, sometimes up,
sometimes down, but overall, supported a market-based energy
policy.
With regards to electricity generation, this panel shows
the diversity of the electricity gen. We have people that are
proponents of nuclear power, coal power, hydro power, natural
gas power. We have got independent merchants, we have got
regulated utilities, we have got municipal power. We don't have
co-ops, that I am aware, today but other than that, we have got
it and we have got the alternative energy market, the renewable
energy market. So Mr. Chairman and Mr. Rush, Ranking Member,
you have all done a great job of putting this panel together.
Now my first question is to the gentleman from American
Electric Power. The ranking member of the full committee in his
opening statement said that the new source power plant
regulations that are being proposed by the EPA are fuel and
neutral. Do you agree with that?
Mr. McCullough. No, sir, I do not. They are prejudiced
towards a fuel and against another.
Mr. Barton. Let us be honest. You are not going to build a
coal plant with those regulations, and you will build,
probably, almost all natural gas. I am in the Barnett Shale, so
I am not anti-natural gas, but I also have lignite coal plants
and I support nuclear power and wind power. So I think it is a
little bit disingenuous to say that they are fuel neutral. They
are not.
The gentleman from Entergy, you are a big proponent of
nuclear power. Do you think it is possible in today's market
environment to build a base load nuclear power plant in
America?
Mr. Mohl. It is very challenging in this environment to be
able to build a new nuclear plant. Currently there is a handful
of them being developed down South.
Mr. Barton. Yes, where they still have the regulated
markets and you can roll in the prices. But is the challenge
for new nuclear, is it more still regulatory and licensing, or
is it just the simple fact that because of the competition from
coal and natural gas, and to some extent, wind power possibly,
that it is just not cost effective right now? It is not
economically possible?
Mr. Mohl. Well really, there are three challenges as it
relates to merchant nuclear. Low gas prices obviously have
depressed the markets. Regulation, we need fact-based
scientific approach that is based on cost benefit, and we need
fair and competitive wholesale markets. And so you are exactly
right, that trying to build a new nuclear plant in a wholesale
market is just not feasible.
Mr. Barton. I want the record to show that we had a witness
say I was exactly right. If you all will make a note of that.
I want to go to our friend that is recommending the wind
industry. Texas is a big wind state. I am a big proponent
historically of wind power. What is base load wind generation
costs these days? What is the per kilowatt price?
Mr. Gramlich. Price does vary by region. We have great wind
resource in your State. It can be--there are published contract
prices at FERC for wind power contracts. They----
Mr. Barton. I am not talking--I just want--this is not a
trick question. I mean, you can build--you can generate coal
and natural gas, I would say, 3, 4, maybe 5 cents a kilowatt
hour. What would be an equivalent cost for wind power in a
perfect situation? Is it below 10 cents, 5 cents?
Mr. Gramlich. There are 3 and 4 cent contracts in your
State and in the middle of the country.
Mr. Barton. But in the right situation, is it fair to say
that wind power can be cost competitive with other commercial
base load sources? Is that a fair statement?
Mr. Gramlich. Can be in certain locations.
Mr. Barton. OK. My time is expired, but I would like for
the record an answer--the comments on bidding negative into a
competitive market simply to get the tax credit. My coal
producers and merchant natural gas plant producers in Texas say
some of the wind producers bid negative simply to keep the
windmills turning because of the wind tax credit basically
gives them a reason to give the power away. And my time is
expired, but I would like an answer for that, if you would,
sir. I yield back.
Mr. Whitfield. Thank you.
At this time, I recognize the gentleman from California,
Mr. McNerney, for 5 minutes.
Mr. McNerney. Thank you, Mr. Chairman. You know, I really
think this is great testimony this morning. I filled my note
sheet with every one of your testimony, which is very unusual
in a hearing, so congratulations and thanks for coming this
morning.
Before coming to Congress, I spent years in the wind
industry, which does make me somewhat biased, but I agree
wholeheartedly with the ``all of the above'' strategy,
including nuclear. I love to see small modular reactors come
online. It is a very good concept, and I did have the
opportunity in my career to work with Xcel, with AWEA, and with
the Nebraska Public Power, so it was a great opportunity to get
to know some of your businesses.
We often hear about the war on coal, but withstanding some
regional differences that were pointed out by Mr. McClure and
Mr. Mohl, the war on coal was really about natural gas under-
pricing coal in most parts of the country. So I hear that
refrain often, but I have a hard time swallowing it.
I have some questions, though. Mr. Fowke, would you comment
on the assistance stability impacts of wind and solar energy in
your utilities?
Mr. Fowke. Yes, the reliability issues increase, obviously,
the more renewables you have on system. I mentioned in my
testimony at one point earlier this year, we had 57 percent of
our energy coming from wind. So when that happens, you have to
quickly back down your generation, and typically you want that
to be a gas-fired generation versus nuclear or coal, because
they are designed better for those sorts of things. So you have
to ramp up and ramp down, and you have to follow the load
accordingly. And that does--as you get higher levels of
penetration, increase the cost of having that much renewables
on your system.
Mr. McNerney. You mentioned that Xcel is on track to reduce
carbon emissions by 20 percent with price stability. Would you
describe how that is possible?
Mr. Fowke. Well as I said before, I mean, it is really
getting started early. It is taking advantage of the very rich
wind resource in our backyard. It is retiring all aging coal
plants that are probably beyond their service life,
particularly with the environmental regulations ahead. So I
would say it is an ``all of the above'' strategy to do that,
but you could start it early and it is steady and flow.
Mr. McNerney. Good. I like your answers. They don't last
too long, so I still have a little time left. I could ask 30
minutes of questions if I had the time.
How would you--Mr. Fowke, how would you--how does wind
energy form a hedge against price spikes?
Mr. Fowke. You know, that is a great question. Wind, as we
all know, is interruptible, so we view it--while it has a
capacity factor for planning, we put a very small capacity
factor on it. So it is fuel. So you can build it and you can
determine how long it is going--what it is going to cost over a
20-year period. For us, that is about $40 a megawatt hour. Then
you compare that to other fuel sources, natural gas
specifically. Sometimes at $40 a megawatt hour it is in the
money, as it was when natural gas was at 8 and $10. Sometimes
it is a little bit out of the money, as it is today in a very
low natural gas environment. But it is still a hedge.
Mr. McNerney. So are you investing in storage?
Mr. Fowke. At this point with a low natural gas
environment, storage is not competitive.
Mr. McNerney. OK. Mr. Gramlich, would you elaborate on your
statement that shale has benefitted from reliable credits,
whereas wind energy hasn't?
Mr. Gramlich. Sure. I think shale gas is a success story. I
know this committee has been interested in bringing new options
into the electric portfolio, and shale gas, people can say a
lot about it but certainly, it has increased dramatically and
changed the game in the industry. And also, certainly, the tax
credit was--played a key role in that. There was, I believe,
over 20 years of stability in that credit which helped a lot
with investors. Our problem with investors, we have many
investors who would, as you know--and you have the wind patent,
I don't--but as you know, investing in these technologies, you
could make a lot of cost-reducing investments and performance-
improving investments if you knew what the market might be like
a few years down the road. But if you only know a year or two
at a time, it is very hard to justify those investments. So the
stability of the credit is as crucial as the value, in terms of
cents a kilowatt hour.
Mr. McNerney. Thank you. Mr. McCullough, could you quickly
explain what SMR development is for nuclear?
Mr. McCullough. Yes. It is the small modular reactor
development that you referenced.
Mr. McNerney. All right, thank you.
All right, Mr. Chairman, I yield back. Thank you.
Mr. Shimkus. [Presiding] Gentleman yields back his time.
Chair now recognizes himself for 5 minutes. My staff is
bringing--and I agree, I think it was Mr. McClure, you
mentioned this. This is in our committee memo and the briefing
chart. It talks about the regional differences. I am in the
east north central, 63 percent coal, which is a lot different
than if you go to California, which is 40-some percent hydro,
and 20-some percent natural gas. So the point being the regions
are very, very different. And if we don't have a diversified
portfolio based upon the regions, some big wind areas, some
areas, they don't have a lot of wind. And if we, in a public
policy arena, move to really disincentive base load generation,
people are going to get harmed.
Illinois is a 50-50 state, 50 percent nuclear pretty much,
50 percent coal. Although we do have a lot of wind generation,
it is still very small in the overall portfolio of the
generation. Missouri, across the line, 85 percent is coal
generation. Mr. Barton did mention the price. I mean, it is
still base load generation is the low priced commodity product,
which--so people get harmed and the economy gets harmed by high
prices, which is really kind of the initial in my opening
statement that I wanted to make.
And just another point before I go to my questions. Mr.
Gramlich, if you have got a zero fuel cost, how many jobs are
there that being that commodity product to that generator? My
point is, none, oK? Coal miners mine coal, take it to the power
plant. Good paying jobs, good benefits, tough work. In the coal
regions around the world, they are critical to the southern
Illinois economy, the West Virginia economy, the Kentucky
economy. So I like zero cost, but when power is still a high
cost generation, even though the fuel is no cost, and we do
lose the jobs.
Mr. McCullough, the amount of coal used to generate
electricity is decreasing--we have all admitted that--from 50
percent to 37 percent. What policy changes are needed to ensure
that the coal continues to remain a significant part of our
Nation's diverse generation fuel mix?
Mr. McCullough. Yes, I think as we reflected earlier--and I
actually would like to qualify an earlier answer to the
chairman's question around the legality of NSPS. We would take
the position it is not legal because it is the first time EPA
has required a technology that is not commercially available.
Mr. Shimkus. I want to highlight that. There are three
people who talked about supercritical power plants, coal,
cleanest. Thank you for doing that, but if the EPA rules on
greenhouse gas ability, these brand new power plants, cleanest
in the world, may not be able to operate. Is that true, Mr.
McCullough?
Mr. McCullough. We could not retrofit Turk plant, the
most----
Mr. Shimkus. Because there is no technology?
Mr. McCullough. It is not commercially available. There are
no vendor----
Mr. Shimkus. And the other supercritical plants, do you
agree with that, Mr. Fowke?
Mr. Fowke. Yes.
Mr. Shimkus. Mr. Gerken?
Mr. Gerken. Yes.
Mr. Shimkus. And that is part of the point that we are
trying to make from the coal regions. Even though we have the
best power plant in the world, greenhouse gas--we don't even
have the technology to even capture it. And if it is, it is
going to--the build out of the footprint is going to be in the
billions of dollars, and it is going to take about 30 percent
electricity generation, if you even had the technology.
Mr. McClure, let us talk about this shift in natural gas. I
am all for it, but I think you alluded to--just like an
electricity grid and a transmission grid, we may have some
pipeline constraints, and you alluded that in your opening
statement. Can you talk about that?
Mr. McClure. Well, there is a recent example, a very real
example in New England that I think many of you have become
familiar with where high demand for electricity and a very cold
snap, high demand for gas for heating created a real spike in
prices for both natural gas and electricity. There are other
parts of the country where we simply don't have the gas
pipeline infrastructure. We could not convert our two coal
plants to gas because there is no--not an adequate gas line
infrastructure there.
Mr. Shimkus. And Mr. Gramlich, that is some of the
challenges on wind power on the reverse side, just with the
transmission grid, is it not?
Mr. Gramlich. Transmission is very helpful----
Mr. Shimkus. Just trying to wield that power to places that
it might be used. So those are--I think those are especially
issues in a bipartisan manner that we can talk about is
expanding our natural gas pipeline, expanding the transmission
grid.
And with that, my time is almost expired. I would just like
to say we had a very good hearing on nuclear power last week.
We talked about the NRC and the filter vent issue and how that
is going to create new challenges. All we are going to ask the
NRC to do is make sure before they promulgate rules, they go
through regular order. Those are additional rules and
regulations that are very, very costly.
So I yield back my time and now recognize the ranking
member of the full committee, Mr. Waxman, for 5 minutes.
Mr. Waxman. Thank you very much.
First of all, I wanted to comment in his opening statement,
Chairman Whitfield cited a recent Wall Street Journal article
that suggested wind and solar power threatened the California
grid. There are a number of serious flaws with that article,
but with the San Onofre nuclear generating station offline, the
State could face some challenges this summer. This is something
I am monitoring closely.
Mr. Fowke, my understanding is that for a decade or longer,
Xcel has been shifting some of its generation from coal to
natural gas, partly in anticipation of eventual requirements to
reduce carbon emissions. Can you tell us about the thinking
behind that strategy?
Mr. Fowke. Certainly, Mr. Congressman. You are right, we
have been doing it for a decade. These rules--we saw these
rules coming and we--at the same time, we had an aging
generation fleet, natural gas, coal, et cetera. So our decision
was to put the money into the coal plants that we thought could
serve customers for another 20 to 30 years, and at the same
time, retire those that we felt would not justify the
incremental capital to serve customers for another 20 years. We
power some of those plants, and then added to that was the--our
desire and the State mandate to add renewables.
And so when you put all of that together, it is kind of an
``all of the above'' strategy. We were able to modernize the
infrastructure, reduce carbon, and keep prices competitive at
the same time.
Mr. Waxman. Would you agree that regulatory certainty is
vital and the climate legislation would revive that certainty?
Mr. Fowke. Absolutely, because everybody in my position is
making decisions on capital that are in the billions that we
are going to live with for decades. So you are going to--you
are never going to have perfect certainty, but regulatory
uncertainty is probably one of the biggest risks we face each
and every year.
Mr. Waxman. Do you support a clean energy standard?
Mr. Fowke. We have advocated--we believe it is inevitable
there is going to be regulation. It is already here, and we
think the important thing is that it is sensible and it gives
time, it gives flexibility, and it gives that certainty that
you talk about so we can get started on whatever the rules are.
Mr. Waxman. Thank you. Well, Xcel is not alone in wanting
Congress to provide regulatory certainty. Other companies
represented on today's panel have been supporters of a range of
policies to address climate change. Mr. Mohl, Entergy supports
a tax on carbon pollution, is that correct?
Mr. Mohl. We support some type of market-based price signal
that puts a price on carbon emissions. We believe that makes a
lot of sense. We believe that is better than a command and
control structure. We believe that that provides the incentive
to develop new, cleaner technologies.
Mr. Waxman. Thank you, and Mr. McCullough, AEP previously
supported legislation to establish an economy-wide market-based
system to reduce carbon emissions and continues to support a
federal legislative approach to climate change. Is that right?
Mr. McCullough. We do support a legislative approach over a
regulated approach, and depending upon the details, would be
very supportive.
Mr. Waxman. Thanks. There is no question the United States
will need to address climate change. The threat is not going
away. Delaying action will only increase the urgency of the
problem. Entergy, AEP and Xcel are some of the biggest
utilities in the country. Together, they operate across the
country. Do you all agree that the best way to address climate
change is through legislation from Congress?
Mr. Fowke. Speaking from Xcel, yes.
Mr. Waxman. OK. Mr. Mohl?
Mr. Mohl. Again, we believe that whether it is legislative
or regulatory, that we do need some type of market-based price
signal in order to address that issue.
Mr. Waxman. Well, you can only get that from Congress. Mr.
McCullough?
Mr. McCullough. And again, with the qualification about the
details, we would support it.
Mr. Waxman. OK. Mr. Chairman, when utilities tell us they
are looking for regulatory certainty, they are not talking
about bills that delay action. They are looking for real action
and thoughtful policies. They want Congress to establish the
rules of the road so they can plan for the future and make the
appropriate investments. Utilities want Congress to act and I
want Congress to act, but if Congress doesn't act, the
President must do everything he can. When future generations
look back on this time, they won't care whether we enacted my
preferred approach or your preferred approach. They will simply
ask whether we acted before it was too late. This is the moral
imperative of our time, and we must address this challenge for
the sake of our children and future generations. That is what
the President said. I support what he said, and I hope we in
Congress can get together and pass the legislation, rather than
have action imposed only through regulation at the Executive
Branch. But if we can't get anything else, I would welcome that
regulation to make sure that we reduce the carbon emissions.
I yield back the balance of my time.
Mr. Whitfield. At this time, I recognize the gentleman from
Ohio, Mr. Latta, for 5 minutes.
Mr. Latta. Well thank you very much, Mr. Chairman, and I
also want to thank you very much for the hearing today. I think
it is very, very informative and I appreciate all of our
panelists for being here today.
As some of you know--who are on the panel know my district.
I represent northwest, west central Ohio, and I have about--
according to national manufacturers, about 60,000 manufacturing
jobs. It goes anywhere from light manufacturing to heavy
manufacturing. I have got small folks out there, big folks out
there. But when I go out--and I probably, since last August
have gone through 200 facilities, businesses, schools across my
district, and when I am talking to my--especially on the
manufacturer's side, that base load capacity is absolutely
essential.
And the two things I hear from the folks when I am back
home--well, there are four, but the two I am going to mention
right now--the number one issue that is always brought up is
regulations. And the things that drive their costs and the
things that prevent them from going ahead are regulations. And
then going into that next area is when we talk about energy
costs, because again, they cannot compete in this market today,
not just in Ohio or the Midwest, but across the world, if we
don't have energy costs that are reasonable that they can get
out there and produce that product. And so it is absolutely
essential, as Mr. Shimkus pointed out on the map that he held
out about east north central, Ohio is included in that area,
along with Illinois, Indiana, Michigan, Wisconsin. And we do--
we are looking at about 63 percent of coal being used in that
area, and even higher in parts of my area.
So if I could start, Mr. McCullough, in your testimony,
because it just jumps right out at me, on page nine you were
talking about the shutdowns of coal-fired plants, that once
these additional plant retirements, combined with already
announced retirements around 20 percent of U.S. coal fuel will
be shut down within the next few years. And so my first
question is, are we going to have energy at the same cost, or
will energy costs go up not only for you to produce, but also
for the end user, for the manufacturer, for the farmers in my
district--and again, I represent the largest number of
farmers--senior citizens, small businesses, grocery store
owners. What is going to happen to that cost?
Mr. McCullough. That is a very good question, and one that
gets misinterpreted quite often. The coal plants that we will
retire are largely running today, and they are running because
they are very competitive. As they move out of the generation
stack, it does mean, naturally, that those units higher in the
stack are now going to generate power and then any replacement
capacity obviously involves capital costs and new cost of
energy associated with that. So energy costs will go up as
units retire.
Mr. Latta. Well, and again, I think it is important right
there because I think as you mentioned, a lot of folks out
there think we can switch over to something that is going to
be, all of a sudden, voila, we are going to throw a switch and
something else is going to happen. We are very fortunate in the
State of Ohio with the Utica shale that has been found and we
are all for an ``all of the above'' strategy which we have been
pushing since 2008.
As was mentioned a little bit earlier in the testimony, is
it economical or can you even convert a coal-fired plant over
to a natural gas plant?
Mr. McCullough. We will be converting just a few plants to
natural gas, but that will be for capacity reserve reasons, not
for, you know, overall energy economics. You lose some
efficiency, as these units are designed to burn coal and gas
can't get steam temperatures to the same efficiency levels that
it was designed for, so it is not going to be a very efficient
use of natural gas, as you try to meet the energy needs of your
jurisdiction.
Mr. Latta. Thank you. I am going to switch briefly and
quickly to Mr. Gerken with AMP, especially in my area, out my
back door I can see the four wind turbines that were first in
operation in Ohio, and then with the solar field over Napoleon,
the gas plant over in Freemont. If I could just ask you
quickly, despite the many benefits behind hydro, building the
new projects is increasingly difficult due to new upfront
costs. What are the reasons for some of these costs, and can
Congress do anything to alleviate that, on an economic scale?
Mr. Gerken. The hydro projects are very capital-intense, as
I said. One of the problems is we started the permitting on
the--all of these plants in 2005, and they will come online in
2014 and 2015. And so the regulatory process is in need of
reform. If you ask anybody, even big investor owners are saying
they need the licensing and permitting streamlined.
We were in this process. I talked a little bit about the
404 permit and the 408 permit. We were the guinea pigs on the
408 permit. We were the first ones out of the block. We had
four projects. Needless to say, it took--and each district
handled it different and you had to go from the district to the
division and then headquarters and then back and back and back
and back. To give you an idea, we were permitting the last
phase of the Prairie State coal plant in June of 2010, and then
we were delayed on being able to get the permit--excuse me, we
were financing the Prairie State project in June of 2010. We
were waiting for the 404 permit to finalize the financing for
the hydro projects, which was $1.3 billion. We didn't get that
permit until December 13. If you remember, 2010 was when Build
America bond were available, and we were trying to get to
market. We actually financed three days later. It cost us 60
basis point difference in that spread on a $1.3 billion bond
sale.
And so we need to streamline it. The Corps are good
operators. When you operate these plants, the Corps does not
have a priority and it is not their mission to develop hydro. I
think with NHA and a lot of other interested parties, we are
trying to streamline that process, but there--we would like to
have some help there.
Mr. Latta. Thank you.
Mr. Whitfield. Gentleman's time is expired.
Mr. Latta. My time is expired and I yield back.
Mr. Whitfield. At this time I recognize the gentleman from
Texas, Mr. Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman, and thank our panel for
being here.
In February of 2012, the Federal Energy Regulatory
Commission initiated a number of efforts to coordinate the fuel
transition and minimize concerns from both electric and gas
industries. FERC received stakeholder comments and hosted five
regional technical conferences in 2012 to discuss gas/electric
interdependence in relation to scheduling communication and
electric resource adequacy and reliability. Did any of you
participate in any of these technical conferences, and if you
did, do you have any feedback? Was FERC responsive to some of
your concerns? Did anybody participate?
Mr. McCullough. I did not participate personally, but
someone from my staff did, and we are happy that FERC is
hearing the concerns. We await strong action toward the
harmonization of the electric and gas industries.
Mr. Green. OK. Anybody else that has comment on that?
Mr. Mohl. Same comment for Entergy. We believe that is
definitely headed in the right direction and something that is
critical in the long run.
Mr. Green. OK. Mr. Fowke, you testified that Xcel recently
added a large coal plant in Colorado, and that you are also in
the process of extending and updating three nuclear plants for
another 20 years of service, yet several of your colleagues on
the panel testified as to the market conditions that are making
it difficult for coal or nuclear plants to come online. What is
the secret of Xcel's success?
Mr. Fowke. Well, I--let me just--to be sure. I don't think
that same plant today would be permissible under the rules and
the political realities, but we had it approved----
Mr. Green. Are you saying coal plants or the nuclear?
Mr. Fowke. The coal plants.
Mr. Green. Coal plants.
Mr. Fowke. Yes. So we basically--we started that process, I
believe, around the 2004 timeframe. We started construction
around the 2008 timeframe. We were able to get that plant sited
and permitted and avoid some protracted litigation, because we
also were able to commit to do some things to clean up the
environment. And so it was a good package and it went forward
in our State, and that was in Colorado. I don't think that same
deal could be done today.
I forgot the second part of your question.
Mr. Green. Oh, just that if those--what is different about
your company that you are doing compared to the other witnesses
we have?
Mr. Fowke. The only thing I would add, and I think
everybody is trying to do the right job, but we have worked
really close with our States and we have been very proactive at
trying to anticipate regulation and other issues early so we
can get started early.
Mr. Green. And I know my experience in Texas is doing the
same thing. We try to do that, and of course, I am also more
familiar--you know, we are in the middle of the natural gas
boom, and there is fuel shifting and obviously benefits, but I
also know in our expansion with our south Texas nuclear plant,
I would love to get more electricity out of nuclear power in
Texas. We only have two, and the one that we lost because of
one of the investors is Tokyo Power, and we know that story,
but you know, for our country--and I know it is difficult with
the low price of natural gas--whether it is hydro or nuclear,
it is upfront investments, and it is just difficult to make
that work, even with the loan guarantees. It is difficult. But
although I have to admit, I read just over the weekend that in
Europe, we are exporting a lot of coal and it is displacing the
natural gas that they are importing predominantly from Russia,
because natural gas is so expensive in Europe. But again,
location, location, location.
Mr. Mohl, you talked at length about the market conditions
are threatening nuclear power in our country, and you testified
preserving the many benefits of nuclear generation depends more
on--rational and evidence-based regulation, and I agree. Like I
said, even though we are in a natural gas boom, for long-term
and the most carbon friendly is either windmills, solar, or
nuclear, and as much as I love natural gas and the success we
are having, specifically what regulations or impediments to new
nuclear generation?
Mr. Mohl. Well, one of the challenges we have right now
is--that we are looking at is the filtered vents discussion.
What is required for the BWR technology? Our point of view is
that that should be looked at on a plant-by-plant basis, and we
don't need--it is probably not necessary to have something that
is just kind of a rubber stamp that every plant needs to do.
Mr. Green. And I agree, and I think I have signed a letter
expressing----
Mr. Mohl. Yes, sir.
Mr. Green [continuing]. Concern. It ought to look on a
case-by-case basis.
Mr. Mohl. Absolutely.
Mr. Green. We may not need to change the filter on every
plant, but it--is there anything else other than that?
Mr. Mohl. Nothing specifically, I mean----
Mr. Green. Because the long timeframe is just frustrating.
Mr. Mohl. It takes a long time to, you know, work through
the relicensing issues, as we are experiencing on several
plants. Again, the three challenges we have are low natural gas
prices, we need reasonable regulation, and we need fair and
competitive wholesale markets so that we can continue to, you
know, participate. And you know, we have to be financially
viable with these facilities to participate in these markets.
Mr. Green. Thank you, Mr. Chairman.
Mr. Whitfield. At this time I recognize the gentleman from
West Virginia, Mr. McKinley, for 5 minutes.
Mr. McKinley. Thank you, Mr. Chairman.
I want to go back to Mr. Gerken. You made some remark
about--actually it was in your testimony that only 3 percent of
the dams, 80,000 dams across America produce electricity. Could
you explain that a little bit? What is holding that up?
Mr. Gerken. Well, one issue is it is very capital intense
projects, and they take such a long time to develop. And a lot
of these are not your big--dams or obviously run-of-the-river
where we are at, so they have smaller capacity name plate. Our
projects are, example, 105 megawatts, 82 megawatts, 72
megawatts, and 48 megawatts. And so from that perspective, our
business model fits it pretty well. Also I will say in defense
of some of the investor owns, some of these projects have
municipal preference on them, so if there is competing license
and they are equal, they are going to go to a municipal system,
the municipal preference. But for the most part, it is that
capital intense issue.
What we have been able to do, what sets us apart--and I am
not sure we would build these projects today, you know, in
today's natural gas markets it would have been tough to justify
this, because quite frankly, our run-of-the-river hydro are
very similar to the nuclear when it comes to cost. But we look
at that component from we don't have a fuel to buy and a waste
stream on the other side----
Mr. McKinley. Thank you.
Mr. Gerken [continuing]. So I think that is the key.
Mr. McKinley. On some other matters, I would like to hear--
coming from a coal State and seeing the pushback, I chuckle
over the people that say there is no war on coal. They just
live under a rock if they don't understand that, and maybe we
need to talk more slowly for them. But as it relates to natural
gas, eventually--and we are going to see natural gas rise in
its price. We know that. Right now with the--three and a
quarter something. Where does it reach a point--at what price--
many of you burn natural gas, but when does it reach a price--
what is that level, $6, $7 when you have to go back to Public
Service Commission and ask for a rate change? What would be--
what is a reasonable expectation when we should become
concerned about the price of natural gas?
Mr. McCullough. I will take a shot at that. All of our fuel
costs typically is pass through.
Mr. McKinley. I know that, precisely, that is what I am
saying. So the consumer is ultimately going to pay for using
this, so I am curious, what will that level be? What is the
level that becomes----
Mr. McCullough. Yes, so our average coal cost in 2012 at
AEP was about $2.40 a million, so if gas were double or more
than that, we probably would be called in to justify why we
chose a certain scenario for building and serving the
jurisdictions. I mean, that is kind of hypothetical, but
certainly when you are passing through that much increased
cost, it raises awareness at the commissions and they would
like to understand what----
Mr. McKinley. What is the--I know in the timeframe we don't
have enough of it, but I am hoping--and we have been discussing
about global warming and having climate change, so that is
probably a worthwhile venture of time, but I am just curious
from the two of you at the end, Mr. Mohl and Mr. McCullough, do
you believe that--I believe there is global warming going on.
As an engineer in Congress, I believe there is global warming
and climate change occurring. But my question to you though is,
is it manmade?
Mr. Mohl. I guess I will take a shot at that.
Mr. McKinley. I don't want to let McCullough off the hook
there, but we will go back to you.
Mr. Mohl. That is fine. We have utilities in the Gulf Coast
and you know, I think you could argue whether what is creating
the issues associated with climate change, but the risks are
real. I mean, we have seen a substantial increase in the number
of hurricanes, the intensity of the hurricanes and the damage
to the Gulf Coast. And so really, the way we look at it is it
is a reality, and we need to manage that risk, just like we
manage any other risk in our portfolio. So we look for
opportunities to mitigate----
Mr. McKinley. My question, Mr. Mohl, is it manmade? Did we
cause it?
Mr. Mohl. As I said, I am not the one to argue that point
nor do I have the scientific background to answer that
question.
Mr. McKinley. OK, Mr. McCullough, do you think--have we
caused this?
Mr. McCullough. Well, great question. Again, I am not a
climatologist, but the incremental part of CO2
emissions created by man is in the minority of overall
CO2 emissions. And when you look at it from a global
perspective, as I mentioned in my opening remarks, here in this
country we are less than 12 percent of global CO2
emissions and getting smaller all the time. So whatever is
offered up as a solution needs to be global in nature and
market-based.
Mr. McKinley. Thank you very much, I appreciate it. Yield
back my time.
Mr. Whitfield. At this time I recognize the gentlelady from
Virgin Islands, Mrs. Christensen, for 5 minutes.
Mrs. Christensen. Thank you, Mr. Chairman. I wonder if I
could get a slide up on the monitor, because before I ask any
questions, I wanted to just share what the pie for the Virgin
Islands would look like, compared to the map in the corner, and
it is pretty much the same for all the smaller territories,
Guam, America Samoa, and Northern Mariana Islands. And we are
working--you can put the other slide up. We are working towards
diversifying our sources of energy, but small size, distance,
and other factors make it very difficult compared to the
States, and we don't have a grid that supplies electricity from
other areas, so it is very difficult for us.
But my first question, and it will be a little bit
different. We don't have nuclear energy, we don't have
hydropower, and not likely to be able to move in those
directions. Mr. McClure, I see in your testimony that NPPD has
been doing some planning over the last 2 years, and we have
been talking about an integrated resource plan in the Virgin
Islands, which is something that I believe is really needed.
Could you speak a little about the process that you have gone
through, and describe some of the key components that the plan
would consider?
Mr. McClure. Every utility up here goes through an
integrated resource planning process. It involves developing a
number of scenarios. There is a lot of computer modeling that
takes place, and obviously, we have to make assumptions about
the future--the future of fuel prices of various types of fuel,
other things, and what you are trying to develop is looking
both at the supply side and the demand side, how do you get the
best result for your customers for the long-term reliable,
affordable price of energy? And again, it has a lot of regional
aspects to it, but it also has national aspects as you look at
various policies.
Mrs. Christensen. Thank you. We are looking at wind energy.
We have it--we are doing some solar, but haven't really moved
towards wind yet, and so Mr. Gramlich and Mr. Fowke--Mr.
Gramlich, you had said that good operators have been able to
reliably add large amounts of wind energy to the systems, and
Mr. Fowke, wind represents a large part of your portfolio. But
for a place that doesn't have a grid that supplies energy from
diverse areas, like the Virgin Islands, do you think that we
could reach that same reliability from wind or would we need
additional reserve capacity? I am thinking that we couldn't
rely on it.
Mr. Fowke. You know without specifics, the smaller the grid
and the larger the one single source of wind would be, I think
the more problems you would have making sure that it is
integrated efficiently and reliably.
Mrs. Christensen. Right, because Mr. Gramlich, I believe in
answering another question you did say that having that grid
backup is really what makes sure that you have the reliability.
Mr. Gramlich. The grid helps a great deal. It makes it a
lot easier.
Mrs. Christensen. Thank you.
I don't think I have any other questions right--oh yes, I
do have one. I am sorry.
Hurricane Sandy, and I guess this was Mr. Gramlich, you
talked about Hurricane Sandy and the fact that when you had
that cold spot in Texas, the wind turbines continued to work.
But I was wondering about--again, we live in a hurricane-prone
area, so I was wondering if the fact that you were able to
continue to provide wind--electricity from the wind from wind
power in the Sandy-hit areas was because the wind turbines in
those areas were still operating, or did they come from a grid
from the outside?
Mr. Gramlich. Well, both in the area affected, but I was
making the point that diversity is critical, and what diversity
brings you is whatever may affect one resource may not affect
the other, and you rely on this portfolio of diverse sources of
generation so that hopefully you can rely on one if you cannot
rely on the other.
Mrs. Christensen. So both the wind sources in the Sandy-hit
areas worked and also it was supplied from the other?
Mr. Gramlich. Right.
Mrs. Christensen. And I just want in closing to agree with
what our Ranking Member, Mr. Waxman, said in the opening
statement on the importance of climate change being a part of
any energy conversation. We always focus on the cost, of
course, of electricity production in these discussions, but it
is also important to consider the cost of not reducing carbon
emissions, the cost to the public health, the cost in the
storms. And when you factor all of those in, really, the cost
of electricity from fossil fuels with high emissions if we are
not able to control those, the cost is really much higher than
what we usually represent is the cost.
Thank you, Mr. Chairman.
Mr. Whitfield. At this time I recognize the gentleman from
Colorado, Mr. Gardner, for 5 minutes.
Mr. Gardner. Thank you, Mr. Chairman, and thank you to the
witnesses for being here today. Mr. Fowke, welcome to the
committee. Thank you so much for taking your time.
As you know, my district in Colorado is a very diverse
energy district. It spans from the Mexico, Oklahoma, Kansas,
Nebraska, Wyoming borders, so it is a district that has
tremendous land area and a State that has a great deal of
energy diversity. My district alone has one of the Nation's
most promising oil and gas resource place. It has ethanol
plants, about four ethanol plants, a number of biofuel--
biodiesel plants. It has solar manufacturing. It has wind
manufacturing. It has a coal mine, and so it really does
present a truly ``all of the above'' strategy. I think I have
at least one Xcel power plant in the district as well.
Over the past several years, though, the State legislature,
along with Governor Ritter, Governor Hickenlooper, the
congressional delegation has worked on the Colorado SIP, and I
believe the Colorado SIP has bipartisan support. The entire
Colorado congressional delegation supports the SIP, the
governor supports the SIP, the great bipartisan appeal. But
recently, the National Parks Conservation Association and Wild
Earth Guardians have filed a notice to appeal EPA's approval of
Colorado's State Implementation Plan regarding regional haze,
and Xcel has been a great player in this, and Xcel continues to
support the SIP. Is that correct?
Mr. Fowke. We absolutely continue to support it.
Mr. Gardner. What do you think ends up happening? I mean,
this is an idea that has such tremendous bipartisan support in
Colorado. What ends up happening with States like Colorado that
truly do come together, creating a SIP that is recognized by
both sides as a step forward, and then you have this litigation
that happens? What do you think the end game is around the
country for SIP?
Mr. Fowke. I think it is a model for how you can accomplish
responsible and cost effective environmental leadership, and
you know, the fact that the EPA agreed with that SIP program--
and by the way, we are facing the same thing in Minnesota and
have the same kind of lawsuits as well. I think it shows that--
--
Mr. Gardner. Same bipartisan support?
Mr. Fowke. You have bipartisan. You can get something done
at the State level, you can get EPA to buy off on it and you
still are not going to make everybody happy, and that is just
the way that works. But it has been, I think, a model that we
could look at going forward.
Mr. Gardner. And we have seen tremendous development of
natural gas in my district as well, and Xcel Energy, you are
using that energy within the State of Colorado, is that
correct?
Mr. Fowke. That is correct.
Mr. Gardner. I wanted to talk to some of the other
panelists. I heard the mention of hydropower as well. Colorado
has a renewable portfolio standard, but however, hydropower is
considered not to be a part of that. I think micro hydro is
considered to be a part of it, but nothing beyond on a large
scale. If we were to see the inclusion of hydropower at a
larger scale, would we increase the opportunity to use hydro as
part of a renewable portfolio standard, Mr. McCullough?
Mr. McCullough. Yes, I think we would. Any incentive or
motive to move forward with hydropower would be helpful in
moving it along.
Mr. Gardner. Mr. Mohl?
Mr. Mohl. Absolutely.
Mr. Gardner. Mr. Fowke?
Mr. Fowke. Yes, I think so.
Mr. Gardner. Mr. Gerken?
Mr. Gerken. Yes, I do, and to give an example is we have
members in Michigan and Michigan was moving forward with an RPS
standard, and we had five municipals in Michigan that
actually--the State carved out specifically their participation
in these projects we had, so I think you will see some movement
there, most definitely.
Mr. Gardner. Very good. Mr. Gramlich, if you want to answer
that question or not? Mr. McClure?
Mr. McClure. Yes.
Mr. Gardner. Very good. The other question I would have is
to Xcel Energy. You have been working on the customer
renewables credit. Can you give me--I only have a minute left--
maybe a little explanation for the committee of that idea?
Mr. Fowke. Yes, it basically incents and recognizes that
utilities that have specific amount of renewables on their
system do incur some ancillary costs, and the more you have, he
more you incur. It is to help those utilities and their
customers bridge some of those costs, and it really is a
fraction of what the PTC is now.
Mr. Gardner. Very good.
Mr. Chairman, I yield back my time.
Mr. Whitfield. Thank you.
At this time I recognize the gentleman from Texas, Mr.
Olson, for 5 minutes.
Mr. Olson. I thank the chairman.
Welcome to the witnesses. Good afternoon by about 2 minutes
here. I appreciate your time and expertise.
In my home State of Texas, we say Texas is like a whole
other country, and we are. We are the microcosm of America's
diversity electricity generation. And like Texas, each region
of the United States uses a mix of fuels to generate
electricity, ranging from coal, gas, nuclear, hydropower, and
renewables like wind and solar. In taking a page from the
former chairman, Mr. Dingell from Michigan, from his way he
works here in the committee, I am going to ask all of you a
question. Pleas answer yes or no.
Start with you, Mr. McCullough. Is fuel diversity important
to keeping energy prices low? Yes or no?
Mr. McCullough. Yes.
Mr. Olson. Mr. Mohl?
Mr. Mohl. Yes.
Mr. Olson. Mr. Fowke?
Mr. Fowke. Got to go with yes.
Mr. Olson. Got to go yes. Mr. Gerken?
Mr. Gerken. Yes.
Mr. Olson. Mr. Gramlich?
Mr. Gramlich. Yes.
Mr. McClure. Yes.
Mr. Olson. OK, six yeses. OK, here we go with question two.
Is fuel diversity important for reliable electric service? Yes
or no?
Mr. McCullough. Absolutely, yes.
Mr. Mohl. Yes.
Mr. Fowke. A qualified yes.
Mr. Gerken. Yes.
Mr. Gramlich. Yes.
Mr. McClure. Yes.
Mr. Olson. OK, 5.9 yeses. Is fuel diversity important for
keeping lights on or storing electricity quickly during major
weather events or natural disasters? Yes or no?
Mr. McCullough. Yes.
Mr. Mohl. Yes.
Mr. Fowke. Yes.
Mr. Gerken. Yes.
Mr. Gramlich. Yes.
Mr. McClure. Yes.
Mr. Olson. Oh, 6.0, all right. And the final yes or no
question, to ensure affordable, reliable electricity, should
federal policies support fuel diversity? Yes or no?
Mr. McCullough. Yes.
Mr. Mohl. Absolutely, yes.
Mr. Fowke. Yes.
Mr. Gerken. Absolutely, yes.
Mr. Gramlich. Yes.
Mr. McClure. Yes.
Mr. Olson. Wow, 6.0 again, a total of 23.9. Thank you,
gentlemen.
The Lone Star State is the fastest growing State in the
country. In a stat that matters in this town, last census, the
2010 census, we picked up four new congressional districts
because of our growth. We all know more people means more
homes, more commerce, more industry, more need for electricity
generation. ERCOT is the agency in our State that regulates
most of the electricity in the State, about 90 percent of it,
and they did a recent study that says we may have a power
crisis by 2014 unless we have new power generation brought up
online. We will be short 2,500 megawatts is their estimate. If
we have a heat wave like the August before last, we were over
100 degrees in every part of the State for over a month. If
that happens again, we will have brownouts or blackouts. We
need more capacity. And yet, any time my State has tried to
take steps to address this shortage with coal, the Federal
Government, through EPA, coordinated with the environmental
groups, has stopped these projects dead in their tracks. One
such project is a proposed pet coke plant in Texas called the
Las Brisas Energy Center that has been stopped dead again by
EPA after they slow-walked the project for more than 3 years.
Pet coke is a byproduct from the firings right there in the
Gulf Coast. I am going to have an op-ed in tomorrow's Hill that
details the setbacks Las Brisas endured. EPA blocked the
permitting process, even though the Texas State agency
authorized by federal law to enforce the Clean Air Act granted
the permit to Las Brisas. Las Brisas would have been a state-
of-the-art facility, featuring a ``poshing scrubber'' to limit
sulfur dioxide emissions, a mechanism to collect particulate
matter, and an activated carbon ejection system to remove
mercury, which would have ensured better air quality than some
of the older plants on the Texas power grid. And yet, the
environmental groups and EPA blocked it, putting reliability at
risk for Texans.
A very short question for you, Mr. McCullough, and you, Mr.
McClure, Mr. Gerken. In your opinion, is this treatment typical
of President Obama's EPA?
Mr. McCullough. We do see very harsh regulatory action
against fossil fuels, yes.
Mr. Olson. Mr. McClure?
Mr. McClure. I would agree that fossil fuels are----
Mr. Olson. And finally, Mr. McCullough--I had Mr.
McCullough. Mr. Gerken.
Mr. Gerken. Yes, I believe so.
Mr. Olson. OK, I don't want to put any words in anybody's
mouth, but it is pretty clear to me that President Obama is
keeping a campaign promise. He is keeping his word that he said
with the San Francisco Chronicle interview in the summer of
2008--and this is a quote--``If somebody wants to build a coal-
powered plant, they can. It is just that it will bankrupt them
because they are going to be charged a huge sum for all the
greenhouse gas that is being emitted.''
I yield back the balance of my time. Thank you.
Mr. Whitfield. Thank you. At this time I recognize the
gentleman from Illinois, Mr. Kinzinger, for 5 minutes.
Mr. Kinzinger. Thank you, Mr. Chairman. Thank you to the
witnesses for being here today. We appreciate it.
Mr. Mohl, I want to thank you for being here, and I want to
echo some of the comments that I have heard from power
companies in Illinois.
It is interesting to me--who would have imagined that 10
years ago we would be discussing the negative impacts that an
oversupply of natural gas would have on our electrical grid. My
district is home to eight nuclear units, and Illinois gets 1/2
of its power from nuclear.
Mr. Mohl, if the price of natural gas stays at its current
market price of $4 a unit, will nuclear maintain its 20 percent
share, and if not, why not, and what can be done to ensure
diverse energy supply?
Mr. Mohl. Well as I mentioned, the three challenges we face
from merchant nuclear, which you have in Illinois, the low gas
prices, which are suppressed market prices, we need reasonable,
fact-based, scientific regulation that uses cost benefit
analysis, and we need fair and competitive wholesale markets.
So there are a number of things that really have to happen for
these plants to be able to continue to operate.
Mr. Kinzinger. What can we do--so I mean, do you have any
ideas offhand? So you are going to continue to have natural gas
at that price?
Mr. Mohl. Well, I mean, natural gas prices are what they
are. We have to deal with that situation. I mean, that is part
of the market. Where we have opportunities is to make sure that
when we look at imposing additional costs for whatever reason
that may be----
Mr. Kinzinger. Regulations, requirements, stuff like that?
Mr. Mohl. Yes, right, that that--you know, we take a
scientific approach, it is fact-based, and we use cost benefit.
And when I say cost benefit, I don't mean doing things on the
cheap.
Mr. Kinzinger. Sure.
Mr. Mohl. What I mean is we are looking at the best
alternatives.
Mr. Kinzinger. And we would like to see the NRC, for
instance, implement cost benefit rules and analyses. That would
be nice.
Mr. Mohl. And then lastly is, you know, we need competitive
wholesale markets, and they need to be free markets so people
have the opportunity to earn a return on their investment.
Mr. Kinzinger. Now let me ask you, too. You state in your
written testimony that throughout the Nation, nuclear
generators help keep wholesale electricity prices lower than
they otherwise would be. Can you further explain that?
Mr. Mohl. Well sure. We talked about nuclear generation
operates at a 90 percent capacity factor. It is high capital
investment, low incremental fuel, so they are one of the first
resources in a stack, and so they operate very efficiently and
they operate a significant portion of the time. And so that is
what makes them attractive.
Mr. Kinzinger. And that is what is keeping companies like
yours competitive in this environment?
Mr. Mohl. Yes, I mean, it does. Keep in mind the challenges
that I mentioned. Those are still challenges, even though they
are base load resources.
Mr. Kinzinger. Understood.
And for everybody, is having a diverse fuel mix ranging
from fossil fuels to renewables critical for long-term
planning? Do you need diversity to protect against unforeseen
fuel shortages or disruptions? We will start over there, sir.
Mr. McCullough. Unequivocal yes.
Mr. Mohl. Absolutely.
Mr. Fowke. Very helpful.
Mr. Gerken. Yes.
Mr. Gramlich. Yes.
Mr. McClure. Yes.
Mr. Kinzinger. That is not a big surprise. Is having a
diverse fuel mix important for keeping electricity affordable?
Mr. McCullough. Yes.
Mr. Mohl. Yes.
Mr. Fowke. Yes.
Mr. Gerken. Yes.
Mr. Gramlich. Yes.
Mr. McClure. Yes.
Mr. Kinzinger. Everybody has got their yes hats on. That is
good. When electricity rates rise, are the impacts likely to be
greatest for lower income consumers or those on a fixed income,
or higher income consumers?
Mr. McCullough. When you look at the percentage of
discretionary spending that people have, it is obviously a
bigger impact on lower income.
Mr. Mohl. It has a huge impact.
Mr. Kinzinger. And I think you would all agree. We just
wanted to get that out there.
When electricity rates rise, can it also affect
manufacturers and other businesses that are large energy
consumers? We talk about manufacturing in this country. It is
very important in my district. Does a higher energy cost,
energy price--and when we talk about EPA regulations, nuclear
regulations, will that affect our business climate here?
Mr. McCullough. I think it absolutely could and will if we
don't have the diverse portfolio that supports balance and
stability in the future of energy prices.
Mr. Kinzinger. Don't you wish I was your teacher in high
school? It would be easier to pass every class.
With that, Mr. Chairman and the witnesses, I want to say
thank you and I will yield back.
Mr. Whitfield. Gentleman yields back the balance of his
time.
The gentleman from Louisiana--at this time I recognize for
5 minutes the gentleman from Louisiana, Dr. Cassidy, for 5
minutes.
Mr. Cassidy. Hey, gentlemen, I am sorry to be coming at the
very end. Just when you thought, man, it is over. I apologize.
It is like a bad day that won't end.
Mr. McClure, you mentioned removing fossil fuel as a fuel
source will increase costs. Clearly, there is a move by a
variety of mechanisms to decrease our use of coal, our most
plentiful fossil fuel, and saying that will have negative
effects on electric reliability costs and the economy. I see
increased utility costs as decreasing manufacturing jobs, if
you will, energy intensive manufacturing jobs. Can you comment
on that, because I think there is a push either through carbon
tax or through EPA regulation or through a variety of other
mechanisms to remove fossil fuel from its relative portion of
our balance, almost kind of agnostic or inconsiderate of the
impact it would have on the overall economy.
Mr. McClure. Well in our system, one of our largest coal
plants--we have two coal plants--is our lowest cost generating
resource. And we have a Nucor steel plant in our system. They
came to our system because of low cost energy, and they are
very much concerned as energy prices go up, they become less
competitive, and they are competing at a global market.
Mr. Cassidy. So there has been a consideration of a carbon
tax. Obviously that is a way to price electricity from fossil
fuel at a higher level relative to whatever other source you go
to. Now, is it fair to say that would have a negative impact
upon Nucor's ability to hire blue collar middle class workers?
Mr. McClure. If their costs go up, it affects--I am sure it
affects their operations and their decisions and who they can
hire.
Mr. Cassidy. And by definition, energy intensive
enterprises are energy intensive.
Mr. McClure. Yes, they are.
Mr. Cassidy. OK. And do I know that Nucor is actually a
European firm?
Mr. McClure. No, Nucor is an American firm. I think they
are headquartered in North Carolina.
Mr. Cassidy. Is it? I think I recall once, they were
considering building either in Brazil or the United States, and
I am sure energy cost must have played a role there.
Mr. McClure. My understanding is they have 60 facilities in
the United States.
Mr. Cassidy. Got you. OK.
And then you speak of the diversity of fuel sources
provides lower electric rates. I think that is in your
testimony. When you say diversity, I have always been concerned
that if you look at the premium the taxpayer pays to subsidize
some renewables, we are actually paying a heck of a lot for
things like wind and solar. Not saying that we shouldn't
encourage their use, but at the same time, the cost per
megawatt is almost exponentially higher than that from fossil
fuel sources. Can we really build a grid based upon such
expensive electricity?
Mr. McClure. Again, I would come back to the notion of
diversity. There are certain parts of the country where wind is
very competitive because of great wind conditions, and so those
can be very low cost--that can be a low cost source of
generation. And as has been mentioned earlier, it can help
stabilize future costs because the fuel cost really doesn't
change, but it is regional, like so many other issues we have
discussed today. In some areas, wind can be a very valuable
asset. In other areas, it is not even a viable possibility.
Mr. Cassidy. Now, when you say that, obviously there is
incredible subsidies involved with--per megawatt hour involved
with, say, wind. So when you say it is total life cycle cost, I
am just asking--I don't know the answer. I am asking to learn.
Total life cycle cost, if you factor in those subsidies, is it
still a good bargain?
Mr. McClure. I think we are learning a lot in wind. The
price is coming down and the early wind projects we put in, we
decommissioned, but the equipment today is much better and I
think they will continue to be--the newer equipment, I believe,
in the right locations will be valuable over the long haul with
the subsidies.
Mr. Cassidy. Got you. I yield back. Thank you.
Mr. Whitfield. Thank you, Dr. Cassidy.
That concludes today's hearing. I want to thank the panel
of witnesses. We appreciate your expertise and your time for
joining us today, and I would also ask unanimous consent that
the following materials and statements be entered into the
record: a statement for the record from the American Public
Power Association, and a statement for the record from the
American Chemistry Council. Mr. McClure, certainly I want to
thank your company for their involvement in the Alliance for
Fuel Options, Reliability, and Diversity report, and also, the
Wall Street Journal article on the California grid, and the New
York Times article on the New England gas price situation as
well.
[The information appears at the conclusion of the hearing.]
Mr. Whitfield. The record will remain open for a period of
10 days, and Mr. Gramlich and others, we will be in touch with
you all about some additional information that we asked that
you all provide.
But thank you once again. Our next hearing will be on this
subject relating to the RTOs, and that will be maybe in a
couple of weeks, but thank you again, and we look forward to
working with all of you as we move forward to try to keep
America competitive in the global marketplace. Thank you.
[Whereupon, at 12:19 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
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