[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
AMERICAN ENERGY SECURITY AND INNOVATION: THE ROLE OF REGULATORS AND
GRID
OPERATORS IN MEETING NATURAL GAS AND ELECTRIC COORDINATION CHALLENGES
=======================================================================
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 19, 2013
__________
Serial No. 113-19
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
U.S. GOVERNMENT PRINTING OFFICE
80-804 WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
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................................. 3
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 5
Prepared statement........................................... 7
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, prepared statement................................... 121
Witnesses
Philip D. Moeller, Commissioner, Federal Energy Regulatory
Commission..................................................... 8
Prepared statement........................................... 10
Answers to submitted questions............................... 130
Cheryl A. LaFleur, Commissioner, Federal Energy Regulatory
Commission..................................................... 18
Prepared statement........................................... 20
Answers to submitted questions............................... 140
Barry T. Smitherman, Chairman, Railroad Commission of Texas...... 49
Prepared statement........................................... 52
Joshua B. Epel, Chairman, Colorado Public Utilities Commission... 64
Prepared statement........................................... 66
Clair J. Moeller, Executive Vice President, Transmission &
Technology, Midwest Independent Transmission System Operator,
Inc............................................................ 73
Prepared statement........................................... 75
Answers to submitted questions............................... 154
Gordon van Welie, President and CEO, ISO New England, Inc........ 85
Prepared statement........................................... 87
Paul J. Hibbard, Vice President, Analysis Group.................. 96
Prepared statement........................................... 98
Submitted Material
Testimony of Todd Snitchler, Charman of Public Utilities
Commission of Ohio Coordination between Natural & Electricity
Markets........................................................ 123
AMERICAN ENERGY SECURITY AND INNOVATION: THE ROLE OF REGULATORS AND
GRID OPERATORS IN MEETING NATURAL GAS AND ELECTRIC COORDINATION
CHALLENGES
----------
TUESDAY, MARCH 19, 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.
Present: Representatives Whitfield, Scalise, Shimkus,
Pitts, Terry, Burgess, Latta, Cassidy, Olson, Gardner, Pompeo,
Griffith, Barton, Rush, McNerney, Tonko, Green, Barrow,
Christensen, Dingell, and Waxman (ex officio).
Staff present: Nick Abraham, Legislative Clerk; Charlotte
Baker, Press Secretary; Allison Busbee, Policy Coordinator,
Energy & Power; Patrick Currier, Counsel, Energy & Power; Tom
Hassenboehler, Chief Counsel, Energy & Power; Mary Neumayr,
Senior Energy Counsel; Andrew Powaleny, Deputy Press Secretary;
Chris Sarley, Policy Coordinator, Environment & Economy; Jeff
Baran, Democratic Senior Counsel; Kristina Friedman, 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 we certainly appreciate our witnesses that
will be with us today. I think we have two panels and I will
introduce the first panel in just a minute. But the title of
today's hearing is ``American Energy Security and Innovation:
The Role of Regulators and Grid Operators in Meeting Natural
Gas and Electric Coordination Challenges. And I noticed the
clock says 20 until 10:00; it is actually 10 o'clock so that is
why we are starting right now. But I want to welcome all of you
here today.
As you know, EPA recently announced that they were going to
delay the finalizing of the rule on greenhouse gas regulations
of the nuke power plants, and I am delighted that they made
that decision. I know that one of the reasons they are doing it
is that they wanted to buttress their legal case. And we have
many witnesses that will be testifying today about the
increased use of natural gas, which is coming about for a
number of different reasons. One, of course, gas prices are
very low right now, and the second reason is that the
regulatory decisions coming out of EPA makes it extremely
difficult to use coal. And if they do finalize that greenhouse
gas regulation for new coal power plants, you will not be able
to build a new coal power plant in America.
And those kinds of decisions, whether they are price
decisions or regulatory decisions, have tremendous impact on
the way we produce electricity in America. And it is certainly
true that generating power from natural gas has many benefits,
especially given that domestic supplies are increasing and our
current prices are relatively low. But we are learning that
there are some very real challenges to integrating more natural
gas into the power sector.
We are pleased, as I said, to have an excellent slate of
witnesses today who will discuss some of these challenges and
describe for us how they are meeting them to ensure the
continued supply of affordable and reliable electricity. At the
heart of the issue is the fact that electricity is a 24-hour-a-
day, 7-day-a-week, 365-day-a-year business with daily and
hourly changes in supply and demand. This complexity poses
challenges to grid owners and operators incorporating more
natural gas-fired generation into their system. Greater
coordination among the natural gas and electric industries is
needed to ensure that these challenges can be met.
One challenge is there are certain physical constraints,
such as whether current natural gas pipeline and storage
infrastructure will be adequate to deliver increasing amounts
of natural gas to power plants. But there also are market and
regulatory challenges in some regions such as scheduling
natural gas supplies to match up with electricity needs. Many
of these challenges are state and regional issues as well as
federal ones, which is why we will hear from those representing
these levels of government today.
The challenges of heavier reliance on natural gas-fired
generation have been highlighted by recent cold spells.
Electricity demand goes up when the temperature goes down, but
so does demand for natural gas to meet the heating needs of
residential customers. As a result, regions with a high
proportion of natural gas-fired generation see a dual burden on
supplies during periods of unusually cold weather. We need to
take steps to ensure that the lights stay on at an affordable
rate through cold snaps, as well as other occasional but
inevitable events that put a strain on the system.
America's newfound abundance of natural gas is a blessing
and should play an important role in contributing to our energy
needs. But we need to take steps to properly integrate, and I
think the fact that FERC has had five technical hearings on
these kinds of issues within the last year illustrates the
importance of the issue, and I know they have more conferences
scheduled on this as well.
[The prepared statement of Mr. Whitfield follows:]
Prepared statement of Hon. Ed Whitfield
Two weeks ago, we held a hearing exploring the importance
of a diverse electricity generation portfolio, one that
includes coal, natural gas, nuclear, and renewables. One of the
lessons from our recent fuel diversity hearing is that we need
to avoid an overreliance on any one source of fuel for
electricity. In my view, natural gas complements coal, but
should not serve as a replacement for it. Today, we will focus
on the biggest change in the generation mix in the U.S., which
is the rapid growth in the use of natural gas to generate
electricity.
I might add that the flip side of our discussion about the
challenges of ramping up natural gas-fired generation is that
coal has a number of advantages that have not been fully
appreciated by this Administration. To take one example, having
an extra supply of coal on hand to deal with any contingency is
as simple as keeping a pile of it on site, a convenience that
often seems to be taken for granted. Coal remains one of the
lowest cost options for electricity generation and is the
fastest growing energy source worldwide, yet we have allowed
EPA to engage in regulations on coal-fired power plants without
thinking through all of the consequences.
I do not think it's realistic to meet the electricity needs
of America without the use of fossil fuels, nuclear power, and
those fuels that provide our base load needs. And I hope that
maintaining a future role for coal, including new, advanced
coal-fired power plants, is also a part of today's discussion.
It is certainly true that generating power from natural gas
has many benefits as well, especially given that domestic
supplies are increasing and current prices are relatively low.
But, we are learning that there are some very real challenges
to integrating more natural gas into the power sector. We are
pleased to have an excellent slate of witnesses today who will
discuss some of these challenges and describe for us how they
are meeting them to ensure the continued supply of affordable
and reliable electricity.
At the heart of the issue is the fact that electricity is a
24 hours-a-day, 7 days-a-week, 365 days-a-year business with
daily--and hourly--changes in supply and demand. This
complexity poses challenges to grid owners and operators
incorporating more natural gas-fired generation into their
systems. Greater coordination among the natural gas and
electric industries is needed to ensure that these challenges
can be met.
One challenge is there are certain physical constraints,
such as whether current natural gas pipeline and storage
infrastructure will be adequate to deliver increasing amounts
of natural gas to power plants. But there are also market and
regulatory challenges in some regions, such as scheduling
natural gas supplies to match up with electricity needs. Many
of these challenges are state and regional issues as well as
federal ones, which is why we will hear from those representing
these levels of government.
The challenges of heavier reliance on natural gas-fired
generation have been highlighted by recent cold spells.
Electricity demand goes up when the temperature goes down, but
so does demand for natural gas to meet the heating needs of
residential customers. As a result, regions with a high
proportion of natural gas-fired generation see a dual burden on
supplies during periods of unusually cold weather. We need to
take steps to ensure that the lights stay on at an affordable
rate through cold snaps as well as other occasional but
inevitable events that put strain on the system.
America's newfound abundance of natural gas is a blessing
and should play an important role in contributing to our energy
needs. But we need to take steps to properly integrate it into
the electricity portfolio. I look forward to learning about the
best ideas for doing so. Thank you.
Mr. Whitfield. So with that, I yield back the balance of my
time and recognize the gentleman from Illinois, Mr. Rush, for a
5-minute opening statement.
OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. I want to thank you, Mr. Chairman, for holding
today's hearing which is part two on the diversification of the
Nation's electricity supply, and we will focus on the role of
regulators and grid operators in meeting natural gas and
electric coordination challenges.
As we discussed in the first hearing on electric
diversification, we know that in 1993 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 Administration reports that in 2012 there was a
shift in electricity generation away from coal-fired
generation, which declined by 12.5 percent and caused a cleaner
source of electricity including natural gas, which increased by
21 percent.
In today's hearing, we will hear from federal and state
regulators, as well as the electric grid operators about the
challenges resulting from this shift to natural gas from coal-
fired plants in electricity generation. We will also hear from
two of the FERC commissioners on whether grid operators are
prepared for reliability issues stemming from the power sector
shift from coal to natural gas. And we will discuss solutions
to better coordinate between the two industries through
communication and scheduling alignments to make sure the grid
operators have enough backup generating capacity when gas
supplies are tight. Last August, FERC held five regional
technical conferences where natural gas and electric
interdependence issues such as better communications,
infrastructure concerns, rules, and reliability issues were
discussed.
I understand Commissioners Moeller and LaFleur also
participated in a technical conference last month to discuss
more regional and national issues as they relate to natural gas
and electricity markets. While there were regional differences
in regards to gas and electric coordination issues that was
brought up in these conferences, work is now being done by
regional grid operators to improve information-sharing among
the grid operators, natural gas pipelines, and electricity
generators.
I understand that another technical conference is scheduled
for next month in April, where the discussion will focus on
whether there is going to be more coordination between the
natural gas and electric industry market schedules in order to
achieve greater efficiency for both industries.
Mr. Chairman, it is important to note that this shift from
older, dirtier, coal-fired plants to natural gas and supplying
the Nation's electricity demand is due more to marketing
realities than to EPA rules such as the Mercury and Air Toxics
rules and a new source performance schedule.
According to CRS, ``the primary impact of many of the rules
will largely be on coal-fired plants more than 40 years old
that have not, until now, installed state-of-the-art pollution
control. Many of these plants are inefficient and are being
replaced by more efficient combined-cycle natural gas plants, a
development likely to be encouraged if the price of competing
fuel, natural gas, continues to be low almost regardless of the
EPA's rule.''
So Mr. Chairman, I look forward to today's hearing. I look
forward to today's witnesses on the challenges and
opportunities of shifting from coal to natural gas in the
Nation's electricity generation. I yield back.
Mr. Whitfield. Thank you, Mr. Rush. At this time I
recognize the gentleman from Texas, Mr. Barton, for 5 minutes.
Mr. Barton. Thank you, Mr. Chairman. I won't use that 5
minutes.
I want to take a little bit of my time to welcome a witness
from the second panel, Mr. Barry Smitherman. He is the chairman
of the Texas Railroad Commission. That is an elected position
in Texas, and I was proud to vote for him this past November.
You remember that when I come to you for favor later on. But he
is going to testify about what is happening in Texas. We are
very proud of our home State that alternative energy, wind
power, and nuclear power--if you want to consider nuclear as an
alternative--is about 20 percent of our supply for electricity.
We have about 50 percent that is generated by natural gas,
which is the main focus of your hearing today, Mr. Chairman.
And the rest of the country is beginning to come to where
Texas has always been, you know, large on natural gas. But we
also have about 30 percent of coal power, which I know you are
very supportive of, Mr. Chairman.
This should be a good hearing and we are glad to have our
FERC chairman and one of the FERC commissioners, and I hope
that we have a productive hearing. I have still got a lot of
time I would be happy to yield if somebody else wants to use
some my time.
Mr. Whitfield. Does anyone want the balance of Mr. Barton's
time?
Mr. Barton. I believe Mr. Olson would like to say some nice
things.
Mr. Olson. I would really like to thank my colleagues from
Texas. I would like to join his comments and I voted for you,
too, Barry. Good, good vote. You are doing a great job for our
State. Thank you very much, Joe.
Mr. Barton. I will say that before Mr. Smitherman was
elected chairman of the Railroad Commission, he was appointed
chairman of the Public Utility Commission, so he has been
double-hatted in Texas and is truly an expert. And with that,
Mr. Chairman, I would be happy to yield back.
Mr. Whitfield. The gentleman yields back. 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.
And Mr. Smitherman, I just didn't have a chance to vote for
you.
Today, the subcommittee hears from electricity regulators
and grid operators about America's evolving electricity
generation portfolio. There is no question that a significant
transition is underway.
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. 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.
Cheap natural gas is also helping to transform our
electricity sector. This market reality is causing some
utilities to retire their oldest, dirtiest, and least-efficient
coal plants. And new coal plants are simply not cost-effective
to build today.
These changes are positive developments. Until carbon-
capture technologies are developed, burning coal will continue
to emit dangerous pollution. We should avoid investments in
infrastructure that will lock in the worst impacts of climate
change or create stranded investments that must be shut down
before they have served their useful life.
But these changes also create challenges for our electric
grid. Clean renewable energy sources like wind and solar
provide power when the wind is blowing or the sun is shining,
but not at other times. We need dispatchable generation that
can be integrated into the grid with these intermittent
supplies. That is a planning, funding, and construction
challenge.
We also need to be developing and deploying power storage
systems that can accommodate increasing generation from
renewable sources.
EPA, the Department of Energy, and the Federal Energy
Regulatory Commission are working to answer these challenges.
But we in Congress could help by crafting sensible energy
legislation. Two weeks ago, we heard from executives from some
of the biggest utilities in the country. Entergy, AEP, and Xcel
operate in different parts of the country with different fuel
portfolios. But they all agreed that the best way to respond to
climate change is through legislation from Congress.
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 that they
can plan and invest for the future.
Ideally, this committee will 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. And I think he better act, before we fail.
Because, chances are we won't act, even though I hope we will.
EPA's proposed carbon pollution standard for new power plants
is a good first step. It is a standard that requires new power
plants, whether they use coal or natural gas, to keep their
pollution below a specified level. The proposed standard
provides incentives for the deployment of carbon-capture and
sequestration technologies. And it creates a level playing
field for fossil fuel-fired generation.
It was valuable to hear from electric utilities at the last
hearing. And I am glad that we are hearing from grid operators
and regulators today. They have important perspectives.
But since policies that respond to climate change are a
major focus of the statements and questions at these hearings,
we also need to hear from the scientists and technical experts
who can inform the subcommittee about the dangers of manmade
climate change and the closing window for effective action. Two
weeks ago, I made that request at the last hearing. Last week,
Mr. Rush and I sent a letter reiterating that request for an
additional hearing. Mr. Chairman, I urge you to respect this
moral imperative and listen to all sides of the issue.
I thank the witnesses for being here and I look forward to
today's testimony. And I yield back the balance of my time.
[The prepared statement of Mr. Waxman follows:]
Prepared statement of Hon. Henry A. Waxman
Today, the Subcommittee hears from electricity regulators
and grid operators about America's evolving electricity
generation portfolio. There is no question that a significant
transition is underway.
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. 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.
Cheap natural gas is also helping to transform our
electricity sector. This market reality is causing some
utilities to retire their oldest, dirtiest, and least efficient
coal plants. And new coal plants are simply not cost-effective
to build today.
These changes are positive developments. Until carbon
capture technologies are developed, burning coal will continue
to emit dangerous pollution. We should not invest in
infrastructure that will ensure we suffer the worst impacts of
climate change or create stranded investments that must be shut
down before they've served their useful life.
But these changes also create challenges for our electric
grid. Clean renewable energy sources like wind and solar
provide power when the wind is blowing or the sun is shining
but not at other times. We need dispatchable generation that
can be integrated into the grid with these intermittent
supplies. That is a planning, funding, and construction
challenge.
We also need to be developing and deploying power storage
systems that can accommodate increasing generation from
renewable sources.
EPA, the Department of Energy, and the Federal Energy
Regulatory Commission are working to answer these challenges.
But we could help in Congress by crafting sensible energy
legislation. Two weeks ago, we heard from executives from some
of the biggest utilities in the country. Entergy, AEP, and Xcel
operate in different parts of the country and have very
different fuel portfolios. But they all agreed that the best
way to respond to climate change is through legislation from
Congress.
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 that they
can plan and invest for the future.
Ideally, this Committee will 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 standard that
requires new power plants--whether they use coal or natural
gas--to keep their pollution below a specified level. The
proposed standard provides incentives for the deployment of
carbon capture and sequestration technologies. And it creates a
level playing field for fossil fuel-fired generation.
It was valuable to hear from electric utilities at the last
hearing. And I am glad that we are hearing from grid operators
and regulators today. They have important perspectives.
But since policies that respond to climate change are a
major focus of the statements and questions at these hearings,
we also need to hear from the scientists and technical experts
who can inform the Subcommittee about the dangers of man-made
climate change and the closing window for effective action. Two
weeks ago, I made that request at the last hearing. Last week,
Mr. Rush and I sent a letter reiterating that request for an
additional hearing. Mr. Chairman, I urge you to respect this
moral imperative and listen to all sides of the issue.
I thank the witnesses for being here and look forward to
today's testimony.
Mr. Whitfield. Thank you, Mr. Waxman.
That concludes today's opening statements, and so at this
time I will introduce our first panel of witnesses.
We have with us this morning Mr. Philip Moeller, who is the
Commissioner of the Federal Energy Regulatory Commission. Mr.
Moeller, we are delighted to have you back with us again. And
we have also Hon. Cheryl LaFleur, Commissioner, Federal Energy
Regulatory Commission. I thank both of you for being here. We
do look forward to your testimony and your expertise in this
area. And I am going to call on each one of you, recognize you
for 5 minutes. And there is a little box on the table that, if
it works, it will turn red when your 5 minutes is up. And I am
sure I won't cut you off, but at least you will notice that the
red light is on.
So at this time, Mr. Moeller, I will recognize you for 5
minutes and we look forward to your opening statement.
STATEMENTS OF PHILIP D. MOELLER, COMMISSIONER, FEDERAL ENERGY
REGULATORY COMMISSION; AND CHERYL A. LAFLEUR, COMMISSIONER,
FEDERAL ENERGY REGULATORY COMMISSION
STATEMENT OF PHILIP D. MOELLER
Mr. Philip Moeller. Mr. Chairman, thank you very much.
Ranking Member Rush, Chairman Emeritus Waxman, and Barton,
thank you for the chance to testify today.
My name is Phil Moeller. I am one of five sitting
commissioners. And I thank you for your attention to this issue
because I think it is one of the more pressing issues in our
country.
The convergence of the electric industry and the natural
gas industry is a result of several factors. It is kind of a
good problem to have. It just has to be managed as two very
different industries converge in a way that we want to make
sure that we maintain the reliability of the natural gas supply
and production and of course the electricity supply and
production as well.
I always have to point out the most efficient use of
natural gas of course is direct usage, space heat, and water
heat. But the fact remains that we are in a major trend pattern
right now where we are using more gas to make electricity. I
ascribe five reasons for it.
First, it is usually easier to site, build, and finance a
gas plant than other alternatives. Secondly, oftentimes,
electric transmission is a cheaper alternative for consumers
but it is so hard to build electric transmission in this
country that oftentimes utilities build a generating plant
instead. The third reason alluded to earlier, we have an
abundance of renewable power that has been entering the grid
but it is intermittent nature. It is not always there. You need
something to back it up, to firm it up. That is almost always a
gas plant because of its ability to respond quickly.
The fourth reason, of course, also alluded to earlier, is a
suite of environmental regulations, air regulations, by the EPA
that is resulting in the shutdown and the retrofitting of
thousands of megawatts of coal plants in this country.
And the fifth reason is that we appear to have a long-term
period of moderate to low prices of natural gas. That is coming
domestically, quite amazingly, only in the last 5 or 6 years
because of the new technologies of horizontal drilling and
hydrofracking that have allowed us to access these resources
that we didn't really even know we had 5 or 6 years ago.
I was honored and privileged to sit on the coordinating
subcommittee of the National Petroleum Council, and they put
out a 2-year study about a year-and-a-half ago called ``Prudent
Development.'' I brought the summary along today. It outlines
just the enormous resources we have in North America on oil and
gas, again, ones that we didn't even realize we had a few years
ago.
Now, we as a society may decide to restrict the use of some
of these new technologies. That won't be our decision. But if
we don't that or even if we do to some extent, technology will
only allow us to find more of these resources, perhaps extract
them and, absent a big change, we appear to have a long-term
period of stability of gas in this country. And that leads to
the fact that we will probably have low to moderate prices for
a relatively long time.
Well, even despite this, we have had some challenges in our
country where, at times, there essentially hasn't been enough
gas to go around, usually in a cold weather event. My
colleague, Commissioner LaFleur, experienced it firsthand in
2004 in New England. A few other examples include some rolling
blackouts around Denver in 2006, almost a near catastrophe in
my home of the Pacific Northwest in December of 2009 when some
quick action averted a lot of outages.
But the event that really brought my attention to this
issue was the Southwest outage of February 2011, where over 3
million people in Texas, and over 50,000 gas consumers in
Texas, New Mexico, and Arizona lost service. It was a cold
weather event but it wasn't unprecedented. And we had problems
essentially on the gas side to deliver electricity and then
failure on the electricity side to deliver gas.
Again, our staff at FERC and also the North American
Electric Reliability Corporation put out a great report on that
outage that describes the industries in quite good detail as a
primer, what happened, recommendations for it. So there was a
failure to communicate, really, in that event. And I was
concerned going into the last couple of winters, that because
of those failures to communicate, we could have a repeat
episode if we had some really cold weather. I mean, in reality
we have had some pretty warm winters the last couple of years,
but I am concerned that the system hasn't been stressed under
this new regime of moving toward more gas to make electricity
in addition to the traditional uses of gas.
So about a year ago, I put out a series of questions to the
public asking where we should go on this. My colleague,
Commissioner LaFleur added some, and our chairman gave it a
docket number. It has been a public proceeding. Our chairman
has dedicated enormous staff resources to try to deal with this
issue. And as you eluded to, Mr. Chairman, we have had a series
of five technical conferences regionally based in August,
another one last month, another one next month, another one in
May where we are looking at the short-term communication issues
so that if we have another cold winter event next winter that
people can talk to each other, medium-term issues of getting
the markets aligned correctly and longer-term issues of making
sure we have the right market rules, financial rules, and
environmental rules to get more infrastructure built in this
country to deal with the long-term issue of enough pipe and
supply to customers.
Again, thank you for giving this issue the attention it is
giving. That helps us along. We are not sure where we are going
on this, but I would be happy to answer any questions when
appropriate.
[The prepared statement of Mr. Moeller follows:]
[GRAPHIC] [TIFF OMITTED] 80804.001
[GRAPHIC] [TIFF OMITTED] 80804.002
[GRAPHIC] [TIFF OMITTED] 80804.003
[GRAPHIC] [TIFF OMITTED] 80804.004
[GRAPHIC] [TIFF OMITTED] 80804.005
[GRAPHIC] [TIFF OMITTED] 80804.006
[GRAPHIC] [TIFF OMITTED] 80804.007
[GRAPHIC] [TIFF OMITTED] 80804.008
Mr. Whitfield. Thank you, Mr. Moeller.
And Ms. LaFleur, you are recognized for 5 minutes.
STATEMENT OF CHERYL A. LAFLEUR
Ms. LaFleur. Thank you very much, Chairman Whitfield,
Ranking Member Rush and Phil, and the members of the
subcommittee. I appreciate your holding this hearing and the
opportunity to testify.
Since July 2010, I have served as a commissioner of the
Federal Energy Regulatory Commission. Earlier in my career, I
had the privilege of serving electric and natural gas customers
in New England and upstate New York. That experience taught me
firsthand how important reliability is to customers in real
communities. Since joining the Commission, I have made
reliability and grid security my top priorities.
As everyone has said, our Nation is experiencing a
substantial growth in the use of natural gas to generate
electricity. In the past 15 years, gas used for generation has
increased at the rate of 6 percent per year, but in the past 3
years it has accelerated to 10 percent per year more gas being
used for electricity. There are several reasons for this. The
primary one is the increased availability and affordability of
domestic natural gas, which is leading to sharply lower gas
prices. In addition, natural gas is the cleanest-burning fossil
fuel, making it an attractive option for new generation and for
repowering generation that is uneconomic to retrofit for new
environmental regulations. Finally, the flexible operating
characteristics of natural gas work well with the Nation's
growing fleet of renewable resources.
This steady growth in natural gas for generation has led to
concerns about the interdependence of the gas and electric
markets. Because natural gas is generally delivered in a
pipeline network rather than stored onsite like other
generating fuels, it is important that we have both an adequate
network of pipelines and operating practices to support
reliability.
At the technical conferences we held last summer in five
regions of the country, we heard about two basic issues. The
first is infrastructure: making sure we have enough pipelines
in the right places to support both electric and gas
reliability. It is not a supply issue; we have plenty of gas.
It is a pipeline issue. In some places the pipelines are
constrained in specific regions or localities.
Since deregulation of the gas network by the Congress
several decades ago, pipelines have been permitted by FERC
based on long-term commitments for firm supply. And that system
has worked well. We have permitted 10,000 miles of gas
pipelines in the last decade. However, in regions with
competitive electric markets, gas generators often don't enter
into the long-term firm contracts but instead rely on
interruptible contracts or buying gas that is resold by others
with firm contracts. This can lead to shortage of gas at stress
times, particularly in the winter heating season in certain
regions, most notably New England.
At the conferences we received a strong message, really
from folks across the country, that the need for infrastructure
is a regional issue that varies by geography, the existing
pipelines, fuel mix, and the structure of the market. Many
regions, particularly the mid-Atlantic, the South, and the West
didn't identify a systemic problem with getting infrastructure
built at this time. So the conference participants urged FERC
to work with the regions on their issues rather than impose a
national solution. And on the infrastructure issue, that is
what we have been doing.
The operators of the markets you will hear from a little
later are working under our jurisdiction to make sure that
their market rules and their detailed operating rules support
reliable electricity. In particular, ISO New England is working
on both short-term and long-term enhancements to better ensure
that it builds fuel security into its generation markets. We
have already approved some market rules for this winter.
The second basic issue is operations, making sure that we
coordinate the use of the pipelines we have to make sure that
we get the best use of the infrastructure that is in place. As
has already been mentioned, we had a tech conference on
communications and we are working on next steps and have one
coming up on scheduling to make sure the gas electric days work
together to promote getting the most value from the pipelines
we have in place. We are getting quarterly reports on this and
in-person reports from all the regions at our open meeting so
we can follow it closely.
This issue of gas electric interdependence is not a reason
to panic, but it is absolutely a reason to plan and do so now.
Viewed in the larger perspective, it is a byproduct of an
American success story, which is the growth of domestic natural
gas resources. The Nation's generation fleet has historically
experienced large turnovers in fuel mix and large building
cycles, and they inevitably require adaptations of supporting
infrastructure and operations. I believe with diligent and
timely effort, we can make this adaptation as well, and I
pledge to use the authority I have at FERC to be proactive in
meeting the challenge. Thank you and I look forward to your
questions.
[The prepared statement of Ms. LaFleur follows:]
[GRAPHIC] [TIFF OMITTED] 80804.009
[GRAPHIC] [TIFF OMITTED] 80804.010
[GRAPHIC] [TIFF OMITTED] 80804.011
[GRAPHIC] [TIFF OMITTED] 80804.012
[GRAPHIC] [TIFF OMITTED] 80804.013
[GRAPHIC] [TIFF OMITTED] 80804.014
[GRAPHIC] [TIFF OMITTED] 80804.015
Mr. Whitfield. Well, thank you, Commissioner LaFleur, and
we appreciate both of you for giving your statements.
Last year, we had a hearing before this subcommittee, and
FERC at that time talked about the importance of coordination
between EPA and DOE and other agencies regarding reliability
issues. And we have had EPA before us on many occasions talking
about--because they have been very aggressive on regulations.
And sometimes you get the impression that EPA is the arbiter
for reliability issues. But in actuality, that is you all's
responsibility. And I would just ask both of you, can you
comment on the coordination between the agencies? Are we making
progress in that regard? And what is your personal view about
that issue? Mr. Moeller?
Mr. Philip Moeller. Well, I remember that hearing quite
well having testified at it. I guess we hear that there is talk
going on between the staffs at FERC and the EPA. I will have to
get back to you with more details as to actually the substance
of those discussions. We have talked about the 5th year that
plants would get--they were a year into it. It is effective
April 16, 2015, MATS that is. Most people think that entities
will get another year if they are going to be retrofitting. And
then there is the question of the 5th year. The industry has
told us that until the federal law is resolved between the
Federal Power Act and the Clean Air Act, that they are very
reluctant to even ask for the 5th year.
So that plays out differently in different load pockets
depending on how much coal is going to be retiring. We are
practically concerned about Northern Ohio and the timeline
there but there are other areas. So I would just hope, and I
think I have been consistent in urging the EPA that they be
very involved with the market operators, two of whom will be on
your next panel, so that if--you know, the faster you rush a
job, the more expensive it is to consumers. So as long as they
are engaged and the have some kind of a mechanism, perhaps give
another extension of time if they just can't get the new
generation or the new transmission built in particular load
pockets, that is where it gets so complicated. It is about
physics and it is about the flow of electricity, and it is just
not universally the same everywhere.
Mr. Whitfield. Right. Ms. LaFleur, do you have a comment?
Ms. LaFleur. Yes. It is my understanding that there are a
couple of things in place. There is a regular monthly telephone
conference between the RTOs, the DOE, FERC, and the EPA, and
then, in-person meetings ad hoc between FERC and the EPA. In
preparation for this hearing I got copies of a lot of the--what
do you call them--PowerPoints at the last tech conference,
which was really a report from the different RTOs on what they
are seeing.
In addition, I initiated, and Commissioner Moeller and I
co-chaired an ongoing forum between FERC and the state
regulators. We meet at every NARUC meeting and have EPA there
in person to hear what is coming out, what is emerging, what do
we think the issues are. In May of last year we put out a
policy statement on how FERC would approach the 5th year if
anyone came to us. We haven't heard from anyone yet because
they are still working on their 4th year. But we wanted to be
ready so we could hit the ground running.
I agree with Commissioner Moeller that Northern Ohio is one
of the places that has been identified. I was there 3 weeks
ago. I know we are going to hear from the Ohio chairman today,
and we have to work closely on all of those things through
these various fora.
Mr. Whitfield. Yes. Mr. Gordon van Welie is with us with
the ISO up in the Northeast and, of course, you mentioned that
there are a lot of concerns about the Northeast, and I am sure
he will get to that. But are there any other areas that you all
have particular concern about? You mentioned the Northeast; you
mentioned Northern Ohio. What are some other geographical
areas?
Mr. Philip Moeller. Well, the Midwest. And you will hear
from Clair Moeller from MISO later, too. But just the number of
megawatts that are either being closed down or retrofitted is
enormous in a relatively short amount of time.
Mr. Whitfield. Right.
Ms. LaFleur. New England is clearly at the cutting-edge but
the Midwest and also New York were places that had a lot to say
when we had our tech conferences.
Mr. Whitfield. And we still have a lot of unknowns out
there, too, because, as we say, EPA is looking at greenhouse
gas regulations. Are they going be applicable to the existing
plants? They haven't quite finalized the new construction, so
we have a lot of question marks out there, a lot of unknowns.
And at that this time my time is expired, so I will
recognize the gentleman from Illinois, Mr. Rush, for 5 minutes.
Mr. Rush. I want to thank you, Mr. Chairman. Mr. Chairman,
I have a different line of questions. I am going to begin with
Commissioner LaFleur.
Commissioner LaFleur, in your testimony you cite the lack
of pipeline infrastructure as your first area of concern in
ensuring adequate pipeline capacity to support most gas-fired
electric generation and other gas customers. Lack of access in
pipeline infrastructure is also an issue that I have concerns
about. But for me, the concerns are regarding the lack of
access for minorities and women when it comes to jobs and
contracts and economic opportunity available in the pipeline
industry.
Specifically, over the last Congress, this subcommittee
heard from witnesses from all aspects of the pipeline industry,
including private companies and associations, as well as from
federal agencies. And each time, I posed a simple question. Are
there women, are there minorities who are owners, builders, and
operators of pipelines in this country and what are their
levels of participation?
Because I can never get a straight answer on this question,
I drafted language in the Pipeline Safety Regulatory Certainty
and Job Creation Act of 2011 which calls for a comprehensive
GAO report examining the levels of engagement and participation
of minority-owned, women-owned, and disadvantaged business
enterprises and contractors involved in the construction and
operation of pipelines in this country. So absolutely no one
was surprised when the GAO report came back stating that the
levels of minority participation in the pipeline industry was
so small that it was almost negligible.
Now, I understand this is not your area of expertise, but I
want you to know that my office will be working with you,
reaching out to you, and reaching out to FERC in general to
work with us on establishing strategies for increasing access
for minorities and women in the pipeline industry.
As you stated in your testimony, over the next few years we
will have to build up the Nation's pipeline infrastructure in
order to address the shale oil and gas boom, and make sure the
energy is getting to urban areas, rural centers, wherever it is
needed at. As policymakers, it is our responsibility to ensure
that all segments of the population are able to participate in
building this critical infrastructure and that all communities
have access to the economic opportunities that will be
available in the pipeline industry over the next decade.
Mainly, I look forward to working with FERC, engaging FERC
on this issue, and I would like to ask both of you, do you have
any responses or any comments to share with this subcommittee,
now that I have raised this particular issue?
Ms. LaFleur. Well, thank you, Congressman Rush, for
bringing up an important issue and one I probably haven't
thought enough about. I am involved in several organizations
for women in energy. I actually was meeting with one group of
women last night and we were talking anecdotally about how they
were more women in electricity than in natural gas as an
anecdotal impression. And that backs up what you are saying.
And more of them are on the regulatory legal side than on the
construction side. I have also met with the American
Association of Blacks in Energy, which is headquartered here in
the city, and that is an issue they are working on.
We don't at FERC give out contracts or choose who would
construct the pipelines, but there is going to be a period of
infrastructure opportunity, so I would be willing as, you know,
a citizen in the industry to work further with any of the
groups to help make that happen. There certainly should be
opportunities.
Mr. Philip Moeller. Congressman, I think we want to get all
kinds of new people into the energy industry. Minorities,
women, young people--it is an aging industry. There is a great
need for skilled labor, so to the extent that vocational
education can be emphasized again in this country as it once
was, that will help on the skilled labor side.
I have tried to go out and be a force for involvement in
what is, I think, a very exciting industry. I was the guest
speaker at the annual meeting of the Association of American
Blacks in Energy in Columbus, Ohio, a few years ago. So I have
certainly tried to get a greater involvement from everyone in
this industry because I think it is the greatest industry and
it is a great future and great jobs.
Mr. Whitfield. Thank you.
At this time I recognize the gentleman from Louisiana, Dr.
Cassidy, for 5 minutes.
Mr. Cassidy. Yes. And Mr. Rush, I agree with you. This
industry has tremendous opportunity for folks who are
minorities. One of the reasons I represent firms in which there
is female and minority participation, and one the reasons our
side is so interested in Keystone XL is that those 20,000
direct jobs created will be just among the working class that
are most in need of jobs right now.
So I agree with you, Mr. Moeller. It is a great opportunity
for many people. I just wish that the President would sign on
to creating those jobs.
I got asked at a bipartisan dinner last night, actually,
put on by one of my colleagues. The point was made that EPA is
currently driving our energy policy. I am struck that you
mentioned the potential for shortages in New England and the
mothballing, I gather, of many coal-fired plants. This must be
billions of dollars worth of investments being replaced by
other billions of investments, all paid by families struggling
to meet their current bills.
So I guess my point being, is that a fair assessment that
EPA's environmental regulations are now driving our electrical
market?
Mr. Philip Moeller. It certainly is a factor, yes.
Mr. Cassidy. Now, a factor could be 1 percent or it could
be 90 percent. But I gather that these mothballed coal plants,
it is 90 percent EPA. Is that a fair statement?
Mr. Philip Moeller. I do not know if I would pick a number,
but----
Mr. Cassidy. Give me a ballpark. I am not going to hold you
to it. I mean, is it 1 or is it 100 or is it some--where would
you make it closer to with 100 being the highest?
Mr. Philip Moeller. Well, it depends on the plant but in
some plants it is 100 percent. I mean, they are being shut down
clearly because of air regulations. In other cases, you would
probably say 50 percent because they are being retrofitted.
They will still burn coal but they are of a right vintage where
that investment makes sense. And so----
Mr. Cassidy. Now, I am from a natural gas state. I am all
about natural gas. On the other hand, I am all about having a
diversified fuel source. It really does seem as if we are
putting a heck of a lot of our eggs in the natural gas basket
for no other reason than EPA is driving this. Is that correct?
Mr. Philip Moeller. That is a major factor. Prices and the
access is also part of it, but that is where we are concerned
from a reliability perspective. If you are dependent on a
pipeline and just-in-time fuel will supply, it is a lot
different than a 60-day pile of coal.
Mr. Cassidy. Yes, it seems that way. And if you are
dependent on one plant and the other has been with--the
diversified fuel has been mothballed, then your whole supply
chain is, if you will, just in time. Fair statement?
Mr. Philip Moeller. Yes. If you have more pipeline to
access, that helps diversify your options. But that is one of
the problems. Some plants are dependent on one pipe.
Mr. Cassidy. Now I am struck, Ms. LaFleur--a good Louisiana
name--I don't know if you are but could be. You speak
specifically of New England and the problems that they have.
Will the development of the Marcellus Shale bring some relief
there? Obviously, the supply is closer. Will further
development of that benefit?
Ms. LaFleur. Well, my dad was French-Canadian but there are
a lot of LaFleurs in Louisiana.
The fact that gas is being extracted much closer to the
Northeast in the Marcellus means pipelines have a shorter way
to go, and that makes the issues we are working on somewhat
more limited, but the challenge is trying to pipeline that last
couple hundred miles to the plant because most of the suppliers
bring gas to the major junction points and then you need to
build laterals to specific plants. But definitely the supply
from the Marcellus helps, yes.
Mr. Cassidy. OK. And I also understand that there is a
market issue in terms of how the New England plants buy their
gas. You allude to that. I don't understand it well enough.
Could you elaborate?
Ms. LaFleur. Well, in general terms, natural gas and
electric markets attract capital differently. Pipelines build
based on 10- or 15-year commitments and electricity, because it
is a real-time product, is priced in a 3-year forward market or
in the day-ahead market. So the generators might not have
certainty of their long-term future to make a 15-year
commitment, which means they are going to have to get creative
about how we structure these things and get pipelines built.
Mr. Cassidy. So ideally, a plant in the South, for example,
which does not have this problem, is it because we already have
the pipeline infrastructure or because they are able to enter
into these 15-year commitments?
Ms. LaFleur. A little bit of both. In some of the
vertically integrated states, the state regulators have decided
that customers should backup the long-term gas contracts. They
also have considerably less gas dependency in general so they
don't have the--if you made every generator in New England buy
a firm contract, pretty soon, you would have way too many. You
would be having customers pay for way too many pipelines. So it
is a combination of factors.
Mr. Cassidy. OK. Well, I am out of time. I yield back.
Thank you both.
Mr. Whitfield. Thank you. At this time I recognize the
gentleman from Michigan, Mr. Dingell, for 5 minutes.
Mr. Dingell. Mr. Chairman, your courtesy is appreciated,
thank you.
These questions for Mr. Moeller are yes or no, I think. In
your testimony you state the country is increasing natural gas
electricity generation because EPA air regulations will force
coal-fired plants to be retired or retrofitted. Do you believe
that the increased availability and the lower cost of natural
gas has played an equally important role in our transition to
natural gas? Yes or no?
Mr. Philip Moeller. Yes.
Mr. Dingell. Now, it is my understanding that some coal-
fired plants undergoing retrofits have been granted revised air
permits and extensions in order to comply with EPA regulations,
such as Mercury and Air Toxic Standard. For older coal-fired
plants that will not be retrofitted, do you believe will be
necessary to allow them to continue operating past the
compliance deadline of the Mercury Rule in order to maintain
reliability? Please answer yes or no.
Mr. Philip Moeller. In some cases, yes.
Mr. Dingell. Now, do you believe that renewable electrical
generation such as wind and solar should the factored into
resource adequacy? Please answer yes or no.
Mr. Philip Moeller. Yes.
Mr. Dingell. Would you want to submit for the record an
explanatory statement to that, if you please?
Mr. Philip Moeller. I would be happy to.
Mr. Dingell. Now, in FERC's response to a letter signed by
myself and other members of the Michigan delegation, FERC
indicated that it was in the process of preparing an
environmental assessment on the issue of the Trunkline Mainline
Abandonment Project. Has the EA been completed, and if not,
when will it be?
Mr. Philip Moeller. I don't know.
Mr. Dingell. All right.
Mr. Philip Moeller. I will have to check that and get back
to you.
Mr. Dingell. Would you submit that, please?
Mr. Philip Moeller. Sure.
Mr. Dingell. Now, when do you anticipate FERC making the
final decision on the project proposal?
Mr. Philip Moeller. I will have to get back to on that.
Mr. Dingell. All right. Now Commissioner LaFleur, thank you
for your presence. In your testimony, you note that more
planning to address the issue of gas electric interdependence
will be necessary. As you also note, there is no requirement
that generators enter into long-term gas pipeline contracts. Do
you believe FERC needs the authority to require longer-term
contracts? Yes or no?
Ms. LaFleur. I don't think we need more authority at this
time.
Mr. Dingell. At the end of your testimony you state that
you will find ways to use FERC's authority to address this
issue. Do you believe that FERC needs additional authority in
order to ensure reliability for all of our natural gas needs?
Would you please answer yes or no?
Ms. LaFleur. No.
Mr. Dingell. Mr. Chairman, I note that I have completed my
questions with 2 minutes remaining. I return them to you with
thanks.
Mr. Whitfield. Very impressive. Thank you, sir.
At this time I would like to recognize the gentleman from
Texas, Mr. Olson, for 5 minutes.
Mr. Olson. Thank you, Mr. Chairman. And welcome to the
witnesses. Commissioner Moeller, Commissioner LaFleur, thank
you so much for your time and your expertise.
With the Administration's war on coal, service capacity is
shrinking in many States across the country. My home State of
Texas needs five large power plants by 2014, 2015, to keep
growing or we risk rolling blackouts, as you alluded to in
2011. One way we can prevent these brownouts or blackouts from
happening is to order power plants to keep generating beyond
the 24/7 limits that they have, keep that power up online. And
that is for emergency conditions only, and again these may lead
to, you know, power generation collapses.
Unfortunately, we have got two examples recently where
power plants have been kept up online and then third parties
have come back in behind them and sued them for damages. And
some of these have been seven figures in damages.
I introduced a bill last Congress that passed unanimously
from this committee, unanimously on the floor. Unfortunately,
it died in the Senate, which many, many bills did last
Congress.
But I just want to talk to guys about that. Do you support
that bill? Is that something viable to adjust this power
capacity, power shortage capacity we may have in Texas?
Mr. Philip Moeller. And last year I testified in support of
that bill in front of this committee.
Mr. Olson. I just wanted to make sure something didn't
change your mind. Commissioner LaFleur?
Ms. LaFleur. Yes. I support that targeted bill to give
relief if you are ordered to stay on.
Mr. Olson. Great. Commissioner Moeller, you talked about
the 2011 power crisis we had in Texas, basically the wind power
crisis, and 12 percent of our demand dropped offline almost
automatically. About 50 power plants were impacted by that.
Most importantly for Texans, the Super Bowl was in Dallas that
weekend, almost got canceled because no power could run to
Cowboy Stadium. Could you please elaborate on what you learned
from that incident and what advice you can give me for my State
to take away from this? You have got the report there.
Mr. Philip Moeller. I will again commend the report that
FERC and NERC did together on it. It is a great read. It is a
good primer. It has 32 recommendations, mainly to the
legislatures and the Public Utility Commissions of those
States. And I think they are at various phases of implementing
those recommendations. To me what hit home was that people felt
like they either legally couldn't talk to each other or they
felt there was a perception that they couldn't talk to each
other legally, in addition to a number of problems with
inadequate weatherization of a lot of those power plants. So I
think they are on the weatherization.
The communication set of issues, though, I think is an
issue in every region of this country. And that is where, I
think, we will really be pushing over the summer to make sure--
we don't know whether we have to take formal action at FERC or
informal action, but to make sure that when we have another one
of these cold weather events--it is a matter of when not if--
and the systems are stressed, and they can be stressed anywhere
but New England and the Midwest are our top concerns--that the
right operators of the grid, the electric system, the
pipelines, the generators, are all in a position where they can
share information without a fear of breaking the law so that
people's service isn't disrupted.
In the cases of the Northwest in 2009, there was a power
plant they could have relieved a lot of the problems that was
around Portland, Oregon, but the utility in Washington State
was afraid to call that utility thinking they might be
violating the law if they did.
So that is what I will be pushing on and I think the rest
of the Commission as well going into next winter since we have
had two such warm winters in a row, it is not going to last
very much longer.
Mr. Olson. Commissioner LaFleur, anything to add ma'am?
Ms. LaFleur. I agree that communication was one of the big
lessons and that is what we need to work on and have already
given some guidance as to what is allowed so that people don't
think our regulations are stopping that. I think also
situational awareness between different operators, both
adjoining electric operators and different gas operators, was a
big lesson of that incident.
Mr. Olson. Another lesson learned in Texas is we got power
from Mexico. When that crisis happened, we had to go across the
border to get that power from another country. And that scares
me a little bit, that we are dependent upon a foreign nation as
opposed to taking care of our needs.
And also, it is not just cold there, I mean cold weather.
We had the summer of 2011, every city in Texas, every single
one of them was over 100 degrees the whole month of August. If
that happens again, with the war on coal, we have tried to get
the Las Brisas power plant up online, the White Sand power
plant, coal power plant, Pepco plant shut down. They pulled
back because of EPA regulations and these lawsuits. We have got
to get the legal system out of here and let the people do what
the people need to do.
Thank you. I yield back the balance of my time.
Mr. Whitfield. At this time I recognize the gentleman from
California, Mr. McNerney, for 5 minutes.
Mr. McNerney. Well, thank you, Mr. Chairman. I thank you
for having this hearing. I think it is an important and
interesting issue.
Ms. LaFleur, you mentioned that reliability and security
were your top issues. You must be familiar with the San Bruno
explosion a few years ago. How typical is the condition of
those pipelines throughout the country? It seemed to me that it
was a combination of lack of maintenance or age of the pipes,
plus lack of inspections to make sure that they were operating.
It also seems people didn't have access to the valves to turn
them off, and so on. How vulnerable are we to those just due to
natural causes?
Ms. LaFleur. Well, I certainly hope the pipelines in San
Bruno were not typical that, as I am sure you know, both the
State of California and PHMSA, which is part of the Department
of Transportation here, have put out some strong new
regulations that require more inspection to make sure that
particularly older pipelines in high-consequence areas are
maintained correctly. And I think our job at FERC is to make
sure that we have supportive regulation for those gas pipeline
requirements.
Mr. McNerney. So there will be a little bit higher rates
for----
Ms. LaFleur. It is more a matter of we have had a few
cases--we have some pending so I have to be careful--of how
pipelines are required to cover additional expenses that might
be required for inspection and how that works technically
within their tariffs.
Mr. McNerney. So how vulnerable are our national pipeline
networks to cyber attacks? I mean, could a cyber attack result
in something like that or other types of disruptions, major
disruptions?
Ms. LaFleur. I think any major critical network that is run
by computer systems--and that includes gas and electric--are
vulnerable to cyber attack. And that is why both voluntary--and
in the case of electricity--mandatory standards are very
important.
Mr. McNerney. Well, that is good. So part of the
legislation that is being considered is to require sharing of
information, but there aren't that many advocates for actually
requiring utilities to do certain things to protect themselves.
So where do you think we need to fall on that issue?
Ms. LaFleur. Well, on electric side, we do have mandatory
regulations under the Energy Policy Act of 2005. We do regulate
that at FERC. I think the biggest thing we need in legislation
is that information-sharing, as well as someone having
emergency authority in the case of an emergency. And I think
most of the proposals I have seen have both of those elements
in them.
Mr. McNerney. But they don't have standards then for
equipment or software?
Ms. LaFleur. I think if I were the queen of the world,
mandatory standards would be good. I think getting some
legislation passed, even the more modest legislation, would
help a lot. I think information-sharing is the top priority.
Mr. McNerney. Thank you. Mr. Moeller, you mentioned that we
need increased flexibility to address the pipeline capacity
issue. Is this a regulatory or a statutory issue in your
opinion?
Mr. Philip Moeller. Well, it is a regulatory issue
primarily. If you ask me for statutory recommendations with the
intent of getting more pipeline in, I could come up with some.
But I think, for the most part, people have been fairly
satisfied with the process we have at FERC for new pipelines.
If you cross the state line, you come to FERC for a certificate
to build it. And it is a public process. The routes always get
changed and then there is the regulatory cost recovery that we
handle with. I mean, it could be done quicker. Again, if you
want recommendations, I can give you those.
Mr. McNerney. When you say flexibility, do you mean
increased capacity, more pipelines? Is that what you mean by
flexibility?
Mr. Philip Moeller. I think both operationally and
additional infrastructure. We clearly need more pipe in New
England. They are at the end of the pipe; they are more
dependent. On the other hand, as you will hear from the Midwest
later on, there is some question as to which power plants that
the grid operates are fed by which pipes. And I am not
suggesting this, but there is no equivalent kind of regional
oversight of the pipeline network like there is on electricity.
So the coordination fact, it is just different. And that is
where we need kind of the communication flexibility.
Particularly, we get to times when the system is very stressed
and there is the worry of not enough gas to go around.
Mr. McNerney. Thank you. Good timing, Mr. Chairman?
Mr. Scalise [presiding]. You got it. You hit the number.
Perfect. I thank the gentleman. I recognize myself for 5
minutes to ask questions.
Mr. Moeller, in response to the chairman, after some
questions I think you responded specifically about some
concerns in northern Ohio related to their coal plants. Can you
expand on the concerns that you have there?
Mr. Philip Moeller. Yes. And I know we have the chairman of
the Ohio Commission coming up later so I wouldn't want to usurp
his expertise. But we have a zone in northern Ohio where a
number of plants are being shut down in the next 2 years.
Perhaps there is a need for greater either generation in that
load pocket or more transmission or both. And when the market
did--Commissioner LaFleur alluded to the 3-year forward-
capacity market and new generation did not clear in that market
because the prices were suppressed by a lot of demand response.
There is some concern whether that demand response is actually
going to be there in the summer of 2015.
So there are a lot of issues. They come together in the
summer of 2015 when, of course, the load is the highest and,
you know, it is something we are watching very closely.
Mr. Scalise. Thank you. And you were also talking about
kind of a concern about regulation, if there is a haste to put
regulations in place quickly that in order to add more on top
that it can actually add to the cost of electricity for
consumers. Can you expand on what you were referring to there?
Mr. Philip Moeller. Yes. Well, given the number of
megawatts in this country and they are spread out around most
of the country. They are not a lot in the Northwest or the
Northeast anymore or California. But the number of coal plants
that are being retrofitted in a short amount time, there is a
squeeze on the engineering talent, the skilled labor component.
There is some argument they are not enough boilermakers to go
around. Just the supplied chain gets squeezed the shorter that
time frame is to try and get it all done to meet the
regulations. So like any job in your house, if you want it done
quicker, you are going to pay more. And in this case, consumers
will bear that, and I hope that that is kept in mind.
Mr. Scalise. Is there any one agency that you are referring
to in terms of regulation? We see the EPA throwing a lot of
this on top of industry. Again, you know, when industry talks
to us, they talk about the added cost that it forces on
consumers as they are doing this so there is definitely a cost
associated with it. Is it EPA? Are there others as well that
you are referring to?
Mr. Philip Moeller. No, it is primarily EPA. I am talking
about the air regulations, and I am not here to bash them but--
--
Mr. Scalise. We do that, don't worry. When we hear about a
lot of the things that they do that, you know, don't have
anything to do with improving health or safety, it is more just
to kind of put burdens to, it seems like, pursue an agenda. And
you know this isn't a question to you; this is more things we
see in the hearings when we have them before us. And, you know,
it just seems like they keep going in their own direction to
pursue an agenda, you know, whether it is kind of a cap-and-
trade de facto regulation when Congress is, you know, has
expressed in a number of different ways that that is not the
direction that we would like to go. And, you know, hopefully I
know we have got legislation and many of us are supporting to
say Congress shouldn't put some kind of carbon tax in place.
You know, and maybe we will have more hearings on that. But,
you know, to see them going off in their own direction anyway
to try and pose regulations that just carry an agenda, there is
a cost to that, and I think those costs need to be brought up.
I do want a touch on something you talked about your
opening statement where you were talking about this revolution
in natural gas that has come about through hydraulic
fracturing, through horizontal drilling, that technology that
has allowed us to open up vast reserves of new energy here in
America. And, you know, of course, we hear about EPA looking at
trying to get into that and trying to regulate what States
already do. States do a great job of regulating hydraulic
fracturing. It has been very successful, created great jobs,
but also a great potential for American energy security. And of
course that is threatened.
You talked about technology allowing us to find more
natural resources. And I do have concerns, you know, that is
these natural resources are found, that the government
regulators themselves could impede that innovation, that
technology if they do try to regulate it in a way that doesn't
allow us to access those natural resources. So I don't know if
you want to touch on that, if either of you, both Mr. Moeller
or Ms. LaFleur.
Mr. Philip Moeller. Well, those will not be our decisions
because that is not in our jurisdiction, but hydrofracking and
horizontal drilling and the shale revolution, it has been a
revolution. A few years ago at FERC, the most controversial
things we dealt with were LNG import facilities. Now they are
LNG export facilities.
Mr. Whitfield. And then, Ms. LaFleur, before the clock
expires, any----
Ms. LaFleur. Well, I agree that we are going to have to
closely monitor regulations that come out that might affect gas
extraction because they could affect gas supplies. It is not
something we are specifically responsible for. We really just
certificate the pipeline network.
Mr. Scalise. All right, thank you. I think the ranking
member, Mr. Waxman, is up next.
Mr. Waxman. Thank you very much, Mr. Chairman.
The Nation's electricity generation portfolio is in the
midst of a significant transition. We doubled our capacity to
generate renewable electricity from wind and solar in just 4
years. And last year, nearly half of all new generation
capacity came from wind. There has also been a large increase
in natural gas generation. Commissioner LaFleur, what is the
primary reason utilities are increasing their natural gas
generation?
Ms. LaFleur. I would say the primary--if I had to point to
one reason--is the reduced cost of natural gas.
Mr. Waxman. Yes.
Ms. LaFleur. I mean, most of the Nation's coal fleet was
built when that was by far the cheapest fuel, and now that gas
is the cheapest fuel, people in the market are responding.
Mr. Waxman. In your testimony you discussed how natural gas
generation also supports the expansion of renewable energy.
Could you explain how wind and solar power benefit from the
increased use of natural gas for electricity generation?
Ms. LaFleur. Yes. Because wind and solar, they don't
consume fuel, but they can only operate when the wind is
blowing or the sun is shining, for the most part, you need
quick-ramping resources that can fill in when they ramp-down,
and because natural gas machines tend to be more flexible, they
are well adapted to that filling in with wind and solar.
Mr. Waxman. As utilities move from coal-fired generation to
cheaper, cleaner, and more flexible sources of power, we hear
complaints about the retirements of coal-fired plants.
Commissioner LaFleur, my understanding is that most of the
planned retirements are the oldest, least-efficient coal
plants. These are plants that have operated for 50 or 60 years
or even longer. Is that right?
Ms. LaFleur. Yes, for the most part. I mean, we are
monitoring this. We get reports from the different regions of
the country, and most of the first coal plants to retire are
the older, built in the '50s and '60s, most expensive to run,
and for that reason, they were rarely operated. It is like if
they came up with a new rule that you needed some expensive
braking system for your car, the first thing you would do is
put it on the car you drive to work every day. But on the car
you only drove on vacation, you might say, gee, do I want to
spend the money on a car I drive once a year? Some of these
plants were kind of on the edge of the system.
Mr. Waxman. OK. While moving away from the oldest, dirtiest
generation is reducing our carbon pollution, many other coal-
fired power plants are going to be installing modern pollution
controls to reduce their toxic emissions. For the first time,
that is going to provide tremendous health benefits. This
transition in our energy sector is important for the climate
and for public health. It is a positive development, but like
all major transitions, it requires planning.
Commissioner LaFleur, in your testimony you said that this
is the time to plan, not to panic. Do you believe the
communications scheduling infrastructure issues we are talking
about today are manageable?
Ms. LaFleur. Yes, I do.
Mr. Waxman. Is this an area where FERC should be
promulgating national rules or is regional action more
appropriate?
Ms. LaFleur. Well, as I said in my testimony, right now, I
think the infrastructure issues are better tackled regionally
because the different markets have different rules. But if we
do something on either the schedules or on communication, those
might lend themselves to national action.
Mr. Waxman. Yes. Well, it sounds like FERC and grid
operators are doing exactly what they should be doing,
identifying the challenges posed by this transition and
developing solutions to address those challenges while moving
away from a coal-heavy energy portfolio to a truly diverse
energy portfolio. If we want to prevent the worst impacts of
climate change, our energy infrastructure will need to continue
changing in the years and decades to come.
Commissioner LaFleur, as regional action is taken to
accommodate the energy transition we are seeing, in your view,
would it be prudent for regional planners to anticipate that
greater carbon pollution emission reductions are likely to be
required in the future?
Ms. LaFleur. Most of the planners, whether they are at the
state level or at the regional level, do scenario planning. And
it is probably prudent to model, well, what if there is new
carbon legislation? We don't have that legislation now, so it
is not an immediate thing to plan for. But they probably model
multiple futures, and I think they should.
Mr. Waxman. Well, I would think that they would anticipate
not having the same do-nothing Congress we have now, forever.
And even a stopped clock is correct twice a day, so perhaps we
will get bipartisan support and do something about climate
change. And that would be, I think ultimately, good. Thank you
very much for your time.
Mr. Whitfield. At this time, I recognize the gentleman from
Kansas, Mr. Pompeo, for 5 minutes.
Mr. Pompeo. Thank you, Mr. Chairman. I want to talk about
the pipeline permitting process.
So there was a recent GAO study on this from February of
this year, February 2013, that talked about the process. And in
that report, it said that FERC does not track the time frames
for these permits being granted. And in light of stakeholder
concerns, do you think that FERC should be tracking--I will ask
you both, yes or no--do you think FERC should be tracking the
time that permits are being granted from application to
completion?
Ms. LaFleur. I think we should be aware of that. My
understanding of the NGER report is that it said FERC did a
pretty good job meeting deadlines----
Mr. Pompeo. This was the GAO. I am talking about the GAO
report that said----
Ms. LaFleur. Oh, I am sorry.
Mr. Pompeo [continuing]. That you all are tracking how long
it takes. They had to go to public records to identify the
lengths of the permit process, that you all kept no such
records? Is that true?
Ms. LaFleur. I don't want to say something I am not
positive of, but I think we should know how long our process
takes, yes.
Mr. Pompeo. Great. That is my question. Commissioner, do
you agree?
Mr. Philip Moeller. Absolutely.
Mr. Pompeo. Yes. Now, NGER did a report that said that 20
percent of natural gas pipelines experienced delays of 6 months
or more, largely because the delays occurred after FERC's NEPA
analysis had been completed, which has a 90-day requirement
under EPAct. Is that statement also correct?
Ms. LaFleur. Yes, it is my understanding that it is. A lot
of the delays are in the conditions that are put on in the FERC
environmental permits that have subsequent conditions.
Mr. Philip Moeller. As far as I know, that is correct.
Mr. Pompeo. So a) FERC doesn't know how long it has taken;
and, b) it is not complying with EPAct. So in my view, there is
work that needs to be done in this permitting process. I am
actually going to propose legislation that does that. I hope it
to be bipartisan. I think it is a good government solution
which puts cabined risk and allows pipelines to move forward
where they can have a little more certainty.
I guess I would ask each of you--I am happy to share with
you and talk to you and get your input--but Commissioner
Moeller, you suggested that you had some ideas on how we might
do this permitting process more quickly. Would you be willing
to share a couple of those thoughts with us this morning?
Mr. Philip Moeller. Yes. I think the challenge that you
alluded to is that the resource agencies typically don't have
the accountability to come back with an answer. We see the same
thing in hydropower relicensing. And it is the way the statute
is. And if you created some timeline of accountability, I think
they would be a lot more responsive.
Mr. Pompeo. Do you agree with that, Commissioner LaFleur?
Ms. LaFleur. Yes, I do. I agree both on the problem and
that we do not control all of the other agencies who have to
act to get a permit out, and I would be happy to look at
legislation.
Mr. Pompeo. Great. Great. Thank you. I would love to give
you all more capacity to control those processes and
legislation I am drafting, I think, will move us along that
way.
I wanted to just say one more thing on permitting that I
want to talk about. I won't go through the list of permits.
There is a very long list of folks who you have got to go
please before you get to build some of this new capacity. But I
want talk about a statement that the President has made about
NEPA process. He says now NEPA process will have to include and
analysis of climate change, at least as reported in an article
in the Bloomberg on March 15.
From a natural gas infrastructure perspective, it seems to
me this could be very problematic in terms of extending the
timelines to get pipelines built. As the lead agency for
approving the interstate natural gas pipeline constructions,
tell me what you think the impact would be if FERC were
required to take into account climate change as part of each of
its NEPA analysis.
Mr. Philip Moeller. Well, it is not make any faster.
Mr. Pompeo. Do have the capacity and resources to do that
analysis? Where would you begin?
Ms. LaFleur. I think a lot of it comes down to what is the
scope of our review. There has been a lot of controversy about
does FERC review the pipeline it is certificated or the entire
lifecycle of the gas? And there have been some court cases on
that. As long as we are working on the pipeline or the project
we are looking at, I think if new laws are passed, we will
incorporate them in our review.
Mr. Philip Moeller. That is a good statement. We are
cabined by the certificate in front of us, and that is not
something we have done and I do not know how we develop that
expertise. I would leave it to our Office of Energy Projects.
Mr. Pompeo. Yes, I don't know how you do either. You don't
have the expertise, in fact. Yes or no, do you think you have
statutory authority to do that today, to consider climate
change as part of a NEPA project?
Mr. Philip Moeller. Maybe we should review the court
decisions on that before we answer that.
Mr. Pompeo. OK. I am happy to let you do that. But I would
appreciate a response to whether FERC believes or you as
commissioners believe you have the statutory authority to
consider climate change as a part of an interstate pipeline
approval process.
Ms. LaFleur. I would also like to get back to you on that.
Mr. Pompeo. Thank you. I yield back.
Mr. Whitfield. Thank you very much.
At this time I recognize the gentleman from Texas, Mr.
Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
And I agree with my colleague that FERC is not prepared to
do that but there was a bill here last session that was going
to give FERC the authority to approve the TransCanada pipeline
and I think your testimony was that you are not prepared to do
that either. And so, hopefully, we have problems on both sides
of our aisle with giving agencies responsibilities that they
are not ready for.
But let me get back to my line of questioning. Both
commissioners, welcome and thank you both for being here today.
I represent a district in Texas and so ERCOT is our RTO, and I
have heard that there are some pretty serious concerns about
there not being enough forecasted power generation to ensure
reliability in the ERCOT market in the future. Could both of
you please speak to whether you think that the market structure
under ERCOT is enough to incentivize the creation of new
generation? And if you don't think it is, what can we do?
And I know our next panel, we have a former Public Utility
Commissioner for Texas and also our Railroad Commission
Chairman, so I will ask him the same question.
Mr. Philip Moeller. Well, Congressman, thank you for the
question.
ERCOT jealously guards its own jurisdiction so that FERC
does not tread in it, but of course we watch what is going on
and we have a responsibility on the reliability side, not on
the market administration side.
Mr. Green. Yes.
Mr. Philip Moeller. And you have two very fine public
utility commissioners in Texas that are debating this very
issue of do you need a capacity market? What do you do with the
real-time energy prices because of the reserve margins
declining for some of the reasons that have been discussed
today?
As I look to the summer, you know, the summer concerns are
southern California, Texas, and Boston. They were last summer.
They are going to be this summer again. If we have a really,
really hot summer in Texas, you will see this debate probably
on a daily basis.
Ms. LaFleur. I would add that most of the U.S. markets that
have gone to competitive electric markets do have some sort of
a forward market as is being considered in Texas right now, and
that is for the very purpose of attracting capital for future
reliability. It is not within our jurisdiction. I feel Mr.
Smitherman's eyes on my back, so I will let him take it from
there.
Mr. Green. Well, and I appreciate it. And being from Texas,
we stand shoulder-to-shoulder in protecting ERCOT. I just want
to make sure--and we did have rolling blackouts in February of
2011. And it seemed like I heard that our wind power growth,
which has been phenomenal in Texas, helped stabilize that
situation. Is that the information FERC has?
Mr. Philip Moeller. We can get back to you. But the focus
of the report was really on the outages as opposed to the role
that wind had, but I will get back to you on that.
Mr. Green. OK, I appreciate it.
In light of the increase in natural gas electricity
generation, in February of 2012 FERC issued a request for
comments regarding natural gas electric coordination. In August
of 2012, over 1,200 stakeholders attended five regional
technical conferences hosted by FERC to discuss these issues.
What are each of your biggest takeaways from those conferences
that FERC received?
Ms. LaFleur. I think our takeaway was that a lot of the
issues are regional in nature but there are some cut-across
issues that we should work on, particularly communications and
scheduling, the harmonization of the days. I think another
takeaway is that the situation is evolving fast so we need to
really stay on top of it. New England is where the issues are
right now, but it is evolving everywhere. And we have heard
that in the conferences.
Mr. Philip Moeller. I would agree that this is an issue
everywhere to varying degrees, and the gratifying thing is that
a year ago, not everybody thought it was an issue. Now, almost
universally, people agree that there are challenges out there,
and we are trying to keep the momentum going at the Commission
to keep people focused on solutions.
Mr. Green. Commissioner Moeller, after the Southwest outage
of February of 2011, FERC and the North American Electric
Reliability Corporation conducted a study for the cause of the
event, issuing a report that was issued in August of 2011 that
had 32 recommendations for industry and the regulators in an
attempt to avoid a similar occurrence. What are some of the
more important recommendations, and is there a plan for
enacting these?
Mr. Philip Moeller. There is a plan. I haven't had an
update for a couple of months, but the focus of most of the
recommendations was to regulators and legislators in those
three States. The primary recommendation on the electric side
was winterize the system, go into the winter with the same kind
of urgency you go into the summer in ERCOT. And I think there
has been a lot of progress, and I think Barry Smitherman can
answer a lot of those questions.
Some of the others are tougher, like Arizona doesn't have
any storage. We had a conference to try to promote storage, gas
storage, underground, but that doesn't seem to be
materializing.
So I expect another report on the status of the 32
recommendations sometime later this year, but it is something I
am very concerned about.
Mr. Green. Well, and I only have a couple seconds left, but
I appreciate what FERC does and the stability that it does, and
I am glad you came for our committee. I appreciate it.
Mr. Whitfield. The gentleman's time has expired.
At this time I recognize the gentleman from Virginia, Mr.
Griffith, for 5 minutes.
Mr. Griffith. Thank you, Mr. Chairman. I appreciate that,
your courtesies in recognizing me.
I would also say to the witnesses here that it was very
refreshing to hear folks from an agency come in, and on two
occasions said I don't believe we need more authority at this
time. It is very unusual to hear those comments in this
committee at least.
Also, Ms. LaFleur, I note--and it has been mentioned
before--but I would note again because sometimes some of the
folks on the other side of the aisle want to think it is just
gas prices that are causing a problem, and you did acknowledge
in your written testimony on page 2 that it is repowering older
fossil generation that is uneconomic to operate or to retrofit
for new environmental regulations when talking about the
shutdown of coal. I do appreciate you recognizing that it is
this combination.
And likewise, in light of the fact that experts have
previously testified in another hearing in this committee that
they anticipate that gas will rise back up to about $4 by the
end of the year, and that at that point coal once again becomes
competitive on pricing. Would you not acknowledge that at that
point if we get to that point--and there is some speculation
there--but once we reach that point, that then it would be
predominantly the new environmental regulations that are
shutting down our facilities, our coal facilities? Yes or no?
Ms. LaFleur. I don't see it exactly that way, no.
Mr. Griffith. All right.
Ms. LaFleur. OK.
Mr. Griffith. But it is still a major concern and you
having acknowledged that and I appreciate that.
Ms. LaFleur. Absolutely.
Mr. Griffith. You know, I thought it was interesting
somebody else brought up the cyber attacks, and apparently in
2012, we had a series of cyber attacks on gas pipeline
companies and so forth. Do recall seeing that information?
Ms. LaFleur. Yes.
Mr. Griffith. And the concern was, I mean, they might have
been trying to steal some information on how to do the fracking
because we have been so successful on it, but also there were
concerns that there were cyber attacks on the valves and the
on-off switches, basically. Isn't that correct?
Ms. LaFleur. It was on the energy management system that
regulates the pipelines and that opens valves and runs
compressors and so forth, yes.
Mr. Griffith. So theoretically, a successful cyber attack
could close down or open up gas pipelines, close down ones we
don't want closed down and open up ones we don't want opened,
isn't that correct?
Ms. LaFleur. Yes. Theoretically, yes.
Mr. Griffin. Now, I am no expert on using the computer, but
I was sitting here when that question was asked and I started
looking for, you know, attacks and cyber attacks, et cetera, on
coal facilities, and the only thing I could find were EPA
attacks on coal. I didn't find anything about foreign powers.
Have you run across any instances where it appears that foreign
powers are attempting to figure out ways to disrupt our supply
of coal?
Ms. LaFleur. There have been cyber attacks on the energy
management systems that turn plants on and off. And like FERC,
cyber attacks are fuel-neutral. They would mess up whatever was
being turned on and off. I am not aware that I remember of any
specifically at a coal unit.
Mr. Griffith. But I do think that in regard to your
concerns about the pipelines, you previously indicated that one
of the concerns was getting the pipelines to the facilities and
so forth and that it was a whole lot easier to have a supply of
coal sitting there on the ground than it was to have the
natural gas automatically show up when it was needed at the
power plant. Didn't you indicate that to us earlier?
Ms. LaFleur. I think I said that was what was different
about gas, that it came in a pipeline, yes.
Mr. Griffith. And so if an energy production plant had a
supply of coal and it was a coal-burning plant, it would be
less likely that for a few hours or even for a day, that
somebody could affect that supply of energy at that power plant
than it would be if somebody did a successful cyber attack on
our pipeline. Isn't that true?
Ms. LaFleur. Certainly, the coal pile doesn't have the
cyber risk, but I think you could still affect the energy
management system that turns the plant on and off. I mean, we
need to guard against these risks wherever they are.
Mr. Griffith. All right. I do appreciate that as well.
In regard to the natural gas supply, we are already having
trouble getting the pipelines there. Do you think that there
needs to be a redundancy built in on those pipelines? I know
that you don't want to charge the customer too much and you
don't want to have too many pipelines, but at the same time,
don't you think we would need more than just one pipeline to
the facilities to make sure that if something happened to one
supply that there be another supply readily available, if we
are going to put all of our eggs in that basket or in one of
those baskets?
Ms. LaFleur. Well, I am not even sure I would use the word
redundancy. You need a robust grid, a robust network of more
than one source of supply in different regions and localities.
Yes.
Mr. Griffith. And it is always a little bit dangerous to
put a huge percentage of your energy into one fuel source. It
is always better to have multiple sources available to supply
the electricity for the American citizen, isn't that true?
Ms. LaFleur. Yes, I believe that.
Mr. Griffith. And so it would be ill-advised for our
country to completely eliminate coal as an energy source in
light of the fact that we have the world's greatest supply of
coal. Wouldn't that also be true?
Ms. LaFleur. I think we are much better off with the coal
plants being retrofitted, as the vast majority of them are,
than losing all of them.
Mr. Griffith. I thank you, and yield back.
Mr. Whitfield. At this time I recognize the gentleman from
New York, Mr. Tonko, for 5 minutes.
Mr. Tonko. Thank you, Mr. Chairman. Thank you for this very
interesting topic today. And let me welcome Commissioner
Moeller and Commissioner LaFleur, and your expertise is very
helpful in this discussion.
And further, Commissioner LaFleur, let me thank you, as a
representative in upstate New York in the capital region in
Mohawk Valley, for your prior service before your commissioner
status. It was much appreciated then and much appreciated now.
Commissioner LaFleur, the pipeline capacity issues in the
Northeast region appears to be a greater constraint on natural
gas distribution than in other areas. We have had a lot of
focus on that today, but I am primarily concerned about the
Northeast. And are issues related to the siting of pipelines a
constraint or is this primarily a matter of needing to speed up
the investments in natural gas infrastructure?
Ms. LaFleur. I think it is more of an investment issue. I
mean pipelines are harder to build in urban areas but we have
had a number of them built. So I have confidence that they will
be constructed if the investment comes forward.
Mr. Tonko. And in terms of the investment, what, if
anything, could be a response to that? What could enhance the
investment opportunity?
Ms. LaFleur. Well, ISO New England, I think they will talk
about, is working on ways in which to structure the generation
markets to motivate the generators to build in more fuel
security to invest or increase their commitments to pipelines
or other dual fuel commitments or other gas storage. We do have
LNG storage in the Northeast, other ways of getting fuel
security. So it is pricing the fuel security into the
generation I think is the big response.
Mr. Tonko. Thank you. And as utilities have reduced their
coal-fired generation, we have seen reductions in carbon
pollution from the energy sector, and increased natural gas
generation is one factor in this drop of carbon pollution but
it is obviously not the only factor. So Commissioner, would you
agree that state-level renewable energy policies have helped to
reduce emissions from the power sector?
Ms. LaFleur. Yes. I think they are driving a lot of
renewable investment including in upstate New York, as you
know. If you drive up near Niagara Falls, you just see
windmills as far as the eye can see.
Mr. Tonko. Absolutely right. And as a result of their
renewable energy policies, States like New York and Colorado
and California are displaying a significant amount of renewable
generation capacity. So to both commissioners, which state
policies would you note have been the most effective in
deploying renewable energy?
Ms. LaFleur. I think that renewable portfolio standards are
certainly starting to be felt. We don't regulate it, but I
would point to Texas but also other States. You mentioned
upstate New York has a lot of wind. Some of the States have
very effective small solar policies. States as diverse as
California and New Jersey, which clearly have different
weather, have very heavy penetration of home- and business-
level solar, and the programs they have in place appear to be
very effective at getting those done.
Mr. Philip Moeller. Congressman, I am not really an expert
on all 29 different renewable portfolio standards throughout
the country, but I think the ones have been most successful are
the ones that have adequate transmission infrastructure to make
sure that that power can move around from, typically, where it
is generated to where it is consumed and have the kind of
flexibility that don't overly favor one or two sources.
Mr. Tonko. And I would assume that the upgrades in
interconnection are important in that regard?
Mr. Philip Moeller. They are vital, absolutely important.
And it is usually difficult to site this transmission so that
is part of the challenge as well.
Mr. Tonko. And to the policy area, which federal policies
would you suggest have helped deploy renewable energy?
Ms. LaFleur. Well, certainly, right now, the Production Tax
Credits are having an impact on investment in that area. I also
think federal R&D, as well as private R&D, has helped bring
down the cost of some of the technologies.
Mr. Philip Moeller. I go more toward market access in
making sure that the transmission infrastructure is there to
move the power around. And there are a variety of things we
could talk to you later about that could promote that. We are
doing an exercise at FERC, Order 1000, which is an attempt to
make the planning better on transmission.
Mr. Tonko. Thank you. And Mr. Chair, I note my time is
expired so I yield back.
Mr. Whitfield. Thank you.
At this time I recognize the gentleman from Illinois, Mr.
Shimkus, for 5 minutes.
Mr. Shimkus. Thank you. And Mr. Chairman, it is great
having you here.
Ms. LaFleur, you mentioned many coal-fired power plants
have been retrofitted. Can we retrofit a coal-fired power plant
to an existing plant to address site greenhouse gas rule or
regulation?
Ms. LaFleur. I am not an expert on that but I think it is
much harder than scrubbing things out of the stacks.
Mr. Shimkus. It is impossible. There is no technology right
now. The cost would triple the amount of infrastructure costs
and the electricity required to run this was probably about 30
percent of the generation capacity of a power plant at this
time. So that just goes into the emissions, kind of the whole
debate, what is toxic, what is not is not, just that debate.
And it does segue into this fear on reliability because, as we
have this debate and concern about environmental rules and
regulations, the pulling off of generation should be of major
concern. Is that correct?
Ms. LaFleur. Well, in the case of other EPA regulations,
like when we worked on Mercury and Air Toxics, as the rules
become final, we had to work at FERC and with the EPA to make
sure we had the coordination and flexibility that was needed to
make sure we protected reliability. If there are other suites
of regulations, that will be equally necessary.
Mr. Shimkus. Well, let's talk--and Commissioner Moeller,
you are more than welcome to chime in, too.
We know based upon MACT that anywhere from 50 to 70
gigawatts of coal-fired generation may be retired over the next
decade. That is a lot, with 90 percent coming within the next 5
years. So this next 3- to 5-year window aligns with the
compliance deadlines for EPA's Utility MACT Rule in places like
the Midwest. Some of this coal-fired generation will be
replaced with natural gas-fired power plants and that is part
of the debate of having them and also getting the natural gas
in the pipeline siting.
From your perspective--and this is for Commissioner
Moeller--would you agree that the short compliance time frame
for EPA's Utility MACT rule is compounding reliability concerns
for regions heavily relying on coal such as the Midwest and the
mid-Atlantic?
Mr. Philip Moeller. Yes, I do. You bet.
Mr. Shimkus. It is just a matter of numbers, isn't it?
Mr. Philip Moeller. Well, the environmental benefits are
coming. The question is, if you squeeze them on too tight a
timeline, there can be reliability challenges that are probably
going to land in our lap. So that is why I have urged the EPA
to be flexible if certain areas need a little more time, to
give it to them.
Mr. Shimkus. It is reliability that segues into cost, too.
And an unreliable grid is a costly grid, wouldn't you argue? So
from the individual consumer's point of view that if the
reliability of the grid becomes uncertain and there is a risk
premium then paying for reliability, that will get passed onto
the individual consumer, would it not?
Mr. Philip Moeller. It will, depending on the market
structure, in different ways.
Mr. Shimkus. Given your background as a state public
utility commissioner and now your experience at FERC, do you
believe having a diverse range of fuel resources available to
generate electricity is important to provide affordability and
reliable service to customers?
Mr. Philip Moeller. Yes. I have never been a state
commissioner but optionality is always good.
Mr. Shimkus. And I understand that FERC does not have
jurisdiction over generation, but would you agree that an
overreliance on any one particular fuel source could be
problematic from a reliability perspective?
Mr. Philip Moeller. Yes.
Mr. Shimkus. Thank you, Mr. Chairman, and I yield back my
time.
Mr. Whitfield. The gentleman yields back his time. I would
like to recognize the gentleman from Colorado, Mr. Gardner, for
5 minutes.
Mr. Gardner. Thank you, Mr. Chairman, and I welcome the
commissioners to today's hearing. Thanks for being here to
share your expertise.
And Chairman Moeller, I wanted to talk to you a little bit
about some of the comments made in your testimony. You talk a
little bit about traditional base load generation will be
needed to firm renewable energy resources. We hear a lot of
talk about that, whether it is wind, solar, what backup will be
needed. Is there a percentage that you can give me of that base
load generation so, for instance, if you have a megawatt of
wind production, what percent of firming base load would you
need for that 1 megawatt of wind?
Mr. Philip Moeller. Well, it depends on the wind because
your home State of Colorado has some really good wind and----
Mr. Gardner. I live on the Eastern plains so----
Mr. Philip Moeller. Your chairman can talk about it later,
but because of the characteristics of how it comes off from the
Rockies, it is really good wind. So they don't have as much of
a challenge firming it--they still have a challenge. Another
area that, you know, might have a capacity factor of 20
percent, you know, that means that 80 percent of the time you
have to back it up. So wind quality differs.
Mr. Gardner. So for every 5 megs, you need 4 megs of base
load in that instance? Is that one way look at it?
Mr. Philip Moeller. Yes. Right.
Mr. Gardner. OK. And then, talking about pipeline issues,
talking about production of natural gas, we have in Colorado
several cities that are banning hydraulic fracturing. We also
are hearing rumors that there may be a statewide initiative to
ban hydraulic fracturing. If they go that direction, is there
an interstate commerce issue that FERC would have to look at
based on this transition to natural gas power generation?
Mr. Philip Moeller. Congressman, I don't think it would be
in our jurisdiction to do that, but I am sure someone would be
thinking about it.
Mr. Gardner. And I would love to hear your further thoughts
on that and perhaps maybe even somebody in the Council's office
talking a little bit about that issue specifically. When it
comes to the EPA, we have seen a growing, sort of, decisions by
the EPA when comes to things like LNG export facilities where
EPA is asking targeted questions in their environmental
assessments and analysis on pipelines and whether or not an LNG
facility would require additional pipelines. Is the EPA
consulting with FERC when they are requiring an analysis of
pipeline need or capacity?
Mr. Philip Moeller. I don't believe so. I will get back to
you, but they certainly have submitted comments for the record
on the environmental analysis.
Mr. Gardner. OK. And then I think Mr. Pompeo may have
touched a little bit on this, but do you have an average time
that it takes to site a pipeline in the U.S. on private land?
Mr. Philip Moeller. We might but I would have to get back
to you on that.
Mr. Gardner. That would be great. And if you could get back
to me on the federal land as well, do you have that answer of
the top your head?
Mr. Philip Moeller. OK.
Mr. Gardner. Perfect. And then, are you working on ways--
and you can follow up with me on this as well--working on ways
that FERC can improve upon the time it takes to site a
pipeline? I think that is an important conversation with those
answers in mind.
Mr. Philip Moeller. Well, I have a lot of confidence in our
Office of Energy Projects. They are doing the best job they can
under the given circumstances and statutory responsibilities,
as I alluded to earlier. One way to speed up the process would
be to create some timelines and the accountability that come
with timelines on the resource agencies that a pipeline is also
dependent on getting permits from.
Mr. Gardner. OK. And do you believe that coal still plays a
role in our electric generation and that it would be unwise to
move too quickly to natural gas if there is no infrastructure
if it is not currently supported?
Mr. Philip Moeller. Well, coal is still an extremely
significant part of our electricity mix and will be for the
foreseeable future.
Mr. Gardner. Mr. Chairman, I yield back my time.
Mr. Whitfield. The gentleman yields back the balance of his
time. Thank you.
Well, I believe that is it. Commissioner Moeller and
LaFleur, thank you all again for your testimony and we look
forward to your providing the additional information that was
requested. And you all are dismissed at this time. But we do
look forward to working with you as we move forward.
I would like to call the second panel of witnesses. On the
second panel today, we have Hon. Barry Smitherman, who is the
chairman of the Railway Commission of Texas. We have Hon.
Joshua Epel, who is chairman of the Colorado Public Utilities
Commission. We have Mr. Clair Moeller, who is executive vice
president, Transmission and Technology for the Midwest
Independent Transmission System Operator. We have Mr. Gordon
van Welie, President and CEO of ISO New England. And we have
Mr. Paul Hibbard, who is the vice president of the Analysis
Group. Todd Snitchler, who is the chairman of the Public
Utilities Commission of Ohio, was scheduled to be with us, but
because of an unexpected development, he is not here today.
So welcome all of you. Thank you for agreeing to come and
testify. And Mr. Smitherman, we will begin with you.
Each one of you will be given 5 minutes for your statement,
and the little red light will come on when your time is
expired. So we thank you for being with us, we look forward to
your testimony, and we welcome your expertise as we try to deal
with these significant issues.
So Mr. Smitherman, you are recognized for 5 minutes.
STATEMENTS OF BARRY T. SMITHERMAN, CHAIRMAN, RAILROAD
COMMISSION OF TEXAS; JOSHUA B. EPEL, CHAIRMAN, COLORADO PUBLIC
UTILITIES COMMISSION; CLAIR J. MOELLER, EXECUTIVE VICE
PRESIDENT, TRANSMISSION & TECHNOLOGY, MIDWEST INDEPENDENT
TRANSMISSION SYSTEM OPERATOR, INC.; GORDON VAN WELIE, PRESIDENT
AND CEO, ISO NEW ENGLAND, INC.; AND PAUL J. HIBBARD, VICE
PRESIDENT, ANALYSIS GROUP
STATEMENT OF BARRY T. SMITHERMAN
Mr. Smitherman. Thank you very much, Chairman Whitfield,
Ranking Member Rush, members of the committee, including my
good friends from Texas.
My name is Barry Smitherman. I am the chairman of the Texas
Railroad Commission. I was electing statewide last November
with 74 percent of the vote, apparently receiving at least two
votes from this room.
The Railroad Commission of Texas was created by an
amendment to the Texas Constitution in 1891, and we are the
oldest regulatory body in Texas, one of the oldest in America.
While we no longer regulate railroads, we have for almost 100
years regulated the oil and natural gas industries. We also
regulate intrastate pipelines, surface mining for lignite, and
natural gas utility rates.
I am also the former chairman of the Public Utility
Commission, as you heard earlier, which regulates the electric
and telecommunications industries. In that capacity, I was a
member of the ERCOT Board of Directors, which is the grid
operator for most of Texas.
I am honored to be the only person in Texas history to
serve as commissioner on both the PUC and the Railroad
Commission. I am also the chairman of the NARUC Gas Committee,
although I am not appearing in that capacity today.
Today's hearing focuses on natural gas and electric
coordination challenges, and my focus in these comments will be
on upstream production issues. In analyzing these two issues,
we must keep in mind two significant developments. The first of
which is been touched upon is that EPA, under this
Administration, has ramroded through a suite of anti-fossil
initiatives led by six new greenhouse gas rules, which
effectively make it impossible to build a new coal plant in
America.
Texas has refused to comply with these sweeping EPA
regulations, and therefore, EPA has rejected our permitting
authority through the first-ever imposition of a Federal
Implementation Plan, or FIP. The Texas Attorney General has
assured me that he will challenge these greenhouse gas rules in
the U.S. Supreme Court if it is granted.
When I last appeared before this committee, I spoke of the
Cross-State Air Pollution Rule. CSAPR is the successor to the
Clean Air Transport Rule, and had it been implemented in early
2012, it would have caused the premature closing of several
coal-fired power generation plants in Texas. Such closures
would have increased the likelihood of rolling blackouts last
summer and this coming summer. Fortunately, Texas and the other
litigants were successful at the Court of Appeals for the
District of Columbia when the Court vacated CSAPR by concluding
that the EPA had exceeded its authority.
I could talk about the remaining rulemaking initiatives,
but I would prefer a focus on the second development, which is
actually very positive, timely, and quite fortuitous. We now
have abundant supplies of natural gas in America. Through
horizontal drilling and hydraulic fracturing techniques
developed by the private sector, we have seen a 180 degree
turnabout from just 5 years ago. In late 2008 it was believed
that were running out of natural gas in America. And in fact,
the price was very high, over $12 MMBtu, and several firms were
considering importing LNG.
Today, America is awash in natural gas. And whether it is a
100-year or 200-year supply of natural gas supply of natural
gas, we have a lot of it, and Texas is leading the way. We
produce almost 20 Bcf of gas per day, which is about 30 percent
of all U.S. production. The Barnett Shale, for example, has
produced 12 trillion cubic feet of gas and we believe there are
44 trillion cubic feet of gas remaining.
The importance of this is that electricity prices in many
parts of the country are driven by the price of natural gas.
For example, in Dallas, where Chairman Emeritus Barton is from,
you can get electricity for less than .05 a kilowatt hour, .05
a kilowatt hour. That is 1/3 of what the price was 5 years ago,
almost directly related to the cheap price of natural gas.
However, I must point out that there are potential storm
clouds on the horizon, whether it is potential endangered
species listing, which would take prime gas-producing areas off
the table; new source performance standards; new fugitive
methane emissions requirements; frac-water-use studies and
possible restrictions on supply and disposal; overly onerous
permitting requirements to fracture oil on federal land. The
list goes on and on and we could potentially kill the goose
that lays the golden egg.
In conclusion, I would say new nuclear power construction
is prohibitively expensive, renewable power is variable and not
yet scalable, and coal-fired power plants are under constant
attack from the EPA. Natural gas is the only fuel source that
makes electricity today, at scale, with reasonable prices to
the consumer.
However, let's be clear. Without hydraulic fracturing, this
incredible supply of natural gas disappears, and prices for
both gas and electricity will skyrocket and our economy will
stop dead in its tracks again. Thank you for the opportunity.
[The prepared statement of Mr. Smitherman follows:]
[GRAPHIC] [TIFF OMITTED] 80804.016
[GRAPHIC] [TIFF OMITTED] 80804.017
[GRAPHIC] [TIFF OMITTED] 80804.018
[GRAPHIC] [TIFF OMITTED] 80804.019
[GRAPHIC] [TIFF OMITTED] 80804.020
[GRAPHIC] [TIFF OMITTED] 80804.021
[GRAPHIC] [TIFF OMITTED] 80804.022
[GRAPHIC] [TIFF OMITTED] 80804.023
[GRAPHIC] [TIFF OMITTED] 80804.024
[GRAPHIC] [TIFF OMITTED] 80804.025
[GRAPHIC] [TIFF OMITTED] 80804.026
[GRAPHIC] [TIFF OMITTED] 80804.027
Mr. Whitfield. Thank you.
And Mr. Gardner, I will call on you to make some comments
about our next witnesses.
Mr. Gardner. Thank you, Mr. Chairman. And I would just like
to welcome Chairman Epel to the committee. I have worked with
the chairman on a number of issues over the years, and as
chairman of the Public Utilities Commission, he has
jurisdiction over not only some of the regulations that we are
talking about here today but also taxicabs and all kinds of
other fun stuff in Colorado. But certainly appreciate your work
as chairman of the Colorado Oil and Gas Conservation Commission
as well, and welcome to the committee. Thanks for sharing your
expertise with us.
STATEMENT OF JOSHUA B. EPEL
Mr. Epel. Well, thank you Congressman. Thank you, Chairman
Whitfield, Ranking Member Rush, and members of the subcommittee
for the opportunity to testify at today's hearing.
My name is Joshua Epel. As the Congressman mentioned, I am
the chairman of the Colorado Public Utilities Commission. Prior
to my appointment to the Commission, I was chairman of the
Colorado Oil and Gas Commission, so I understand a little bit
of the issues, and we are sort of the baby brother to the
Railroad Commission.
The State of Colorado began to diversify its source of
electric generation in 2005 when it adopted its Renewable
Energy Standard through a valid initiative. Subsequently, the
Colorado legislature increased the renewable energies
requirement twice with bipartisan support. The Colorado
legislature also adopted minimum standards for electricity
savings through energy efficiency resulting in a decrease in
the amount of fossil fuel necessary to meet the electric
demands of Colorado.
In 2010, the Colorado General Assembly did something
extraordinary. It passed the Colorado Clean Air-Clean Jobs Act.
Representative Gardner was a supporter of the Act. What made
the Act remarkable and instructive for today's hearing is the
Act mandated that the State's largest investor-owned utility
undertake a process of significantly reducing its coal usage in
Colorado. And most importantly, certainly to me, is the
legislature did not mandate the fuel mix. It left that decision
to the Colorado Public Utilities Commission.
The decision adopted by the Commission, and ultimately
approved by EPA, is instructive on a way to meet the challenge
of natural gas and electric coordination and also to meet the
potential EPA regulations for existing generation sources.
First, the Air Quality Control division, our regulatory
agency in Colorado, was instructed to aid the Commission. And
second, it was the Commission that determined the correct mix
of fuel switching to natural gas, plant retirement, and
retrofitting of existing coal-fired units.
The plan adopted by the Commission will allow our largest
utility to be in compliance with the Regional Haze Rule, the
Mercury and Air Toxics Rule, and reduce greenhouse gases by 30
percent by 2020 from 2005 levels. By the very nature of the
plan, the cost will be reasonable and ensure that we have safe
and reliable electric generation in Colorado.
A central element of this plan is Colorado has made a
conscious decision to switch some generation, not all, from
coal to gas. We are assured that we will not have a conflict
with electric and gas generation because Public Service Company
of Colorado signed a 10-year long-term contract with the gas
producer in Colorado.
Now, at this point, I have got to be fair to the other
regions. Colorado is unique. We have a surplus of gas and we
also have an existing pipeline infrastructure that allowed that
signing of a long-term contract. But this program does not come
without cost to Colorado. The estimated price tag of Clean Air-
Clean Jobs is around $900 million. Colorado will also be
required to make additional infrastructure changes, and as was
asked in the previous questions, assured the safety of the gas
distribution system.
As the members of the subcommittee know, an additional
challenge for the electric generation system are the EPA's
rules for existing sources. I believe Colorado's approach
provides a lesson on how to address existing and future rules.
However, to be successful, key principles must be observed.
The Clean Air-Clean Jobs Act enabled Colorado to meet
numerous federal air quality requirements. And because the
Commission selected a suite of controls, fuel switching, and
plant retirements--and what we did was we examined the entire
fleet of Public Service Company. If each generation plant were
controlled individually, it would have been prohibitively
expensive and politically impossible. By being technology
agnostic, Colorado selected the right balance of fuel
switching, retirements, and retrofits to provide both the
necessary reductions and keep rates reasonable and the system
safe and reliable.
Finally, implementation of the Renewable Energy Standard in
the Clean Air-Clean Jobs Act is a major investment. As EPA
develops its new rules for existing sources, if Colorado is not
given credit for this investment, it will be penalized unfairly
when compared to States that have not taken early action.
Thank you for the honor of representing Colorado before
this subcommittee, and I will be pleased to answer any
questions.
[The prepared statement of Mr. Epel follows:]
[GRAPHIC] [TIFF OMITTED] 80804.028
[GRAPHIC] [TIFF OMITTED] 80804.029
[GRAPHIC] [TIFF OMITTED] 80804.030
[GRAPHIC] [TIFF OMITTED] 80804.031
[GRAPHIC] [TIFF OMITTED] 80804.032
[GRAPHIC] [TIFF OMITTED] 80804.033
[GRAPHIC] [TIFF OMITTED] 80804.034
Mr. Whitfield. Thanks very much, Mr. Epel.
Mr. Moeller, you are recognized for 5 minutes.
STATEMENT OF CLAIR J. MOELLER
Mr. Clair Moeller. Thank you, Chairman Whitfield, Ranking
Member Rush. Thank you for the opportunity today to present
before this committee.
I am Clair Moeller, the Executive Vice President of
Transmission Technology for the Midwest ISO, or MISO. We are a
nonprofit public interest organization charged with operating a
wholesale market in the States we serve, as well as ensuring
reliability to the consumers. It is important that we guard
both the reliability and consumer cost as we work our way
through those issues.
My task as a planner for the Midwest ISO is to be the early
warning system to ensure that consumers have both low cost and
high reliability at the end of the day. To protect that, we
look towards various scenarios about how the effect of changing
policies might reduce reliability or increase costs for our
customers.
Recent economic and regulatory pressure is having the
effect of reducing excess capacities in the Midwest.
Historically, we were blessed with an excessive capacity which
frankly made the reliability job fairly easy. These pressures,
we believe, by the end of the day will have reduced our coal
fleet by approximately 18 percent. That will bring our required
reserve margins to their minimum level.
The low cost of gas, in addition to these regulatory
pressures, are what are driving those retirements in the older
coal fleet. Almost 90 percent of the resulting fleet will have
to be retrofitted to comply with the rules. Our concern at that
point is accommodating those outages simultaneously as we reach
the end of the compliance period.
It is important to note that the gas industry and the
electric industry have grown up very differently. The
flexibility that we require on the gas industry is simply not
part of the design requirement of the historic gas
infrastructure. So our best friend in the electric business is
a simple cycle combustion turbine because it is very fast and
very flexible. It is the hardest thing for gas pipelines to
manage because it changes their pressure so quickly and has the
prospect of having an unannounced start.
So the two industries have different requirements in terms
of flexibility, and part of the friction between the two
industries that we are working our way through is about how to
manage the flexibility that, for example, renewable portfolios
have caused electricity markets to need to be more flexible. We
are trying to reflect that need for flexibility into what we
are asking the gas industry to do.
The mismatch between the electric industry and the gas
industry is both the infrastructure, its design--the gas
infrastructure is designed around long-term firm contracts with
fairly slow changes in terms of what the off-takes are. The
electricity now has a 5-minute market; we re-price electricity
every 5 minutes. Gas typically has a day that closes around
nine o'clock and you wait other day in order to make
significant changes. So it is both the pipeline capacity needs
to be engineered to accommodate the flexibility, and the market
rules need to be engineered to accommodate the flexibility.
In that regard, the MISO is working with the FERC, our
state commissions through an organization of MISO states, which
is essentially a representative from each State that we serve,
the load-serving entities, which at the end of the day have the
interface with the customers, the gas pipelines who have been
very accommodating in terms of beginning this conversation, as
well as a gas suppliers. So we can look to what these issues
are in aggregate in the hopes of achieving a single solution
that both protects consumers from unnecessarily high costs and
maintains the reliability of the system, which after all is a
public safety matter that we all must guard.
With that, I look forward to your questions.
[The prepared statement of Mr. Moeller follows:]
[GRAPHIC] [TIFF OMITTED] 80804.035
[GRAPHIC] [TIFF OMITTED] 80804.036
[GRAPHIC] [TIFF OMITTED] 80804.037
[GRAPHIC] [TIFF OMITTED] 80804.038
[GRAPHIC] [TIFF OMITTED] 80804.039
[GRAPHIC] [TIFF OMITTED] 80804.040
[GRAPHIC] [TIFF OMITTED] 80804.041
[GRAPHIC] [TIFF OMITTED] 80804.042
[GRAPHIC] [TIFF OMITTED] 80804.043
[GRAPHIC] [TIFF OMITTED] 80804.044
Mr. Whitfield. Thanks very much.
And Mr. van Welie, you are recognized for 5 minutes.
STATEMENT OF GORDON VAN WELIE
Mr. van Welie. Thank you. Chairman Whitfield----
Mr. Whitfield. Be sure and turn the----
Mr. van Welie. Yes. Thank you. Chairman Whitfield, Ranking
Member Rush, and members of the subcommittee, thank you very
much for the opportunity to appear before the subcommittee this
morning.
My name is Gordon van Welie. I am the president and CEO of
ISO New England. Today, I plan to highlight the serious
operational challenges facing New England's power system. In
the past decade, natural gas has become the predominant fuel
used to produce electricity in New England. However, the
limitations of the current market design and the consequent
inadequate fuel arrangements by natural gas and oil-fired
generation, have led to serious reliability threats to the bulk
power system. Therefore, we are moving at an urgent pace to
develop short- and long-term plans to address these issues,
primarily through changes to New England's wholesale
electricity markets.
New England has seen a major shift in its generation suite,
from a diverse mix of oil, coal, nuclear, and natural gas
generators, to a system with more than half of the region's
electricity being produced by power plants using natural gas.
In addition, we are observing the retirement of coal and oil
generators and the introduction of a diverse set of renewable
and demand resources.
Wholesale electricity prices are now primarily driven by
natural gas-fired generation. The natural gas and electric
industries operate under different structures but are
increasingly interdependent. Electricity supply and demand must
be balanced on an instantaneous basis and problems on the
electric system require immediate action, often through the
operation of fast-responding gas generators. However, if
generators have not contracted for gas prior to the electric
operating day, the gas system may not be able to respond to the
real-time instantaneous demands of the electric system.
For power grid reliability to be maintained, we need to
have adequate levels of fuel inventory within the region either
through storage, or reliable transportation arrangements so
that the electric sector is ready to respond whenever called on
by the ISO. Those arrangements should be incentivized through
changes to the wholesale electricity market design so as to
provide strong economic signals for generators to perform when
needed. It is likely that this will result in incrementally
higher wholesale prices in order to pay for the improved
reliability that we seek.
New England cannot access the full benefit of the domestic
shale gas deposits because of pipeline constraints leading to
New England from both the West and the South. Interstate
national gas pipelines operate under a business and regulatory
model that requires a long-term, firm commitment by the
pipeline customer. Because the current wholesale electricity
market design does not provide gas generators with the
necessary performance incentives, we have found that generators
often do not make arrangements to ensure that they have an
adequate and reliable fuel supply for the output of their
facilities.
The region has historically relied on its oil and coal
generation to provide fuel diversity and offset the operational
risks associated with the constrained gas transportation
system. However, the confluence of low wholesale market prices,
high oil prices, and increasing environmental costs is causing
its generators to retire and/or limit the output of fuel
inventory that they carry. Thus, our dependence on gas
generation is poised to increase, and our operational options
are becoming more limited.
The New England States are studying the ability of the
natural gas pipeline system to set aside both heating and
electric market demand in the region. These efforts are
intended to provide information to policymakers and market
participants on a range of possible solutions to deficiencies
in natural gas infrastructure.
This winter, New England did not experience record or
sustained cold temperatures or unusually high demand for
electricity. However, wholesale electricity prices rose
significantly during this period because of physical
constraints moving the lowest price natural gas into New
England. During that period, as well as during a significant
winter storm in early February, ISO operators had to cope with
multiple instances where generators could not get fuel to run.
Our experiences this winter lead us to conclude that the status
quo is not sustainable.
ISO New England is working with the New England States and
its stakeholders to develop market changes to provide the
economic incentives necessary to ensure that generators have
adequate and reliable fuel supplies. Additional flexibility in
the natural gas industry would also help address the challenges
of increasing interdependency between the two industries. The
gas sector could assist with reliability efforts if gas
supplies provided generators with additional opportunities to
obtain fuel outside of normal business hours, and if pipelines
would offer more flexible scheduling, additional services, and
provide real-time information on the status of the pipeline
system.
In the long-run, it would be helpful for the Federal Energy
Regulatory Commission to improve the operational alignment
between the electric and gas systems.
In conclusion, we recognize that we have to address these
issues with a sense of urgency. Discussions are underway with
our stakeholders and we will be making multiple findings at the
FERC over the next 12 months to address the many components of
our action plan.
Thank you and I look forward to your questions.
[The prepared statement of Mr. van Welie follows:]
[GRAPHIC] [TIFF OMITTED] 80804.045
[GRAPHIC] [TIFF OMITTED] 80804.046
[GRAPHIC] [TIFF OMITTED] 80804.047
[GRAPHIC] [TIFF OMITTED] 80804.048
[GRAPHIC] [TIFF OMITTED] 80804.049
[GRAPHIC] [TIFF OMITTED] 80804.050
[GRAPHIC] [TIFF OMITTED] 80804.051
[GRAPHIC] [TIFF OMITTED] 80804.052
[GRAPHIC] [TIFF OMITTED] 80804.053
Mr. Whitfield. Thanks very much.
And Mr. Hibbard, you are recognized for 5 minutes.
STATEMENT OF PAUL J. HIBBARD
Mr. Hibbard. Thank you. And good morning, Chairman
Whitfield, Ranking Member Rush, and members of the committee
for the opportunity to testify before you today.
The challenges associated with coordination of natural gas
and electric markets is particularly important from both the
perspectives of electricity and natural gas users throughout
the U.S. and from the perspectives of reliability and cost. So
considering these issues now is both appropriate and very well-
timed.
So let me summarize my view on coordination issues with
just five key points. First, we shouldn't forget the benefits
of improved coordination and we should focus on it. As a former
chairman of the Public Utility Commission in Massachusetts, at
a time when natural gas prices were both very high and very
volatile, I want to emphasize the consumer rationale for better
coordination.
The emergence of shale gas has dramatically lowered the
cost of living and doing business across many States and has
generated significant economic benefits. When considering
coordination challenges, this should be front and center. We
need to improve coordination because that will allow electric
ratepayers to realize the benefits that our expanded domestic
natural gas resource base represents.
Adding new gas-fired generating capacity to a region can
lower costs, expand use of a domestic fuel, provide
environmental benefits, and facilitate the integration of
variable, renewable resources. Improving the stability and
efficiency of electric gas market transactions must thus be
viewed not as a challenge but as an opportunity.
The second point I want to make is that power grids can be
operated reliably with a significant reliance on natural gas
with a critical caveat that I will mention in a minute. Heavy
reliance on natural gas-fired generation does not, by
definition, diminish the reliability of power grid operations.
New and efficient gas-generating technologies can provide
numerous reliability advantages. They are relatively easy to
develop and site, can be built in various sizes and
configurations, and can be located close to where electrical
load is. They offer the ability for continuous operation,
faster startup, and faster response to grid-operated dispatch
instructions over many competing resource types.
Finally, as our States seek to integrate vast amounts of
renewable resources, gas-fired power plants offer the best
physical operating characteristics for managing the variability
associated with these sources.
The third point I want to make--the critical caveat--is
that natural gas infrastructure must be sufficient to meet the
coincident demands of heating, industrial processes, and
electric generation at all times. In the time frame of short-
run transactions between electric and natural gas markets, the
prevailing profit motives of market participants are extremely
effective at overcoming short-term supply and transportation
issues, but they simply cannot overcome physical constraints on
the flow of gas.
In summary, gas infrastructure is or will become
increasingly constrained, particularly in the winter. Where
pipeline and LNG infrastructure is sized primarily to meet
winter heating demands, there is limited space on the region's
pipelines to carry gas for electricity generation during cold
winter conditions. Addressing this is the fundamental challenge
of the coordination issues before us today.
Forth, given these circumstances in regions with inadequate
natural gas infrastructure, grid operators and regulators must
focus on relieving these infrastructure constraints, and in the
meantime, ensuring reliable operations in the face of
constraints. Grid operators need to ensure that under adverse
power system conditions, including constraints on the flow of
gas for power generation, there is sufficient capacity to
reliably operate the system.
There are a number of tools operators can use to accomplish
this, such as retaining non-gas units needed for reliability,
requiring switching at units that have dual fuel capability,
dispatching resources that otherwise might be uneconomic,
calling on demand-response resources and activating operating
procedures where necessary to avoid power disruptions.
In addition, regulators and grid operators can take actions
to relieve prevailing constraints in the longer-term through
regulatory orders and market structures that promote
development of dual fuel capability, enhanced demand response,
or investment in new natural gas transportation infrastructure
where it is economic.
Finally, in regions that currently have adequate natural
gas infrastructure, operators and regulators must not let down
their guard. Their decisions and actions are key to
appropriately planning for avoiding such infrastructure
constraints in the future.
In short, regulators and grid operators play vital roles
roles in advancing the coordination of natural gas and electric
markets, and promoting the development of needed natural gas
system infrastructure and in managing the reliable operation of
power systems in the face of gas supply constraints. Given the
potential economic reliability and environmental benefits of
expanded use of natural gas in electric sector, the efforts of
regulators and grid operators in this area should receive
heightened attention and effort.
So with that, again, I want to thank you and look forward
to your questions.
[The prepared statement of Mr. Hibbard follows:]
[GRAPHIC] [TIFF OMITTED] 80804.054
[GRAPHIC] [TIFF OMITTED] 80804.055
[GRAPHIC] [TIFF OMITTED] 80804.056
[GRAPHIC] [TIFF OMITTED] 80804.057
[GRAPHIC] [TIFF OMITTED] 80804.058
[GRAPHIC] [TIFF OMITTED] 80804.059
Mr. Whitfield. Thank you, Mr. Hibbard.
And I will recognize myself for 5 minutes of questions.
Mr. van Welie, recently, the New York Times wrote an
article about the power shortages in the Northeast, and I know
Commissioner LaFleur, in her testimony, pointed out the
Northeast as an area of concern, as did you in your testimony.
Now, the New York Times article focused a lot on nuclear power,
and I would ask--of course you have got the Vermont Yankee
plant, you have got the Indian Point plant. Both of them, there
are groups trying to shut them down. If that occurred, what
impact would that have upon the Northeast and its ability to
generate enough electricity?
Mr. van Welie. So both New York and New England have got
market mechanisms for replacing that capacity if those two
nuclear generators were to retire. So I cannot predict with
precision what will replace it. It does seem like the most
economic resource to replace at capacity would be additional
gas-fired generation, so it would create additional stress on
the gas system.
Mr. Whitfield. Well, do you have any concerns about
blackouts or brownouts in the immediate future?
Mr. van Welie. We do. We got dangerously close this winter
and hence, we are moving with a sense of urgency. I think it is
all about making sure that in this transition period, we will
have to rely on oil and coal generation and LNG imports in the
region. And so the reason I say that is it is going to take 3
to 5 years to build new pipeline into New England. So we are
going to be in a situation where we have to optimize the use of
existing infrastructure within the region, and so we are
working closely with our stakeholders to try and identify
intra-mechanisms to bridge this transition period.
Mr. Whitfield. Yes, and we also appreciate in your
testimony your setting out some specific things that needed to
be done, which we appreciate your setting that out as well.
Mr. Epel, in your testimony--I was trying to find it real
quick here--you made a comment--and I may be paraphrasing.
Maybe I can find it real quick. But you made a comment that
``Congress and EPA must acknowledge that it is the exclusive
province of the Utility Commission to determine the mix of
strategies to achieve standards at EPA.'' And recently, we had
three forums on the Clean Air Act and regulators came in from
all over the country, and many of them expressed some concerns
about their flexibility. So would you elaborate on this just a
little bit?
Mr. Epel. Certainly. Thank you, Mr. Chairman.
My concern is I believe we have to have a bifurcated system
for EPA or the Congress to establish what are the goals, what
are the targets. But really, when it comes down to who is going
to have the capability of making decisions, looking at the
entire system, for example, with Colorado, what plants should
be retrofitted? Which ones should have fuel switching? How much
energy efficiency can we utilize? That is really the expertise
of the state commissions or the regional bodies. And that is a
complex equation not only of the air quality impacts, but the
financial impacts. How much infrastructure has to be built?
I think really it is the state commissions or the regional
bodies which have that intricate understanding of the system.
And so neither Congress or EPA really can delve into that level
of detail. They certainly can say here is the goal, here is the
slope of how quickly it has to be achieved, but when it gets
down to the real nitty-gritty of economically making these
decisions so we balance both the environmental needs and the
financial consideration of the State, I think that is really
where our expertise lies.
Mr. Whitfield. OK, thanks.
Mr. Smitherman, are there any other States that EPA has
issued a Federal Implementation Plan for other than Texas?
Mr. Smitherman. Not that I am aware of, Mr. Chairman.
Mr. Whitfield. OK. And of course you all won your flex
permit case, and you also won the Cross State Air Pollution
Control case as well. Is that correct?
Mr. Smitherman. We did. The 5th Circuit ruled that the EPA
had acted in an arbitrary and capricious manner with regard to
our flex permitting program.
Mr. Whitfield. Yes. Now, you testified regarding wind
power, subsidizing wind power, and you talked a little bit
about wind generators bidding negative prices into the ERCOT
and how that distorts the system. Would you just briefly
explain this negative pricing?
Mr. Smitherman. I will. Just to give you a quick snapshot,
for the first 2 months of this year we have had 39 percent
natural gas, 38 percent coal, 11 percent nuclear, and 11
percent wind. That has been our power mix. With the PTC in
effect, wind basically can offer in at negative prices. And
because we run a market-dispatch model, the cheapest
generation, which is wind and nuclear, is dispatched first. So
when the wind is blowing, it creates negative prices, basically
pushing off of the dispatch curve occasionally gas and coal.
Mr. Whitfield. OK. Thank you. My time has expired.
I recognize the gentleman from Illinois, Mr. Rush, for 5
minutes.
Mr. Rush. I want to thank you, Mr. Chairman.
I would like to go out on a line and just ask each witness
a simple question, and maybe each of you could answer with a
yes or no because I do have a follow-up question.
Do you think that the transition from coal-fired power
plants to natural gas is mostly a positive development or a
negative development for our Nation?
Mr. Smitherman. Well, Mr. Rush, I think we need a balance.
We need a portfolio as we have in Texas because if gas prices
were to rise back to their 2008 levels, then coal would provide
a hedge against that. When gas prices are low, then gas is the
right thing to dispatch. So if you put all your eggs in one
basket, you run the risk of having not a portfolio but a
situation which doesn't give you any options.
Mr. Rush. Mr. Epel?
Mr. Epel. Mr. Rush, I would say in the affirmative the
transition to utilization of gas is a net positive for society
and certainly for Colorado, but as Chairman Smitherman said, we
do need to keep that diverse portfolio.
Mr. Rush. Mr. Moeller?
Mr. Clair Moeller. I apologize. I am going to have to not
take a position. Our not-for-profit independent status
precludes me from choosing between fuels.
Mr. van Welie. So I think the evidence in New England has
been that the transition to natural gas has been a beneficial
thing for the region, both from an economic and an
environmental point of view. I think to Mr. Hibbard's earlier
point, it is vital that we make sure that the fuel
infrastructure can support that gas generation.
Mr. Hibbard. And I would agree as well, that given the
economic, environmental, and reliability benefits, the
transition is a good one.
Mr. Rush. Mr. Moeller, in your testimony, you expressed
some concerns about the impact of expected coal plant
retirements and retrofits on the MISO reserves of electricity
generation capacity. When MISO briefed the Committee's staff,
they focused on the winter of 2016. By that time, most of the
retirements would have occurred. MISO said there was a
``potential shortfall'' of 11,700 megawatts of generation
capacity at that time.
And I know your job is to keep the lights on and that means
considering the worst-case scenario. I can appreciate that, but
I want to make sure that the Subcommittee gets a realistic
picture of some of the resource adequacy situation in MISO. So
I would like to ask you a couple of questions about it, about
this potential shortfall. MISO's suggestion assumed that 3,000
megawatts of new gas capacity would be available in the next 3
to 4 years. That seems to be kind of low. Would you consider
that to be a conservative assumption?
Mr. Clair Moeller. That conservative assumption is based on
people who have requested to interconnect new gas-fired
generation to the MISO transmission system.
Mr. Rush. As I understand, the MISO's calculation doesn't
count any new wind capacity, is that right?
Mr. Clair Moeller. Wind capacity in our market, should the
owner of the wind choose to count it, gets a 12 percent
capacity credit for its participation.
Mr. Rush. Wind is an intermittent resource but it is also
the single-largest source of new generation capacity last year,
a calculation that doesn't account for any new wind capacity. I
may be missing a piece of that puzzle. The MISO analysis also
assumes that almost 19,000 megawatts of natural gas generation
would not have the fuel to operate in the winter of 2016. That
is significantly more than the entire ``potential shortfall.''
We heard a lot today about the challenge of making sure
that the natural gas infrastructure is adequate. Do you have
any comments about the adequacy of the shortfall?
Mr. Clair Moeller. Yes, sir. The point I was attempting to
illustrate in that conversation was that the majority of the
gas-fired generation in the MISO market was constructed around
a summer utilization and it did not purchase firm
transportation for their gas. In July and August there is
typically sufficient gas and gas transportation to meet those
requirements because it is not coincident with the heating
load. Our concern is that as we move towards using that gas in
the winter periods with the competition for heat load, it is
unclear how much that capacity would be available.
So our conversation was it is clear that 100 percent of
that capacity won't be available. It is probably also true that
zero of that capacity will be available, but at this point in
time as we discuss with the gas pipe suppliers, it is unclear
how much of that gas we can count on to be there for us in the
wintertime. The New England situation is a harbinger of
problems we seek to avoid, and so that conversation was to
point out how large the problem might be, frankly, sir, to peak
people's interest so that we can get the solution in time.
Mr. Rush. Thank you, Mr. Chairman.
Mr. Olson [presiding]. The ranking member yields back.
The chair recognizes the gentleman from Ohio, Mr. Latta,
for 5 minutes.
Mr. Latta. Well, thank you very much. I appreciate it, Mr.
Chairman. And thank you very much for our panel and I am sorry
this is one of those days we have two hearings going on at the
exact same time. But we appreciate you being here and joining
us.
If I could just go back to Mr. Smitherman. I found your
testimony very interesting. Now, you say on page 1, ``however,
because the Federal Government and EPA continue to set
unreasonable roadblocks to diverse fuel production, the natural
gas industry is challenged to boost supply enough energy for
the Nation.'' And then you go on to state that ``the EPA has
implemented such onerous restrictions on the ability to build
new coal-fired coal plants that it has greatly impacted fuel
supply in Texas and the Nation.'' When you are talking about
these onerous restrictions, I am just curious, have you heard
of the EPA doing any cost-basis analysis for the State of
Texas, how it would affect you all?
Mr. Smitherman. Congressman, I am not aware of any analysis
that they have done with regard to the State of Texas, though
when they put forward many of these regulations, they proffer a
certain cost-benefit analysis, and not surprisingly, the
benefits, in their minds, always outweigh the cost.
What we have challenged is, what is the cost of failed
reliability? What is the cost of not having enough electricity,
of the lights going out? And that is a real possibility if we
prematurely close down some of our coal-fired power generation
plants or we limit the ability to recover natural gas. Either
of those could lead to shortages.
Mr. Latta. Well, and we were talking about looking at those
issues, and especially we were here talking about coal-fired
plants, especially where I am from, the State of Ohio, up in
the northern part of the state, where we are well over 60
percent coal-fired. Anyway, as Republicans have said back in
2008, we all want to have an all-of-the-above energy policy
that takes in clean coal, natural gas, nuclear, hydro, and all
of the alternatives. But we want to make sure that they are out
there for the people because in a question like what could be
going on here, especially when the EPA is not doing any cost-
basis analysis and we're not really sure of the impacts, when
you are starting to close down these plants, whose is going to
pay for this in the very end?
Mr. Smitherman. Well, in regulated markets if you are
retrofitting these coal plants to come into compliance with
everything except carbon capture, which is another technology
altogether, then the ratepayers are going to pay for them. If
you are talking about in deregulated or competitive markets,
then you are going to see many of these plants close down,
which is going to end up giving us a fuel mix which is heavily
weighted toward natural gas, which is great if natural gas
prices stay low and the supply remains high.
Mr. Latta. Well, and again, in the State of Ohio we have
been very fortunate with the presence of the Utica Shale--and
actually, recent geological surveys indicate they are actually
moving farther across the State, which is great, but you are
right, we have to have that blend out there.
And the thing I worry about is in my district, I have
60,000 manufacturing jobs. We have to have base load capacity
to make sure that when the big machines go on in the morning or
at night, they stay on. We also want to make sure that folks
can compete in the global market.
Mr. Moeller, if I could just move over to ask you--you were
talking about some things up in the Northeast, but what about
in the Midwest? When you are looking at heating taking
precedence over electric generation, should the two compete for
natural resources? What do you think about the Midwest and how
things could be impacted?
Mr. Clair Moeller. So we have got a very complicated
situation in the 21 different interstate pipelines that serve
the Midwest region. Each one of those pipelines has a different
set of facts and circumstances in terms of how constrained they
are, but all of them were constructed on a subscription basis
around residential heat load. So we continue to be concerned
that as we begin to rely more on gas more in the winter months,
we will see conflicts around competition for that gas pipeline
capacity. We are trying to understand what that conflict might
look like across those 21 gas pipes to see with the cost to
consumers might be.
Mr. Latta. Thank you very much.
And Mr. Chairman, I yield back.
Mr. Olson. The gentleman yields back.
The chair now recognizes the gentleman from California, Mr.
McNerney, for 5 minutes.
Mr. McNerney. Thank you, Mr. Chairman.
You know, I have heard this morning and today a lot about
pipeline infrastructure being inadequate or needing
flexibility. I haven't heard anything about storage. Is storage
a viable option for local utilities? Can they build storage for
natural gas or is there some reason why that is not on the
table, whoever wants to answer it?
Mr. Clair Moeller. Historically, there has been some
natural gas storage in local distribution companies in the form
of small liquid natural gas.
Mr. McNerney. All right.
Mr. Clair Moeller. There are also geologic opportunities to
store it, but they are not universally available across the
entire country, sir.
Mr. McNerney. Mr. van Welie?
Mr. van Welie. Sir, I presume your question was with regard
to electrical storage.
Mr. McNerney. No, no.
Mr. van Welie. Oh, fuel storage?
Mr. McNerney. Natural gas storage.
Mr. van Welie. Yes. I think the most practical solution, at
least for our region in terms of fuel storage, is LNG. And
there are some large LNG facilities around the region, and I
think that ultimately the solution is a combination of pipeline
and storage because one has to think of the possibility that a
pipeline could be compromised in some way and you need to be
able to ride through that event. And one way of dealing with
that is through local storage.
Mr. McNerney. Is storage more expensive than pipelines?
Mr. van Welie. Typically, yes. I think LNG from some of the
numbers that I have seen--it is the energy required in order to
compress and liquefy the gas that makes it relatively expensive
compared to gas in the pipe.
Mr. McNerney. OK. Thank you. So what would be the best way,
then, Mr. van Welie, to get the flexibility you need for
reliability from natural gas?
Mr. van Welie. So I think it depends where you are, and if
you are in a restructured wholesale electricity market, such as
exists in New England, what we need to do is to make sure that
the incentives for our generators are such that they will seek
reliable fuel supplies. They will then have a number of options
open to them.
So, for example, if we have created a strong performance
incentive for them and they are out there looking for reliable
fuel supply, they could choose to put in dual fuel
infrastructure, a tank of oil, and switch from gas to oil if
their gas system becomes constrained or they can enter into a
contract, bilateral contract, with an LNG storage provider to
draw gas from the LNG storage facility, or contract with the
pipelines for no-notice service or phone service from the
pipes.
So I think the starting point in solving this problem is to
have the generators feel like they have to have adequate fuel
in order to meet the call from the----
Mr. McNerney. So in other words sort of a free-market
approach with the right incentives?
Mr. van Welie. That is right. We won't dictate what their
solution is; we just want them to produce electrical energy
when we need them to.
Mr. McNerney. Mr. Moeller, I think it was you that
mentioned there was a conflict between when certain natural gas
pipelines are only approved to deliver during certain periods
of time. Does that sound familiar?
Mr. Clair Moeller. No. I was commenting about the fact that
gas pipelines are constructed typically based on a subscription
form of service where the original owners of the gas capacity
have typically been residential heat loads. And so the pipe has
been sized based on the original use. And typically those
original users--it is 20 years gone by since those pipes have
been constructed. So it is unclear in terms of how much
capacity is available during what times of the year to supply
this new use.
Mr. McNerney. So that wasn't a contractual issue more as a
physical capacity issue?
Mr. Clair Moeller. Yes. It is two issues. One is the
physical issue and the other is a contractual issue, and
because they are both fairly opaque, it is a little hard to
figure out what the actual fact circumstance is.
Mr. McNerney. Do you have the resources to make that work
better?
Mr. Clair Moeller. We have engaged with the natural gas
pipelines that serve our region, and they are working with us
to answer those questions.
Mr. McNerney. OK. Mr. Epel, you mentioned that you felt
that Colorado was ahead of the curve on these issues. What has
given Colorado that sort of wherewithal to get into that
position?
Mr. Epel. Congressman, this is actually driven by the
voters of Colorado. Our renewable energy portfolio is really
adopted by a balanced initiative, which the legislature then
enhanced. And there has been a consistent desire for Colorado
to have as much fuel diversification as possible. We spend
quite a bit of time on energy efficiency also to reduce overall
fuel usage, but it really comes from the voters of Colorado.
They have spoken pretty clearly on this topic.
Mr. McNerney. OK, thank you.
And I yield back, Mr. Chairman.
Mr. Olson. The gentleman yields back. The chair, in
applying the gavel-in rule, recognizes himself for 5 minutes.
And first, I would like to welcome all of you for coming
but a very special welcome for the chairman of the Texas
Railroad Commission, a man I voted for this past November,
Chairman Barry Smitherman. And as they say in College Station,
Texas, home of the fine Texas Aggies, howdy whoop.
Commissioner Smitherman, this question is for you. As you
discussed in your testimony, Texas very clearly has reliability
challenges ahead of it, starting as early as next year when
resource reserve margins could slip below the 13.75 target that
ERCOT has. And while FERC works to address the impacts of
increasingly depending on natural gas, would you agree that on
the other side of Washington the EPA is working to help make it
all but impossible to build any new coal plants that would
diversify our power sources?
Mr. Smitherman. Certainly, Congressman Olson. It is great
to see you.
You referenced earlier in your remarks a couple of projects
which have been taken off the table in Texas because they were
unable to meet new federal greenhouse gas regulations. So what
that leaves us with in Texas is maintaining the current coal
fleet and hoping that generators will add additional combined-
cycle gas. It looks like we are going to get a couple of new
projects built that are going to be combined-cycle, but
probably going forward, that is the only type of generation
that we will see built in Texas. It will be combined-cycle gas.
And with that we are trying to design a market to incent
additional generation, but we essentially have found ourselves
with only one tool in the toolbox.
Mr. Olson. And what tool is that, sir?
Mr. Smitherman. That is modifying the market designed to
incent new natural gas-fired generation. Since we will not get
any new coal plants built, we will struggle to maintain the
existing coal fleet operational and I think it is almost
impossible to build new nuclear in Texas.
Mr. Olson. Yes, sir. I understand all of that. And you
heard my exchange with Commissioner Moeller in the previous
panel about the incident on February of 2011, this cold
incident--the freezing that was across our State and also the
extreme heat wave we had in the State as well in August of that
year. The February 2011 event has been held up for a while now
as a clear example of the interdependence of the electrical and
natural gas industries and what can happen. The systems only
run into trouble. Would you say that Texas had learned from
that incident, and if so, are the steps you have taken
alongside with the PUC and ERCOT so they can be shared
nationwide?
Mr. Smitherman. We have learned a number of things. One,
that communication among all the agencies is incredibly
important. So we have a task force today that meets regularly
to investigate and communicate issues of fuel supply, of
weatherization. In fact, one of the things we required after
that event was additional weatherization on the bowler level,
to make sure that these plants are prepared for extraordinarily
cold weather, and to encourage firm gas supply contracts to our
power generating stations. And if we know that a firm supply
contract is not in place, that the ERCOT grid operators do not
count on that unit to be available during those periods of
time.
We are also working on demand response initiatives and
other things to give us a few additional tools. But I think it
is important to be mindful of the fact that that was a very,
very cold weather event. And for the most part, power
generation plants in Texas are designed for summer heat, not
for sub 32 degree temperatures for 3 straight days.
Mr. Olson. And one final question, this is taking a page
from Chairman Emeritus Dingell's playbook, but I am going to
ask a question for all of you as an answer of yes or no.
Starting with you, Mr. Hibbard, on the end there, yes or no. As
things stand now, do you see the need for a full FERC
rulemaking on the topic of gas electric coordination, or is a
focus on regional action and clarification of the existing
regulations enough? Yes or no please, sir.
Mr. Hibbard. I think FERC's approach looking at the issue
regionally is correct.
Mr. Olson. And Mr. van Welie?
Mr. van Welie. I think it is yes and no. So I think most of
this can be handled regionally, but I think there are certain
issues that Commissioner LaFleur indicated could be looked at
nationally.
Mr. Olson. Yes, I guess I should rephrase that. Regional or
FERC regulation? Mr. Moeller?
Mr. Clair Moeller. Regional.
Mr. Olson. Regional. Mr. Epel?
Mr. Epel. Regional.
Mr. Olson. Mr. Smitherman?
Mr. Smitherman. Texans can take care of Texas.
Mr. Olson. Amen, brother. And one more, Mr. Hibbard,
regional? It sounds like you are regional as well? OK. Well,
there you go. So five for five. It looks like I am out of time.
I yield back the balance of my time and recognize the
gentleman from New York, Mr.--no. The chairman emeritus slipped
in here behind me. Mr. Dingell, are you ready to ask questions,
sir?
Mr. Dingell. If you let me get my feet under me first.
Mr. Olson. OK. Then, we will move on with my colleague from
Texas, Mr. Green.
Mr. Green. Thank you, Mr. Chairman. And I know some of my
questions of our chair of the railroad commission that his
earlier hat was on the Public Utility Commission. I can't make
the same statement that I voted for him last fall, but I did
vote for his mom a few times. But, Barry, it is good to see
you, and I know as a railroad commissioner, you have a
different hat on in the Public Utility Commission, and I
appreciate all your work on the PUC because at one time-- and
you heard my questions earlier--we are proud in Texas to have
ERCOT. And we have never had a reliability issue. And I know we
have been rationing it on what we can do. We don't one of
burden ratepayers too much, but you also don't want to have
some of the incidents that we have. And believe me, in D.C., we
protect ERCOT on a bipartisan basis.
You talked about expansion of coal plants in Texas, and I
know EPA, when they did the Carbon Rule, it was for future
plants, not current plants on sequestration for coal. In all
honesty, I can't imagine building a coal plant unless you
actually did, like we did in Texas, with lignite right over it.
The economics seem like with natural gas, if you have access to
natural gas you wouldn't build a coal plant even if the EPA
extended that rule to coal plants. Is that true?
Mr. Smitherman. Well, first, let me say I would hope that
you would have voted for me because I didn't have a Democrat in
my race. So let's remember that we have a lot of Monmouth coal
in Texas. And actually, today, Monmouth coal is economic when
compared to gas at $3.80 gas prices. So we want to make sure
that we keep those units running. And that was really the
thrust of our pushback on CSAPR.
Mr. Green. Well, and congratulations because that was a
part of summer of our hearings over the last few years on the
transport rule which never made sense to me, and I grew up
there. And the wind comes from the south. At certain times of
the year it comes from the north, but I never knew it went to
Indiana. Be that as it may----
Mr. Smitherman. Me neither. I think the important thing is
to maintain the optionality. Remember in our market, not only
did we run a competitive wholesale market, but we also have
communities and co-ops like San Antonio and Austin, as well as
fully regulated companies on the periphery of the ERCOT market.
And for them, having the optionality to build new coal, even if
it is Powder River Basin coal, could be an important
consideration.
So we want to make sure that we don't have such onerous
greenhouse gas regulations that building new coal, unless it
has CCS, is completely off the table. Gas prices are low now.
That is great. We are long gas; it is terrific. And I would
just remind, though, that gas prices have gone from $1.99 to
$3.80 over the last 2 years. I think they will stabilize
somewhere in the, you know, 4 to 5.50 range. At that point, it
becomes probably a break even for coal. So again, having that
balance--and we have a really nice balance right now. I think
it is important for consumers.
Mr. Green. OK. I know when you talked about nuclear--and we
would have gotten our nuclear loan guarantees in South Texas--
we only have the two plants, Glen Rose and South Texas--so
except for financial problems of one of the investors who was
Tokyo Power--and after Fukushima, Japan, what, are you going to
send us $125 million? But I know nuclear needs to be part of
ours along with our success in natural gas.
I am curious because you had both hats on, both on the
Railroad Commission and the PUC. Is there a market structure
that we can do under ERCOT that working both with your example
from the Railroad Commission with regulation of oil and gas in
PUC, to have that reliability we have become accustomed to in
Texas?
Mr. Smitherman. I would say several things in support of,
one, we need an upstream supply, robust supply, of all the
resources; two, we need to build midstream infrastructure,
pipelines, and transmission lines. And then we need to continue
to tinker with the market design to incent new generation.
You know, the ERCOT market is like an airplane ride. You
take midcourse corrections along the way until you get your
destination. You don't put it on autopilot. And I am confident
that the current commissioners are doing that.
Mr. Green. Well, and I understand. I have been through
Eagle Ford, and seeing the amount of gas we are flaring, of
course, nothing compared to what they are doing in North
Dakota. So that infrastructure is really important because I
know those producers. We would rather have somebody buying that
gas then it would be just flaring it. So the pipeline is
important. Mr. van Welie, in New England how many LNG import
facilities--I am well aware of the one in Boston Harbor, that
has been a debate in our committee for many years. Are there
other LNG facilities in New England?
Mr. van Welie. There are two buoys in the ocean off Boston,
which are--and I don't think they have ever been utilized,
maybe once-- but the other one that is sort of a dominant
resource for the region is in New Brunswick in Canada.
Mr. Green. OK.
Mr. van Welie. So it is owned by Repsol. And they have 10
BC of storage just across the main border.
Mr. Green. About a dozen years ago I kept hearing the
Austin to Boston connection with natural gas. Is there not
enough pipeline capacity to send some of that Eagle Ford gas,
instead of flaring it, up to Boston?
Mr. van Welie. That is the basic problem. So the pipelines
from the West and the south are fully utilized.
Mr. Green. And there is not enough new subscriptions. You
know, people won't build a pipeline unless they have customers.
And if you want to expand a pipeline, you need to have those
customers committed to that because, you know, it is an
investment. And is there not enough potential expansion for
those to expand those pipelines where we have the natural gas?
Mr. van Welie. Yes. So there is a regulatory, what I call a
regulatory conundrum here. On the one hand you have the
electric sector and the wholesale markets where generators are
thinking short- to medium-term at best. So year-by-year,
sometimes day-to-day, the pipelines, they will only build the
pipe if they get somebody to commit to them for 15, 20 years.
So how do you actually make those two business models work
together? It is----
Mr. Green. Mr. Chairman, one last question. How long is
that LNG----
Dr. Burgess [presiding]. The gentleman's time has expired.
And the only reason I point that out is because you do have
chairman emeritus who is waiting patiently to question.
Mr. Green. Far be it from me to stand in the way of----
Mr. Dingell. This member is not complaining.
Mr. Burgess. This member is complaining.
Mr. Green. Well, if I could just say--you don't have to
answer just how long has that LNG import facility been in
Boston Harbor?
Mr. van Welie. Yes, about 20 years.
Mr. Green. You could probably build a pipeline. Thank you.
Mr. Burgess. I thank the gentleman for yielding back.
The chair now recognizes himself for however much time he
wants for questions. And I do----
Mr. Dingell. You are a good friend and are always
remarkably courteous. I thank you.
Mr. Burgess. Well, I actually recognized myself, Mr.
Chairman.
Mr. Dingell. Oh, I thought you were----
Mr. Burgess. I referred to myself as chairman because----
Mr. Dingell. Well----
Mr. Burgess. I think there is an aspirational goal involved
here.
I do want to thank the members on the panel who stood with
us so long today. Mr. Smitherman, and I am going to join the
parade, I voted for you as well. I voted for myself,
coincidentally, on the same day. But I am going to ask you, but
really the question may be one that could be answered or should
be answered by everyone on the panel. National Geographic cover
story this week or last week was ``America Strikes Oil.'' I
realize the cover is a little incendiary, a little
inflammatory, to coin a pun there.
But you know, for me was phenomenal to sit in the State of
the Union Address 3 years ago and have the President of the
United States wax eloquently over the benefits of fracking and
how important that was to our economy and ignore his Affordable
Care Act which he had worked so hard to get. But I think this
speaks how important this activity is for the future of our
economy.
In the budget on which will be voting in just a few hours,
Chairman Ryan from the Budget Committee has placed a number in
the budget for the future development of natural gas on federal
lands--and I realize that is not really Texas but on federal
lands--of $11 billion for the next 10 years. That strikes me as
an awfully light figure for what really should be a real boon
to the American economy. Mr. Smitherman?
Mr. Smitherman. Well, Dr. Burgess, it is phenomenal what is
happening in the oil and gas patch these days. And again, it is
all driven by technology, horizontal drilling and hydraulic
fracturing. We are now producing 1.5, 1.6 million barrels a day
of crude oil in Texas. That is more than the rest of the
country gets from Saudi Arabia. That number could double or
triple within the next 10 years, and literally, we could be
energy secure in America by 2020. That will quickly displace
imported oil from Africa, from the Middle East, and ultimately
from Russia. So America is on the cusp of having energy
security, and with that, great paying jobs and revenue streams
that you speak of staying here in America.
Mr. Burgess. Now, does anyone else on the panel have a
feeling as to whether or not that $11 billion figure from oil
and gas produced on federal lands--does that seem high, low, or
just about right?
Mr. Smitherman. Let me just say that this biennium Texas,
oil and gas severance taxes will be over $7 billion just from
Texas private lands. So that seems to me like a low number.
Mr. Burgess. Is that $7 billion for 1 year or for 10 years.
Mr. Smitherman. For the biennium. For 2 years.
Mr. Burgess. For 2 years. OK. Does anyone else have a
sense? Is $11 billion high, low? And again, that is a 10-year
figure that is calculated in our budget. I rather think those
numbers will be much more robust.
Mr. Smitherman, you are correct to point out, and I am in
absolute agreement that Texas is unique unto itself. There are
aspects of the Texas oil and gas production that are unique to
Texas because of archaeology. And the efforts that the
Environmental Protection Agency to write rules for the entire
country recognizing that Mr. Epel's home State of Colorado is
vastly different geologically from our home State of Texas, do
you have a feeling as to where those regulations should be
written and enforced? Is it at the state level or is at the
federal level?
Mr. Smitherman. Certainly, we believe at the state level.
The Railroad Commission employees and TCEQ employees know the
underground geology of Texas better than regulators either in
Washington D.C. or with the EPA. We have been at this for over
hundred years and I think the proof is in the pudding. The
amount of oil and gas that we produce and our safety record and
our environment stewardship is a real testimony to the fact
that we are proud of what we do and we want to take every
proactive step to maintain it. In fact, as you recall, we
passed the first Frac Fluid Disclosure Rule in Texas 2 years
ago. We are on the cusp, and next week we will adopt a
recycling rule for flow back water we think will be one of the
first, and some additional well integrity rules. So we are
actually being proactive.
Mr. Burgess. And you bring up an excellent point, although
the concept of horizontal drilling and hydraulic fracturing
was, if I recall correctly, part of that was developed in the
Barnett Shale, my home county of Denton County, and has been
extrapolated worldwide. But the technology changes and the
technology that is available today is not the technology that
was available 5, 10, 15 years ago. And I am grateful that you
brought that point up because I think Texas and your office, in
particular, has been a leader in addressing some of the
environmental concerns that have occurred as a consequence of
this very, very valuable energy source.
And just to wrap up, all of the economists with the benefit
of the retrospectoscope were able to tell us that a recession
started in December 2007. The area that I represent overlying
the Barnett Shale had to read about it in the newspaper because
we didn't feel it for almost 14 months. Now, yes, the natural
gas price eventually came down to under $2 as you pointed out,
and the effect on the job market was felt. But it was
astounding, the economic effect of the Barnett Shale in the
area of North Texas that I represent, and my only wish is we
could see that economic benefit be extrapolated to the rest of
the country.
And I am going to yield at this point to the chairman
emeritus of the full committee such time as he may consume.
Mr. Dingell. Chairman, I will repeat what I said. You are
always very courteous and I thank you for your kindness.
These questions are for Mr. Moeller. Mr. Moeller, as
utilities build new natural gas electric generating facilities,
they retire older coal-fired plants and retrofit other coal-
fired plants to comply with EPA regulations such as the Mercury
Rule. Do you believe that the Midwest region will have the
capacity necessary, in terms of electrical generation, to meet
the demand?
Mr. Clair Moeller. Yes, sir.
Mr. Dingell. Now, is more time needed for compliance under
the Mercury Rule to give time for new gas infrastructure and
generation to be built?
Mr. Clair Moeller. There may be a small number of projects
that will require additional time as they work their way
through the construction process.
Mr. Dingell. I would appreciate if you would add some
remarks for the record later on these two points.
Mr. Clair Moeller. Yes, sir.
Mr. Dingell. Now, sir, in her testimony, Commissioner
LaFleur said that FERC has been told that the need for
infrastructure is a regional issue that requires regional
solutions. You also noted that to keep up with demand, the
current system will need to be expanded. Given demands for
natural gas, both now and projected in the future, how long do
you anticipate it will take to build the infrastructure
necessary to serve the Midwest region?
Mr. Clair Moeller. Typically, construction of the natural
gas pipeline takes between 3 and 5 years. It will take us on
the order of 3 years to understand what pipelines we should ask
for.
Mr. Dingell. Now, do we add also to that some permitting
time? Because pipelines are not always greeted with vast
acclaim when somebody comes forward.
Mr. Clair Moeller. Three years is the quick time and 5
years is if there are permitting issues that need to be worked
through, sir.
Mr. Dingell. Now, what will the approximate cost be for
this new infrastructure?
Mr. Clair Moeller. Our first guess at that cost would be in
the range of 3 to $5 billion.
Mr. Dingell. Now, who will ultimately bear the burden of
these costs? The ratepayers, the utilities, or the owners of
the pipeline?
Mr. Clair Moeller. Ratepayers, at the end the day, pay for
the infrastructure, sir.
Mr. Dingell. And that is a standard rule? That just always
happens?
Mr. Clair Moeller. Yes, sir.
Mr. Dingell. Thank you. Now, in your testimony you note
that given the nature of pipeline contracts with utilities,
some natural gas-fired plants cannot run to provide additional
generation during certain peak events. Do you believe that
there are changes to be made to ensure utilities have the
contracts in place that provide the supply they need to run
longer? Please answer yes or no.
Mr. Clair Moeller. Yes.
Mr. Dingell. Would you like to add to that for the record
later, if you please?
Mr. Clair Moeller. We can do that, yes, sir.
Mr. Dingell. Now, with improved weather forecasting and the
increased use of wind to generate electricity, do you believe
that this and other forms of renewable electricity should be
included in the resource adequacy predictions? Yes or no?
Mr. Clair Moeller. Yes.
Mr. Dingell. And would you submit to us your comments as to
why this would be so for the record?
Mr. Clair Moeller. Yes, sir.
Mr. Dingell. Mr. Chairman, you have been most gracious.
Thank you to our panel.
And I would just like to make one observation. I have been
dealing with these energy questions for years and years and
years. And the free economic system always surprises us by how
well it works, but it has a lot of other surprises in it for
us. And technology seems to change under our feet. We find that
where we were anticipating shortages, we all of a sudden have
abundance. Where we anticipated abundance, we all of a sudden
have shortages.
And I just worry constantly about the way things change
under our feet and how it is that we must act to see to it that
we are ready when the next set of difficulties comes upon us.
Whether we get gas lines or cold winters and shutdowns and the
gas pipelines crater and we have all kinds of troubles, and I
am hopeful that the nice picture that I see today is one which
is going to be as nice or nicer tomorrow.
But having been a little like the dog that backed into the
hot stove, I am not backing into any stoves hot or cold right
now. So having said these things, your additional comments for
the record would be appreciated. Mr. Chairman, I thank you.
Mr. Whitfield. Thank you, Mr. Dingell. At this time I
recognize the gentleman from Virginia, Mr. Griffith, for 5
minutes.
Mr. Griffith. Thank you, Mr. Chairman. I appreciate all of
you all being here today and appreciate the testimony that I
have heard.
I think that Mr. Dingell's comments in regard to the
circumstances are always changing is one of the reasons that I
feel so strongly that we ought not to throw coal out, or treat
coal as if it were a bad word, because long-term, we know we
have got plenty of coal. It may be a little bit harder to get
out, but if we run into circumstances that we need it, it is
there. And we just need to make sure we have the capabilities
when we need it to be able to use it.
Likewise, it is great that we have natural gas at fairly
reasonable prices and that, you know, do anticipate one of
our--in a previous hearing some of you may have heard this
earlier--witness indicated that they thought it was going to
actually hit $4 by the end of the year. At that point, coal
does become competitive again. And then the question becomes,
you know, who wants to use it and are they going to be allowed
to use it by regulations?
And I would ask you all--and I don't care who wants to
volunteer to answer this question--but we hear a lot about
retrofitting some of the coal plants, which is a good thing and
some coal plants are fairly new. In light, though, of some of
the new regulations that are out there, notwithstanding some
comments this week that the White House may back off of some of
the greenhouse gas regulations in regard to power plants, how
likely is it that you all would anticipate that your power
producers are going to be anxiously looking to find ways to
retrofit coal plants in light of the uncertainty that is out
there with what they might have to do with CO2?
Do you want to start, Mr. Smitherman?
Mr. Smitherman. Yes. Congressman, you raised a great issue
because that is the unknown. You could retrofit to capture
SO2, mercury, particulate matter, everything else
that goes up that flue except for CO2 and then find
yourself 5 or 10 years from now having to make a major retrofit
to capture carbon or it be cost-prohibitive and you just have
to close the plant down and then you have lost all that
capital.
Mr. Griffith. Does anybody disagree with that?
Mr. Moeller, did you want to make an additional comment on
that?
Mr. Clair Moeller. In the Midwest with traditionally
regulated States, the generation owners in conjunction with
their regulators have committed to retrofitting 54,000
megawatts of the 66,000 megawatts on our system.
Mr. Griffith. OK. Thank you.
Mr. van Welie, let me ask you this, just because, as Mr.
Dingell also pointed out, sometimes pipelines aren't so
popular, that LNG storage facility just over the line in
Canada, is there already a pipeline into the States?
Mr. van Welie. Yes.
Mr. Griffith. OK.
Mr. van Welie. There is a pipeline that comes over.
Mr. Griffith. Because we had had some difficulty getting
the pipelines across the Canadian border of late, and I just
wouldn't want to see us run into that problem.
I will tell you that I suspect that some of the natural gas
comes out of a pool of natural gas that we have been trying in
my home State of Virginia now since 2004 to get permission to
explore and figure out what is out there. And many geologists
have told us that natural gas the Canadians are getting
offshore is in a pool that stretches all the way down to
northern North Carolina, which covers a big chunk of Virginia
in that patch. We would love to have you have a source of
American natural gas from just offshore. If you don't want to
do it in Massachusetts, we are glad to do it Virginia.
Mr. van Welie. We would be happy to have you build a pipe.
That would be great.
Mr. Griffith. And we would love to create jobs for all
Americans.
Mr. Rush asked about minorities earlier, and we just think
there is huge potential for not only the United States but also
for the Commonwealth of Virginia if we can get that permission.
Mr. Chairman, that being said, you know, this has been a
great hearing, but I believe a lot of questions that I would
have asked have already been asked and I will yield back.
Mr. Whitfield. Well, thank you, Mr. Griffith.
At this time I recognize the gentleman from Colorado, Mr.
Gardner, for 5 minutes.
Mr. Gardner. Thank you, Mr. Chairman. And again thank you
to the witnesses for joining us today. Chairman Epel, just a
couple of questions from your testimony and the experiences
that we have shared. Could you talk a little bit about the
long-term contracts that you mentioned, natural gas, and how
does the ability to enter into long-term contracts help with
certainty and pricing for utilities?
Mr. Epel. Thank you, Congressman. We could not have
developed Clean Air-Clean Jobs without a long-term contract. We
had to take the volatility out. And so when we developed the
program with this long-term contract, it just gave us that
opportunity to have the smooth glide path for the next 10
years. And we don't anticipate any type of rate impact. In
fact, we entered into a multiyear rate case with Pelletier's
Company of Colorado with only 5 percent increase in rates for
the next 3 years.
Mr. Gardner. And, I believe it was Mr. Burgess from Texas
who talked about just the differences between Colorado's unique
needs and Texas' uniqueness and just the variety of States and
the differences between the geography in the mountains versus
the plains. And so when we came up with the solutions unique to
Colorado, I think that is important.
Mr. Epel. Yes.
Mr. Gardner. And you hear people talk about the single
stack solutions versus letting a State do a broader whole
approach. And so I guess what I am leading into is this: when
you have a rule that allows you to make a decision for a State,
that is a better way than individualizing, targeting specific
sites. Is that correct?
Mr. Epel. I agree with you completely. It has to be a
system benefit. If we did not look at the full suite of the
older plants, the gas availability, including the energy
efficiency opportunities, the program could not have gone
forward.
Mr. Gardner. And so Colorado is best-equipped to make
decisions for Colorado just as Texas is best-equipped to make
decisions for Texas?
Mr. Epel. Well, I think the basic point is the West is the
best and I am pleased to brag about it. But absolutely----
Mr. Gardner. I wholeheartedly agree with you. Thank you,
Mr. Chairman. Yes. And to the point of allowing a holistic
solution versus stack specific. Would everybody else agree on
the panel that that is the better way to proceed?
Mr. Clair Moeller. Yes.
Mr. van Welie. Yes.
Mr. Gardner. Thank you. And you talk a little bit about
greenhouse gas reductions. You indicate in your testimony that
greenhouse gas reductions must establish targets that are
achievable through this suite of strategies, tailored
specifically to a State and the State with vertically
integrated utility or by a region in an organized market. Do
you think that the proposals we see from this Administration
have done that?
Mr. Epel. You know, we have not yet seen the existing
source rule which to me is the critical rule that all of us are
concerned about. I mean clearly, in Colorado, we have addressed
Regional Haze at least for our industrial and utilities,
Mercury Air Toxics. This is the biggest wildcard but I think if
we have a sensible slope and length of time, it is manageable.
But that really has to be driven by the State once EPA or the
Congress defines that goal.
Mr. Gardner. And you talked a little bit about, in addition
to the cooperation that we have in Colorado, we also had a very
cooperative process on our Regional Haze issue in the SIP that
we developed bipartisan support, but we have seen now several
groups in Colorado that choose not to participate in the
process despite its wide bipartisan support. Wild Earth
Guardians National Parks Conservation Association have sought
to upend the process of the SIP that we got through bipartisan
efforts. Through the PUC, do support the Colorado Regional Haze
SIP in its entirety?
Mr. Epel. Absolutely.
Mr. Gardner. Yes. And then you agree that the Department of
Justice and the EPA should defend the SIP in its entirety and
should oppose modifications which could be entering into a
consent decree if that is what they would end up pursuing that
changed the balance approach agreed to by the diverse parties
involved. You would agree that the Department of Justice ought
to defend the whole thing?
Mr. Epel. Well, I am reluctant to ever tell the Department
of Justice what to do, but I think Colorado did as fine a job
as possible on Regional Haze, and clearly, the EPA supported
it. They have turned around the approval of our State
Implementation Plan as quickly as possible, I mean, in record
time.
Mr. Gardner. And did this Administration consultant with--
Texas, Colorado, I will ask all of you--did the Administration
consult with your State before issuing rules like Utility MACT?
Mr. Smitherman. Not at all. Let me just add, Congressman,
quickly, SO2, NOx, particulate matter,
CO2 down to 1992 levels in Texas, in the face of a
growing economy without cap-and-trade.
Mr. Gardner. Chairman Epel?
Mr. Epel. I am not familiar with that.
Mr. Gardner. Yes, I understand. Anybody else care to--OK.
Thank you very much, Mr. Chairman. I yield back my time.
Mr. Whitfield. Well, thank you, Mr. Gardner. And thank all
of you for your testimony.
I think everyone agrees that the wildcard is the
CO2 regulations. And speaking for myself, all of
this came about as a result of the Supreme Court decision, and
there really has not been a national legislative debate on this
issue. And something that we are going to be focused on is
drafting some legislation in which we can have a national
debate on it and let the legislative body decide.
But the ramifications are big, the uncertainties are big,
and we are going through great changes today. And so that is
why we feel like this hearing is so important and to hear from
experts who are dealing with it in various ways, we appreciate
that very much.
And without objection, I would like to enter into the
record this statement of our chairman, Fred Upton.
[The prepared statement of Mr. Upton follows:]
Prepared statement of Hon. Fred Upton
I would like to thank Chairman Whitfield for holding this
important and forward-looking hearing--one that seeks to
proactively address emerging issues resulting from the
increased use of natural gas in the nation's electric
generation portfolio. An ounce or two of prevention now can
avoid big problems down the road.
This country is undergoing a shale gas revolution that is
providing the nation with growing supplies of affordable
domestic natural gas for use in electric generation as well as
manufacturing and residential uses. But at the same time, we
are facing the substantial loss of coal-fired generation
capacity that will only accelerate over the next few years,
especially in the Midwest. Some of these coal-fired plants are
closing for good, while others will go offline for extensive
retrofits to meet new EPA rules.
The rapid replacement of coal with natural gas in the
generation mix can be a challenge in some regions of the
country, and I am pleased that two of our witnesses hail from
the Midwest and will provide a unique perspective from this
region where we need affordable and reliable power not just for
homeowners and small business owners but also for our
manufacturers.
The Midwest is particularly hard hit by the rapid loss of
coal-fired capacity--and this committee will continue to
scrutinize the wave of EPA regulations that have targeted coal.
And while the Midwest supply of natural gas is plentiful, there
are issues that need to be addressed regarding its expanded use
in the generation mix. For example, the Midwest Independent
Transmission System Operator (MISO) estimates we will need $2-3
billion in new natural gas pipeline infrastructure by 2015.
Beyond the infrastructure challenges are the regulatory
issues. The natural gas and electricity sectors have market and
operational differences that may need to be reconciled for this
transition to go smoothly.
Again, I would like to thank the chairman for getting out
in front of these emerging issues. The shale gas revolution is
very good news for the country, but only if we are sensible in
how we go about integrating it into the electricity mix. This
hearing is a great start toward that end.
Thank you and I yield back the balance of my time.
Mr. Rush. Mr. Chairman, I just hope and sincerely wish that
along with your plans for future hearings, I mean, you know how
crazy I am about these hearings that we are holding. I wish you
would also certainly consider a hearing where we will have some
scientists come in and discuss climate change.
Mr. Whitfield. Yes, well, we have had a lot of hearings on
climate change. That is for sure.
Mr. Rush. But no scientists.
Mr. Whitfield. Well, over the last 5 years, we have had 22
some hearings on climate change with scientists. But thank you
for you and Mr. Waxman reminding us of that and for the letter
that you sent.
Mr. Rush. We certainly would like to hear from----
Mr. Whitfield. Thank you.
Mr. Rush [continuing]. Some scientists.
Mr. Whitfield. Thank you.
Thank you all once again for being with us. And the record
will remain open for 10 days. Some of you made commitments to
provide additional information. And we look forward to working
with all of you as we strive to meet the energy demands of our
country and make sure we have adequate supply as well. Thank
you.
And with that, the hearing is adjourned.
[Whereupon, at 1:08 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
[GRAPHIC] [TIFF OMITTED] 80804.060
[GRAPHIC] [TIFF OMITTED] 80804.061
[GRAPHIC] [TIFF OMITTED] 80804.062
[GRAPHIC] [TIFF OMITTED] 80804.063
[GRAPHIC] [TIFF OMITTED] 80804.064
[GRAPHIC] [TIFF OMITTED] 80804.065
[GRAPHIC] [TIFF OMITTED] 80804.066
[GRAPHIC] [TIFF OMITTED] 80804.067
[GRAPHIC] [TIFF OMITTED] 80804.068
[GRAPHIC] [TIFF OMITTED] 80804.069
[GRAPHIC] [TIFF OMITTED] 80804.070
[GRAPHIC] [TIFF OMITTED] 80804.071
[GRAPHIC] [TIFF OMITTED] 80804.072
[GRAPHIC] [TIFF OMITTED] 80804.073
[GRAPHIC] [TIFF OMITTED] 80804.074
[GRAPHIC] [TIFF OMITTED] 80804.075
[GRAPHIC] [TIFF OMITTED] 80804.076
[GRAPHIC] [TIFF OMITTED] 80804.077
[GRAPHIC] [TIFF OMITTED] 80804.078
[GRAPHIC] [TIFF OMITTED] 80804.079
[GRAPHIC] [TIFF OMITTED] 80804.080
[GRAPHIC] [TIFF OMITTED] 80804.081
[GRAPHIC] [TIFF OMITTED] 80804.082
[GRAPHIC] [TIFF OMITTED] 80804.083
[GRAPHIC] [TIFF OMITTED] 80804.084
[GRAPHIC] [TIFF OMITTED] 80804.085
[GRAPHIC] [TIFF OMITTED] 80804.086
[GRAPHIC] [TIFF OMITTED] 80804.087
[GRAPHIC] [TIFF OMITTED] 80804.088
[GRAPHIC] [TIFF OMITTED] 80804.089
[GRAPHIC] [TIFF OMITTED] 80804.090
[GRAPHIC] [TIFF OMITTED] 80804.091
[GRAPHIC] [TIFF OMITTED] 80804.092
[GRAPHIC] [TIFF OMITTED] 80804.093
[GRAPHIC] [TIFF OMITTED] 80804.094
[GRAPHIC] [TIFF OMITTED] 80804.095
[GRAPHIC] [TIFF OMITTED] 80804.096
[GRAPHIC] [TIFF OMITTED] 80804.097
[GRAPHIC] [TIFF OMITTED] 80804.098
[GRAPHIC] [TIFF OMITTED] 80804.099
[GRAPHIC] [TIFF OMITTED] 80804.100
[GRAPHIC] [TIFF OMITTED] 80804.101
[GRAPHIC] [TIFF OMITTED] 80804.102
[GRAPHIC] [TIFF OMITTED] 80804.103
[GRAPHIC] [TIFF OMITTED] 80804.104
[GRAPHIC] [TIFF OMITTED] 80804.105
[GRAPHIC] [TIFF OMITTED] 80804.106
[GRAPHIC] [TIFF OMITTED] 80804.107