[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




 
POWERING AMERICA: EXAMINING THE STATE OF THE ELECTRIC INDUSTRY THROUGH 
                    MARKET PARTICIPANT PERSPECTIVES

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON ENERGY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 18, 2017

                               __________

                           Serial No. 115-45
                           
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                           
                           
                           


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov
                        
                        
                        
                        
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                    COMMITTEE ON ENERGY AND COMMERCE

                          GREG WALDEN, Oregon
                                 Chairman
JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
FRED UPTON, Michigan                 BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
TIM MURPHY, Pennsylvania             ELIOT L. ENGEL, New York
MICHAEL C. BURGESS, Texas            GENE GREEN, Texas
MARSHA BLACKBURN, Tennessee          DIANA DeGETTE, Colorado
STEVE SCALISE, Louisiana             MICHAEL F. DOYLE, Pennsylvania
ROBERT E. LATTA, Ohio                JANICE D. SCHAKOWSKY, Illinois
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
PETE OLSON, Texas                    JERRY McNERNEY, California
DAVID B. McKINLEY, West Virginia     PETER WELCH, Vermont
ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
GUS M. BILIRAKIS, Florida            YVETTE D. CLARKE, New York
BILL JOHNSON, Ohio                   DAVID LOEBSACK, Iowa
BILLY LONG, Missouri                 KURT SCHRADER, Oregon
LARRY BUCSHON, Indiana               JOSEPH P. KENNEDY, III, 
BILL FLORES, Texas                       Massachusetts
SUSAN W. BROOKS, Indiana             TONY CARDENAS, California
MARKWAYNE MULLIN, Oklahoma           RAUL RUIZ, California
RICHARD HUDSON, North Carolina       SCOTT H. PETERS, California
CHRIS COLLINS, New York              DEBBIE DINGELL, Michigan
KEVIN CRAMER, North Dakota
TIM WALBERG, Michigan
MIMI WALTERS, California
RYAN A. COSTELLO, Pennsylvania
EARL L. ``BUDDY'' CARTER, Georgia
                         Subcommittee on Energy

                          FRED UPTON, Michigan
                                 Chairman
PETE OLSON, Texas                    BOBBY L. RUSH, Illinois
  Vice Chairman                        Ranking Member
JOE BARTON, Texas                    JERRY McNERNEY, California
JOHN SHIMKUS, Illinois               SCOTT H. PETERS, California
TIM MURPHY, Pennsylvania             GENE GREEN, Texas
ROBERT E. LATTA, Ohio                MICHAEL F. DOYLE, Pennsylvania
GREGG HARPER, Mississippi            KATHY CASTOR, Florida
DAVID B. McKINLEY, West Virginia     JOHN P. SARBANES, Maryland
ADAM KINZINGER, Illinois             PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
BILL JOHNSON, Ohio                   DAVID LOEBSACK, Iowa
BILLY LONG, Missouri                 KURT SCHRADER, Oregon
LARRY BUCSHON, Indiana               JOSEPH P. KENNEDY, III, 
BILL FLORES, Texas                       Massachusetts
MARKWAYNE MULLIN, Oklahoma           G.K. BUTTERFIELD, North Carolina
RICHARD HUDSON, North Carolina       FRANK PALLONE, Jr., New Jersey (ex 
KEVIN CRAMER, North Dakota               officio)
TIM WALBERG, Michigan
GREG WALDEN, Oregon (ex officio)

  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     1
    Prepared statement...........................................     3
Hon. Bobby L. Rush, a Representative in Congress from the State 
  of Illinois, opening statement.................................     4
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     5
    Prepared statement...........................................     6
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     7
    Prepared statement...........................................     8

                               Witnesses

Joseph T. Kelliher, Executive Vice President, Federal Regulatory 
  Affairs, NextEra Energy, Inc...................................     9
    Prepared statement...........................................    12
    Answers to submitted questions...............................   122
Lisa G. McAlister, Senior Vice President and General Counsel For 
  Regulatory Affairs, American Municipal Power, Inc..............    20
    Prepared statement...........................................    22
    Answers to submitted questions...............................   124
Steven Schleimer, Senior Vice President of Government & 
  Regulatory Affairs, Calpine....................................    43
    Prepared statement...........................................    45
    Answers to submitted questions...............................   133
Jackson Reasor, Chief Executive Officer, Old Dominion Electric 
  Cooperative....................................................    54
    Prepared statement...........................................    56
    Answers to submitted questions...............................   135
Tamara Linde, Executive Vice President and General Counsel, 
  Public Service Enterprise Group, Inc...........................    66
    Prepared statement...........................................    68
    Answers to submitted questions...............................   143
Kenneth D. Schisler, Vice President of Regulatory and Government 
  Affairs, EnerNOC...............................................    77
    Prepared statement...........................................    79
    Answers to submitted questions...............................   146
Alex Glenn, Senior Vice President of State and Federal Regulatory 
  Legal Support, Duke Energy Corporation.........................    83
    Prepared statement...........................................    85
    Answers to submitted questions...............................   150


POWERING AMERICA: EXAMINING THE STATE OF THE ELECTRIC INDUSTRY THROUGH 
                    MARKET PARTICIPANT PERSPECTIVES

                              ----------                              


                         TUESDAY, JULY 18, 2017

                  House of Representatives,
                            Subcommittee on Energy,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
room 2123 Rayburn House Office Building, Hon. Fred Upton 
(chairman of the subcommittee) presiding.
    Present: Representatives Upton, Olson, Barton, Shimkus, 
Murphy, Latta, McKinley, Kinzinger, Griffith, Johnson, Long, 
Bucshon, Flores, Mullin, Hudson, Cramer, Walberg, Walden (ex 
officio), Rush, McNerney, Peters, Green, Castor, Sarbanes, 
Tonko, Loebsack, Schrader, Kennedy, Butterfield, and Pallone 
(ex officio).
    Staff present: Elena Brennan, Legislative Clerk, Energy/
Environment; Adam Buckalew, Professional Staff Member, Health; 
Karen Christian, General Counsel; Kelly Collins, Staff 
Assistant; Wyatt Ellertson, Research Associate, Energy/
Environment; Adam Fromm, Director of Outreach and Coalitions; 
Tom Hassenboehler, Chief Counsel, Energy/Environment; A.T. 
Johnston, Senior Policy Advisor, Energy; Alex Miller, Video 
Production Aide and Press Assistant; Mark Ratner, Policy 
Coordinator; Annelise Rickert, Counsel, Energy; Dan Schneider, 
Press Secretary; Sam Spector, Policy Coordinator, Oversight and 
Investigations; Jason Stanek, Senior Counsel, Energy; Madeline 
Vey, Policy Coordinator, Digital Commerce and Consumer 
Protection; Priscilla Barbour, Minority Energy Fellow; Jeff 
Carroll, Minority Staff Director; David Cwiertny, Minority 
Energy/Environment Fellow; Rick Kessler, Minority Senior 
Advisor and Staff Director, Energy and Environment; Alexander 
Ratner, Minority Policy Analyst; and Tuley Wright, Minority 
Energy and Environment Policy Advisor.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. It is my understanding that Mr. Rush is coming 
in the door, so we will now come to order at the subcommittee 
and the chair will recognize himself for an opening statement.
    So I am certainly pleased to be here today to kick off this 
first of many hearings focused on America's electricity system. 
And as many in this room are aware, this committee has had an 
extensive history overseeing the nation's power sector. In 
fact, the namesake of this very building, Speaker Rayburn, 
worked as the chairman of the Energy and Commerce Committee to 
pass the Federal Power Act back in 1935, a law which continues 
to serve as the legal foundation of America's electricity 
system.
    More recently, the committee was instrumental in the 
discussion and actions resulting in the creation of organized 
wholesale electricity markets and other power market reforms 
ensuring that rates continue to be just and reasonable. I can 
confidently say that this committee's efforts to oversee the 
nation's power sector must remain ongoing, as the ever-changing 
nature of the U.S. electricity system guarantees that there 
will always be new challenges to solve and new opportunities to 
seize.
    With that in mind, I am excited to launch a new set of 
Energy and Commerce hearings today entitled Powering America 
series. This series of hearings is going to take a 
comprehensive look at recent developments and challenges in the 
way that we generate, transmit, and consume electricity in the 
U.S. and today's hearing will give us the opportunity to 
examine the state of the electric industry through the 
perspective of various market participants.
    After hearing from each of these marketing participants 
this morning, we are going to be holding a second Powering 
America series hearing next week where we are going to be 
receiving testimony from each of the RTOs and ISOs who are 
responsible for operating America's regional wholesale 
electricity markets. It should also be said that in the coming 
months we are going to be announcing additional hearings in 
this series which will focus on more in-depth topics and issues 
related to the U.S. electricity system.
    Joining us in today's discussion we have a full range of 
experts representing a wide range of stakeholders from across 
the electric sector and I would like to welcome them and thank 
them for being here.
    As I am sure that each of our witnesses will attest to, the 
nation's electricity industry and system is undergoing a 
significant period of transformation. This transformation is 
affecting the composition of the country's electricity 
generation mix, the way that industry and regulators are 
approaching grid reliability, and how federal energy policies 
are interacting with state policies. Many of the recent 
developments and changes within the electricity sector are 
creating tremendous benefits for American consumers.
    U.S. electricity prices are low, employment within the 
energy sector continues to rise, and advanced technologies are 
giving consumers more control over how they interact with the 
grid. And it is safe to say that the American electricity 
industry is a world leader and deserves more credit for the 
amazing work that they do.
    With that being said, I know that the U.S. electricity 
system is not perfect nor will it ever be. The electricity 
industry is facing dynamic challenges in an uncertain future. 
The witnesses before us today have serious ideas on how 
electricity markets and energy policies can be improved, and 
this committee welcomes those ideas and is eager to engage in a 
meaningful discussion as to how we can strengthen the grid and 
how to provide greater value to consumers.
    No one here is under the illusion that these issues will be 
understood and addressed in one or two hearings. The U.S. 
electricity system is the largest, most complex collection of 
machines and computers in the world and are influenced by a 
staggering number of stakeholders.
    These electricity systems issue are complicated and in 
order to address them it will require an extended effort by 
this committee and by the Congress. Moreover, tackling these 
issues will require a bipartisan effort, which is why we have 
worked with our colleagues on both sides of the aisle in 
planning and conducting this hearing.
    Reliable, affordable, clean energy is a vital component of 
every American's life. Going forward, we have got to strive to 
enhance the generation, delivery, and marketing of electricity 
in a way that continues to enrich the lives of all. And with 
that in mind, I look forward to the hearing and future hearings 
and would yield 5 minutes to the ranking member of the 
subcommittee, my friend from Illinois, Mr. Rush.
    [The opening statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    Good morning. I am pleased to be here today to kick off 
this first of many hearings focused on America's electricity 
system. As many in this room are aware, this Committee has an 
extensive history overseeing the nation's power sector. In 
fact, the namesake of this very building, Speaker Sam Rayburn, 
worked as the Chairman of the Energy and Commerce Committee to 
pass the Federal Power Act in 1935, a law which continues to 
serve as the legal foundation of America's Electricity System. 
More recently, this Committee was instrumental in the 
discussion and actions resulting in the creation of organized 
wholesale electricity markets and other power marketing 
reforms, ensuring that rates continue to be ``just and 
reasonable''. I can confidently say, that this Committee's 
efforts to oversee the nation's power sector must remain 
ongoing as the ever-changing nature of the U.S. electricity 
system guarantees that there will always be new challenges to 
solve and new opportunities to seize.
    With that in mind, I am excited to launch a new set of 
Energy and Commerce Committee hearings today, titled the 
``Powering America Series''. This series of hearings will take 
a comprehensive look at recent developments and challenges in 
the way we generate, transmit, and consume electricity in the 
United States. Today's hearing will give us the opportunity to 
examine the state of the electric industry through the 
perspective of various market participants. After hearing from 
each of these market participants this morning, we will be 
holding a second ``Powering America Series'' hearing next week, 
where we will be receiving testimony from each of the RTOs and 
ISOs who are responsible for operating America's regional 
wholesale electricity markets. It should also be said that in 
the coming months, we will be announcing additional hearings in 
this series which will focus on more in-depth topics and issues 
related to the U.S. electricity system.
    Joining us in today's discussion, we have a full panel of 
experts representing a wide range of stakeholders from across 
the electric sector and I would like to welcome them and thank 
them for being here. As I am sure each of our witnesses will 
attest to, the nation's electricity industry and system is 
undergoing a significant period of transformation. This 
transformation is affecting the composition of the country's 
electricity generation mix, the way industry and regulators are 
approaching grid reliability, and how Federal energy policies 
are interacting with State policies. Many of the recent 
developments and changes within the electricity sector are 
creating tremendous benefits for American consumers. U.S. 
electricity prices are low; employment within the energy sector 
continues to rise; and advanced technologies are giving 
consumers more control over how they interact with the grid. It 
is safe to say that the American electricity industry is a 
world leader and deserves more credit for the amazing work they 
do.
    With that being said, I know that the U.S. electricity 
system is not perfect, nor will it ever be. The electricity 
industry is facing dynamic challenges and an uncertain future. 
The witnesses before us today have serious ideas on how 
electricity markets and energy policies can be improved. This 
Committee welcomes these ideas and is eager to engage in a 
meaningful discussion on how to strengthen the grid and how to 
provide greater value to American consumers.
    No one here is under the illusion that these issues will be 
understood and addressed in one or two hearings. The U.S. 
electricity system is the largest, most-complex collection of 
machines and computers in the world and is influenced by a 
staggering number of stakeholders. These electricity system 
issues are complicated and in order to address them it will 
require an extended effort by this Committee, and by this 
Congress. Moreover, tackling these issues will require a 
bipartisan effort. Which is why we have worked with our 
colleagues on the other side of the aisle in planning and 
conducting this hearing.
    Reliable, affordable, clean electricity is a vital 
component of every American's life. Going forward, we must 
strive to enhance the generation, delivery, and marketing of 
electricity in a way that continues to enrich the lives of all 
Americans. With this goal in mind, I look forward to this 
hearing and future hearings to come in this series.

 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. Mr. Chairman, 
this hearing is important because it is examining the state of 
the electric industry through market participant perspectives.
    Mr. Chairman, we know that the electricity grid of the 21st 
century will look significantly different than the grid of the 
last century, and rightfully so. Even as the Trump 
administration attempts to weaken federal environmental 
regulations and Congress fails to act in any meaningful way to 
address climate change, we see businesses, municipalities, 
states, and individual consumers step up their own campaigns to 
address this critical issue.
    As consumers become more aware of their carbon footprint 
and how their behavior impacts their environment, they are also 
more demanding in terms of information, they are more demanding 
in terms of control over how energy is produced and consumed.
    Indeed, Mr. Chairman, while many changes in our electric 
grid are spurred by state and federal policy and marketing 
forces, it is important to understand that consumers are also 
driving many of the trends we see taking place in the 
electricity market. From an increase in smart meters such as 
the ones being installed throughout my home city of Chicago to 
smarter appliances, consumers want the tools to more 
responsibly use energy both as a way to save money and as a way 
to save the environment. Other current trends include greater 
demand for cleaner, renewable sources of energy to compete with 
the traditional fossil fuels as well as increase in distributed 
generation and demand response resources.
    Mr. Chairman, the result of these trends, as a DOE draft 
report suggests, does not make the grid less reliable but 
rather the opposite. The DOE study indicates that having fuel 
diversity has in fact improved grid stability. I want to quote, 
Mr. Chairman, that very same report. ``The power system is more 
reliable today due to better planning, market discipline, and 
better operating rules and standards,'' is the remarks from 
that report.
    Mr. Chairman, with the federal government abdicating its 
responsibility in enacting comprehensive energy policy that 
addresses one of the world's most pressing challenges, it is 
even more vital that we provide the resources and guidance for 
states to take more of a permanent role in advancing smart and 
sustainable energy policies.
    Congress should not stand in the way of states like my own, 
Illinois, Mr. Chairman, that choose to enact renewable energy 
portfolios that provide credit to reliable zero or zero-carbon 
baseload sources of energy, including nuclear power, but rather 
Congress should ensure that FERC has the necessary mechanisms 
to meet the challenges and take advantage of the opportunities 
found in today's electric grid.
    By almost all accounts, Mr. Chairman, for the foreseeable 
future, the nation's energy mix will continue to include 
sources from all of the above portfolios including cleaner 
burning fossil fuels, nuclear, and renewables. So Mr. Chairman, 
we must make sure that regulators have the tools and have the 
authority that they need to effectively and efficiently manage 
this portfolio.
    So Mr. Chairman, I look forward to engaging today's panel 
of distinguished industry insiders and hearing from them 
regarding the opportunities and the challenges that we face in 
terms of electric infrastructure. I want to thank you, Mr. 
Chairman. With that I yield back.
    Mr. Upton. Thank you. The chair now recognizes the chair of 
the full committee, the gentleman from Oregon, Mr. Walden, for 
5 minutes for an opening statement.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Thank you very much, Mr. Chairman. And welcome 
to all of our witnesses and guests today. Last fall, this 
subcommittee held a hearing where a distinguished panel of 
witnesses described the origins of the Federal Power Act and 
how it has withstood the test of time. That testimony provided 
us with an historical context of how the federal government 
regulates the electricity sector.
    Having explored those historical perspectives, today we 
begin examining the current state of the electricity industry. 
As we embark on the Powering America series of hearings, I 
would also like to welcome our witnesses again who are leaders 
representing a diverse set of utilities and market 
participants. We greatly value your input and counsel.
    American consumers have come to expect safe, reliable, and 
affordable supplies of power regardless of how they receive 
their electricity. My district in Oregon, we receive 
electricity from just about every source including renewables. 
We get coal, we get natural gas, we get hydro, we get solar, 
and we get wind. We also receive it from cooperatives and 
public utility districts and municipalities and IOUs. In fact, 
we have just about everything out there.
    In all these situations though, we expect to have power 
when we flip the switch and we expect to be at 60 cycles and 
120 or 240 or whatever, but we expect it to work, and yet we 
know it is becoming more and more complex to provide that 
energy especially as we integrate and go up and down the grid.
    New market participants offering advanced technologies and 
innovative services are changing the face of the industry 
faster than many have expected and that pace of change will 
only increase over time. At the same time, wholesale 
electricity prices are at near record lows around the United 
States.
    While this is largely a result of cheap and plentiful 
natural gas supplies, the emergence of renewable resources are 
also affecting the composition of power being generated as well 
as market-clearing prices. As a result, in regions with 
competitive markets that dispatch generation based solely on 
lowest cost, we are seeing that some traditional baseload 
units, such as nuclear and coal-fired plants, cannot compete 
because they are too expensive to operate within their markets, 
causing some plants to retire before the end of their useful 
life.
    While on its face low electricity prices are a boon for 
consumers and businesses, we are now hearing from some segments 
of the industry that the loss of nuclear and coal units from 
the generation fleet could have longer term impacts on grid 
reliability. While this is an issue that the DOE is examining 
in its baseload study, this is also an issue that this 
committee is exploring. Additionally, recent proposals by 
states to advance certain public policies in the organized 
electricity markets have added yet another layer of complexity 
to an already complicated system.
    So my hope is that there is a path forward to achieve these 
state policies while also maintaining the integrity of the 
wholesale markets. I recognize this is not an easy task. Next 
week, we will continue our examination of the electricity 
system with executives from the RTOs and the ISOs who operate 
the transmission systems, but today I am interested in hearing 
directly from market participants regarding their experiences 
working in the electric sector and their thoughts on areas of 
potential improvement.
    I would note that our panel includes representatives that 
participate in both the non-restructured markets as well as all 
seven organized markets. So, as Chairman Upton noted, today is 
just the first in our Powering America series of hearings 
examining this industry.
    So I look forward to learning more about the state of the 
vital industry and hearing your thoughts regarding what, if 
any, reforms could help to achieve greater efficiencies, 
reliability, and competition in the wholesale markets while 
also continuing to deliver value to customers. As I have said 
previously, at the end of the day, our goal is to serve the 
interests of consumers and I look forward to your ideas to 
further that mission.
    And I will say at the outset, we have another subcommittee 
hearing going on, on 340B hospital issues, so I have to pop up 
to that one as well, but with that I would yield the balance of 
my time to the chairman of the Environment Subcommittee, Mr. 
Shimkus.
    [The prepared statement of Mr. Walden follows:]

                 Prepared statement of Hon. Greg Walden

    Last fall this subcommittee held a hearing where a 
distinguished panel of witnesses described the origins of the 
Federal Power Act and how it has withstood the test of time. 
That testimony provided us with a historical context of how the 
federal government regulates the electricity sector. Having 
explored those historical perspectives, today we will be 
examining the current state of the electricity industry. As we 
embark on this ``Powering America'' series of hearings, I'd 
like to welcome today's witnesses who are leaders representing 
a diverse set of utilities and markets participants.
    American consumers have come to expect safe, reliable, and 
affordable supplies of power--regardless of how they receive 
their electricity. In my district, residents in central and 
eastern Oregon receive their electricity from small 
cooperatives, which are often the only provider in vast rural 
areas in Oregon. In other areas, like in southern Oregon or my 
hometown of Hood River, consumers rely on large investor-owned 
utilities to supply their electricity. In both situations, 
Americans now expect their power on demand. However, producing 
and delivering electricity from a power plant to our homes and 
businesses is becoming increasingly complex. New market 
participants offering advanced technologies and innovative 
services are changing the face of the industry faster than many 
have expected, and that pace of change will only increase with 
time.
    At the same time, wholesale electricity prices are at near 
record lows around the country. While this is largely a result 
of cheap and plentiful natural gas supplies, the emergence of 
renewable resources are also affecting the composition of the 
power being generated as well as the market clearing prices. As 
a result, in regions with competitive markets that dispatch 
generation based solely on lowest-cost, we are seeing that some 
traditional ``baseload'' units, such as nuclear and coalfired 
plants, cannot compete because they are too expensive to 
operate within their markets, causing some plants to retire 
before the end of their useful life.
    While on its face, low electricity prices are a boon for 
consumers and businesses, we are now hearing from some segments 
of the industry that the loss of nuclear and coal units from 
the generation fleet could have longer-term impacts on grid 
reliability. While this is an issue that the DOE is examining 
in its ``Baseload Study,'' this is also an issue that the 
committee will be exploring.
    Additionally, recent proposals by states to advance certain 
public policies in the organized electricity markets have added 
yet another layer of complexity to an already complicated 
system. My hope is that there is a path forward to achieve 
these state policies while also maintaining the integrity of 
the wholesale markets. I recognize that this is not an easy 
task.
    Next week, we will continue our examination of the 
electricity system with executives from the RTOs and ISOs who 
operate the transmission systems--but today I am interested in 
hearing directly from market participants regarding their 
experiences working in the electric sector and their thoughts 
on areas of potential improvements. I would note that our panel 
includes representatives that participate in both the non-
restructured markets as well as all seven organized markets.
    As Chairman Upton noted, today is just the first in our 
``Powering America'' series of hearings examining the 
electricity industry. I look forward to learning more about the 
current state of this vital industry and hearing your thoughts 
regarding what, if any, reforms could help to achieve greater 
efficiencies, reliability, and competition in the wholesale 
markets, while also continuing to deliver value to consumers. 
As I've said previously, at the end of the day, our goal is to 
serve the best interests of consumers and I look forward to 
your ideas to further that mission.

    Mr. Shimkus. Thank you, Mr. Chairman, and I will be brief. 
First of all, I want to welcome Joe for being on the panel, 
former committee staff. That shows you how old I am and how old 
you are starting to look there.
    Secondly, for my colleagues on both sides, we are 
soliciting co-sponsors for our nuclear waste bill, the one we 
passed out of the full committee, 49-4. We are going to keep 
gathering names for the next 2 weeks, so check with your staff 
and make sure you get on that bill and I would appreciate it.
    With that, Mr. Chairman, I yield back. Oh, H.R. 3053 is the 
bill number. Thank you, Mr. Chairman.
    Mr. Upton. As a co-sponsor of that bill I am glad to see 
that that is the case. And I would yield to the ranking member 
of the full committee, the gentleman from New Jersey, for an 
opening statement, Mr. Pallone.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman. And thanks for 
holding the hearing to provide us with a market participant 
perspective in our system of electricity regulation. Today's 
hearing picks up on the issue that you started to focus on last 
Congress, Mr. Chairman, with our insightful hearing on the 
Federal Power Act.
    Like that hearing, today's hearing was developed in 
partnership between you and Chairman Walden and me and Ranking 
Member Rush, and this set up to be a completely non-partisan 
hearing with the goal of providing us important background for 
future decisions. I also want to welcome our witnesses, 
particularly Tammy Linde from New Jersey's PSEG, and I would 
like to welcome back to the committee a former counsel to the 
subcommittee and FERC chair, Joe Kelliher.
    As I said previously, while our attention to electricity 
issues has been sporadic since the passage of the Energy Policy 
Act of 2005, there was a time when it seemed like this 
committee held hearings on the electric sector almost weekly. 
Now, developments in the electricity sector and the regional 
markets, both promising and concerning, require us to return 
again to a serious assessment of the state of the electric 
sector and how it is regulated.
    Technology has dramatically transformed the possibilities 
for cost effectively generating and efficiently delivering 
electric energy to homes, businesses, and manufacturing 
facilities from a variety of sources. Distributed generation 
both fossil- and renewable-based along with improving storage 
options, smart meters, microgrids, and other technologies, have 
altered the possibilities for effectively and economically 
ensuring reliability.
    These technologies have also called into question the most 
basic tenets of rate making and have challenged the 
longstanding financial model for utilities. These are enormous 
and complex matters that require careful examination by this 
committee. At the end of the day, we may decide that we need to 
make changes to the Federal Power Act or we may conclude that 
we should make no changes and continue to allow developments in 
the states and the courts to drive policy.
    It is critical that our committee, at a minimum, take the 
time we need to examine these matters so that we arrive at 
decisions that are informed by fact and that serve the 
interests of our districts, our states, and the nation as a 
whole.
    And at this time I would like to yield the balance of my 
time to Mr. McNerney.
    [The prepared statement of Mr. Pallone follows:]

             Prepared statement of Hon. Frank Pallone, Jr.

    Thank you for holding today's hearing to provide us with a 
market participant perspective on our system of electricity 
regulation.
    Today's hearing picks up on an issue that you started to 
focus on last Congress, Mr. Chairman, with our insightful 
hearing on the Federal Power Act. Like that hearing, today's 
hearing was developed in partnership between you and Chairman 
Walden and me and Ranking Member Rush. This is set up to be a 
completely non-partisan hearing with the goal of providing us 
important background for future decisions.
    I also want to welcome our witnesses, particularly Tammy 
Linde from New Jersey's PSEG. And I'd like to welcome back to 
the committee a former counsel for this Subcommittee and FERC 
Chair, Joe Kelliher.
    As I said previously, while our attention to electricity 
issues has been sporadic since the passage of the Energy Policy 
Act of 2005, there was a time when it seemed like this 
committee held hearings on the electric sector almost weekly. 
Now, developments in the electricity sector and the regional 
markets, both promising and concerning, require us to return 
again to a serious assessment of the state of the electric 
sector and how it is regulated.
    Technology has dramatically transformed the possibilities 
for cost-effectively generating and efficiently delivering 
electric energy to homes, businesses and manufacturing 
facilities from a variety of sources. Distributed generation -
both fossil and renewable based- along with improving storage 
options, smart meters, microgrids and other technologies-- have 
altered the possibilities for effectively and economically 
ensuring reliability. These technologies have also called into 
question the most basic tenets of ratemaking, and have 
challenged the long-standing financial model for utilities.
    These are enormous and complex matters that require careful 
examination by this Committee. At the end of the day we may 
decide that we need to make changes to the Federal Power Act, 
or we may conclude that we should make no changes and continue 
to allow developments in the states and the courts to drive 
policy. It is critical that our Committee, at a minimum, take 
the time we need to examine these matters so that we arrive at 
decisions that are informed by fact and that serve the interest 
of our districts, our states and the nation as a whole.
    Thank you, I yield back.

    Mr. McNerney. Well, I thank the ranking member, and I thank 
the chair for holding this hearing. I want to welcome the 
witnesses, in particular Mr. Schleimer from Calpine.
    The electric grid has long provided Americans with reliable 
and affordable power upon which our economy depends. Today we 
see big changes though in our electric grid such as the 
challenge of reducing carbon emissions, distributed generation, 
cyber and physical threats, as well as rapidly developing 
technology.
    Our nation depends on laws and regulations that encourages 
and allows utility companies to adapt and thrive. I look at 
this series of hearings as an opportunity to be informed in our 
legislative process which should be both bipartisan and 
productive, so I thank the witnesses and I yield back to the 
ranking member.
    Mr. Pallone. And I yield back also, Mr. Chairman.
    Mr. Upton. The gentleman yields back. With that we are 
ready to hear the testimony and do our normal Q & A. Thank you, 
panel, for being here.
    And we are going to start with the senior guy, the guy who 
spent a lot of hours here, a lot of weeks and months, so over 
the years, Joe Kelliher. Joe, welcome back. Thank you.
    It is a new mic so you have got to push the button, still.

  STATEMENTS OF JOSEPH T. KELLIHER, EXECUTIVE VICE PRESIDENT, 
   FEDERAL REGULATORY AFFAIRS, NEXTERA ENERGY, INC.; LISA G. 
   MCALISTER, SENIOR VICE PRESIDENT AND GENERAL COUNSEL FOR 
  REGULATORY AFFAIRS, AMERICAN MUNICIPAL POWER, INC.; STEVEN 
  SCHLEIMER, SENIOR VICE PRESIDENT OF GOVERNMENT & REGULATORY 
AFFAIRS, CALPINE; JACKSON REASOR, CHIEF EXECUTIVE OFFICER, OLD 
  DOMINION ELECTRIC COOPERATIVE; TAMARA LINDE, EXECUTIVE VICE 
PRESIDENT AND GENERAL COUNSEL, PUBLIC SERVICE ENTERPRISE GROUP, 
  INC.; KENNETH D. SCHISLER, VICE PRESIDENT OF REGULATORY AND 
   GOVERNMENT AFFAIRS, ENERNOC; AND ALEX GLENN, SENIOR VICE 
 PRESIDENT OF STATE AND FEDERAL REGULATORY LEGAL SUPPORT, DUKE 
                             ENERGY

                STATEMENT OF JOSEPH T. KELLIHER

    Mr. Kelliher. Mr. Chairman, Mr. Upton, Mr. Rush, members of 
the subcommittee, I appreciate the opportunity to testify today 
on the state of the U.S. electricity industry. My name is Joe 
Kelliher. I am Executive Vice President for Federal Regulatory 
Affairs for NextEra Energy.
    NextEra Energy is one of the largest generators in the 
United States. We have nearly 40,000 megawatts in the United 
States and Canada, and of the larger generators, NextEra has 
perhaps the most diverse electricity supply. We are also one of 
the relatively few numbers of truly national electricity 
companies. We operate in every regional power market in the 
United States and I offer the perspective of a competitor in 
those markets as well as the perspective of a former energy 
regulator. I was chairman of FERC for a number of years and a 
commissioner at FERC and a former counsel of this committee.
    Since the 1980s and 1990s, the federal government has 
promoted competition in the wholesale power markets in order to 
lower rates to customers based on the belief that competitive 
markets provide greater efficiencies than traditional cost-of-
service rate regulation and the goal of competition policy is 
lowering cost and shifting risk from customers to competitors.
    The U.S. electricity industry, as members have noted in 
opening comments, is undergoing a major transition. The market 
fundamentals driving this transition include a dramatic 
increase in U.S. natural gas production, the resulting sharp 
and sustained decline in natural gas prices, significant 
declines in wholesale power prices, lower than expected 
electricity demand, and improvements in the efficiency and cost 
of new wind and solar generation.
    Low wholesale power prices have led to sizable retirement 
of inefficient and uneconomic older coal and natural gas 
generation facilities, some retirement of uneconomic nuclear 
units, and large additions of modern, efficient natural gas and 
renewable energy generation. As a result, the U.S. electricity 
supply today has changed significantly and is now more diverse 
than our electricity supply has ever been up to this point.
    These changes have been so significant as to raise concerns 
about whether these generation retirements are being driven by 
market fundamentals or by federal and state policy and whether 
the retirement of uneconomic generation poses a threat to 
electric system reliability. The evidence strongly suggests 
that the primary factor driving retirements has been market 
fundamentals not regulatory policy, and there is no evidence to 
suggest that the retirement of uneconomic generation poses a 
threat to electric reliability.
    A number of states have proposed programs designed to 
prevent the retirement of uneconomic generation for a mix of 
policy rationales. To be clear, the market failure addressed by 
these state programs is low wholesale power prices, and the 
solution to this problem is to raise prices charged by a select 
few which would tend to suppress the prices for everyone else 
and discourage the entry of new, more efficient generation.
    These proposals shift risk away from competitors back to 
consumers which is contrary to a central goal of competition 
policy itself. These state programs are controversial and they 
have been challenged in both federal and state courts. Some 
have been overturned, one was recently upheld, and other 
challenges remain pending. Because these state programs 
threaten the integrity of wholesale power markets, FERC is 
presented with some hard decisions on how to balance respect 
for state policy choices with its legal duty to assure just and 
reasonable prices.
    This balancing though necessarily involves placing a lesser 
priority on efficiency and low cost, and in my view FERC has a 
legal duty to protect market integrity.
    I believe our electricity markets are working well and are 
workably competitive. U.S. electricity markets are undergoing a 
major transition driven by market fundamentals, the result of 
low natural gas produced by the shale gas revolution combined 
with increased efficiency, low demand, and low wholesale power 
prices. This transition has been marked by major changes in our 
electricity supply mix. We are seeing tremendous diversity in 
technology change. This transition is likely to continue, 
producing an increasingly diverse and more reliable electricity 
supply.
    As someone who bears the scars of the California crisis of 
2000-2001, I admit that it feels strange to testify at a 
congressional hearing on the problem of low wholesale power 
prices and possible solutions to that problem. And I have to 
wonder if wholesale power prices were much higher we might not 
be having this hearing or we would have a completely different 
focus.
    But that is just a point that we should keep the consumers 
in mind as we discuss these issues. While it is painful for 
many competitors, the transition of electricity markets has 
delivered significant benefits to consumers in the form of 
lower prices, and we have to accept the fact that while low 
wholesale prices can be painful for the owners of uneconomic 
generation facilities they are ultimately good for consumers 
and great for America.
    And with that, I thank you for inviting me, and I look 
forward to questions.
    [The prepared statement of Joseph T. Kelliher follows:]
    
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    Mr. Upton. Thank you very much.
    Next, we are joined by Lisa McAlister, Senior VP and 
General Counsel for Regulatory Affairs at American Municipal 
Power, Inc. Welcome.

                 STATEMENT OF LISA G. MCALISTER

    Ms. McAlister. Thank you and good morning, Chairman Upton, 
Vice Chairman Olson, Ranking Member Rush and distinguished 
members of the subcommittee. My name is Lisa McAlister, and I 
am the Senior Vice President and General Counsel for Regulatory 
Affairs for American Municipal Power.
    AMP is a nonprofit wholesale power supplier and service 
provider for 135 members across nine states with the majority 
of AMP's members in the PJM region. AMP is one of the largest 
public power, joint action organizations in the country and has 
generating facilities and/or members located in the districts 
of the following subcommittee members: Congressmen Griffith, 
Johnson, Latta, McKinley, Shimkus, and Walberg.
    At the outset I want to make clear that AMP supports 
competitive electric markets. They offer opportunities for our 
members to serve their customers at the lower cost. AMP also 
strongly supports reliability, but as a member-focused 
organization we work hard to ensure that the benefits of 
regulatory changes made to improve reliability justify the 
costs to consumers. While the energy portion of wholesale bills 
is the most substantial portion, capacity and transmission are 
quickly becoming more significant and growing.
    AMP has serious concerns about PJM's capacity construct and 
also the growing transmission costs. My written testimony 
provides more details and examples of the challenges that AMP 
and our members have faced in these areas. PJM's current 
administrative capacity construct called the reliability 
pricing model, or RPM, is not a market in any meaningful sense. 
Rather, RPM is a complex, rules-driven, administrative 
mechanism for pricing and procuring capacity that relies on 
distinctly non-market features.
    PJM's capacity construct requires constant modifications to 
achieve the desired outcomes and is becoming increasingly 
complicated bringing increased volatility and so much rules 
churn that long-term planning is extremely difficult. We are 
moving away from markets.
    One alternative solution is for local utilities known as 
load serving entities, or LSEs, to satisfy most or all of their 
capacity needs through bilateral arrangements in a real 
marketplace where there are willing buyers and sellers and they 
negotiate arrangements to meet their needs. Under an approach 
like this, each local utility or LSE would secure capacity to 
meet its peak load obligation plus a predetermined reserve 
margin bilaterally on a long-term portfolio basis. The RTOs 
would still have a significant role in determining the peak 
load obligations, identifying constraints on the system, and 
conducting a residual action. And this alternative has numerous 
advantages over the current capacity constructs including fewer 
moving parts and administrative judgments, harmonization 
between states and local policies, avoidance of jurisdictional 
disputes, and also flexibility for both states and generators.
    It is important also for us to touch on transmission. 
Nationally, transmission costs have increased dramatically. For 
example, in four of AMP members' transmission zones, annual 
revenue requirements have increased by a range of 99 to 214 
percent from 2009 through 2016. AMP understands that there are 
many drivers increasing transmission costs and AMP's members 
are willing to pay their fair share of the cost. But AMP has to 
work very hard to make sure these costs lead to the most cost 
effective and efficient grid expansion.
    The transmission planning process must be open and 
transparent, must provide equitable treatment, and take into 
account the changing resource mix and configuration of the 
future, rather than a piecemeal replacement of the grid of the 
past. While it is essential for developers to earn a fair 
return on their investment, these rates should reflect current 
economic conditions and risks.
    AMP supports Congress playing a more active role and 
encouraging FERC to refocus on its statutory mandate to ensure 
just and reasonable rates. Enhanced congressional oversight is 
critical to ensure that FERC is responsive to the real needs of 
customers.
    Congress can be helpful by insisting that keeping costs to 
consumers as low as possible is a central part of the RTO 
mission; reiterating that load serving entities have a right to 
make generation choices that are not subject to rejection by 
the RTOs or FERC; insisting that resource adequacy constructs 
must accommodate state and public policy decisions; ensuring 
that RTO governing boards are representative, open, 
transparent, and independent from RTO management; requiring 
RTOs to demonstrate how the proposed market changes benefit 
customers; directing FERC and the RTOs to develop robust and 
consistent transmission planning criteria; and encouraging FERC 
to ensure that return on equity rates for transmission 
investments reflect current economic conditions and risk 
levels.
    Thank you for the opportunity to appear before you today, 
and I would be happy to answer questions.
    [The prepared statement of Lisa G. McAlister follows:]
    
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    Mr. Upton. Thank you. Thanks very much.
    Next, we are joined by Steven Schleimer, senior VP of 
Government & Regulatory Affairs at Calpine. Welcome, nice to 
see you.

                 STATEMENT OF STEVEN SCHLEIMER

    Mr. Schleimer. Good morning, Chairman Upton, Ranking Member 
Rush, and members of the subcommittee. Thank you for inviting 
me to testify today. Calpine is not a regulated utility 
receiving a guaranteed payment from customers. Rather, we 
compete head to head with other suppliers to sell power 
directly to wholesale and retail customers in the competitive 
markets across the country.
    We have 26,000 megawatts of mostly natural gas-fired 
combined cycles and that is enough to power 25 to 30 million 
homes. We also own the Geysers plant in California which is the 
largest geothermal facility in the United States.
    The first key takeaway I would like to impress upon you is 
that the competitive markets and particularly in the East Coast 
and Texas have been phenomenally successful. Over the last 
decade, there has been over 50,000 megawatts of new generation 
either committed or entering operations, representing $70 to 
$80 billion of new investment.
    At the same time, as has been noted, wholesale prices are 
at historic lows, commissions rates are down significantly as 
well. The reserve margin, which is a measure of grid 
reliability, is significantly higher in each of these regions 
as well. All of this is clearly a win for consumers and the 
environment.
    However, due to various policy goals and pressure from 
nuclear and coal generators, state policy makers have been 
increasingly intervening in competitive markets to bail out or 
subsidize specific plants. Examples include the New York and 
Illinois ZEC program along with current attempts to create 
subsidies in Ohio and Connecticut and nascent attempts in 
Pennsylvania and New Jersey, which were expected. If left 
unchecked, these efforts threaten the continued viability of 
competition in these regions. Investors are simply not going to 
invest in new infrastructure if they believe their direct 
competitors will receive out of market subsidy payments.
    So now we get to the second key takeaway I would like to 
impress upon you, the half-in/half-out hybrid market where the 
state relies on the competitive market for some resource needs 
but then target subsidies to select power plants does not work. 
Once the subsidies start, competitive investment stops.
    And how do we know that? We have seen exactly this result 
in California which decided to move away from competition and 
toward this hybrid half in/half out model more than a decade 
ago. And now new investment only occurs with long-term 
contracts from utilities and their captive customers. This is 
not necessarily a bad thing, that is just a policy decision 
California made.
    In addition, a growing problem is that virtually all the 
existing generation left over from the competitive era is 
barely covering its costs or is losing money, yet some of these 
resources are absolutely critical for keeping the lights on in 
specific locations, for example in the San Francisco Bay Area. 
If one of these remaining competitive units suffers a major 
mechanical breakdown, it is unclear whether any investment 
would make sense without a guaranteed long-term payment from 
the utilities or the customers just to bring the unit back.
    So the lesson learned from California is that half in/half 
out of competitive electricity markets doesn't work. Once the 
subsidies and bailouts really take hold it kills the 
competitive part. Investment dries up and long-term ratepayer 
guarantees are required to fund any new infrastructure or even 
to maintain existing infrastructure. Subsidies beget subsidies 
would beget more subsidies. So this is exactly what we are 
concerned about happening in the eastern market if we do not 
address the targeted subsidy issue now.
    The good news is that both PJM and ISO in New England are 
actively engaged on these issues and have developed innovative 
proposals that are intended to allow a state to meet its public 
policy goals, but act as a firewall to protect the integrity of 
the wholesale competitive market. Both proposals have 
significant promise and may well result in workable solutions.
    So let me just wrap up by reiterating that competitive 
wholesale markets have produced phenomenal results for benefits 
for consumers. On the one hand, investment is up and 
reliability is up. On the other hand, prices are down and 
emissions rates are down. So these achievements, however, are 
in jeopardy due to the desire to subsidize or bail out certain 
generation units.
    The half in/half out competitive market model is 
unsustainable if you move towards the hybrid, so a coordinated 
effort is needed between all the states, FERC, and system 
operators to develop solutions that allows the states to pursue 
their public policy goals but is done in a way that allows the 
impact of that to be firewalled off from the rest of the 
wholesale market. Thank you.
    [The prepared statement of Steven Schleimer follows:]
    
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    Mr. Upton. Thank you.
    Next, we are joined by Jackson Reasor, CEO of Old Dominion 
Electric. Thank you and welcome.

                  STATEMENT OF JACKSON REASOR

    Mr. Reasor. Chairman Upton, Ranking Member Rush, and 
members of the Energy Subcommittee, my name is Jack Reasor. I 
am president and CEO of Old Dominion Electric Cooperative in 
Glen Allen, Virginia. Old Dominion is pleased that the Energy 
Subcommittee is holding this hearing and that we have been 
invited to present our perspective as a wholesale market 
participant. And I must say, Mr. Chairman, I am very proud and 
pleased to find myself literally in the center of this 
presentation.
    Old Dominion is a not-for-profit power electric cooperative 
that owns and operates electric generation facilities to 
provide capacity and energy to 11 electric distribution 
cooperatives throughout Virginia, Maryland, and Delaware. Old 
Dominion's members provide retail service to end-use consumers 
and as a result Old Dominion has an obligation to serve its 
consumer owners.
    All of Old Dominion's members are located within the PJM 
interconnection. In addition, Old Dominion is a network 
transmission customer of PJM as well as a PJM transmission 
owner. As mentioned earlier, we have an obligation to serve our 
consumer members. That means we have to ensure there is enough 
electricity to meet their current and future needs.
    As a participant in PJM, we also have to pay PJM for our 
share of PJM's cost in procuring capacity to ensure that there 
is enough electricity to satisfy their future energy needs. 
Unfortunately, our experience with PJM's capacity procurement 
policies has been mixed at best, and let me explain why.
    PJM originally established that we could satisfy the 
obligation to procure capacity by building generation sources 
or using bilateral contracts to obtain capacity at competitive 
market prices. In other words, we could self-supply the 
capacity obligation. If additional capacity was needed, PJM 
would procure that capacity and allocate the cost to us and the 
other members and participants within PJM.
    The self-supply, the first option and the PJM procured 
capacity second option, worked well for us. Unfortunately, PJM 
changed the rules and FERC approved the changes. Now our self-
supplied capacity might fail to satisfy PJM's capacity market 
requirements. As a result, we might be required to obtain all 
of our capacity from PJM and pay those associated costs. We 
could be forced to pay twice for capacity, the significant 
investments and costs associated with our self-supplied 
capacity, plus our share of PJM's capacity costs.
    We believe that federal policy should ensure that long-term 
investments in generation are honored and encouraged. 
Specifically, we should be allowed to self-supply the capacity 
procurement obligation as a first option and then turn to PJM's 
administered capacity in energy markets as a second option. 
Federal policy should also focus on reliable wholesale service 
at just and reasonable rates to provide the right price signals 
needed for new generation resource development. It would be a 
mistake for PJM to artificially inflate capacity prices above 
competitive just and reasonable levels.
    In addition, federal policies should foster stability in 
market designs. The change in PJM's administered capacity 
market from its original function as a second choice option, a 
residual market to a mandatory market that threatens our first 
choice option has introduced unnecessary uncertainty which 
makes long-term planning very difficult.
    Finally, federal policy should ensure that choices of 
generation resources are encouraged. PJM's administered 
capacity market is not a substitute of the wholesale market 
where we can determine the amount, the kind, and the location 
of generation resources we need to meet our consumers' and 
customers' needs.
    Nothing in the law prevents FERC from adopting these needed 
federal policies. Therefore, at this time we do not believe 
there is a need for Congress to enact new legislation giving 
FERC additional authority or duties. However, the Energy and 
Commerce Committee should continue to use its oversight 
function and to monitor the manner in which the wholesale 
market operates.
    Thank you, Mr. Chairman. I look forward to answering any 
questions.
    [The prepared statement of Jackson Reasor follows:]
    
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    Mr. Upton. Thank you very much.
    Tamara Linde, who is the exec VP and general counsel for 
Public Service Enterprise Group, Inc., thank you and welcome.

                   STATEMENT OF TAMARA LINDE

    Ms. Linde. Good morning, Mr. Chairman and Ranking Member. 
Thank you for having me here and thank you to Congressman 
Pallone for the kind words. My name is Tamara Linde and I am 
executive vice president and general counsel for Public Service 
Enterprise Group, or PSEG.
    Thank you for the opportunity to present PSEG's views on a 
critical issue facing the electric industry and, by extension, 
the nation's electricity customers. The issue is the urgent 
need to assure fuel diversity and resiliency in the nation's 
electric generation resource mix and to correct a flaw in the 
wholesale market design that is leading to premature retirement 
of nuclear baseload generation in our region.
    Let me take a moment to describe PSEG. We are a large 
diversified energy company headquartered in New Jersey. We 
employ approximately 13,000 people and our New Jersey utility 
serves around 2.2 million electric customers and 1.8 million 
gas customers across the state. When people talk about an all-
of-the-above energy portfolio, PSEG is that example.
    Our generation fleet consists of nuclear, natural gas, 
coal, solar, and even some hydro. However, while most of our 
plants now operate in competitive markets, most were built as 
part of a state-regulated utility before wholesale markets were 
created. Nuclear baseload is at risk because the wholesale 
market has a flaw and does not value fuel diversity. In fact, 
markets were never designed to value fuel diversity because 
they didn't need to.
    Diversity in generation resources was the status quo when 
markets were initially designed. The market was designed to 
drive another important objective which is to deliver the 
lowest cost resource needed to meet demand. For years, while 
different fuel costs were roughly comparable, markets could 
drive towards the lowest cost without sacrificing fuel security 
and diversity. Now the shale gas revolution has brought 
opportunity, but it has also revealed this serious market 
design flaw.
    Today, after more than 30 years of operation, the 3,500 
megawatt Salem and Hope Creek Nuclear Generating Stations in 
New Jersey turned a dramatic corner last year and they failed 
to earn enough to cover their cost of capital. While we have 
not announced their closure, we have made it clear that they 
are on an unsustainable path.
    Absent a change or intervention, these baseload resources 
will permanently close. In fact, the timeframe for many at-risk 
plants is so short that states are moving forward to address 
the problem before it is too late. We believe that it is our 
duty to have honest discussions with leadership in New Jersey 
to ensure that the stakes are clearly understood and that the 
state is given an opportunity to take action if it chooses to.
    We believe that state action may be critical if these 
resources are to survive. We believe that these actions can be 
done in a way that does not undermine the integrity of the 
wholesale market and can serve as a bridge until a regional or 
federal solution takes hold. Ultimately, we do see potential 
for a market solution. Fuel diversity has a value and the loss 
of fuel diversity has a cost. This needs to be factored into 
the wholesale design.
    Mr. Chairman, this committee has presided over many fights 
within the electric industry over which fuel is better, which 
fuel is subsidized, and which business or regulatory model is 
best. We understand that you must look beyond winners and 
losers in the industry and focus on customers, communities, and 
the nation as a whole.
    These closures will impact the reliability and resiliency 
of our electric system, our economy, our competitiveness, our 
environment, and even our national security. Nuclear energy 
contributes 10 billion in federal taxes and 2.2 billion in 
state taxes each year. Our global leadership on nuclear energy 
drives the adoption of U.S. nuclear safety and security 
standards across the world. A vibrant American nuclear industry 
supports the nuclear supply chain and provides the workforce 
necessary for the defense nuclear industry.
    On a more basic level, it is never a good idea to have all 
of your eggs in one basket. That is true for retirement savings 
and it is equally true for the life-giving electric supply our 
customers depend on. In the past few years, our region has seen 
a polar vortex, Superstorm Sandy, a derecho, an earthquake, and 
a freak October snowstorm. Add to this the prospect for a 
physical or cyber intrusion or a fuel supply interruption and 
it is clear that the customer interest is better served by not 
being overly reliant on one fuel source.
    Again I want to thank the subcommittee for inviting me 
today, and I will be happy to answer any questions.
    [The prepared statement of Tamara Linde follows:]
    
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    Mr. Upton. Thank you.
    Next, Kenneth Schisler, VP of Regulatory and Government 
Affairs from EnerNOC, welcome.

                STATEMENT OF KENNETH D. SCHISLER

    Mr. Schisler. Thank you, Mr. Chairman and members of the 
committee, for this opportunity to testify. My employer, 
EnerNOC, is an incredible American innovation success story. We 
were among a small group of technology startups right after the 
turn of the century that pioneered digital applications in U.S. 
electricity markets, and these innovations today are in 
commercial operation and are indeed a vital part of the 
American economy.
    We do several innovative things at EnerNOC, but today I am 
here to talk about our primary business line and that is known 
as Demand Response. Demand Response is a homegrown American 
technology. It is an innovation that found success here first 
and has quickly spread throughout the developed and developing 
world.
    The purpose of Demand Response is to engage customers, 
users, and users of electricity to manage consumption of 
electricity at critical periods when the electricity grid is 
under stress, to serve as a balancing resource on the grid, or 
to respond to signals when prices are high. Demand Response 
empowers energy users to become more flexible with their 
consumption and to monetize that flexibility providing grid 
services.
    Companies like EnerNOC are known as aggregators. We 
aggregate the Demand Response capability of thousands of 
customers and manage them as a portfolio of resources in order 
to participate in electricity markets. Demand Response 
resources are dispatchable in a manner similar to traditional 
generation resources that receive and respond to dispatch 
signals from utilities and grid operators. In fact, most often 
Demand Response is actually treated on the supply side of the 
market, which sounds a bit like a non sequitur but it does 
work.
    We operate in several FERC jurisdictional markets in the 
U.S. as well as several programs under the jurisdiction of 
state utility regulators. Demand Response enjoys broad 
bipartisan support. In fact, Chairman Kelliher seated at the 
end of the table, as chairman of FERC, issued the seminal order 
that enabled this latent capability of customers to improve the 
power grid through Demand Response and his legacy was carried 
forward by his successor Chairman Wellinghoff.
    Demand Response is a win-win. It is unequivocally a win-win 
for the U.S. economy. We contribute to the U.S. energy resource 
diversity and security supply. It gives system operators one 
additional useful tool to reliably operate the nation's 
electricity grid, the users of electricity. Demand Response has 
been credited as helping to prevent many major grid 
emergencies, many major grid emergencies in recent years 
including many of those my colleague acknowledged, the polar 
vortex, wildfires in California, and many others.
    Customers who participate in Demand Response receive 
compensation for participation. We pay customers from the 
market revenues that we receive by bidding their resources 
again in this portfolio into the wholesale markets. These 
customer payments of course bring down their total cost of 
energy which makes them more competitive in the U.S. and global 
economy.
    Demand Response is a domestic energy resource, by 
definition, supporting energy independence. Our fuel source, if 
you will, is leveraging the flexibility of our customers to 
manage their demand for the benefit of the grid. Demand 
Response receives no subsidies, no special tax treatment under 
the federal tax code. It does not negatively impact the federal 
budget and does not require any subsidies from states or 
ratepayers in order to participate because it is cost effective 
on its own.
    Demand Response improves efficiency of the grid and brings 
down energy costs for all consumers. In fact, in the PJM region 
Demand Response participation reduced wholesale market costs by 
nearly $10 billion in the current delivery year alone, and this 
is according to a report prepared by the PJM Independent Market 
Monitor. These benefits are going to increase as new 
technologies such as energy storage are increasingly adopted as 
part of a Demand Response strategy.
    From a federal policy standpoint, the only prerequisite for 
Demand Response to thrive is to have nondiscriminatory, open 
access in wholesale electricity markets and that those markets 
remain competitive without pricing distortions. We have come a 
long way in open access, in part thanks to Chairman Kelliher's 
order. We still have some progress to make.
    As far as healthy competitive markets, we are pleased that 
FERC has recently sought comments on how to maintain 
competitive markets while respecting the rights of states to 
create their own energy policies. It is vital that we get this 
right.
    In conclusion, Demand Response is a homegrown U.S. 
technology. Companies like EnerNOC have revolutionized and 
created tremendous value in U.S. energy markets and we are now 
exporting that technology all over the world. Our only ask here 
today is that you continue to recognize Demand Response and its 
importance to the national energy strategy. Thank you.
    [The prepared statement of Kenneth D. Schisler follows:]
    
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    Mr. Upton. Thank you.
    Last, we are joined by Mr. Glenn, senior VP of State and 
Federal Regulatory Legal Support for Duke Energy, and I welcome 
you and nice to see you.

                    STATEMENT OF ALEX GLENN

    Mr. Glenn. As owners and operators of wind farms in 
Massachusetts, Rhode Island, Pennsylvania, Kansas, Oklahoma, 
Wisconsin, Wyoming, Colorado, Texas, solar farms in California, 
Arizona, Texas, North Carolina, Florida and New Jersey, and 
battery storage projects in Ohio and one of the nation's 
largest in Texas with one of our wind farms and in addition to 
integrated electric utilities across seven states, we touch 
customers across the country every single day.
    So to give you a context, Duke Energy is one of the largest 
energy holding companies in the United States. We have about 
$130 billion in assets and we reinvest in our communities $10 
billion a year, annually, on our electric grid and our gas 
infrastructure, and we provide service to electric and gas 
customers that represent roughly about nine percent of the 
nation's population.
    So I would like to use my time today to talk about actions 
that will greatly benefit our customers, unleash innovation, 
and spur economic growth. Specifically, I want to address 
permitting, renewables policy, cybersecurity, and then too on 
FERC nominations and tax reform.
    Duke Energy plans to invest about $35 billion in addition 
to that $10 billion a year, $35 billion a year over the next 10 
years to modernize our system. This transition is underpinned 
in part by natural gas infrastructure, much of which requires 
federal permitting. Too often we see overlapping and 
conflicting regulatory requirements which result in higher 
costs to our customers.
    Bottom line, most permitting regulations impose no 
timeframes within which an agency has to act. And without a 
reasonable what I call a shot clock for decisions, delays put 
many vital projects at risk of completion. So just as our 
energy system needs to be modernized, so too do our policies. 
They need to be modernized to reflect today's markets and 
encourage innovation.
    As a representative mentioned, the pace of change is 
increasing and so is that complexity, but our regulatory 
paradigm isn't. An example of this is PURPA. Today, renewable 
energy is booming, the cost of renewable energy technologies 
have dropped, and independent power producers are prolific and 
well financed. Many PURPA contracts though are significantly 
above the market cost of power and that is costing our 
customers money, so updating PURPA to reflect current market 
and technology needs will enable utilities to serve our 
customers at a lower cost.
    Cyber, so hand in hand with critical infrastructure 
investment is the need to protect it. Protecting our 
infrastructure from cyberattacks is a top priority of Duke 
Energy. The electric industry is the only industry critical 
infrastructure, with mandatory enforceable cybersecurity 
standards. So Congress could aid our efforts, amending the 
SAFETY Act to expressly include cyberattacks so that in the 
event of such an attack we can focus on what we need to do, 
right, which is get the lights back on and get our economies 
back running.
    Now we can make policy but we also need regulators to 
implement that policy, so that is where FERC nominations come 
in. As members of this committee are well aware, FERC has been 
without a quorum since February which has prevented action on 
crucial energy infrastructure projects. The president has now 
nominated three candidates, two of whom are awaiting votes 
before the full Senate and Duke Energy would urge this 
committee to do whatever it can to encourage your Senate 
colleagues to take up these nominees as quickly as possible so 
that a quorum can be established.
    Finally, tax reform, although I understand tax reform falls 
outside the jurisdiction of this committee I mention it because 
you all have a deep understanding and are experts in our 
business and you understand that our industry is unique. Our 
rates and our returns on capital are set and regulated by state 
regulators. So because our electricity bills reflect our cost 
of service, including after-tax cost of capital, we need to 
preserve interest deductibility.
    So our industry, as a number of the members have mentioned 
here today and our panelists have said, is undergoing 
remarkable transformation. We at Duke Energy stand ready to 
meet those challenges and those opportunities to power our 
economy to improve the quality of lives of the customers that 
we serve every day. Thank you.
    [The prepared statement of Alex Glenn follows:]
    
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    Mr. Upton. Well, thank you all. And at this point we will 
reach our 5 minutes of Q & A by members of the committee. Thank 
you very much for your testimony, and I would like to hit a 
couple of things in my 5 minutes if I can. One is to talk 
briefly about baseload closures. We see a lot of that all 
across the country, but I first want to just focus a little bit 
on the cybersecurity.
    As we visit different installations, whether they be in our 
districts or states or even around the country, often we are 
hearing that the internet connections of each of those 
facilities is independent as not, you know, it is hard to 
penetrate. It is not attached to a larger network. Yet at the 
same time, we read and we have had some briefings particularly 
about state-sponsored attacks that are trying to get in, 
whether it is a water system, whether it is a utility, recently 
some nuclear facilities in the last couple weeks.
    What is it that we can do to make sure that in fact that 
does not happen? What additional tools do we need to put into 
the toolbox, whether it be FERC, whether it be the Homeland 
Security and others, to make sure that in fact that does not 
happen?
    And Mr. Glenn, you referenced that just briefly in your 
testimony, but give us some ideas on where we need to proceed--
and I don't know if you have looked at our bill H.R. 3050, 
Enhancing State Energy Security Planning and Emergency 
Preparedness, but that is moving with strong bipartisan 
support. It came through this committee and will be on the 
floor very soon.
    Mr. Glenn. Thank you, Mr. Chairman. And thank you for that 
bill. I think that is a very, very good start. And I think 
there is a couple of things. One is, we are the only industry 
with mandatory enforceable standards, so FERC and NERC, a 
delegation of FERC, have specifically prescribed standards that 
we must meet. How we meet those standards is a defense-in-depth 
way of meeting that.
    So there is a couple things. One is, I think, streamlining 
the process by which our background checks for some of our 
employees can be done so that we can work more closely with 
other government agencies and heads of those agencies. I think 
that would be one thing that we could do that would be 
supportive. And we would be happy to work offline on certain 
other things that I think we can do.
    Mr. Upton. I just want to assure you--other ideas, other 
members of the panel, are there additional steps that we should 
take? It is important that we get a quorum on FERC. I think we 
have all been frustrated with the lack of the quorum. I hope 
the Senate acts before they adjourn for sure before their 
August break.
    Let me talk a little bit about the baseload closures. So 
again we see this. In Michigan we have got a number of coal 
facilities that are beyond their use and they announced that 
they were closing. We have got issues on nuclear facilities 
around the country and for different reasons. We know that 
natural gas, we know that reliable, renewable energy costs have 
come down dramatically.
    A number of states like Michigan have actually imposed a 
new standard in terms of a minimum requirement and it is a good 
thing for all of us that support all of the above. But it does 
take a while to get that replacement piece on, whether it is a 
new gas facility or whatever it might be. We all care about 
diversity, but at the bottom line of course is, I think every 
one of you mentioned, the cost to the consumer of that kilowatt 
that goes to their home and to their business.
    So how do we balance all of that in terms of looking at the 
future and the 21st century energy needs that we have? Ms. 
Linde, you talked a little bit about that and it seems like New 
Jersey has done a really good job.
    Ms. Linde. Well, thank you. Fuel diversity is really 
important and we are concerned that at the wholesale market 
level the market design did not take that into consideration. 
So we do see that as something that needs to be addressed, but 
we recognize it can't be addressed quickly.
    So we have states as was commented on by several of the 
other panelists that have nuclear plants that are suffering 
that are taking action and doing so as a bridge to a federal 
solution, it is important that we don't lose assets that have a 
long life ahead of them and that are providing a low-cost 
energy to our customers every day.
    And I comment on that it is low cost because it is 
important to realize that, while nuclear plants are suffering 
financially because they are not being fully valued in the 
market, we believe it would be more expensive for our customers 
in New Jersey if they were to be retired and replaced with 
something else. So we believe it is less expensive for 
customers to keep these nuclear plants in operation and to keep 
them through the rest of their permit life, which goes on quite 
far into the future.
    Our three nuclear plants in New Jersey have licenses that 
go out until 2046, and each of the three plants have different 
license terms but they have long lives ahead of them and they 
are important for fuel diversity and important for the cost of 
energy in the State of New Jersey.
    Mr. Upton. My time is expired, but let me, just a quick 
comment, maybe Mr. Schleimer and then Mr. Kelliher and then we 
will move on.
    Mr. Schleimer. Just really quickly, not necessarily sure I 
agree that the nuclear plants aren't being fully valued. PJM 
went through a process to revamp its capacity market to value 
reliability even more than it had been previously.
    But putting that aside, I think we generally do agree that 
to the extent that there are issues like fuel diversity or 
other attributes like ramp rates and start-up times and 
shutdown times, et cetera, that aren't being valued, that that 
is something perfectly fine and acceptable and great for PJM 
and FERC and the other markets to look at expanding what the 
value of the different services are.
    Mr. Upton. Mr. Kelliher?
    Mr. Kelliher. Just very quick. We are really not at a point 
where we are losing diversity. I agree that the competitive 
markets are not designed to achieve diversity, but they have 
achieved it inadvertently almost. With the competitive markets 
focused completely on efficiency and cost that has resulted in 
the retirement of the uneconomic units, but in their place has 
come in very modern, advanced natural gas facilities, solar, 
and wind. And that result is we have more diversity in our 
electricity supply today than ever before, so there is not 
really a diversity crisis that we need to act on.
    And the concept of baseload is becoming less useful over 
time. It used to be baseload unit was a unit that was cheaper 
to run. It also tended to have, it was operationally 
inflexible. But the principle characteristic, it was cheaper 
than everything else so you ran that first. That has switched. 
It used to be that coal was cheaper than natural gas. That is 
no longer the case. That is why gas is displacing coal.
    It is not policy, it used to be that the most inefficient 
coal plant could produce electricity cheaper than the most 
efficient natural gas facility, but the fuel prices have 
switched to the point where that doesn't happen and it probably 
won't ever be restored.
    Mr. Upton. Thank you. The chair would recognize the ranking 
member of the subcommittee, Mr. Rush.
    Mr. Rush. Well, thank you, Mr. Chairman.
    Ms. Linde, there are many energy consumers who believe that 
climate change is real and must be addressed and that includes 
the overwhelming majority of respected scientists and 
climatologists, the majority of the American people, and the 
leaders of every country in the world except Nicaragua, Syria, 
and our own illustrious president, Mr. Trump.
    To address this issue especially in absence of federal 
action, many states have developed renewable energy portfolios, 
including Illinois, as I mentioned in my earlier statement, 
with the objective of reducing carbon emissions. In your 
opinion, would states like Illinois and others who have the 
objective of reducing carbon emissions be able to hit their 
targets without nuclear power, and why is it important that 
nuclear plants be valued appropriately as safe, reliable, zero-
carbon sources of energy?
    Ms. Linde. Thank you. And you bring up another very 
important attribute of nuclear power. Nuclear power does not 
emit carbon and it is air emission free, so it is very 
important for an environmental policy considering reducing 
carbon or not increasing the amount of carbon.
    I want to comment on something that Joe Kelliher said. We 
do have different opinions on the urgency of this situation, 
and Illinois is one of those states who saw the urgency and the 
need to take action so nuclear plants wouldn't shut down. In 
New Jersey, our nuclear plants that operate in New Jersey are a 
large percentage of the energy supply. If they shut down we 
will most likely move to predominantly natural gas as the 
single fuel source with some limited renewables.
    New Jersey, like Illinois, has a renewable portfolio 
standard and has made significant steps to increase renewables 
in the state, and my company has been developing a lot of solar 
in the state as well. And we believe that is important. The 
important message I want to leave with you today is that these 
nuclear plants play a role in fuel diversity, they play an 
important role in keeping prices down, and they play an 
important environmental role and they need to be maintained for 
the future and they are at risk.
    Mr. Rush. Diversity, how important is fuel diversity in 
ensuring a reliable and resilient grid?
    Ms. Linde. I could comment on that. NERC issued a study 
this year that highlighted the importance of fuel diversity to 
a resilient grid. I think that report that was issued, I 
believe, in March of this year, does spell out the importance 
of fuel diversity to resiliency and the ability of a system, an 
electric grid system, to respond to a variety of different 
situations whether weather or physical or cyberattacks.
    So we think that fuel diversity as NERC indicated is 
critical to resiliency and long-term reliability.
    Mr. Rush. Mr. Schisler, I only have a few more seconds 
here, but in your written testimony you state that from a 
federal policy viewpoint the only prerequisite for Demand 
Response to thrive is to have nondiscriminatory, open access in 
wholesale electricity market and that those markets remain 
competitive without pricing distortions.
    Moving forward, are you confident that FERC will enact 
policies that will maintain competitive markets while 
respecting the rights of states to create their own energy 
policy?
    Mr. Schisler. When the FERC gets a quorum we will hope that 
that will be the case. I do know that the RTOs and ISOs that 
you will be hearing from next week are taking this issue very 
seriously. We certainly don't want to stand in the way of 
states enacting their own energy policies, creating their own 
energy destiny, but market participants like EnerNOC, like 
independent power producers, rely upon market revenues and 
those prices are very important to sending long-term investment 
signals and that is why they have to be--fair, competitive 
wholesale markets have to be sacrosanct.
    So, FERC has enjoyed a long history, regardless of 
leadership, of trying to trend toward making wholesale markets 
more competitive and I certainly hope that will continue, but 
that really does need to be the guiding principle.
    Mr. Upton. Thank you.
    Mr. Olson?
    Mr. Olson. I thank the chair for holding this important 
hearing and welcome to our seven witnesses. It should be no 
surprise to anybody in this room, but my home State of Texas 
rode down a different trail in terms of our electric grid. 
Ninety percent is fully competitive, run by a group called 
ERCOT. Two cities, San Antonio and Austin, control their local 
grids. The Panhandle of West Texas and East Texas has their 
grids. They are interlocked.
    Like other states, our source of power is changing rapidly, 
we are shifting from coal power to natural gas power fairly 
quickly. We have two nuclear reactors, nuclear sites, no more 
coming. That is it. We are number one for wind, number one in 
America with a rapidly growing solar industry.
    My question is for you, Mr. Schleimer of Calpine. Your 
company has operations all across the country, many of those in 
Texas. As you mentioned in your opening statement, you said of 
ERCOT saying they are, ``phenomenal.'' What does that mean and 
could our markets learn from the Texas example? Could they be 
phenomenal as well?
    Mr. Schleimer. Thank you, Mr. Vice Chairman.
    So yes, Texas indeed did choose a different path. They have 
almost completely gone complete competition on both the 
wholesale and the retail side. And I would say that you know so 
far the distinguishing characteristic that you find in Texas 
versus some of the other markets is so far there hasn't been as 
much temptation to intervene in the competitive markets.
    And so in fact over the last 5 or 6 years or so you have 
seen 14- or 15,000 megawatts of new resource being built, both 
natural gas but a tremendous amount of renewable resources. And 
those renewable resources actually were not done under long-
term contracts with utilities, but really based on confidence 
in the market.
    We do have some concerns about the structure of the ERCOT 
market just like some of the--it is very different. The U.S. 
regional markets each have their own concerns associated with 
them because of different policy drivers and dynamics and all 
that. But I would say so far, Texas is, their market remains 
probably the most competitive market with confidence in the 
rules going forward.
    Mr. Olson. And how do investment decisions in markets like 
ERCOT that are competitive or like the Mid-Atlantic differ from 
those in more traditional regions? Could a company build a new 
power plant in Texas with the same sorts of return on 
investment like they can in Georgia, for example, any 
competition issues there?
    Mr. Schleimer. So a company like ours really builds off of 
what the future market looks like and what our expectations of 
the future market looks like. So in regions where there is a 
known set of rules and we are confident in the set of rules and 
we can look out, obviously we are going to be wrong about what 
the future looks like, but at least we have, if we think we 
have a fair shot of getting our money back.
    In other regions of the country that haven't deregulated or 
are still vertically integrated where the utilities still 
dominate, we will only make those investments over with the 
long-term contract or with the long-term ratepayer guarantee.
    Mr. Olson. Thank you.
    Ms. McAlister, ma'am, a new source of energy like wind and 
solar only means something if we can get those to market. In 
Texas we have what is called competitive renewable energy 
zones, CREZ zones, to get resources all across the state. As 
plants continue to close and energy sources shift, new lines 
will be needed.
    Can you share thoughts about the state of new transmission 
construction? Is the process working? Is it transparent enough? 
Are there bureaucratic roadblocks? What improvements can be 
made?
    Ms. McAlister. I can speak to the PJM area where most of 
our customers are sited and where we have most of our 
resources. And I think that FERC has orders in place, Order 
890, that allow it to provide infrastructure through an open 
and transparent process and we think that PJM is doing a pretty 
good job with the long-term transmission planning for those 
lines that are needed for reliability.
    But what we are very concerned about is a different 
category of transmission and that is called supplemental 
transmission. Those are projects that are not needed for 
reliability and essentially the transmission owners make those 
calls whether those lines are needed or not and they really 
don't have the same transparency and open process as what the 
baseline transmission projects have. And so I think probably 
the best way to balance grid reliability is to make sure that 
the transmission process whether it is for baseline or 
supplemental is for it to be open and transparent and for those 
Order 890 obligations to apply to all types of transmission 
projects.
    Mr. Olson. Thank you. And on behalf of the best team in 
baseball, the best record, the Houston Astros, I yield back.
    Mr. Upton. Just wait, the Tigers are on a roll.
    The chair would recognize the gentleman from California, 
Mr. McNerney.
    Mr. McNerney. Yes, what about basketball? At any rate, 
gentlemen.
    Ms. Linde, do you believe that the RTOs and ISOs could 
charge a carbon adder and dispatch in order to adapt to state 
carbon reduction policies?
    Ms. Linde. I want to make sure I understand your question. 
Do I think they should or----
    Mr. McNerney. Could they do that successfully, what effect 
would it have on the market?
    Ms. Linde. I think the answer is it depends. If the price 
that is added to the market for the carbon adder is an 
appropriate price, then yes, it would make a significant 
difference and it would enable both renewable generation and 
nuclear generation, their environmental attributes to be valued 
in the market.
    I caution, however, though, it is important that the 
details are appropriate because we have something else in the 
region of East Coast where it is called the Regional Greenhouse 
Gas Initiative and it was an effort by a group of states to add 
a carbon value and it was too low of a carbon value.
    And in New Jersey we have a gubernatorial election coming 
up this year and both candidates have said that they will 
rejoin RGGI. And I want to be clear to explain that that will 
not be enough to address the nuclear challenge because the 
price on carbon is just far too low.
    Mr. McNerney. Thank you.
    Mr. Glenn, how would increased transmission benefit both 
clean energy development and customers, and what are the 
biggest challenges to increasing transmission?
    Mr. Glenn. The biggest challenges that we face in 
increasing transmission is the siting, frankly, and that can be 
at a state level. Also if we look at other projects across the 
nation that go through several states, the permitting process, 
the eminent domain process, those are our biggest challenges in 
getting projects on time, on budget, and getting renewable 
energy resources that have very, very low energy costs to 
markets in which we serve.
    Mr. McNerney. So in your opinion that would benefit the 
customers and the market to have increased transmission?
    Mr. Glenn. Yes.
    Mr. McNerney. Thank you.
    Mr. Schisler, I have been to a distributed generation 
facility and it is a very interesting process. There is a boom 
in distributed energy resources, renewables, policies of the 
Demand Response be brought up, and these are coming up pretty 
quickly.
    Do you believe that the states have been able to make 
policies looking toward long-term effects or have they had to 
be more reactive? In other words, are states implementing 
policies proactively or are they being reactive to this 
technology?
    Mr. Schisler. I think it has come so quick that they are 
forced to be more reactive. The changing landscape is almost 
occurring almost at a geometric rate when you look at the cost 
of storage has come down, the cost of renewables has come down. 
We are seeing vehicle-to-grid technologies and what is that 
going to do? Have we reached peak demand?
    Utilities face a degree of radical uncertainty in their 
planning paradigm that they have never had to encounter 
throughout the history of distributed electricity service. And 
I don't know that any utility or any state commission has 
really wrapped their arms around what does integrated resource 
planning look like in the future. There is a lot to do in terms 
of thinking about how do we actually embrace the opportunity 
with these new technologies while addressing this radical 
uncertainty and still delivering safe, affordable, clean energy 
to consumers.
    Mr. McNerney. I agree.
    Mr. Schleimer, I believe that you recommended a firewall 
between subsidized and nonsubsidized generation. Is that the 
correct interpretation?
    Mr. Schleimer. Yes, sir.
    Mr. McNerney. So could you describe what that firewall 
means? What would that look like?
    Mr. Schleimer. Sure. And there is a lot of different 
variations of this, but it basically boils down to running the 
capacity market two times. You run the capacity market once for 
competitive generators that are not receiving subsidies and 
that is basically the price that they get and so it retains the 
competitive market price and aspect to it, then you run the 
capacity market again and the subsidized units or the units 
that are getting out of market contracts get the prices out of 
that second run.
    And so, instead of the subsidization deteriorating prices 
for the entire market, you are basically keeping the 
competitive market prices as they were assuming you didn't have 
the subsidization coming in. And like I said, there is a 
handful of different variations of that but that is the basic 
structure.
    Mr. McNerney. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Walden?
    Mr. Walden. Thank you very much, Mr. Chairman. And thanks 
again to our panelists and to the members for participating in 
this important hearing.
    There seems to be some consensus among all the energy 
stakeholders that the electricity industry is undergoing a 
period of significant transformation, I don't think anybody 
denies that. And if just quickly we could go one end to the 
other, from your individual perspectives what do you think are 
the main drivers of that change that are transforming the 
industry? What are the main drivers? Is it consumers? Is it 
consumer demand, is it state laws, what is it that is from your 
perspective driving it?
    Mr. Kelliher. Low natural gas prices, lower than expected 
demand for electricity, and the sharply declining cost of 
renewables both wind and solar.
    Mr. Walden. All right.
    Ms. McAlister. I would agree it is basic market forces with 
the low natural gas, but I think it is also consumers demanding 
more and wanting different choices in their supply needs.
    Mr. Schleimer. I would agree with that list, cheap gas and 
wind and solar prices coming down. But I would also add that a 
significant driver is cheap money. I mean there is a lot of 
private investment occurring in the mid-Atlantic and the 
Northeast and elsewhere just because, you know, borrowing money 
is cheap and investors are looking for a place to put their 
dollars.
    Mr. Walden. Get a return. Yes, all right.
    Mr. Reasor. Technology.
    Mr. Walden. Expand on that.
    Mr. Reasor. What is brought as lower gas prices, 
technology, changes in the technologies of how we get that gas.
    Mr. Walden. Fracking.
    Mr. Reasor. So I would suggest technology has had the 
largest impact and going forward in at least the foreseeable 
future new technologies will continue to have the greatest 
impact.
    Mr. Walden. All right.
    Ms. Linde. It is a very good question. And the most 
significant impacts that I see are from technology impacting 
the ability to get lower cost gas and that exposing the design 
flaw that I commented on in the wholesale market and also 
states. States are really driving towards policies that are 
encouraging and enabling investment in renewables and without 
that I don't think we would see the level of renewable 
investment that we have at least in my area of the country.
    Mr. Walden. OK. All right.
    Mr. Schisler. I would say technology. Technology has 
created an unprecedented democratization of the grid by users 
of electricity. They can now use energy in different ways and 
interact with electricity markets and interact with electricity 
suppliers in ways that were not possible even a decade ago and 
that is going to continue.
    Mr. Walden. All right.
    Mr. Glenn. June 19th, 2007, the introduction of the iPhone. 
That has completely changed our business and our business 
model. Customers want convenience, choice, and control over how 
they use and how they reduce our energy. I completely agree 
with Mr. Schisler. That combined with energy storage are the 
two things that have transformed our industry.
    Mr. Walden. All right, thank you.
    Mr. Kelliher, you testified that competition has been good 
for consumers as the markets have delivered benefits in the 
form of lower prices. And while competition in the electricity 
markets always intended to weed out high cost or inefficient 
generators, we now have states favoring policies that would 
potentially retain older, less economically competitive 
generation for a number of different reasons such as zero-
emission benefits, job retention, tax base preservation. So 
were the wholesale electricity markets, were they ever intended 
to incorporate these state and local policies, can they and 
should they? And then I have one other question if we have 
time.
    Mr. Kelliher. To me, sir?
    Mr. Walden. Yes.
    Mr. Kelliher. They don't and some critics of competition 
policy fault them for not delivering things they were never 
intended to deliver, which I think is a little unfair. But your 
other question is, well, can they? That is what RTOs are 
looking at right now and FERC is looking at right now. Is there 
a way to accommodate, accept state public policy choices with 
minimal harm to the markets?
    And harm to the markets is going to occur either in the 
form of suppressed prices or the exit of economic generation in 
lieu of uneconomic generation, so I think there is no way to 
completely protect the market. It is either going to hurt price 
or force the retirement of economic units.
    Mr. Walden. Well, and as you know, I think it is next week, 
Mr. Chairman, you are going to have the hearing on RTOs and 
ISOs and look at all of that side of this as well. Our goal is 
to make sure we stay ahead of the dynamic changes in the 
electricity market so that the grid works, so you get 
electricity where you need it when you need it. And obviously 
we have security issues that we will get into here and other 
places, but adequacy is a big part of that and the time to 
build out to make sure we have got the ability to transmit the 
power where we need it is something this committee is very 
concerned about as well.
    My time has expired, Mr. Chairman. Thank you again. And to 
our panelists, thank you very much for your participation.
    Mr. Upton. Thank you.
    Mr. Peters?
    Mr. Peters. Thank you, Mr. Chairman. I want to follow up on 
the Chairman's questions. But before I let it get away, Ms. 
Linde, what was the price that RGGI charged that you said was 
too low?
    Ms. Linde. I am not sure if I have it right here, but it is 
in the--oh, it is $2.67 per ton of carbon.
    Mr. Peters. OK, thank you.
    Ms. Linde. As compared to much higher numbers that are----
    Mr. Peters. Thirty to forty is other. So my question had to 
do of just putting aside some very important issues for the 
minute which is cybersecurity, which we talked about, putting 
aside the pricing in the markets, we have seen a phenomenon of 
this distributed generation. You say it is sometimes driven by 
consumers who want solar panels on their rooves, sometimes it 
is driven by state policies. I am concerned. What I hear about 
is that that creates an issue for delivering electricity, to 
making sure that when you turn on the lights from a systems 
point of view that they will come on.
    And Mr. Schisler, I think you said something like we 
haven't started planning for that. What would that plan look 
like? What kind of concerns would you like to raise for us to 
consider as we see these technologies get deployed?
    Mr. Schisler. So I think we are talking about two slightly 
different things. One is sort of a long-term planning paradigm, 
where do we need to transition and what transmission resources 
and what types of resources are we going to need? Are we going 
to need ramping resources or baseload, how much of it? That is 
more of a long view question that regulators have to face.
    It is a fact that we know more today, both grid operators 
and distribution utilities today know what is happening 
downstream at the grid than they ever have in the past. We have 
better outage management response times. We have better 
information at what is happening at customer sites. And that 
is, I think that is where there has been innovation on that 
side. Not just innovation on the consumer side, it has been 
innovation on the utility side that has made the grid more 
resilient and I think some of the investments that made in 
recent years in grid resiliency in response to some of the 
storms have helped do that.
    But ultimately I think there is like a real-time component 
to managing real-time operations and then there is the long-
term view.
    Mr. Peters. Is that something that the private sector is 
going to handle or is that something that governments need to 
be involved in?
    Mr. Schisler. Clearly, the real-time operations, I believe, 
is largely a utility function. So it is the distribution 
utility and it is the wholesale market and that is a regulated 
function.
    Mr. Peters. Anyone else have a comment on that?
    Mr. Glenn. Congressman, Alex Glenn. Just to piggyback on 
what Mr. Schisler said, I think, two things. One is, as we 
invest that $35 billion in the grid it is going to make it 
smarter. It is going to deploy new technologies, but it is also 
going to use data analytics. So the last four people that we 
have hired at our company have been Ph.D.s in data analytics.
    And I think those two things combined are going to help 
significantly the business that Mr. Schisler is in as well as 
the ability of customers and the ability of distributed 
generation to propagate across our systems in a way that is 
smartly done. And that is going to be the critical aspect of 
that.
    Mr. Peters. And I think it has got to be a partnership. So 
we, in San Diego, I think STG needs that 40 percent renewable 
now, and I don't--that is obviously not rooftop, but that is 
pretty good. But I think that now there is a clamoring among 
consumers to do more rooftop and community choice aggregation 
and all these things. We can't get so far out in front of it 
that we are not talking to the utilities about making sure that 
the grid is reliable from a supply standpoint.
    And so maybe, Ms. Linde, if you had a question or a comment 
on that I think it is really important to have that 
conversation and to be in partnership.
    Ms. Linde. Thank you. And I agree with Mr. Schisler that 
Demand Response is a really critical component of our overall 
system. We want customers to respond to the cost and not use 
power and identify what price they are willing to not use the 
power. But when customers want power, when their rooftop solar 
is not working because the sun is not out, the utilities are 
the ones who have to be able to meet that demand.
    And it is not just having enough as far as numbers, it is 
having the right mix, the right mix that can respond at the 
right time in the right combination. And the NERC report that 
came out this March addresses that and it identifies all of the 
different characteristics of different types of supply and how 
they work together. And it is important that we have experts 
and transmission planners and generation planners looking at 
making sure that when the flip, you know, someone flips the 
switch and they want their power that the right mix is standing 
behind it and ready and able to respond.
    Mr. Peters. Right. We want to do that in my perspective in 
a way that moves us toward renewables, but we have to do that 
together.
    So thank you, Mr. Chairman.
    Mr. Upton. Mr. Shimkus?
    Mr. Shimkus. Thank you, Mr. Chairman. It is great to have 
the panel. I think the bigger question now is do we get to the 
process of rewriting the Federal Power Act, really, last 
codified in 1935. We had testimony last year that said well, it 
was so vague that FERC was able to run and help create these 
regional markets.
    And isn't the constitutional debate of what is interstate 
commerce and if you excite an electron and it is going across 
state boundaries that caused the question even maybe the 
federal regulation of the interstate commerce, which would be 
the transmission portion, and states' involvement is still in 
the distribution.
    So I think that is the bigger question, because we are 
trying to--and I am not afraid to be involved in that debate, 
because as was quoted by Mr. Schisler, we have democratized 
this electricity use to the individual. And the iPhone was, Mr. 
Glenn, you used the iPhone as an example. So, and Joe was here 
when we did competition, when we used to have state regulated 
markets and we moved to the regions.
    But I want to spend my time--and the RTOs will be here next 
week, but the people who have complaints about the RTOs will 
not be here next week. And so I really want to focus on two 
comments that are really the same, Mr. Reasor and Ms. 
McAlister--Mr. Reasor, you have a beef with PJM and you are 
wholly contained, OK, you are the rural cooperative, a 
different model evolved over time and some would say obviously 
it is a not-for-profit entity.
    So briefly can you say, what is your beef? Because then I 
am going to go to Ms. McAlister--at least Illinois Municipal 
Electric Association has a beef because they are in two RTOs 
which causes problems. So first of all, what beef do you have 
with PJM because you are wholly contained, and then I am going 
to move to Ms. McAlister to explain the separation.
    Mr. Reasor. Thank you, Congressman. Our big issue is the 
ability and having the first option that we can self-supply.
    Mr. Shimkus. And you said that about 15 times in your 
opening statement.
    Mr. Reasor. I did. I hope you remember that.
    Mr. Shimkus. So what do you mean by self-supply?
    Mr. Reasor. We are a load serving entity. That is what 
makes us a little bit different than some other parties.
    Mr. Shimkus. So you are owners and the Federal Power Act 
gives you the authority, in fact it is in the statute that you 
can self-supply.
    Mr. Reasor. Basically that is what we would argue.
    Mr. Shimkus. Under 217(b).
    Mr. Reasor. That is correct. Because we are a load serving 
entity we have an obligation to meet the needs of the consumers 
that own us, which we would suggest, I realize it is a 
different model, but we would suggest is the ideal model of a 
nonprofit entity that the consumer owns and that is where they 
get their electricity.
    We should have the opportunity to self-supply that load 
to----
    Mr. Shimkus. You should have the opportunity, it is in the 
statute.
    Mr. Reasor. Well, but PJM in the way that----
    Mr. Shimkus. Well, that is my point.
    Mr. Reasor. Yes. And as you said, I have a little bit of a 
beef with PJM. However, I would say to you that when PJM 
started their first option for us to meet their capacity 
obligations, which are legitimate, was that we could look first 
to our self-supply.
    Mr. Shimkus. OK, let me go to Ms. McAlister. I am running 
out of time. Because I hope, we haven't scheduled this out but 
I hope you know where I am going with this question.
    Ms. McAlister. I think I do. And thank you for the question 
and just a quick point. We are also in two RTOs and we also 
serve load in non-RTO areas, so we have kind of got the whole 
scheme of things. So we have got the same kind of beef that Old 
Dominion has and, really, the crux of the problem from our 
perspective is that the capacity market and PJM over time has 
evolved and become overly complex.
    It also reduces the amount of resources, the types of 
resources that can participate because they no longer meet the 
definition of a capacity resource and it has just become so 
unduly complicated that it makes long-term planning for 
entities like us very difficult. And we are at risk with what 
is called the minimum offer price rule which is essentially a 
floor price that is administratively set by PJM that makes----
    Mr. Shimkus. And let me hold you because my time is running 
out and I want to get this point out----
    Ms. McAlister. Yes.
    Mr. Shimkus [continuing]. Is that so in Illinois we have 
PJM and we have MISO. Most of our generation is in the south 
from our Illinois municipal or even our co-ops. They should by 
federal law be able to provide to part of their ownership up to 
the PJM. But because of these regions, part of that load is 
sold to PJM who sells it back into their market at a premium 
versus the original clearing price in MISO, which means that 
those people who are owners of the generation can't get the 
real price of the generation.
    And I think that needs to be looked at and I yield back, 
thank you.
    Ms. McAlister. Do I get to respond?
    Mr. Upton. The gentleman's time has expired.
    Mr. Green?
    Mr. Green. Thank you, Mr. Chairman. I want to welcome our 
panel and thank the chair and the ranking member for calling 
it.
    I was just kind of reminiscing because I have been on the 
Energy subcommittee and I look back in 2001 and '02 when we had 
so many different problems that are--in the day we have some 
problems that we can actually deal with, back then it was 
almost intractable. But again coming from Texas we don't want 
anybody messing with us and we will fix our own problems 
through our regulatory commission. So we have a different 
problem today, obviously availability and cost and that is 
affecting everyone.
    Mr. Kelliher, you touched on how significant changes in the 
breakdown of our nation's electricity markets have led to 
questions about the driving force behind the retirement of 
certain types of electricity generation, market fundamentals or 
policy on the state or federal level. You stated the 
preponderance of the evidence suggests that market factors are 
the primary driving force behind the retirement of uneconomic 
generation methods.
    Can you elaborate on the evidence you reference when 
stating that the market forces rather than a regulatory process 
has been the primary driving force behind the retirement, and 
again both your experience on this committee as a staff member 
but also in the industry.
    Mr. Kelliher. There have been arguments from time to time 
that negative pricing by wind is causing retirements of nuclear 
and coal plants, and there is pretty, I think very persuasive 
evidence that that is not true. There is PJM analysis that 
shows that first of all, negative pricing is when you bid below 
zero, but wind projects do bid negative from time to time, so 
do nuclear plants, so do hydro projects. So negative pricing is 
not something that is particular to wind projects.
    But if you look at, well, when does negative pricing by 
wind projects set the market price in one of the RTOs, PJM 
analysis shows that it occurs 0.1 percent of the time, so that 
is 1 hour out of every 1,000 hours. I think it is hard to say 
that therefore that wind is the villain.
    Mr. Green. Right, they are not driving the train.
    Mr. Kelliher. Right. And then even in Texas, your State of 
Texas where there is much more wind penetration in Texas than 
in PJM, negative pricing by wind projects in Texas occurs less 
than one percent of ours. So I think that shows that federal 
policies that encourage wind development are not causing those 
retirements.
    And then the coal plant retirements, that is driven by in 
most cases just pure cost factors. As I said earlier, an 
uneconomic, an inefficient coal project used to be able to 
deliver power cheaper than the most efficient gas project. 
Those fuels have reversed themselves and now efficient gas 
projects will always be able to produce cheaper than even more 
efficient coal projects.
    So I think coal retirements are really driven primarily by 
economics, not by environmental regulation. There are some that 
environmental regulation has been the tipping point where the 
cost of complying with new requirements, arguably, is the 
tipping point for some coal projects.
    Mr. Green. Thank you.
    Mr. Chairman, well, again I have welcomed Calpine to Texas 
over the last 15 or 20 years, and I joked at one ribbon cutting 
for a cogen facility in our district and said, when are you 
going to change your name to Texpine because so much of your 
investments are in Texas? But I appreciate you being part of 
our market. My Californians love that.
    I am pleased that you discussed committed method of the 
energy market in Texas spurring increased investment and 
renewal in natural gas resources. You mentioned how these 
investments not only lead to lower prices for consumers but 
also increase in the electrical system reliability and decrease 
emission rates.
    And let me point out in your statement where you talk about 
the Texas market, over the last 5 years electricity prices 
declined by over 13 percent in Texas and historic lows. 
Emissions are down also. Between 2010 and '16, the emissions 
per million kilowatt CO2s were down 5 percent, 
NOx emission and CO2, SO2 
emissions were down. NOx was down 24 percent and 
SO2 were down 40 percent.
    I can't remember in my history of being an elected 
official, whether it be in the Texas in the legislature or 
here, I have seen that kind of result in the electricity 
market. Can you share any other information outside of what 
your testimony was?
    Mr. Schleimer. Well, that has really been driven by, like 
we talked about earlier, the low gas price environment and a 
tremendous amount of investment that has been spurred in the 
Texas market in both highly efficient natural gas-fired 
combined cycles as well as, as you know there is a tremendous 
amount of wind in West Texas and that has largely displaced a 
lot of the coal and old steam facilities that the utilities 
used. Those coal plants in Texas, a lot of them are in 
financial difficulties now as a result of the change-out in the 
technologies.
    Mr. Green. Well, Mr. Chairman, thank you for calling the 
hearing. Again, thank all our witnesses, because again it is 
good for us to look at where we are today as compared to where 
we were 5, 10, even 15, 20 years ago. Thank you.
    Mr. Upton. The chair would recognize in perfect segue the 
gentleman from Texas, Mr. Barton.
    Mr. Barton. Thank you, Mr. Chairman, and I will be brief. I 
have to go to a lunch meeting.
    This is an important hearing, but I don't think it will 
make the front pages. There is a probably a better probability 
of the latest Trump tweet being on the front page tomorrow than 
anything we discover here.
    But this is an important hearing, Mr. Chairman, because of 
a small thing called reliability. I will tell you what 
reliability is. I went out to my car this morning to attend 
Chairman Walden's breakfast meeting with the subcommittee 
chairman. When I turned the key nothing happened. I had no 
reliability. As it turns out my alternator had conked out. It 
worked yesterday, but it didn't work this morning. By the same 
token, when the people that are putting this hearing together, 
the staff getting ready for the hearing, when they came in this 
morning they turned the switch, the lights came on.
    Our electric grid has got about 100 percent reliability. 
But that is not a given that it will always be so, and as we 
retire more and more plants and more and more of our generation 
is from renewables, there is nothing wrong with renewables 
except sometimes the wind doesn't blow and of course sometimes 
there is no sunshine. Water power is pretty much there all the 
time.
    So we need to really think about better ways to continue to 
maintain and if possible improve reliability. One of the ideas 
that has been circulating is this idea of using artificial 
intelligence. Of course I know most people think that is what 
the Congress has is artificial intelligence, but this is a 
different definition.
    So I would like the panel to comment on if they think that 
this concept of artificial intelligence can be used to more 
predict where the demand is going to be and help allocate the 
supply to the demand so that we maintain as close as possibly 
100 percent reliability, so any comments from anybody about 
artificial intelligence used in the electricity grid? It is not 
a trick question.
    Mr. Glenn. Congressman Barton, this is Alex Glenn from Duke 
Energy. I think that is going to be your next significant 
plateau then in technology improvements.
    Mr. Barton. So you think it can be used?
    Mr. Glenn. I think it can be used and I think it ultimately 
will be used, the question is how and when. And I think what 
you are going to see is baby steps to look at it. And you might 
see it in call centers first, so that there is artificial 
intelligence in all of our call centers, and you may see that 
ramped up in different aspects.
    Mr. Barton. Is your company working on----
    Mr. Glenn. We are working on that now to do that. So I 
think as you see technology and the pace and rapidity of that 
technology improvements you are going to see that continue to 
be more ubiquitous as the years progress.
    Mr. Barton. That is a nice word, ubiquitous. I will look 
that up. Sounds good though.
    Yes, ma'am?
    Ms. Linde. I would also add at PSEG we are constantly 
adding new technology to a variety of our generation 
facilities, to project what piece of equipment in that 
generation facility might have a fault. We just actually 
upgraded some of our technology to have more predictive 
information, because the lights need to be on when people flip 
the switch. So our focus is making sure that our facilities, 
there are no surprises.
    Also in understanding the transmission system, there is 
greater and greater intelligence being added to the 
transmission system to tell us information before it becomes a 
problem. And I agree with Mr. Glenn that I think we are going 
to be seeing more and more of this and utilities are paying 
attention. The industry is paying attention to this.
    We also have to manage cost, so it is a balance between 
adding the right amount of technology but not doing it in a way 
that burdens customers if there is not a tremendous value. So 
it constantly has to be weighed to make sure we are putting the 
right intelligence into the----
    Mr. Barton. My time is about to expire. Is there anybody 
that doesn't think artificial intelligence is an option as we 
try to maintain reliability?
    Mr. Reasor. Congressman, I would just say that I am not 
going to say it isn't. I think it is important for these 
reasons that have been stated to help us better understand 
where the needs are and the equipment and technology. But 
remember, the old non-artificial intelligence tells you that 
for good reliability you have to have the generation and you 
have to have the transmission to get it there.
    The artificial intelligence maybe can tell us where it is 
lacking and maybe can tell us what equipment is failing, but it 
doesn't generate electricity. And ultimately for real 
reliability, true reliability you have to have the generation 
and you have to have the transmission to get it there.
    Mr. Barton. I eat a lot of health food but I also eat a lot 
of meat and potatoes, so I understand. With that I yield back, 
Mr. Chairman.
    Mr. Olson. [Presiding.] The gentleman yields back. The 
chair calls upon the gentlelady from Florida, Ms. Castor, for 5 
minutes.
    Ms. Castor. Thank you, Mr. Chairman. And thank you to all 
the witnesses that are here today. Congress doesn't do a very 
good job thinking decades ahead and planning ahead, it is 
always the next budget battle or the next bill on the horizon.
    But coming from Florida, I am very attuned to the rising 
costs for consumers and all of us due to the changing climate, 
a/c bills and flood insurance, and Mr. Glenn knows in our neck 
of the woods, beach renourishment to keep our tourism economy 
going, what we have to do with property taxes to retrofit a lot 
of water and waste water infrastructure, property insurance.
    So it seems to me we have reached a point where the old 
business model of selling electricity needs some updating and 
some places in the country are doing that better than others. 
The old business model was sell as much power and generate as 
much as possible to make your profit build plants and there are 
incentives for that.
    But that doesn't really match up with what we need to do to 
promote a better mix. Yes, the baseload and reliability are 
fundamental, but we have got to do a better job in planning for 
the future and incentivizing the demand response, energy 
efficiency, conservation, and the transition to renewables.
    Tell me what is working best out there across the country 
when it comes to those kind of incentives for you all, what you 
all believe can be the answer. Now realizing that we have had a 
change and the Clean Power Plan isn't going to be pushing 
everyone in all of the states, but what is working? What are 
the best incentives for our utilities to help us with the 
future?
    Ms. McAlister. Thank you for the question. I think largely 
what you are talking about the shifts in resources are really 
being driven by consumer demand. And part of what we think 
would be a good incentive is allowing those resources to 
actually participate in the market without restrictions and be 
on par with some of the other types of supply, so that----
    Ms. Castor. What do you mean?
    Ms. McAlister. Well, for example, in the PJM capacity 
construct it has become more rigid and it has become less 
flexible and it doesn't incorporate some of the renewables 
because they can't operate 24/7 the way that some of the old 
coal-fired units can participate.
    Ms. Castor. Is there a particular state or region in the 
country that is doing that better than others? Is there 
something specific you can point to?
    Ms. McAlister. I know at AMP in the Midwest we are at 21 
percent renewable resources, which for a Midwest utility is 
rather high, and that is because we are responsive to the 
consumer demands. We are a member----
    Ms. Castor. Is it consumer demand or has the states set 
energy efficiency goals, conservation goals, or renewable 
goals?
    Ms. McAlister. For us it is not the state because we are 
not regulated by the states, we are locally regulated. So it is 
the consumer driving the demand.
    Ms. Castor. Mr. Peters and I were comparing notes. What did 
you say the San Diego area or--what is it?
    Mr. Peters. Forty.
    Ms. Castor. With renewable, based on renewable power. And 
what is the state of California?
    Mr. Peters. Thirty-three.
    Ms. Castor. Thirty-three. And that is because--will you be 
my witness, because the state has set those goals.
    Mr. Peters. Well, certainly it is partly because the state 
has set renewable goals and it is partly because I think the 
consumers are clamoring for it as well.
    Mr. Schisler. I would say one thing that is working well is 
many states--California, Texas, and actually there is too many 
probably to list now--are doing a good job of getting customer 
data to customers through their smart grid investments and that 
is empowering customers and opening up newer and more efficient 
ways to use energy. So that is one example of what is working 
well and should be replicated elsewhere.
    Ms. Castor. I guess there was some discussion of cell 
phones earlier, and this, the Millennial generation they are 
ready, and I do hear too the consumers are clamoring for more 
control now. Person-to-person maybe that doesn't make a dent, 
but you empower consumers and work with your industrial users 
over time and use technology and it kind of highlights the need 
for greater infrastructure investment if we could ever get the 
Congress in a bipartisan way to move on to energy or to 
infrastructure investments.
    And I know, Mr. Glenn, you talked about this. We have got 
to make sure that energy resiliency and that we do an 
infrastructure bill it isn't just the bricks and mortar for 
transportation. It is very important, but it has got to be our 
energy future to help us control the costs that I see on the 
horizon decades ahead.
    So thank you, Mr. Chairman. I have run out of time, I yield 
back.
    Mr. Olson. The gentlelady yields back. The chair calls upon 
the gentleman from West Virginia, Mr. McKinley, for 5 minutes.
    Mr. McKinley. Thank you, Mr. Chairman.
    When we put two issues on the table, both the grid 
reliability and the greenhouse gases and climate change or all 
those combined, it is hard to extract good policy, good public 
policy and how we might be able to address that because there 
are consequences involved with those decisions and how that 
works out.
    For me in West Virginia it is different than it is in 
California or Texas or elsewhere, is we have seen the impact of 
the regulatory impact over the last 8 years. Example, in West 
Virginia we used to have just in 2008, we had the second lowest 
utility bills in the country for industrial consumption, now we 
are 26th because our coal-fired power plants many of them were 
shut down or they were required to upgrade their facilities to 
such a level.
    Now in conjunction with that at that same time, we had the 
seventh best rate of unemployment in the country, now West 
Virginia is 49th. So there are consequences to these. We have 
got to understand when we debate these issues we are all 
sensitive that there are consequences with it. And I don't 
understand yet, I have not been able to find a good response 
back for the coal miners across this country, but particularly 
in West Virginia, what did they do to cause this? Why is it 
they are losing their jobs? Why are there bankruptcies 
involving them? We have got to be more sensitive to the 
individuals when we set policy here that they are going to lose 
their jobs.
    So Ms. Linde, if I could ask you a question. If we leveled 
the playing field and got rid of these tax subsidies that sweep 
all across our utilities could the traditional baseload power 
generators be better able to compete?
    Ms. Linde. Thank you. The PSEG is not, certainly is not 
encouraging the extension of those credits, but I also want to 
be clear that the existence of those credits are not what is 
causing our nuclear plants to be at risk. It is an aggravating 
factor perhaps but certainly not the main driver. The main 
driver is that there are fuel diversity and there are 
environmental attributes which some people also value are not 
being valued right now in the marketplace.
    Mr. McKinley. And that is why I wanted to get to that 
point, because you mentioned that several times, your main 
driver. So my question to you would be, you talked about the 
main driver or the economic stress on base plants and you 
mentioned nuclear in particular, because I think that is a 
solid baseload provider as is coal, is that the market fails to 
adequately value and compensate baseload.
    Ms. Linde. It does. There is----
    Mr. McKinley. So shouldn't we do something about that? 
Shouldn't we--again, my next--is in the market value, 
reliability, and resiliency, but we are not.
    Ms. Linde. We are not currently in the competitive 
marketplace. And it is not because there is an intention not to 
do it, it is just the market wasn't designed to do it. And we 
are pointing that out that--and for policy makers to make 
decisions. And we are pointing it out to you today, and we hope 
that the policy direction given to FERC is that fuel diversity 
and resiliency is important and we hope that that direction 
will cause changes and fill that gap in the market.
    But we are also pointing it out to New Jersey, because 
states have an important role here. Some states like Illinois 
and New York have already taken action. They are not waiting 
because once these plants shut down they are gone forever. They 
are closed permanently, and we don't think that is good public 
policy.
    So our ask is to recognize that these plants without a 
change either from the state or the federal government or some 
change in the price of natural gas which is certainly outside 
all of our control, that without some change these plants, we 
will see a shutdown, a continued and regular shutdown of these 
plants until it is too late and we shouldn't let that happen 
without deciding that we want----
    Mr. McKinley. And if I could, rather than allow this to go 
back up to 30,000 feet, what are specifics? Can you provide me 
or this committee some specifics of how we might be able to 
address the reliability and value that in our cost base?
    Ms. Linde. Absolutely. And we can do that separately 
outside of this committee, but FERC has been looking at this 
issue. The DOE as was commented before is working on a report. 
I think both of those places, FERC through their proceeding and 
the DOE through their report, those are vehicles to identify 
fuel diversity and resiliency as an important public policy 
because it is a choice that is going to be made.
    Mr. McKinley. Thank you. I yield back my time.
    Mr. Olson. The gentleman's time has expired. The chair 
calls upon the gentleman from New York, Mr. Tonko, for 5 
minutes.
    Mr. Tonko. Thank you, Mr. Chair. There has been some talk 
about that diversity that assists the whole equation here. And 
while I am sure there are differing views on how it should be 
done, do witnesses agree that it is important to maintain a 
diverse fuel supply for the sake of reliability? Maybe go 
across the board starting to our left here.
    Mr. Kelliher. In general, yes, but we have diversity now 
not because it was a goal, it is a byproduct of building the 
next increment of supply is looking for the technology that is 
lowest cost at the time and these tend to be long-lived 
facilities, so it is not as if in 1960 we had a certain 
electricity supply pie we planned to. I would say in general, 
yes.
    Mr. Tonko. OK.
    Mr. Kelliher. In general, yes.
    Mr. Tonko. If we would just go across the board and just 
give us a specific yes or no. Thank you.
    Ms. McAlister. Yes. Grid reliability is crucial and fuel 
diversity is one aspect of that.
    Mr. Tonko. OK.
    Mr. Schleimer. I would agree with that that fuel diversity 
is crucial but it is not single dimensional. You can't say one 
fuel, you looked at one fuel versus another and it is more fuel 
diverse. You have to look at flexibility, startup times, 
shutdown times, ability to integrate renewables, so there is 
eight or nine dimensions to fuel diversity, but absolutely.
    Mr. Tonko. OK.
    Mr. Reasor. Diversity is always good. You just have to be 
careful that you don't start regulating and controlling 
diversity and create winners and losers. That is a very risky 
slope to go down.
    Mr. Tonko. Ms. Linde?
    Ms. Linde. I think you know my answer that fuel diversity 
is important.
    Mr. Tonko. We heard you.
    Ms. Linde. And it can be a public policy without creating 
winners and losers. A fuel diversity doesn't mean nuclear for 
everyone. In some places nuclear doesn't exist. In New Jersey, 
fuel diversity means nuclear continues at least for the life of 
the licenses that they have.
    Mr. Tonko. Thank you.
    Mr. Schisler?
    Mr. Schisler. Of course fuel diversity is good, but I do 
worry that we go down a path of sort of central planning and 
picking winners and losers which is ultimately going to lead to 
inefficiency. So fuel diversity is good, but I think we need to 
use market forces to achieve it as far as possible.
    Mr. Tonko. OK.
    And Mr. Glenn?
    Mr. Glenn. Yes.
    Mr. Tonko. OK, thank you very much.
    Ms. McAlister, do you believe the RTO operated markets have 
provided the proper signals for a diverse array of electricity 
resources?
    Ms. McAlister. I do not. That is really not what they were 
designed for as we have talked about a number of times. They 
were really designed for least-cost dispatch and that is what 
they are achieving, but they are not providing incentives for 
diverse fuel sources.
     Mr. Tonko. And again across the board, what would the 
reaction be to that about the RTOs?
    Mr. Kelliher. They were not designed to achieve a certain 
level of fuel diversity, no.
    Mr. Tonko. Mr. Schleimer?
    Mr. Schleimer. PJM actually looked at fuel diversity in a 
report they released a couple months ago and they found that 
fuel diversity, I think Mr. Kelliher referred to this already, 
is actually increasing in PJM, not decreasing.
    Mr. Tonko. Thank you.
    Mr. Reasor?
    Mr. Reasor. Again, that wasn't their design.
    Ms. Linde. Yes, I agree. It was not their design.
    Mr. Schisler. It was not their primary design, no.
    Mr. Tonko. And Mr. Glenn?
    Mr. Glenn. Yes.
    Mr. Tonko. OK. And obviously state policy decisions can 
affect the fuel supply. Should state policies seek to promote 
or maintain fuel diversity anyone?
    Mr. Glenn. Yes.
    Mr. Tonko. Ms. Linde or Mr. Glenn?
    Mr. Glenn. Yes, just to put it in perspective, one dollar 
for MMBTU increase in the price of natural gas for our 
customers in Florida will increase a fuel bill by $200 million. 
So if you think about that, fuel diversity and overall 
diversity in your generation planning is critically important.
    Mr. Tonko. And Ms. Linde, I believe you wanted to respond?
    Ms. Linde. Yes. I do believe that states have a role in 
fuel diversity. Ideally, it should be handled on a regional or 
a federal basis because electricity markets are interconnected, 
but states have a legitimate role and the courts have been 
supporting that.
    Mr. Tonko. Should the states give preference to reach 
environmental goals?
    Ms. Linde. Our view at PSEG is that it depends on the 
state. States, that is a local issue. Some states have 
renewable portfolio standards, others do not, and it is up to 
the constituents in those states to decide what they believe is 
most important. Ultimately, we have to do what is right for the 
customers and for our nation, and a state is going to respect 
what their customers and their citizens want.
    Mr. Tonko. I believe my time is up, so Mr. Chair, I yield 
back.
    Mr. Olson. The gentleman's time has expired. The chairman 
calls upon the gentleman from the Commonwealth of Virginia, Mr. 
Griffith, for 5 minutes.
    Mr. Griffith. Thank you very much. I appreciate the 
chairman from Texas recognizing Virginia and do appreciate 
being with you all. I apologize that I have been in another 
committee hearing for part of the time, so I apologize in 
advance if I go over some previous territory.
    I will say based on the opening statements and so forth 
that I recognize that we need fuel diversity, but I also 
recognize that I have some differing opinions with some of the 
members of the panel because while market forces certainly have 
played a role, the regulatory scheme in relationship to whether 
or not a utility continues to use an existing, or what was then 
an existing, coal-fired power plant has clearly been affected 
by regulation as well.
    And some of those, because of the cost to their ratepayers, 
would have continued to use some of those coal-fired power 
plants for some time in the future if--and I believe it will be 
a low-cost natural gas supply for a number of years in the 
future--as they went to replace those facilities they would 
have replaced them probably with some mixture including a 
higher amount of natural gas, but it was artificially moved 
forward, in my opinion, by regulation. So I do disagree there.
    I do think though that we should let the market work it 
out, trying to keep a diversity including coal because coal 
still accounts for 30 percent of our power source and that if 
we eliminated subsidies in the marketplace for all of the 
different potentials that coal would be in a much better 
position to play a role in that marketplace.
    OK, so I got all that off my chest and I do believe that 
coal is going to need to be important when we look at high 
usage periods, because you may be able to build a lot of 
pipelines but you can't build enough pipelines to handle all 
the aspects of a polar vortex. And yet you can put coal in the 
back 40 and have it there ready to go in cases of emergency and 
when things don't work out quite the way, which is why in the 
eastern part of Virginia they just allowed two coal-fired power 
plants to fire back up because they haven't gotten the other 
supply there yet and they have got a transmission problem, so 
we are going to have to go back to coal in a place where it had 
already been eliminated.
    So that being said, let me move on. I am going to call you 
Senator Reasor because that is how I knew you originally. It is 
good to see you. We talked earlier today. But Mr. Reasor and I, 
Senator Reasor and I served at one point in time in our past in 
the Virginia legislature, he in the Senate and I in the House. 
It is good to have you here today.
    Having missed some of it, I have got a question for you but 
I am also going to give you an opportunity right now, is there 
anything that you haven't had an opportunity to speak on that 
you desire to speak on here today?
    Mr. Reasor. I think I am good, Congressman.
    Mr. Griffith. All right.
    Mr. Reasor. I appreciate the opportunity.
    Mr. Griffith. All right, so my question deals with 
procuring capacity is necessary for a healthy wholesale market. 
As a PJM member, I understand you may be unable to self-supply 
the capacity that is required. Is this true and how would you 
resolve the situation? And I am really curious how the self-
supply issue got turned on its head. But you can talk about 
that some more.
    Mr. Reasor. Thank you, Congressman, for the opportunity and 
you are exactly right. And I would go back to basically just 
saying this. PJM under their original structure did allow 
utilities like us who are load serving entities to have the 
opportunity to first look to our self-supply, and then if there 
was not enough capacity within PJM they would obtain that 
capacity and we would pay those costs as members of PJM. That 
worked fine. We liked that situation, we thought it worked 
well.
    We are not sure--well, we have some ideas as to why the 
changes were made because other parties and participants within 
PJM saw the markets differently and wanted to kind of move the 
system around a little bit and so they convinced PJM that they 
should maybe do away with the idea of looking first to self-
supply, but look first to the capacity markets that PJM 
instituted.
    Now I will say that after a period of time we were able to 
reach a compromise and they made some exceptions to that rule 
that did allow us to look first to our self-supply and as long 
as that was in place that worked, but the courts have now said 
that may not be exactly because of a FERC ruling the way it 
will be allowed, so we are a little concerned about the future.
    Mr. Griffith. And would I be correct, and I am going to 
need a yes or no on this one because I am running out of time, 
but would I be correct if that makes it more difficult for you 
all to look for, say, investments in the coal fields where you 
might put a closed-loop hydro project inside of a coal mine 
that policy makes it more difficult for you to even consider 
that, doesn't it?
    Mr. Reasor. It makes it more difficult for future planning 
and long-term planning and a facility like that would have to 
fit that category.
    Mr. Griffith. I appreciate it.
    Ms. McAlister, real quick. Public power utilities like the 
city of Salem and the town of Richlands are governed by their 
city councils. How is the role of these elected officials and 
local decision making respected within the capacity construct, 
and you have got 10 seconds. Oh, you can get a little more, got 
a little more.
    Ms. McAlister. Thank you. I don't think it is in 
particular, because the construct as we have talked about was 
designed to do least-cost dispatch and it is not conducive with 
local decision making.
    Mr. Griffith. I appreciate that.
    And thank you for the extra time, Mr. Chairman, I yield 
back.
    Mr. Olson. The gentleman's time has expired. The chair 
calls upon the gentleman from Ohio, Mr. Johnson, for 5 minutes.
    Mr. Johnson. Well, thank you, Mr. Chairman.
    And Ms. McAlister, thank you for being here today. As a 
public power producer owning generating units throughout my 
home state of Ohio and a few hydro sources as well along the 
Ohio River adjacent to my district, I have appreciated your 
thoughts and insights today.
    In your testimony you state that we must not lose sight of 
improving our current price formation processes regarding 
transparency of operator decisions, modeling, all known 
constraints, and more accurate price formation rules during 
periods of transmission congestion and volatile fuel prices. 
Can you elaborate just a little bit and explain what modeling 
all known constraints might entail?
    Ms. McAlister. Thank you, Congressman Johnson. What we are 
really getting at there is that there actions that can be taken 
on the energy market and we have focused today on the capacity 
construct that we think needs a lot of work, but there is also 
work to be done on the energy market side of it. And FERC has 
been taking proactive actions to improve price formation 
through a series of technical conferences and we are very 
supportive of those actions and think that there is still more 
to be done as far as modeling and ensuring that during times of 
constraints we are getting the best least-cost energy.
    Mr. Johnson. OK, all right. You talked about churning of 
RTO rules. How frequent are these rules changed and what is the 
impact of this churning that you describe?
    Ms. McAlister. Well, since 2010, in PJM there have been 27 
significant changes that were filed at FERC that fundamentally 
have changed the nature of PJM's capacity construct. And the 
effect of those is that the construct has become increasingly 
complex and it also doesn't ensure transparent or stable prices 
and it makes long-term planning very difficult.
    So we think that it is time to acknowledge the capacity 
construct as designed might not be cutting it and we need to go 
back and do a comprehensive evaluation of whether we need to 
change.
    Mr. Johnson. OK, all right. Thank you, one more. You also 
mentioned in your testimony that ``new energy products must 
also incentivize the retention of sufficient nonvariable 
resources to ensure load continues to be served at all times.'' 
Can you elaborate on this? What would that entail?
    Ms. McAlister. Well, what we were talking about there is in 
PJM with the recent capacity performance changes the definition 
of what a capacity resource changed and in order to qualify as 
a capacity resource you have to be available 24/7/365. And what 
that does is it negatively impacts intermittent and renewable 
resources.
    And so one idea that we have is through bilateral 
contracting it would value those resources on par with some of 
the other resources that do meet the capacity performance 
definition.
    Mr. Johnson. Let me make sure I understood this. So you 
would say that alternative sources that are not necessarily 
available 24/7/365 would be evaluated on the same basis as 
other sources, or is it the opposite of that?
    Ms. McAlister. No, no. Well, I think what we would do is if 
you allow bilateral contracting to have broader use then those 
customers that value those attributes pay what they think it is 
worth. And then the other resources, for example, coal, the 
customers that value coal resources would pay through bilateral 
contracts the value of what they see coal being worth.
    Not exactly on par, I mean they have different values. Some 
can't, if the wind isn't blowing it doesn't operate. So I am 
not saying that they are equivalent as resources, just that 
they should be allowed to be valued by the customers who want 
those particular attributes.
    Mr. Johnson. OK, all right.
    Mr. Glenn, you mentioned most permitting regulations do not 
impose a timeframe for agency action. Can you elaborate on the 
reasonable shot clock for decisions that you mentioned in a 
project delay your company is facing?
    Mr. Glenn. Thank you. To give you a little context, we had 
a hydro----
    Mr. Johnson. You have about 25 seconds.
    Mr. Glenn. We had a hydro relicensing matter. It started, 
we filed our application 2 years before the license was to be 
issued pursuant to the law. That was in 2005, I believe. 9 
years later we receive that permit, so to me that is not a 
reasonable shot clock. It has to be something less than that 
and obviously it is a balance. But we need to have some type of 
deadlines imposed.
    Mr. Johnson. OK. All right, well, thank you.
    Mr. Chairman, I yield back.
    Mr. Walberg [presiding]. I thank the gentleman and now I am 
pleased to recognize the fully repaired and recuperating 
gentleman from Missouri, a man we respect and glad to have you 
back with us, Mr. Long.
    Mr. Long. Thank you, Mr. Chairman.
    And Mr. Glenn, you state in your testimony that the 
original principles and the needs-based application of PURPA 
have been overtaken by dramatic advances in the energy 
marketplace and many of the requirements of PURPA are 
unnecessary. Can you expand on why market changes have made 
much of PURPA unnecessary?
    Mr. Glenn. Yes. I would use North Carolina as a good 
example of this, so when we look at 7 years ago, North Carolina 
had----
    Mr. Long. You might want to stay on your mic. I know you 
can't see me through them, but it is fine. You are not missing 
much.
    Mr. Glenn. So 7 years ago we had 20 megawatts of solar 
capacity in North Carolina. Today we have 2,000 megawatts and 
it is largely due to PURPA-mandated contracts that we have to 
take and pay for those contracts even though we may not need 
those resources. We have another 5,000 megawatts in the queue.
    To put that in perspective, that covers roughly three-
quarters to almost the entire square footage of Washington, 
D.C. with solar panels and that comes at a cost to our 
customers. And we currently believe right now that contracts 
that we signed not 2 or 3 years ago are out of money and will 
be over the 10 to 15 years by about a billion dollars. That is 
a billion dollars that our customers are going to pay more than 
they otherwise would have.
    Mr. Long. So that kind of explains my next question, how 
you tell these experience and operational challenges due to 
PURPA, correct?
    Mr. Glenn. The operational challenges are significant and 
they are becoming more and more significant because there are 
no ground rules on where those utilities are placed. It placed 
it where the cheapest land may be and so our system wasn't 
designed to handle a significant concentration, for example, of 
PURPA solar contracts in one area of our state. That is 
starting to have operational impacts on the way our system can 
handle that type of influx that comes online just like that and 
goes away with cloud cover or a thunderstorm just like that.
    Mr. Long. What are some of the recommendations for updating 
PURPA to reflect the changing marketplace you have?
    Mr. Glenn. I think any updates to PURPA should be guided 
by, really, two principles and that is affordability to 
customers and reliability to the grid. And I think within that 
there are ways in which I think PURPA could be amended that 
will get at and really be a benefit to all of our customers.
    Mr. Long. OK. You also highlight the need to address 
workforce readiness giving the changing industry and new 
investments and grid modernization. Can you discuss Duke 
Energy's efforts to close this workforce skills gap?
    Mr. Glenn. Yes. Right now we have roughly 30 percent of our 
employee base is retirement-eligible and so we are going to 
need to replace that workforce and with the grid modernization 
investments that we are making that is going to require a whole 
new cadre of employees to come online.
    So what we are doing in our various states in which we 
operate is working with community colleges, working with 
technical schools, and working with universities to turn out 
more relay technicians, more qualified people who can do this 
type of work, more engineers.
    So this is, for example, in North Carolina alone, this is 
going to be a jobs driver of our $13 billion investments just 
in that state alone, about 14,000 jobs a year. And those are 
good wage, good quality jobs. And so we are working with the 
university systems all throughout and the high school systems 
to get a qualified good workforce who live and work in those 
communities.
    Mr. Long. And so it is kind of a double whammy. You are 
losing 30 percent, 30 percent of your people are retirement-
eligible and you are going to add a whole new section to your 
company.
    Mr. Glenn. So we have got to replenish the old and we have 
got to infuse it with new employees as well.
    Mr. Long. And I appreciate your use of community colleges 
and such. I know they are very successful in my area. But what 
can you do to ensure workforce training programs reflect the 
changing industry needs?
    Mr. Glenn. I think we have got to work hand in hand with 
our school systems, K-12 as well as high school as well as our 
community colleges in developing curriculums. And that is what 
we are doing, actually, in a lot of these community colleges is 
we develop curriculums. We find professors, so to speak, and we 
will donate money and resources, transformers, for example, 
that they can work on. So it needs to be hand in glove with, it 
is really a public-private partnership.
    Mr. Long. OK, thank you.
    And I am out of time, Mr. Chairman. I yield back.
    Mr. Walberg. I thank the gentleman and I recognize myself 
for my 5 minutes of questioning now.
    I certainly appreciate the hearing, the context of the 
hearing today, and I would like to thank the panelists for what 
you brought to the table, literally, for us this morning. 
Yesterday evening I saw a white paper by former FERC 
Commissioner Tony Clark that called for the reform of the 
outdated Public Utilities Regulatory Policies Act of 1978, 
otherwise known as PURPA, and I appreciate the gentleman from 
Missouri's questions on PURPA. It is an important issue I think 
we need to discuss today. I don't believe this committee has 
taken a comprehensive look at this policy since 2005, and I am 
very concerned about the negative impacts this law is having on 
Michigan ratepayers, my own included, and potentially on grid 
reliability.
    Mr. Glenn, I appreciated your comments on PURPA and have a 
few questions for you as well. You stated in your testimony 
that PURPA's mandatory purchase obligation is directly 
increasing electricity prices for customers. Would you please 
elaborate further on this?
    Mr. Glenn. Yes. As I responded to Congressman Long from 
Missouri, we are seeing in North Carolina alone about a billion 
dollar increase above what our customers otherwise would pay.
    Mr. Walberg. A billion.
    Mr. Glenn. A billion. And that is just in 2,000 megawatts 
of contracts that have been signed to date. There is another 
5,000 megawatts of these contracts that are in the queue that 
have not yet been built or signed. So this we see as a growing 
issue and that is just one state in which we operate in.
    Mr. Walberg. What are some other impacts PURPA mandatory 
purchase obligation is having on utilities' ability to plan and 
deliver the lowest cost, reliable energy to America's 
electricity customers?
    Mr. Glenn. What we are seeing now is an increase in what we 
believe we will continue to see in the future are some 
reliability issues. For example, next year we project with all 
of the PURPA contracts that are coming online in North 
Carolina, for example, that we are going to have to dump power 
generated by some of our nuclear plants to other consumers of 
power or we are going to have to ramp down a nuclear plant. And 
a nuclear plant is not made----
    Mr. Walberg. To ramp down.
    Mr. Glenn [continuing]. To cycle and to ramp-run. And so 
those are significant reliability issues and a nuclear plant is 
our lowest cost operating plant for our customers.
    Mr. Walberg. And this is because of outdated PURPA rules 
and standards?
    Mr. Glenn. That is correct.
    Mr. Walberg. Are traditional baseload resources such as 
nuclear energy that can operate 24/7 as you mentioned being 
undermined in any other ways? This is important to me. We have 
Fermi in my districts. We have Fermi 3 licensing already in 
place, a lot of uncertainty how we move forward.
    Mr. Glenn. And it places, you know, the dispatch ability of 
a nuclear plant that is a baseload that runs 24/7. So that has 
an adverse impact on our long-term ability to plan in how do we 
use and operate and maintain those resources.
    Reliability and affordability and increasingly clean energy 
will always be our mission at our company and we will not 
compromise that at all. But we have to go in with open eyes at 
PURPA and really look at the facts and see what can be changed 
for the benefit of our customers.
    Mr. Walberg. Along that line then let me ask you, I have 
heard that developers are taking advantage of PURPA to force 
you utilities to purchase increasing amounts of electricity 
from them more so than originally required by law, more 
specifically, the one-mile rule. Could you explain this and the 
impacts it is having on the utility industry, the one-mile 
rule?
    Mr. Glenn. The one-mile rule what we are seeing is 
developers in some of their projects are gaming the system 
where you can place your systems just beyond one mile of each 
other to get under the PURPA requirements. So I think it would 
be well served for the committee to just review on a fact basis 
what does this look like and how might it be addressed in the 
future so that customers aren't paying more than they should 
otherwise.
    Mr. Walberg. So the one-mile rule they are splitting up 
multiple parts of their grid responsibilities and capabilities 
to game the system?
    Mr. Glenn. That is what it appears to be.
    Mr. Walberg. Appears to be, yes. OK. Well, I appreciate 
that information. I would also, in lieu of the fact we are 
waiting for--well, I would certainly yield to my friend from my 
own home district where I grew up in for additional questions.
    Mr. Rush. I want to thank you, Mr. Chairman.
    Mr. Glenn, you said something that really kind of piqued my 
interest. Not that you said, but it is one thing. You were 
describing your job development approach at Duke Energy. Can 
you expound on that a little bit more and is that an approach 
that is shared by the industry in terms of utility companies, 
your approach in terms of job creation? I thought it was pretty 
invigorating.
    Mr. Glenn. It is something that we have shared among our 
utility colleagues, but it is something that we have focused on 
in the last, particularly in the last 10 years as we have seen 
our workforce and the demographics of our workforce.
    What we are also doing is, because we are in seven states 
in which we are vertically integrated electric utilities, our 
folks live and work and play and coach Little League in those 
communities and we want to represent and we want to be those 
communities and represent who they are and so that dictates how 
we hire as well.
    And so we are very proud of the fact that we are--and our 
last, 13 percent of our last new hires have been veterans, for 
example, and 30 percent have been women. In a traditionally 
male-oriented industry, 30 percent of new hires is a phenomenal 
accomplishment, 31 percent minorities of all of our new hires 
through June of this year.
    So we are taking a global approach not only K-12 and then 
in our community colleges with certain skill sectors, but we 
are making a concerted effort to try to broaden our pool of 
candidates who are coming in. And I think it helps that the 
energy industry right now is an incredibly dynamic and exciting 
place to be.
    You know, maybe not everybody might think that but we hire 
people for careers and not jobs and then so that I think helps 
as well, so we are very proud of that fact.
    Mr. Rush. I certainly want to commend you and do for this 
approach and I think that this approach probably should be 
duplicated across the industry. Thank you.
    Thank you, Mr. Chairman.
    Mr. Walberg. Reclaiming my time and I thank you. I thank 
the gentleman, and those are good points. These are good jobs 
we are talking about and they are worth affronting and getting 
people to understand that.
    Now I am pleased to recognize the gentleman from 
Pennsylvania, the subcommittee chairman where I spent part of 
my morning, I am glad that you have made it back here. I 
recognize you, Mr. Murphy, for 5 minutes.
    Mr. Murphy. Thank you. Thank you, Mr. Chairman. I thank the 
panel and indulge me if I ask for some things you already 
answered. I have spent the last few hours delving into 
prescription drug costs and several organizations so we have to 
multitask and make these quantum leaps in our actions.
    But I do want to ask about some jurisdictional boundaries. 
I was previously a state senator and so I am aware of a lot of 
things on those issues and also the wholesale and retail 
markets. But let's look at, do you think states and federal 
regulators are even on the same page sometimes, or are there 
some problems that occur when it comes to jurisdictional 
issues? Can anybody answer that for me, anybody have concerns?
    Mr. Kelliher. I am happy to start.
    Mr. Murphy. Thank you, Mr. Kelliher.
    Mr. Kelliher. There is always some level of tension between 
federal and state electricity regulators and part from the 
structure of the industry and what the states and federal 
governments are regulating. It is different than, say, in the 
natural gas business where producers are not really regulated, 
the local gas utilities are regulated only by the states and 
then the pipelines are regulated only by FERC.
    In the electric industry you have a lot of vertical 
integration and parts of a vertical integrated utility's 
activities are regulated by the state, parts are regulated by 
FERC, and then the line is not clear. It is the point where 
there have been three Supreme Court decisions in the last 2 
years trying to mark the line.
    And this is, the core acts have been enacted in 1935, so 
since 1935 there is still not perfect clarity on the 
jurisdictional lines between the federal and state to the point 
where the Supreme Court had to parse through that three times.
    Mr. Murphy. Do they share the same goals or are they 
different kind of goals when it even comes to such things as 
providing assistance to economically struggle generation, 
generating units? Do they have the same goals, federal, state?
    Mr. Kelliher. They have different legal duties. I mean FERC 
regulates the wholesale power markets and its basic duty is to 
assure that prices are just and reasonable. Well, what does 
that mean? It means they have to be high enough to support 
continued investment in the generation that is needed to meet 
customers' needs but not so high that they reflect market power 
abuse.
    But sometimes it can mean high prices. When natural gas 
prices were high, wholesale power prices were high. Those 
wholesale power prices weren't bad because they were driven by 
high natural gas prices. So the price can be high and still 
just and reasonable, whereas the state utility it is charged 
with retail rates and in some cases states have maintained 
vertically integrated utilities. So you go through the classic 
cost of service regulation and what costs are prudent and not 
prudent.
    In other cases, states have broken up their utilities and 
required them to divest so the utility is a pure wires entity 
and they are buying power, typically relying on some kind of 
RTO market and the state role there is different. The 
vertically integrated state role, they are involved in resource 
adequacy and what is the supply mix of each regulated utility.
    A state role in a competitive market is different. It is, 
is there enough megawatts, is there enough capacity to meet 
their needs? So sometimes those duties clash, but I think many 
times they don't.
    Mr. Murphy. Does anybody else want to weigh in on that 
issue? Yes, Ms. Linde?
    Ms. Linde. I agree with the description that Mr. Kelliher 
provided about the legal structure, but to respond to your 
question about are their goals the same, I think the 
fundamental goals, from my experience, have been the same. The 
regulators that I deal with at the state level, and I have been 
at PSEG for 27 years so I have dealt with a lot of different 
regulators at the state level and at the federal level, their 
fundamental goal is to make sure that the power is there when 
needed and it is a reasonable price. That is a very commonly 
shared goal among state regulators and federal regulators.
    How to address different policy initiatives, sometimes 
there is a difference because there is a difference in timing 
on when the state has a particular initiative. We have seen a 
lot of states develop renewable portfolio standards to 
encourage development of renewables, and now we are seeing some 
states like New York and Illinois and some others take action 
to preserve baseload generating units.
    The dialogue is occurring at the federal level and there is 
a dialogue about what is causing that premature retirement of 
baseload. PSEG believes that it is driven by a market flaw. And 
that dialogue needs to continue to occur because right now we 
have the federally regulated market that is not valuing fuel 
diversity and that lack of recognition of fuel diversity is 
causing a premature retirement of nuclear and some other 
baseload units and states reacting much more quickly in some 
cases as a bridge until the federal government and the federal 
regulators can solve that problem. So sometimes there are 
timing differences.
    Mr. Murphy. I appreciate that.
    Mr. Chairman, I reflect back on some of the fuel crises and 
energy crises we had in the 1970s and we were going to make all 
these great changes to the markets and we tried them for a 
while and then dropped them suddenly.
    So the issue of diversity is incredibly important because 
the sun sets, the wind dies. We lose coal plants. We can go for 
a surge for a while with natural gas and then we see prices go 
up in that and then companies say, OK, we have to raise the 
price now, but we also need natural gas to export for chemicals 
and lots of other things there.
    So diversity is the way to go then to make the market more 
competitive, so thank you very much, Mr. Chairman.
    Mr. Walberg. I thank the gentleman. Seeing there are no 
further members wishing to ask questions, I would like to thank 
our witnesses again for being here today and going through this 
process. You are very helpful to us.
    Pursuant to committee rules, I remind members that they 
have 10 business days to submit additional questions for the 
record, and I ask that witnesses submit their response within 
10 business days upon receipt of the questions.
    Without objection, the subcommittee stands adjourned.
    [Whereupon, at 12:37 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
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