[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE CHU MEMORANDUM:
DIRECTIVES COULD INCREASE
ELECTRICITY COSTS FOR
OVER 40 MILLION FAMILIES
AND SMALL BUSINESSES
=======================================================================
OVERSIGHT HEARING
before the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
Tuesday, September 11, 2012
__________
Serial No. 112-128
__________
Printed for the use of the Committee on Natural Resources
Available via the World Wide Web: http://www.fdsys.gov
or
Committee address: http://naturalresources.house.gov
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COMMITTEE ON NATURAL RESOURCES
DOC HASTINGS, WA, Chairman
EDWARD J. MARKEY, MA, Ranking Democratic Member
Don Young, AK Dale E. Kildee, MI
John J. Duncan, Jr., TN Peter A. DeFazio, OR
Louie Gohmert, TX Eni F.H. Faleomavaega, AS
Rob Bishop, UT Frank Pallone, Jr., NJ
Doug Lamborn, CO Grace F. Napolitano, CA
Robert J. Wittman, VA Rush D. Holt, NJ
Paul C. Broun, GA Raul M. Grijalva, AZ
John Fleming, LA Madeleine Z. Bordallo, GU
Mike Coffman, CO Jim Costa, CA
Tom McClintock, CA Dan Boren, OK
Glenn Thompson, PA Gregorio Kilili Camacho Sablan,
Jeff Denham, CA CNMI
Dan Benishek, MI Martin Heinrich, NM
David Rivera, FL Ben Ray Lujan, NM
Jeff Duncan, SC Betty Sutton, OH
Scott R. Tipton, CO Niki Tsongas, MA
Paul A. Gosar, AZ Pedro R. Pierluisi, PR
Raul R. Labrador, ID John Garamendi, CA
Kristi L. Noem, SD Colleen W. Hanabusa, HI
Steve Southerland II, FL Paul Tonko, NY
Bill Flores, TX Vacancy
Andy Harris, MD
Jeffrey M. Landry, LA
Jon Runyan, NJ
Bill Johnson, OH
Mark Amodei, NV
Todd Young, Chief of Staff
Lisa Pittman, Chief Counsel
Jeffrey Duncan, Democratic Staff Director
David Watkins, Democratic Chief Counsel
------
CONTENTS
----------
Page
Hearing held on Tuesday, September 11, 2012...................... 1
Statement of Members:
Hastings, Hon. Doc, a Representative in Congress from the
State of Washington........................................ 2
Prepared statement of.................................... 3
Markey, Hon. Edward J., a Representative in Congress from the
Commonwealth of Massachusetts.............................. 4
Prepared statement of.................................... 6
Statement of Witnesses:
Anderson, Ed, General Manager, South Dakota Rural Electric
Association, Inc., Pierre, South Dakota, Statement
submitted for the record................................... 56
Azar, Lauren, Senior Policy Advisor to Energy Secretary
Steven Chu, U.S. Department of Energy, Washington, D.C..... 23
Prepared statement of.................................... 25
Baak, Jim, Director of Policy for Utility-Scale Solar, The
Vote Solar Initiative, San Francisco, California........... 28
Prepared statement of.................................... 29
Bladow, Joel, Senior Vice President, Transmission, Tri-State
Generation and Transmission Association, Inc., Westminster,
Colorado................................................... 36
Prepared statement of.................................... 37
Corwin, R. Scott, Executive Director, Public Power Council,
Portland, Oregon........................................... 19
Prepared statement of.................................... 20
Crisson, Mark, President and CEO, American Public Power
Association (APPA), Washington, D.C........................ 7
Prepared statement of.................................... 8
Palmerton, W. Kent, General Manager, Power and Water
Resources Pooling Authority, Carmichael, California........ 32
Prepared statement of.................................... 33
OVERSIGHT HEARING ON ``THE CHU MEMORANDUM: DIRECTIVES COULD INCREASE
ELECTRICITY COSTS FOR OVER 40 MILLION FAMILIES AND SMALL BUSINESSES.''
----------
Tuesday, September 11, 2012
U.S. House of Representatives
Committee on Natural Resources
Washington, D.C.
----------
The Committee met, pursuant to notice, at 10:05 a.m., in
Room 1324, Longworth House Office Building, Hon. Doc Hastings
[Chairman of the Committee] presiding.
Present: Representatives Hastings, Duncan of Tennessee,
Gohmert, Lamborn, Coffman, McClintock, Thompson, Tipton, Gosar,
Labrador, Noem; Markey, Kildee, Holt, Costa, and Tsongas.
The Chairman. The Committee on Natural Resources will come
to order, and the Chair notes the presence of a quorum, which,
under Committee Rule 3(e) is 2 Members, and we have exceeded
that.
The Committee on Natural Resources today meets to hear
testimony on ``The Chu Memorandum: Directives Could Increase
Electricity Costs for Over 40 Million Families and Small
Businesses.''
We have a distinguished panel that we will hear from later
on. We have Mr. Mark Crisson, President and CEO of the American
Public Power Association; Mr. Scott Corwin, who is the
Executive Director of the Public Power Council out of Portland,
Oregon; Ms. Lauren Azar, Senior Policy Advisor to Energy
Secretary Steven Chu, from the U.S. Department of Energy; Mr.
Jim Baak, who is Director of Policy for Utility-Scale Solar,
The Vote Solar Initiative out of San Francisco; Mr. Kent
Palmerton, General Manager of the Power and Water Resources
Pooling Authority, also out of California, in Carmichael; and
Mr. Joel Bladow, Senior Vice President of Transmission of the
Tri-State Generation and Transmission Association, out of
Westminster, Colorado.
And I note that we had another panelist, Mr. Ed Anderson,
who is a manager of the South Dakota Rural Electric
Association. But unfortunately, there was a flight problem, and
he could not make the hearing today. However, at the
appropriate time, his full testimony will appear in the record.
Under Committee Rules, opening statements are confined to
the Chairman and Ranking Member. However, I ask unanimous
consent that if any Member wishes to have a statement, it be
given to the Committee prior to the close of business today.
I will now recognize myself for 5 minutes.
STATEMENT OF THE HON. DOC HASTINGS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WASHINGTON
The Chairman. Today's hearing is the second examination of
potentially significant electricity rate increases on 40
million consumers due to Washington, D.C. directives. These
mandates, as proposed by Obama Administration and Energy
Secretary Chu without a clear legal authority, in my view,
could dramatically change and undermine the collaborative and
low-cost, emissions-free nature of the Federal power program.
Five months ago we heard that the Administration's
directives were a ``solution in search of a problem,'' and that
nothing was broken. In fact, we heard that those in the Pacific
Northwest and others receiving hydropower from dams and
reservoirs are working well on a collaborative level to resolve
grid reliability concerns and to integrate more non-
intermittent energies.
At the hearing, I asked why family farmers in my rural
district in Central Washington should be forced to pay higher
electricity bills so people in downtown Seattle can plug in
expensive electric vehicles just because the Secretary says so.
I never got an answer to that question. So I subsequently
joined with 18 of my Pacific Northwest colleagues from both
sides of the aisle in a letter to reaffirm that concern and
other concerns.
But because it appeared these bipartisan concerns were
falling on deaf ears, the full House adopted, through the
appropriations process, a bipartisan Appropriations Committee
provision to prohibit funding for any new activities outlined
in the Chu memo. Shortly after that, 166 bipartisan House and
Senate Members sent a letter with their concerns that this was
a top-down effort, and urged the Secretary to engage in a
``meaningful collaboration with stakeholders, including rate
payers and Congress prior to moving forward with these new
initiatives.'' That was a direct quote.
These actions should have sent a message to the Obama
Administration and Secretary Chu that they need to work with
rate payers most impacted by the memorandum, and that they may
have gone a bit too far with the memoranda. But apparently, the
message has not been received.
We will hear testimony today that DOE's workshops to gather
input were superficial and disorganized. The American Public
Power Association and National Rural Electric Cooperative
Association, two national utility organizations representing
consumers impacted by these directives, questioned whether DOE
was genuinely seeking customer input.
Senator Max Baucus of Montana, in a letter he sent a few
weeks ago, asked for concrete examples where Montana ratepayers
will not pay for something in which they do not benefit. To my
knowledge, he has not received a concrete example. Instead, the
Secretary's staff is determined to impose its will on the
Western Area Power Association, or WAPA, by its own arbitrary
set deadline of the end of the year.
I commend and support Senator Baucus for his efforts to
delay implementation of the Administration's Chu directive
until at least early next year. But I have to say the evidence
to me is irrefutably clear that the better approach would be
for the Secretary to pull the plug entirely on this misguided
effort.
The Secretary needs to scrap this effort, start over, and
work with all involved in forming a policy based on need and
transparency. That is why I introduced my hydropower protection
and promotion legislation, H.R. 6247, which includes a
provision to that end.
I fear this Administration is roaring downhill on a freight
train to a pre-determined conclusion. Secretary Chu issued this
Memorandum. It is, after all, signed by him and is in his name,
which is why he was personally invited to testify today.
Unfortunately, he turned down that request one more time.
With Americans already struggling to fill their tanks due
to the rising gas prices, the last thing they need is to pay
more every time they flip on the light switch. The Secretary
needs to personally explain to this Committee why he and this
Administration are experimenting with various energy schemes
and mandates. At a crucial economic time, raising home energy
prices defies logic. Yet that is what the Administration's
proposals would do, according to many of our distinguished
witnesses before us today. The only thing this Secretary seems
to be generating in this effort is unanswered questions and a
great deal of uncertainty. I think the American people deserve
better.
[The prepared statement of Mr. Hastings follows:]
Statement of The Honorable Doc Hastings, Chairman,
Committee on Natural Resources
Today's hearing is the second examination of potentially
significant electricity rate increases on 40 million consumers due to
Washington, DC directives. These mandates, as proposed by the Obama
Administration and Energy Secretary Chu without any clear legal
authority, could dramatically change and undermine the collaborative
and low-cost, emissions-free nature of the federal power program.
This Committee heard five months ago that the Administration's
directives were a ``solution in search of a problem'' and that nothing
was broken. In fact, we heard that those in the Pacific Northwest and
others receiving hydropower from our dams and reservoirs are working
well on a collaborative level to resolve grid reliability concerns and
to integrate more non-intermittent energies. I joined with 18 of my
Pacific Northwest colleagues from both sides of the aisle to reflect
many of those concerns. At the time, I asked why family farmers in my
rural district should be forced to pay higher electricity bills so
people in downtown Seattle can plug in expensive electric vehicles just
because Secretary Chu says so. I never got an answer.
Because it appeared these bipartisan concerns were falling on deaf
ears, the full House adopted a bipartisan Appropriations Committee
provision to prohibit funding for any new activities outlined in the
Chu Memorandum. Shortly after, 166 House Members and Senators sent a
bipartisan letter with their concerns that this was a ``top-down''
effort and urged the Secretary to engage in a ``meaningful
collaboration with stakeholders, including ratepayers and Congress,
prior to moving forward with these new initiatives.'' That's very
telling in this political atmosphere.
With these actions, the Obama Administration and the Energy
Secretary, in particular, should have heard loud and clear the messages
that they needed to work with those ratepayers most impacted by the
Memorandum and that maybe they had gone too far. By most accounts, the
Administration, the Secretary and his people failed.
We will hear testimony today that the Department of Energy's
workshops to gather input were ``superficial'' and ``disorganized''. In
fact, the American Public Power Association will testify that they
question whether DOE is ``genuinely seeking customer input'' and the
National Rural Electric Cooperative Association has recently stated
that ``the reasons for the initiative have not been made clear and
appear to be continually evolving''. These charges are troubling and
significant since they all come from those representing consumers who
could be saddled with the bills stemming from these directives.
Senator Max Baucus, in a letter he sent a few weeks ago to the
Secretary, appropriately asked for concrete examples where Montana
ratepayers will not pay for something in which they do not benefit. To
my knowledge, he has not received an example. Instead, the Secretary's
staff is emphatic about imposing its will on the Western Area Power
Administration by its own arbitrarily-set deadline of the end of the
year. Senator Baucus spoke for many in pointing out the Department's
rush to judgment when he asked for a delay until at least early next
year.
I commend Senator Baucus for his efforts to delay implementation of
the Administration's Chu directives, and I support him, but the
evidence is irrefutably clear that the better approach would be for the
Secretary to pull the plug on this misguided effort. It's troubling to
think that DOE's efforts with one PMA will become a blueprint for the
other PMAs, including the Bonneville Power Administration.
The Secretary needs to scrap this effort, start over and work with
customers and us in forming a policy based on need and transparency.
That's why, following the Appropriations' Committee's actions earlier
this year, my hydropower protection and promotion legislation, H.R.
6247, includes a provision to that end.
But, I fear that this Administration is on a roaring freight train
to a pre-determined conclusion. Secretary Chu issued this Memorandum--
it is, after all, signed by him and is in his name--which is why he was
personally invited to testify today about its potential to drive up
electricity costs. Unfortunately, he turned down our request once
again.
When Americans are already struggling to fill up their tanks due to
the rising price of gasoline, which has doubled under this
Administration's watch, the last thing they need is to pay more every
time they flip on the light switch. The Secretary needs to personally
explain why he and his Administration are experimenting with various
energy schemes and mandates. He also needs to work with this Committee
to come up and explain for himself and his Department in person.
At a crucial economic time, raising home energy prices defies logic
yet that is what the Administration's proposals would do according to
many of our distinguished witnesses before us today. The only thing
this Secretary seems to be generating in this effort is unanswered
questions and fear. The American people deserve better.
______
The Chairman. And with that, I will recognize the
distinguished Ranking Member, Mr. Markey.
STATEMENT OF THE HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS
Mr. Markey. Thank you, Mr. Chairman, very much. This March
Secretary Chu issued a memo to the Power Marketing
Administrations under his jurisdiction. In that memo he
outlined opportunities to modernize the grid that would also
reduce costs to consumers.
As it turns out, Secretary Chu is a pretty smart guy. The
Republicans these days are predictable. Secretary Chu knew the
Republicans would call a bunch of hearings on his memo and try
to mischaracterize it. So he said, right up top, in the second
sentence of his memo, ``Taking greater advantage of energy
efficiency, demand resources, and clean energy, while at the
same time reducing cost to consumers, requires a transition to
a more flexible and resilient electric grid, and much greater
coordination among system operators.''
We are here today talking about this memo because some
people doubt that part about reducing cost to consumers. So
let's break it down. Let's see what people are afraid of. Let's
do the arithmetic.
Energy efficiency--that is all about using less.
Eliminating waste--that reduces costs. Demand response--that
means lowering electricity demand at peak times. You need to
build fewer new power plants. That reduces the costs. Wire
transmission planning, better control systems, more frequent
scheduling. The competition and increased efficiency these
upgrades bring more than pay for the up-front investments. And
renewable energy, new wind power is being contracted for 3
cents per kilowatt hour right now in the Western Area Power
Authority service territory.
But never mind that. The Chu memo has nothing to do with
electricity generation, nothing. Hear that again? The Chu memo
has nothing to do with electricity generation. Power Marketing
Administrations don't own renewable energy. Can you hear that
again? And they don't require anyone to purchase it. Can you
hear that again? Can you do the arithmetic here? Nothing plus
nothing equals nothing.
Should the grid be able to accommodate renewables?
Absolutely. There must be a level playing field. And since
renewable electricity is essentially free to operate--wind and
solar actually drive down the price of electricity in markets--
that reduces cost. So the arithmetic is getting pretty clear
here, huh? Nothing plus nothing plus nothing plus nothing plus
nothing--additional costs, plus the savings that you get is
good arithmetic. Good arithmetic, ultimately, for consumers.
If all the component parts potentially save money, then the
Chu initiative can save money. See, it is just arithmetic, very
simple to understand.
Today's hearing is part of the same anti-clean energy,
anti-progress agenda that Republicans have been pushing for the
last 21 months. They have made this Congress the most do-
nothing Congress in history. And now they are trying to shut
down Secretary Chu's grid modernization effort to make sure
this is the most do-nothing Department of Energy in history, as
well.
Today's hearing is just the anti-clean energy opening act
for the week. The main event is Friday, when Republicans roll
out their No More Solyndras Act on the House Floor. That
legislative monstrosity proclaims to end the Department of
Energy loan guarantee programs, but actually plays favorites
and allows $88 billion worth of coal and nuclear loan
guarantees to go forward. So the bill should really be called
the Only $88 Billion More for Coal and Nuclear No More
Solyndras Act of 2012.
Republicans actually have just two approaches to solving
any problem this Nation faces. First, privatize it. Social
Security, public lands, Medicare, privatize them. Second, if
they are already privatized, then Republicans want to repeal
any and all regulations related to it. Clean air, clean water?
Forget it, they say. The free market will figure it out. It is
radical. It is bad for most Americans. But at least it is
ideologically consistent.
In contrast, the Republicans' approach to the grid
resembles Chinese central planning from the 1970s. They want
the Federal Government to continue owning huge pieces of the
transmission system, and they oppose operating it in the most
modern, efficient manner possible. So, not only do Republicans
support a Socialist electricity system, they support a
backwards and inefficient Socialist electricity system, like it
was in the old Soviet Union or China. The Republicans have to
take bizarre positions for the sake of killing clean energy.
Here is the reality. The reforms in Secretary Chu's memo
are anything but radical. He is proposing proven, tested,
effective practices that are standard for any other large,
private grid operators in the United States. Let's just
modernize. That is our message. But, unfortunately, the
Republicans oppose it, because they want to keep the Socialist
system in place that doesn't, in fact, have to improve
anything.
I yield back the balance of my time.
[The prepared statement of Mr. Markey follows:]
Statement of The Honorable Edward J. Markey, Ranking Member,
Committee on Natural Resources
Thank you, Mr. Chairman.
This March, Secretary Chu issued a memo to the Power Marketing
Administrations under his jurisdiction. In that memo, he outlined
opportunities to modernize the grid that would also reduce costs to
consumers.
As it turns out, Secretary Chu is a pretty smart guy. And
Republicans these days are predictable. Secretary Chu knew the
Republicans would call a bunch of hearings on his memo and try to
mischaracterize it. So he said right up top, in the second sentence of
the memo:
``Taking greater advantage of energy efficiency, demand resources,
and clean energy--WHILE AT THE SAME TIME REDUCING COSTS TO CONSUMERS--
requires a transition to a more flexible and resilient electric grid
and much greater coordination among system operators.''
We're here today talking about this memo again because some people
doubt that part about REDUCING COSTS TO CONSUMERS. So let's break it
down. Let's see what people are afraid of. Let's do the arithmetic.
Energy efficiency: That's all about using less,
eliminating waste. That reduces costs.
Demand response: That means lowering electricity
demand at peak times. You need to build fewer new power plants.
That reduces costs.
Wider transmission planning, better control systems,
more frequent scheduling: The competition and increased
efficiency these upgrades bring more than pay for the upfront
investments.
Renewable energy: New wind power is being contracted
for 3 cents per kilowatt hour right now in Western's service
territory. But never mind that. The Chu memo has NOTHING TO DO
WITH ELECTRICITY GENERATION. NOTHING. Power Marketing
Administrations don't own renewable energy and they don't
require anyone to purchase it. Should the grid be able to
accommodate renewables? Absolutely, there must be a level
playing field. And since renewable electricity is essentially
free to operate, wind and solar actually drive down the price
of electricity in markets. That reduces costs.
If all the component parts potentially save money, then the Chu
initiative can save money. It's arithmetic.
Today's hearing is part of the same anti-clean energy, anti-
progress agenda that Republicans have been pushing for the last 21
months. They've made this Congress the most ``Do Nothing'' Congress in
history. And now, they're trying to shut down Secretary Chu's grid
modernization effort to make sure this is the most ``Do Nothing''
Department of Energy in history as well.
Today's hearing is just the anti-clean energy opening act for the
week. The main event is Friday, when Republicans roll out their ``The
No More Solyndras Act'' on the House floor. That legislative
monstrosity proclaims to end the Department of Energy loan guarantee
program, but actually plays favorites and allows $88 billion worth of
coal and nuclear loan guarantees to go forward.
Republicans usually have just two approaches to solving any problem
this nation faces. First, privatize it. Social security, public lands,
Medicare? Privatize them.
Second, if it's already privatized, then Republicans want to repeal
any and all regulations related to it. Clean air and clean water?
``Forget it'' they say ``the free market will figure it out.'' It's
radical and bad for most Americans. BUT . . . at least it's
ideologically consistent.
In contrast, the Republican approach to the grid resembles Chinese
central planning from the 1970s. They want the federal government to
continue owning huge pieces of the transmission system. And they oppose
operating it in the most modern, efficient manner possible. So not only
do Republicans support a socialist electricity system, they support a
backwards and inefficient socialist electricity system.
Republicans take bizarre positions for the sake of killing clean
energy.
Here's the reality. The reforms in Secretary Chu's memo are
anything but radical. He is proposing proven, tested, and effective
practices that are standard for other large, private grid operators in
the United States.
Let's not wait for the current system to fail before we implement
the best available systems, technologies, and practices. Let's be open
to modernization and engage constructively with Secretary Chu on how
best to do it.
______
The Chairman. I thank the gentleman for his opening
remarks.
For the panelists, I will remind you once again of how
these lights work. Most of you are somewhat familiar with that.
But when the green light goes on it means you have 5 minutes.
And when the yellow light goes on it means you have a minute.
And when the red light goes on that means your time has
expired. And I would ask you to try to finish your statement.
Now, all of you have submitted statements for the record. Your
full statement will appear in the record, if you don't say it
orally. So it will appear in the record.
So, with that, we will start with Mr. Mark Crisson. And you
are recognized for 5 minutes.
STATEMENT OF MARK CRISSON, PRESIDENT AND CEO, AMERICAN PUBLIC
POWER ASSOCIATION, WASHINGTON, D.C.
Mr. Crisson. Thank you, Chairman Hastings, Ranking Member
Markey, members of the Committee. I appreciate the opportunity
to testify before you today. My name is Mark Crisson. I am
President and CEO of the American Public Power Association, or
APPA. We are the national service organization for the Nation's
more than 2,000 not-for-profit, community-owned electric
utilities that serve more than 46 million Americans in 49
States. Of these, approximately 600 of these public power
systems in 33 States purchase hydropower from the 4 Federal
Power Marketing Administrations, or PMAs.
In total, 1,180 public power and cooperative systems
purchase power from the PMAs. And the rates they pay for this
marketed hydropower cover all the costs of generating and
transmitting the power, including interest on the Federal
investment in the projects, and ongoing operation and
maintenance. In many cases, the power customers also subsidize
other purposes of the dams, such as irrigation and recreation.
As you know, in March of this year, Energy Secretary Chu
sent a memo to the PMA administrators directing changes in the
policies and operations of the PMAs. These proposals, however,
were crafted without any consultation with the very customers
they would most directly affect. Customer consultation at the
regional level has long been a core principle of PMA operation,
so the DOE approach was very troubling.
Included in the changes proposed in this memorandum were
concepts that could have a number of adverse impacts, including
increasing power costs, altering the successful partnership
between the PMAs and their customers, requiring participation
in new and costly market programs in the West that could
further erode State and local control of power costs, and
creating a top-down decision-making process that moves
decisions now made at the regional level to Washington, D.C.
Soon after the April Committee hearing we learned that the
first PMA to be impacted would be the Western Area Power
Administration, or WAPA, and that a series of workshops would
be held over the summer to garner stakeholder input. APPA and
its members participated extensively in that process, as
delineated in detail in my written testimony. Suffice it to say
that the process did little to enhance our confidence in the
process, or our understanding of the need for the proposed
changes, and the shifting rationales presented by DOE since
April have not served to clarify the ultimate goal of DOE.
Furthermore, the timeline delineated by DOE for completion
of the WAPA recommendations is December 31st, which we feel is
an arbitrary and inadequate time frame to thoroughly consider
such sweeping proposals.
Given the course of the proceedings to this point, we find
it hard to believe that DOE is genuinely interested in seeking
customer input, or that it does not have a predetermined policy
agenda it wishes to pursue, regardless of the views of the
customers or the facts. And the facts, by the way, reveal that
the PMAs are appropriately addressing the challenges of the
integration of renewable resources, and that they operate and
maintain reliable and resilient transmission systems. Rather,
DOE seeks to institute a new regime for the PMAs, instead of
coordinating with PMA customers to improve PMA operations
within their congressionally mandated framework.
We, therefore, recommend that DOE step back and start this
process anew. Take this opportunity to plug in to the long-
established processes that identify the needs and objectives
for each PMA. We urge them to take the time to engage in a real
dialogue with the groups that will be primarily affected by any
changes to the PMAs.
First, they should examine, in conjunction with the PMAs
and their customers, where needs exist within the system, and
then work with that group to articulate clear goals and plans
to address these needs. This process should be led by the PMAs
and their partners, the PMA customers. Only through steps like
these can DOE hope to foster meaningful and lasting change in
this area.
And this offer to work with DOE is not an empty gesture. As
partners of the PMAs, the customers have every incentive to
pursue good ideas that will increase efficiencies and reduce
costs. In fact, most of the changes to the PMA's mission or
authorities over time have originated with proposals from their
customers.
Should DOE not reverse course, APPA would ask the Committee
to consider legislative and other oversight remedies, including
language similar to the provision in Chairman Hastings's new
hydropower bill, H.R. 6247, which would prohibit DOE from
implementing the March 16th memo.
We greatly appreciate the Committee's interest in this
important issue, and the efforts you have undertaken to date.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Crisson follows:]
Statement of Mark Crisson, President and CEO,
American Public Power Association (APPA)
Thank you for the opportunity to testify at this hearing to examine
the impacts of Department of Energy Secretary Chu's March 16, 2012,
memorandum on the federal Power Marketing Administrations (PMAs) and
the steps that DOE has taken since release of the memo almost five
months ago. My name is Mark Crisson, President and CEO of the American
Public Power Association (APPA). APPA, based in Washington, D.C., is
the service organization for the nation's more than 2,000 not-for-
profit, community-owned electric utilities. Collectively, these
utilities serve more than 46 million Americans in 49 states (all but
Hawaii).
APPA was created in 1940 as a non-profit, non-partisan organization
to advance the public policy interests of its members and their
customers, and to provide member services to ensure adequate, reliable
electricity at a reasonable price with the proper protection of the
environment. Since two-thirds of public power utilities do not generate
their own electricity and instead buy it on the wholesale market for
distribution to customers, securing low-cost and reliable wholesale
power is a priority for public power. Most public power utilities are
owned by municipalities, with others are owned by counties, public
utility districts, and states. APPA members also include joint action
agencies (state and regional consortia of public power utilities) and
state, regional, and local associations that have purposes similar to
those of APPA.
APPA advocates for policies that: ensure reliable electricity
service at competitive costs; advance diversity and equity in the
electric utility industry; promote effective competition in the
wholesale electricity marketplace; protect the environment and the
health and safety of electricity consumers; and safeguard the ability
of communities to provide infrastructure services that their consumers
require.
Approximately 600 public power utilities in 33 states purchase
hydropower from the four federal Power Marketing Administrations
(PMAs). The PMAs market the hydropower produced at large federally-
owned dams operated by the U.S. Army Corps of Engineers (Corps) and the
Bureau of Reclamation (BOR). Each of these public power utilities has a
unique contractual arrangement with the PMA from which they receive
power. Some of these utilities get all of their power needs met through
the PMA, while others only get a portion--augmenting the federal
hydropower with their own generation sources or those purchased from
others, which include natural gas, coal, nuclear, other hydropower
facilities and non-hydro renewable sources such as wind, solar,
geothermal and biomass. What they have in common is that the rates they
pay for the PMA-marketed hydropower cover all of the costs of
generating and transmitting the power, interest on the federal
investment in the project, and ongoing operation and maintenance. In
some cases, the power customers also subsidize other purposes of the
dams, such as irrigation and recreation.
For the public power utilities that purchase hydropower marketed by
the PMAs, this system of repayment of the federal investment, through
rates charged to electricity customers has worked well for decades. As
modifications and updates are made to federal dams, the power customers
who receive the benefits of these upgrades repay the government for
such upgrades. This principle, long-referred to as ``beneficiary
pays,'' is a core underpinning of the PMAs' operations. Another
principle is that of ``preference'' which is essentially a ``right of
first refusal'' to access PMA power that has been granted under federal
law to not-for-profit utilities--public power and rural electric
cooperatives--and a few other not-for-profit entities such as military
installations and publicly-owned universities. This sound public policy
principle is based on the concept that our nation's river systems, and
many of the dams that have been built on them, are public goods, and
thus the benefits of these facilities must flow broadly to consumers on
a cost-based, not-for-profit basis. This concept has had bipartisan
support since the inception of federal hydropower in the early 1900s.
The four PMAs--Bonneville Power Administration (Bonneville or BPA),
Western Area Power Administration (Western or WAPA), Southwestern Power
Administration (Southwestern or SWPA) and Southeastern Power
Administration (Southeastern or SEPA)--market wholesale power to
approximately 1,180 public power utilities and rural electric
cooperatives in 33 states, serving over 40 million electricity end-
users. These 1,180 public power utilities and rural electric
cooperatives are often referred to collectively as the ``PMA
customers.'' They in turn serve their end-use electric consumers who
are located in the following states, by PMA region: BPA: Washington,
Oregon, Idaho, Montana (part). WAPA: Arizona, California, Colorado,
Iowa, Kansas (part), Minnesota, Montana (part), North Dakota, Nebraska,
New Mexico, Nevada, South Dakota, Texas (part), Utah, Wisconsin,
Wyoming. SWPA: Arkansas, Kansas (part), Louisiana, Missouri, Oklahoma,
Texas (part). SEPA: Alabama, Florida, Georgia, Illinois, Kentucky,
Mississippi, North Carolina, South Carolina, Tennessee, Virginia.
APPA members, as purchasers of significant quantities of wholesale
power marketed by the PMAs, are directly impacted by changes to the
``federal power program'' (the policies and laws that collectively
govern the PMAs). The PMAs are based on a system of cost ``pass-
throughs,'' whereby federal investment is repaid, plus interest,
through electricity rates. As the costs to the federal government to
provide these hydropower services increase, wholesale and retail
electricity rates are raised correspondingly. As a result of this
relationship, APPA has consistently opposed unnecessary changes to the
structure and mission of the PMAs that would have resulted in higher
electricity rates for its members and their customers. These changes
have often been attempts to either privatize the PMAs, or to raise the
federal wholesale rates to market-based rates, as opposed to the cost-
based rate methodology under which the PMAs have operated successfully
for decades, at no cost to the federal government. Today, however, PMA
customers face a more subtle, yet equally problematic, challenge.
Background on Department of Energy Secretary Chu March 16, 2012, Memo
on the PMAs and Initial Customer and Congressional Response:
On March 16, 2012, Department of Energy (DOE) Secretary Steven Chu
released a six-page memorandum outlining several proposed changes to
the PMAs (``March 16 Memorandum''). As APPA testified at the April
hearing held by this Committee, portions of the March 16 Memorandum
contain admirable goals, at least in the abstract. But these proposals,
which promise to impose unnecessary and inappropriate cost increases on
federal hydropower customers, and therefore on millions of retail
electricity customers, were crafted without any consultation with the
very customers they would most directly affect. Customer consultation
at the regional level has long been a core principle of PMA operations.
In all PMA projects, customers have paid for improvements to the
systems that provide them with hydropower and will continue to do so,
as required by the various PMA authorizing statutes. The lack of
coordination by DOE with PMA customers--the group that will be
primarily impacted--in crafting these proposed changes, was therefore
startling. When combined with the secretive process by which the March
16 Memorandum was created and the lack of specific directives, the
entire effort was, and continues to be, quite troubling.
Included in the changes proposed in this March 16 Memorandum were
concepts such as construction of new transmission through third-party
financing mechanisms and new borrowing authorities; ``improvement'' of
the PMAs' rate designs; the institution of an energy imbalance market
for the West; the creation of revolving funds for transmission
improvements, and other changes described in the sections below.
These plans, as introduced, were very short on specificity. They
were described by Ms. Lauren Azar, the DOE Senior Advisor working on
these issues, in written testimony to this Committee as ``foundational
goals.'' APPA and its PMA-customer members had hoped that more
specificity would soon be forthcoming. However, the March 16
Memorandum's rollout was only the first step in a confusing and
secretive process that could be described as, at best, poorly
organized, and, at worst, misleading and misinformed. DOE has
consistently shifted its rationale for its proposed changes to the
PMAs. While DOE has used words such as ``collaboration'' and
``transparency'' to describe its intentions for the PMA-change process,
APPA believes this process has been full of shifting justifications and
opaque processes. For example, below is a short timeline outlining
DOE's shifting public justifications for undertaking this effort:
Initial justification--March 16, 2012: The March 16 Memorandum
from Secretary Chu is released, having been crafted with no
customer input. As primary justification for these proposals,
Secretary Chu cites a need for greater integration of renewable
resources (wind and solar power) and a need to upgrade the
nation's transmission grid.
Second justification--May 31, 2012: At a meeting of PMA
customers in Denver, Colorado, hosted by APPA and the National
Rural Electric Cooperative Association (NRECA), Ms. Azar reads
aloud from a May 30 blog posting by Secretary Chu. This
statement cites ``global competitiveness'' and enhancing
transmission to avoid repetition of the September 2011
blackouts in the Southwestern United States (see below) as
further justification for the proposed PMA changes (http://
energy.gov/articles/america-s-competitiveness-depends-21st-
century-grid).
Third justification--July 9, 2012: In response to a letter to
Secretary Chu signed by 166 Members of Congress expressing
concerns about his plans for the PMAs, Secretary Chu cites
blackouts that occurred as part of a ``derecho'' weather
pattern in Washington, D.C., as further evidence of the need
for an upgrade of the PMAs' transmission systems.
Fourth justification--July 24 through August 2, 2012 (during
the regional WAPA workshops--see below): Inappropriately
characterizing her conversations with the CEOs of APPA and the
National Rural Electric Cooperative Association (NRECA), Ms.
Azar cites her attendance (she appeared unannounced) at a
meeting of electric and nuclear utility CEOs who were
discussing emergency preparedness with the Secretaries of the
Department of Homeland Security and the DOE as an indication
that these CEOs, including APPA's and NRECA's, fully supported
the objectives of the March 16 Memorandum. She publicly cites
her involvement in this meeting, which was organized after 18
months of effort to discuss coordinated processes in the event
of a national disaster, as justification of the need for the
proposed PMA changes.
In the hearing held on this topic in April, Members of the
Committee sought to better understand the specific plans and rationales
for the effort announced in the March 16 Memorandum. And, as mentioned
above, so did 166 members of the House and Senate, as well as PMA
customer representatives from public power utilities and co-ops at a
meeting in Denver. These three processes--the hearing, a broadly-
bipartisan letter, and direct questions from PMA customer
representatives to DOE and PMA staff--did little to enhance APPA's PMA-
customer members' understanding of DOE's specific plans for the PMAs.
We did learn, however, that the first PMA to be overhauled would be
WAPA, and that a series of workshops would be held over the summer to
garner stakeholder input. Much of the rest of this statement will focus
on this process, including the topics related to the March 16
Memorandum that were discussed in the workshops. The statement will
conclude by making recommendations to DOE and the Committee based on
the process and substance of these workshops.
WAPA Workshops:
WAPA markets wholesale power to approximately 287 public power
systems in Arizona, California, Colorado, Iowa, Kansas (part),
Minnesota, Montana (part), North Dakota, Nebraska, New Mexico, Nevada,
South Dakota, Texas (part), Utah, Wisconsin, and Wyoming. WAPA serves
over 5.5 million electricity end-users in the public power communities
in these states.
Six regional listening sessions/workshops were announced as part of
DOE's processes for overhauling WAPA. APPA was immediately concerned
when hearing of this announcement because these workshops were cast as
including all PMA ``stakeholders,'' a term Ms. Azar had described as
meaning any person or group with a past, current, or future/potential
interest in changes to the PMAs. For decades, PMA customers have paid
for PMA operations and would bear the most direct impact of any cost
increases caused by these changes. Hence, the customers regard
themselves as more than mere ``stakeholders'' of the PMAs. DOE's lack
of understanding that PMA customers are, in effect, the founding
partners of the PMAs was apparent in its release of the March 16
Memorandum. This ignorance was further highlighted as DOE announced it
would allow anyone with any interest whatsoever to attend workshops
designed to discuss its vague PMA plans. Without first confirming its
plans with the very PMA customers that agreed, decades ago, to enter
into a partnership to create the PMAs, DOE effectively demonstrated its
intention to move forward with or without PMA customer cooperation.
This left the strong impression with the PMA customers that these
regional meetings were more form than substance, intended as a ``check
the box'' exercise.
In similar fashion to the (lack of) introduction of the March 16
Memorandum, DOE's webinar explaining the details for the upcoming
workshops did little to inspire confidence that these meetings would be
useful. In fact, it contained slides that had incorrect information
about the PMAs' operations. The sign-up process for these workshops was
confusing and was highlighted by changed registration dates,
conflicting guidelines, and an overall lack of organization. So many
questions were left unanswered that workshop attendees were forced to
ask direct questions of the meeting organizers. It was only through
these questions that customers learned that their contributed funds--
$100,000 or more--were being used to fund the very workshops they had
been given so little information about and from which they had largely
been excluded from the planning. To learn this at the beginning of the
three-week workshop process was a further insult to PMA customers.
The workshops and listening sessions did allow PMA customers and
other stakeholders to discuss their views on several specific topics,
as elaborated on below. Prior to providing more detail on this process,
however, it is important to clarify WAPA's mission. In materials
provided by DOE prior to the WAPA workshops, WAPA's historical mission
is described as ``to market and deliver reliable, renewable, cost-based
hydroelectric power and related services to its customers.'' Secretary
Chu earlier stated in his May 30 blog post that ``the fundamental
mission of the PMAs to provide electricity at cost-based rates--equal
to the cost of generation and transmission--will not change.''
The mission of the PMAs is not simply to provide wholesale
electricity from hydropower at cost-based rates. Instead, any new
actions taken by the PMAs must be in accordance with the standard
established in Section 5 of the Flood Control Act of 1944, which
provides that sales of wholesale electric power to PMA customers are to
be made ``at the lowest possible rates to consumers consistent with
sound business practices.'' The distinction between this language and
the broader ``cost-based rates'' verbiage is critical. Without a
standard specifying that rates are to be the ``lowest possible,'' the
concept of cost-based rates allows for boundless, and potentially
duplicative, mandates from DOE to the PMAs that would drive up the
costs included in the rates. Therefore, any new initiative undertaken
by WAPA must have an objective consistent with the obligations of WAPA
to its customers, and must represent the lowest-cost means to achieve
that objective.
Each of the five regional workshops featured three break-out
sessions with specific working groups. APPA will discuss each breakout
and the topics covered in it separately.
Transmission Planning and Operations:
This working group addressed the following two topic areas of the
March 16 Memorandum: ``Improving PMA Existing Infrastructure'' and
``Improving Collaboration with Other Owners and Operators of the
Grid.'' The comments below focus on each of these issue areas.
Improving PMA Infrastructure:
DOE statements made at the workshops and listening sessions with
regard to the WAPA transmission system imply that the transmission
system is in a greater state of disrepair than other parts of the
national grid. Such a portrayal has served as a distraction from any
actual evaluation of transmission improvements that might in fact be
needed, and raises questions about DOE's understanding of WAPA's
infrastructure.
Examples of statements made by DOE on the state of the PMA
infrastructure include Secretary Chu's statement in his May 30 blog,
with regard to the PMAs, that ``[m]ost of the transmission lines and
power transformers we depend upon are decades old and in many cases
nearing or exceeding their expected lifespan.'' The Secretary's blog
post further states that ``the PMAs will need to make many of the same
types of investments that other privately held electric utilities will
need to make, and in some cases are already making, if the United
States is to remain economically competitive.'' (Emphasis added.)
There is no evidence that WAPA and the other PMAs are out of step
with other utilities or somehow not in compliance with federal policy
regarding transmission investments. These statements ignore the large
number of transmission upgrades WAPA has constructed, as detailed on
its web site and in annual or quarterly reports. For example, WAPA's
2011 Annual Report lists 47 transmission upgrade projects and three
Transmission Infrastructure Program (TIP) projects totaling over 1,000
miles. WestConnect, a transmission planning organization which includes
WAPA along with a number of public power and cooperative customers
among its members, regularly releases detailed ten-year transmission
plans. According to WestConnect's 2012 Ten-Year Transmission Plan,
there are almost a billion dollars of upgrades and new facilities
planned for WAPA's system between 2012 and 2020. It is questionable
whether DOE took into account in its statement these documented,
planned upgrades.
As discussed previously, the rationale for the Secretary's PMA
directives has shifted from the integration of renewable energy to the
prevention of power outages. In his July 9 response to the June 5
letter from 166 Members of Congress, Secretary Chu stated:
As of July 6, 400,000 customers remained without power in
sweltering heat due to the June 29, 2012 derecho storm that
swept through the mid-Atlantic and East Coast. Blackouts not
only cause significant economic losses, they are also a threat
to human health, especially when they occur during extreme
weather events.
The Secretary further points to the San Diego blackout as ``a good
example of what can happen when our Nation's electric sector is slow to
respond to needed reforms.'' APPA agrees that blackouts, regardless of
the causes, impose an immense burden on the public, whether these
originate at the bulk power (wholesale) level or are the result of the
effects of extreme weather on local distribution systems. However,
conflating the June 29, 2012, derecho storm outages that brought down
thousands of trees and the September 2011 blackout is not helpful in
enhancing either public or congressional understanding of recent power
outages or the measures that can and should be taken in response.
Moreover, the storm outages that took place in the Midwest and Mid-
Atlantic states beginning on June 29, 2012, were distribution system
(as opposed to wholesale, bulk power system level) events that took
place over a wide area. WAPA and the other PMAs do not own or operate
significant distribution facilities, but instead operate bulk power
system facilities (nor is there any significant PMA presence in these
regions--note list of PMA states on page 2 of this statement).
With regard to the September 2011 outages, the Federal Energy
Regulatory Commission (FERC) and the North American Electric
Reliability Corporation (NERC) investigation into the outage concluded
that this bulk electric system outage stemmed primarily from weaknesses
in two broad areas--operations planning and real-time situational
awareness, which are both essential to ensure reliable system
operation. FERC and NERC, in their report ``Arizona-Southern California
Outages on September 8, 2011, Causes and Recommendations'' specifically
recommended, among other items, improved data sharing and
communications between neighboring balancing authorities and
transmission operators, improving real-time tools to constantly monitor
internal and external contingencies, better identifying and planning
for external contingencies, and accounting for the impact of facilities
below 100 kV (kilovolts) on reliability. Secretary Chu in his May 30
Blog post notes that DOE will be investigating ``the exchange of real
time data with neighbors for situational awareness and the exchange of
scenarios and models for operational planning.'' While this is a
commendable effort and should be pursued, simply restating the FERC/
NERC recommendations in the blog post does not, however, mean that a
broad array of DOE directives to the PMAs will improve reliability.
Also, broad institutional ``reforms'' are not needed to respond to
these events. Rather, existing system operators, particularly entities
with responsibility for wide-area coordination and system operations,
such as the Western Electricity Coordinating Council (WECC) Reliability
Coordinator and California Independent System Operator, need to improve
the execution of their responsibilities and keep local area system
operators (such as WAPA) fully informed when extreme events take place.
As John DiStasio, general manager and CEO of the Sacramento
Municipal Utility District, stated in the July 29, 2012, The Sacramento
Bee:
The directives in the DOE memo would lessen reliability, all in
the name of efficiency. It's akin to increasing the number of
airplanes that can land on a runway in a given hour in the name
of efficiency, without taking into consideration unintended
side effects such as a reduction in safety.
Ms. Azar added to this unrealistic portrayal of the PMA
infrastructure at the workshops by repeatedly citing irrelevant
statistics on the age of the wood poles on WAPA's transmission system.
Ms. Azar's data is based in part on the age of the line and not the
poles themselves. If a line is 50 years old, it does not mean that all
of the poles are 50 years old. Poles are replaced as necessary.
Moreover, there is a fundamental distinction between the economic and
useful age of equipment. It would be cost-prohibitive to replace poles
and equipment due to age only. What is important is how the system is
performing. Like most utilities, WAPA has a program that, on a regular
basis, inspects each and every pole on a given line. All poles that
fail the inspection are replaced, and the reliability of the line is
maintained at the high level that is expected. This standard utility
practice implemented by WAPA ensures its system remains at a high level
of reliability, with just one or two temporary outages on each line per
year. Such outages are typically either momentary in nature (less than
one second) or quickly returned back to service (a couple of minutes).
According to the WAPA 2011 Annual Report, just 27 outages of
consequence were reported on WAPA's entire system in 2011, most lasting
less than 35 minutes.
Not all miles of a transmission system can be new all the time.
Prudent management of the system entails replacing the parts that are
in the worst shape or the most overloaded, which are not necessarily
the oldest. WAPA has continually replaced the equipment and wood poles
that require replacement due to performance-related issues, while
balancing the impacts on rates to keep the system reliable and
affordable. Detailed data is available in WestConnect's Ten-Year
Transmission Plan on a number of projects involving replacement of wood
structures with steel 230 K monopoles. This Plan was released in
February 2012, one month prior to the March 16 Memorandum.
For transformers, the manufacturer plans for a 40-year life at full
load. The life expectancy is directly related to the heavy continuous
loading which causes the transformer to run at its maximum rated
temperature. At that temperature, the heat eventually deteriorates the
insulation, causing a failure. But most transformers idle along at far
less than their full load rating and are only fully loaded during
extremely high loading or during outages. Transformers that have
regular oil testing and monitoring, along with other testing, have
provided reliable service for decades after the 40 year ``expected''
life.
Any formulation of new policies needs to be based on an accurate
understanding of the status quo. The use of selected statistics to
mischaracterize the current reality regarding WAPA's transmission
system does not contribute positively to the debate. Rather, it raises
additional concerns that the intent of DOE is to achieve predetermined
policy outcomes, regardless of the facts ``on the ground.'' This is a
flawed basis for determining optimal policies to provide electric power
at the lowest possible rates to consumers consistent with sound
business practices, as the statute requires. Formulating policies for
the PMAs based on this incorrect assessment of WAPA's infrastructure
raises a significant risk of layering additional costs on WAPA's
customers without any establishment of the need to incur them.
Improving Collaboration with Other Owners and Operators of the Grid:
Secretary Chu's March 16 Memorandum directs ``the PMAs to capture
economies through partnering with others in planning, building, and
operating the grid,'' including the implementation of an Energy
Imbalance Market (EIM). The Secretary claims an EIM will ``capture many
of the potential efficiencies that remain untapped in the Western
Interconnection.''
Although later communications from Secretary Chu do not mention the
EIM, this concept was a topic at all of the workshops, and is actively
being discussed by the PUC EIM, a taskforce established by the Western
Governors' Association and comprised of state public utility
commissioners (state utility commissions regulate retail--or
distribution rates--and functions of investor-owned and cooperative
utilities in most states). In contrast to Secretary Chu's foregone
conclusion that an EIM will capture untapped efficiencies, there are
significant uncertainties regarding the benefits and costs of an EIM.
Such uncertainties indicate the need to proceed very cautiously on this
measure, and to carefully evaluate other alternative methods to
integrate variable energy resources.
Thus far, the only fully completed analysis of the costs and
benefits of an EIM in WECC was commissioned by the WECC staff and
finalized last October--entitled ``WECC Efficient Dispatch Toolkit
Cost-Benefit Analysis.'' The results of this analysis presented a range
of the present value of net benefits over a 10-year period, with a high
of a net benefit of $941 million and a low of a net cost of $1.25
billion. Not only was the ability of an EIM to produce net benefits not
proven, but there were a number of flaws in the analysis that could
have reduced the projected benefits or raised the costs. The benefit
analysis, performed by Energy and Environmental Economics, Inc. (E3),
found the largest category of benefits to be the reduction in the need
for ``flexibility reserves,'' which are generation resources standing
by to come on line quickly when wind or solar resources drop off
sharply, as often occurs. The reduction in flexibility reserves needs
was assumed to result from access to a larger geographic array of
renewable energy resources and a corresponding reduction in the overall
variability of such resources. For example, if the wind or sunlight is
low in one region of the EIM it might be greater in another area, thus
reducing the total variability. But this benefit can only be fully
achieved if there is adequate transmission capacity throughout the
entire region, a highly unrealistic assumption. An April 2012 analysis
by Argonne National Laboratory noted that the presence of transmission
congestion could negate this benefit. Hence, the cost of the
transmission facilities needed to reduce/eliminate such congestion
would have to be assessed and included in the cost/benefit analysis.
The measurement of the costs of an EIM, also commissioned by WECC
and performed by Utilicast, LLC, was limited to the infrastructure
(i.e., software, hardware, facilities, and equipment), rent, supplies,
travel, and staff costs incurred by the market operator and market
participants, which include local utilities, balancing authorities,
generation owners and transmission providers. These costs, however,
ignore the likelihood for an EIM eventually to evolve into a full
Regional Transmission Organization (RTO), a construct that has been
imposed in the East, California, Texas, and most of the Mid-West, but
has been resisted in the Southeast, and all of the West, except
California, because of the costs associated with such a construct and
the skepticism in these regions about the competence of the Federal
Energy Regulatory Commission (FERC) to prevent skyrocketing costs and
market manipulation such as was seen in the western electricity crisis
of 2000-2001. The complexities of the constantly changing market rules,
lengthy stakeholder meetings, FERC proceedings, and settlement talks
that are an inevitable part of an RTO would produce much greater
infrastructure, labor and time costs than estimated by Utilicast.
Consumers would also bear the additional cost of potential price
increases from an EIM or eventual RTO. An APPA analysis of retail price
data provided by DOE's Energy Information Administration found that, in
2011, deregulated states located within RTOs had average retail
electric rates that exceeded that of the remaining states by 42
percent. (Report available at http://publicpower.org/files/PDFs/
RKW_Final_-_2011_update.pdf.)
Another technical change that has already been implemented, but is
not accounted for in this study or others that have been commissioned
by WECC and the PUC EIM recently, is the use of what is known as
``intra-hourly'' scheduling of transmission lines in order to more
precisely dispatch generation from power plants where necessary. Since
electricity is generated and consumed instantaneously, grid operators
must constantly balance the supply and demand. With power generation
that is variable (i.e., cannot be dispatched and controlled in the same
manner as conventional sources of power) like wind and solar, more
precise scheduling of transmission lines becomes necessary. Therefore,
WAPA implemented intra-hourly scheduling in July 2011, and FERC, which
regulates bulk power system activities, ordered in June 2012 that
public utility (i.e.; investor-owned utilities) transmission providers
offer such scheduling. Many of the benefits of an EIM will be captured
by these new requirements for more precise scheduling and, conversely,
many of the additional technical aspects to an EIM are likely to have
significant costs. As FERC stated in Order No. 764, Paragraph 98:
The Commission appreciates that implementation of other
reforms, such as intra-hour imbalance settlement, an intra-hour
transmission product, increasing the frequency of resource
commitment through sub-hourly dispatch, or the formation of
intra-hour imbalance markets, could yield additional benefits
for public utility transmission providers and their customers.
However, these additional reforms can have significant costs.
The Commission's review of the record in this proceeding
suggests that a more measured approach is appropriate to take
at this time. (Emphasis added.)
In the midst of the attention given to the conflicting and dubious
benefits estimates, little attention has been paid to the costs. The
only data collected by the PUC EIM on costs consists of the incremental
market operator costs that would be incurred if one of two existing
RTOs, the Southwest Power Pool or the California ISO, were to operate
the EIM. These estimates ignore individual utility infrastructure and
labor costs, not to mention the additional eventual likely cost of
moving to a full RTO. APPA is greatly concerned that these
underestimated costs will be paired with the overestimated benefits to
justify implementation of an EIM.
Although APPA agrees that FERC is unlikely to unilaterally impose
an RTO on the West, the history of existing RTOs reveals a step-by-step
evolution into more complex and problematic markets, rather than a
``grand design'' from the outset. In recent years, FERC has even
overturned carefully negotiated settlements regarding the rules
applicable to such RTO markets, to the detriment of consumers. For a
more detailed discussion, see RTO Capacity Markets and Their Impacts on
Consumers and Public Power, APPA Fact Sheet, February 2012 available at
http://www.publicpower.org/files/PDFs/RTOCapacityFactsFeb2012FS.pdf.
In ``Corporate Structure and Governance of Western Energy Imbalance
Market,'' a paper prepared by Wright & Talisman, PC, possible measures
to guard against an unwanted RTO or RTO-like markets or characteristics
are proposed. Although APPA greatly appreciates Wright & Talisman's
efforts in this area, we remain concerned that an EIM will move forward
based on an overreliance on such illusory safeguards. Two measures are
proposed in this paper. First, the paper proposes that the structure of
the EIM would assure that the market administrator would not assume
control of any entity's transmission facilities, meaning that the EIM
would not meet the definition of an RTO; it would, however, be
administering a wholesale power market, which would presumably be
subject to FERC's jurisdiction over sales for resale of electric power
in interstate commerce. Second, the membership agreement would include
a provision protecting against ``mission creep'' and the evolution of
an EIM. This second tier safeguard is crucial, but unlikely to hold up.
The Wright & Talisman paper offers only the following description
of this secondary safeguard:
It is feasible to address this matter in the Members Agreement,
either by including restrictive provisions or by establishing
voting levels to allow mission expansion. If participants favor
restrictions, such restrictions could be at the heart of
providing assurance that the EIM will be only an EIM, until and
unless there is broad consensus for change. Until and unless
such expansion of the organizational role is approved, the
scope and services of the EIM in Western markets would remain
unchanged.
This language is hardly an assurance that the region would be
adequately protected from the development of an RTO. First, there would
need to be an agreement among all of the prospective members to include
such language in the Members Agreement upon formation of an EIM, hardly
a certainty. Second, the paper acknowledges that there could be an
undefined ``broad consensus for change.'' How would such a consensus be
defined? Would public power have adequate representation in the
decision-making? Would public power and other similarly-situated
entities have sufficient staff and other resources to participate in
the lengthy proceedings leading up to the determination of such a
consensus? The past experience of APPA and its members in RTO regions
is that what happens in one RTO does not stay in that RTO; rather,
``innovations'' jump from one to another. Moreover the lop-sided
resources that generators and their allies bring to RTO stakeholder
processes mean that consumers and those who serve them often are steam-
rolled, and they bear the consequences in the form of increased rates
and decreased supply options. Hence, while the measures set out in this
paper are no doubt well-intentioned, they should not be ``taken to the
bank.''
There are also factors specific to WAPA that may impede the
development of an EIM, and that are not being explored by DOE or the
PUC EIM. First, transmission constraints and the absence of adequate
interconnections with some regions, such as WAPA's Sierra Nevada
region, may limit the ability to dispatch resources across the region.
Second, there are statutory and other constraints on the availability
of hydropower for dispatch under an EIM. Water delivery and maintaining
water quality have priority over the generation of electricity from
hydropower, and electricity from the hydropower must then be made
available first to public power and rural electric cooperative
preference customers. Also, the role of BOR is critical, as it operates
and maintains the hydropower projects, and they, therefore, must agree
to the participation of these facilities in an EIM. To APPA's
knowledge, DOE has not asked the BOR (or to the Corps) its views about
participation by hydropower in an EIM, and possible issues that could
arise.
Design of Transmission Services/Integration of Variable Energy
Resources:
It should first be noted that the development of wind and solar
power is not part of WAPA's historical mission. Nevertheless, WAPA has
made substantial efforts to integrate renewable energy in consultation
with the PMA customers. As discussed previously, WAPA has implemented
intra-hourly scheduling. WAPA and a number of balancing authorities
(electric utilities or other entities charged with ``balancing'' the
availability of generation and transmission in a given sub-region) in
the region are also developing and implementing a number of highly
technical processes to enhance the integration of variable wind and
solar power.
WAPA's customers are also taking significant steps to expand their
use of electricity generated from renewable sources. In 2011, WAPA
customers provided 13.8 million megawatt-hours of renewable power,
almost one million megawatt-hours more than in 2010. These efforts are
not acknowledged by Secretary Chu or Ms. Azar, outside of the following
statement made by the Secretary in a footnote to his Memorandum: ``I
recognize that, in some cases, one or more of the PMAs may already be
accomplishing the directive.'' No further details are included with
this vague acknowledgement.
Energy Efficiency and Demand Response:
The March 16 Memorandum directs the PMAs to create rate structures
that incentivize programs for energy efficiency and demand response,
the integration of variable resources, and preparation for electric
vehicle deployment.
APPA is concerned that these ``incentives'' and any restructuring
of the PMA rates to incorporate them will artificially and
inappropriately raise the cost of providing federal hydropower to
preference customers, resulting in wholesale and retail rate increases.
This proposal could well mean that PMA customers would be subsidizing
wind development and energy efficiency and demand response programs,
whether or not they receive any benefits from these programs.
Furthermore, energy efficiency, demand response, and electric
vehicle integration are primarily retail issues, not wholesale. As
discussed above, the PMAs provide power at wholesale, while retail
decisions are made at the local and state levels. Secretary Chu's
proposal would thus substantially encroach on the jurisdiction of state
and local decision-making bodies, including public utility districts,
municipalities, and cooperative boards of directors. Moreover, there is
no evidence that such encroachment is warranted given the increasing
levels of customer activities in this area. As with renewable energy,
WAPA's annual report provides summary data on the achievements of its
customers in the area of demand-side management, which includes both
energy efficiency and load-management (i.e., shifting energy demand to
different time periods to reduce costs). In 2011, WAPA customers
reported a savings of 2.7 million megawatt-hours from demand-side
management, an increase of one million megawatt-hours from 2010.
Transmission Authorities:
Section 1222 of Energy Policy Act of 2005 (EPAct05) authorizes WAPA
and the Southwestern Power Administration (SWPA), and the Transmission
Infrastructure Program (TIP) created in the 2009 American Reinvestment
and Recovery Act (ARRA) authorizes WAPA, to partner with non-customer
groups to develop transmission on their systems.
The Section 1222 authority has rarely been used (although WAPA and
SWPA are currently evaluating applications for its use). However,
initial experiences with these applications reveal that even the
administration of Section 1222 can impose significant burdens on the
PMAs. For example, APPA understands that the processing of the Clean
Line application by SWPA has consumed a significant portion of budget
and staff time, which must come out of SWPA's own budget and, in turn,
the electric customers of public power and cooperative utilities. This
diversion of staff time and resources has greatly constrained SWPA
staff's availability to review proposals for new power contracts,
leading SWPA staff to simply renew preference customers' existing
contracts coming up for renewal for one-year time frames. Finally,
there appear to be conflicting interpretations as to whether the 2015
sunset provision applies merely to the cap on funding or applies more
broadly to the ability to take contributed funds or to the program
itself. APPA's position is that Congress intended the sunset of the cap
at the end of 2015 before accepting any third-party funds contributed
after that date.
There are also reasons for concern with the TIP, the implementation
of which was criticized in a DOE Inspector General report released in
November 2011 (http://energy.gov/sites/prod/files/OAS-RA-12-01.pdf).
That report cited instances of mismanagement and inefficiency within
the program, including a lack of timely, integrated cost and schedule
information that would allow WAPA to adequately monitor progress of the
first project funded (the Montana Alberta Tie Line) and the absence of
a risk-based management reserve to fund unanticipated cost overruns.
Despite both the explicit flexibility in Section 1222 for the
relevant PMAs to exercise discretion regarding the use of this
authority and the problems identified with the TIP program, Secretary
Chu apparently seeks to mandate the use of these programs by
administrative fiat. EPAct05 and the ARRA authorized, but did not
mandate, third-party financing mechanisms, clearly allowing the PMAs,
in collaboration with their customers, to balance the interests of the
statutory preference customers with other interests in developing
third-party financing proposals. In a new centralized mandatory regime
directed from DOE headquarters, however, PMA customers could
potentially be required to take on the costs of system-wide
transmission upgrades not needed to serve them. Any benefit they would
receive from these improvements would certainly not be commensurate
with the costs they would be forced to pay. This would be a blatant
violation of the ``beneficiary pays'' principle, discussed above.
PMA Customers Expect and Deserve Transparency Throughout This Process:
As noted above, the development and release of the March 16
Memorandum and the subsequent workshops and listening sessions have not
allayed the concerns of APPA and the PMA customers. A webinar held this
past Friday, September 7, by the Joint Outreach Team comprised of three
paid consultants and numerous WAPA staff, was troubling given the
breadth of staff and resources being dedicated to this effort--which is
to be finalized by the end of the calendar year for no practical
reason. In addition, a recent incident in the SWPA region undermines
our faith in the process even further: DOE notified PMA customers in
the SWPA region in mid-August that they would be hosting a session to
discuss Section 1222 of the Energy Policy Act of 2005 (mentioned above)
today, September 11, in Branson, Missouri. Despite the short notice and
the limited details about the meeting, many SWPA customers made plans
to attend--in many cases rearranging schedules, purchasing plane
tickets, and reserving hotel rooms. Less than two weeks out from the
meeting, these same PMA customers were informed by DOE that it had been
cancelled because other ``stakeholders'' were unable to attend given
the short notice. To date, the meeting has not been rescheduled.
Given the course of the proceedings up until now, we find it hard
to believe that DOE is genuinely seeking customer input, or that it
does not have a predetermined policy agenda it wishes to pursue,
regardless of the views of the customers or the actual facts ``on the
ground.'' We are also concerned that the WAPA process could be a
template for the other regions. The scheduling of the SWPA meeting on
short notice then the abrupt cancellation of that meeting is also
troubling.
To change this dynamic, APPA urges DOE to be transparent throughout
the remainder of this process. To that end, the public should be
provided and allowed to comment on both the draft and final versions of
the recommendations of DOE and WAPA staff to the Secretary. DOE's
failure to grant this request would not be in keeping with the
Administration's commitment to new levels of openness and transparency
in government.
In the pre-read materials for the WAPA workshops, DOE stated that,
at the workshops' conclusion, it would use the feedback received when
developing draft recommendations to Secretary Chu regarding the
application of the March 16 Memorandum to WAPA. DOE states further
that, ``[a]fter developing draft recommendations, the JOT will again
seek stakeholder input on the draft recommendations before finalizing
and submitting its recommendations to Secretary Chu sometime in the
fall.'' DOE has made clear in the pre-read materials that it will make
public its staff's draft recommendations for comment. In the webinar
held on September 7, staff stated that there will be a 30-day comment
period on the draft recommendations after publication in the Federal
Register. APPA believes that a 60-day comment period is the minimum
that due process would require, given the significant number of hours
the PMA customers devoted to the process and the extensive record that
was established.
DOE staff has not, however, made clear that it will make public the
final recommendations submitted to Secretary Chu. Asking the PMA
customers and others to participate in this time-consuming and
resource-intensive process and then not sharing the final
recommendations publicly would represent a grave disregard for those
who took the time to participate, and would further bolster the view
that the entire series of meetings and comment process were mere
``check the box'' exercises. If these final recommendations are
expected to be the precursor to any proposed changes to WAPA's
operations or rates, DOE staff should make public the final
recommendations submitted to Secretary Chu.
Finally, any recommendations from DOE staff to Secretary Chu, in
and of themselves, cannot result in any changes to WAPA's operations or
rates. WAPA and DOE must operate within the statutes applicable to the
PMAs. DOE cannot propose to make any changes affecting the operations
of the PMAs without complying with the relevant legal and rulemaking
processes, including those required by the DOE Reorganization Act and
the Administrative Procedure Act. Depending on the actual
recommendations, congressional action may well be required.
Conclusion and Recommendations:
The PMAs' are an ideal example of a successful public/private
partnership. They were created in coordination with the customers they
still serve today, which in turn repay the federal investment in these
projects. They are subject to many congressional authorities and must
help their customers meet many obligations, all while keeping costs at
the ``lowest possible'' level. Rather than demonstrating problematic
performance records, the PMAs are examples of government projects
successfully accomplishing their statutory requirements. Instead of
targeting a specific and necessary fix, DOE's proposals for WAPA and
the other PMAs are simply solutions in search of problems. Instead of
coordinating with PMA customers to improve PMA operations within their
congressionally mandated framework, DOE seeks to institute a new regime
for the PMAs, outside the scope of their original purposes altogether.
Some broad goals laid out in the March 16 Memorandum for the PMAs,
from modernizing and increasing the efficiency of the grid to
integrating renewable power to preventing future blackouts in all
regions of the country, are admirable. The process by which they have
been announced and initiated, however, has been characterized by DOE's
apparent unwillingness even to acknowledge, much less evaluate and
incorporate, the accomplishments of the PMAs in these areas. Similarly,
DOE seems to have paid little more than lip service to the PMAs'
statutory obligations to their customers, and the costs and need for
these directives. Finally, DOE has ``moved the goal posts'' several
times in terms of the stated purpose of the March 16 Memo such that it
is difficult to ascertain the true impetus and goals of the proposals.
If the most recent statements by Secretary Chu and Ms. Azar are to be
followed, then the impetus of the memo is for the PMAs to better
prevent blackouts (also known as improving ``reliability''). While
laudable, there are numerous, well-established processes in place to
address electric reliability at the bulk power system level. In
addition, the PMAs' total transmission footprint only encompasses eight
percent of the entire transmission system of the continental U.S. This
limited ability to impact bulk power system reliability underscores
that the PMAs must work through existing processes and institutions to
ensure regional reliability. This is another case where a new process
is neither necessary nor appropriate.
APPA therefore recommends that the DOE step back and start this
process anew, and essentially ``plug in'' to the long-established
processes that identify the needs and objectives for each PMA. First,
DOE should examine, in conjunction with the PMAs and their customers,
where needs exist within each system. Then, it should allow the PMAs to
work with their customers to articulate clear goals and plans to
address these needs. These steps should build upon the PMAs' ongoing
activities, without saddling the PMA customers with excess costs. This
process should be led by the PMAs and the primary ``stakeholders''--PMA
customers. APPA and its PMA customer members urge DOE to take the time
to engage in a dialogue with the groups that will be primarily affected
by any changes to the PMAs. Only through steps such as these can DOE
hope to foster meaningful change in this area.
Should DOE refuse to pull back from the path they have taken thus
far, APPA would ask the Committee to consider legislative remedies,
including language similar to a provision in Chairman Hastings' new
hydropower bill, the Saving Our Dams and New Hydropower Development and
Jobs Act, which would prohibit DOE from implementing the March 16 Memo
and/or language such that was included in the House-passed version of
the Energy and Water Development Appropriations bill for FY 2013 to
prohibit the use of funds to implement the memo. While the latter is
outside of this Committee's direct jurisdiction, we recognize that a
strong dialogue on this issue has occurred between this Committee and
the Appropriations Committee, and would urge such dialogue to continue
as opportunities arise when the appropriations process is reengaged in
2013.
We greatly appreciate the Committee's interest in this important
issue and the efforts you have undertaken to date.
______
The Chairman. Thank you, Mr. Crisson, for your testimony.
And I will recognize Mr. Scott Corwin, Executive Director
of the Public Power Council out of Portland, Oregon, hello.
STATEMENT OF R. SCOTT CORWIN, EXECUTIVE DIRECTOR, PUBLIC POWER
COUNCIL, PORTLAND, OREGON
Mr. Corwin. Thank you, Mr. Chairman, Ranking Member Markey,
members of the Committee. It is nice to be with you again.
Greetings from the Northwest. I am the Executive Director of
the Public Power Council, and we represent preference
customers, the utilities that purchase power from the
Bonneville Power Administration. Our members are cities, public
utility districts, and rural electric cooperatives spread all
across the Northwest.
I stated previously that some of the Secretary's goals are
certainly laudable. And, in fact, there is already a lot of
work in the Power Marketing Administration regions on some of
these areas involving a lot of the parties. So at the Committee
hearing on April 26th I did observe, I thought, the March 16th
memorandum appeared to be a solution in search of a problem,
since the Power Marketing Administrations are already leaders
in pursuit of forward-looking energy policy.
Their leadership arises, however, from the region, and is
derived from the many statutory directives that they already
follow. While the Department has offered varying explanations
for its initiative, and has conducted several workshops in the
footprint of the Western Area Power Administration, I don't see
more clarity or compelling rationale today than there was at
the beginning of the process for another DOE process on these
matters, targeting Power Marketing Administrations.
PPC has closely monitored the WAPA efforts, since the
Department stated that BPA might be the next focal point. And
as part of our monitoring, I attended the workshop in Loveland,
Colorado, and read the other materials. And I drew a couple of
conclusions from those.
First, I think that DOE is now only beginning to understand
the relationship between the PMAs and their customers. Power
Marketing Administration customers are not just another
stakeholder group. Our relationship with the agencies is
embedded in statute. We are legally and contractually bound to
repay the cost of the Federal hydropower system. And this is a
partnership. And DOE's failure to understand that dynamic up
front, I think, was a key problem.
Second, DOE does not seem to fully understand the rate-
setting standards for the PMAs, or their importance. We do
appreciate that the Department acknowledged up front the
importance of cost-based rates. But the statutory rates--go
beyond simply cost-based rates. The key is, what are those
costs? Federal law requires PMA rates to be the lowest possible
rate consistent with sound business principles. So costs are
incurred only when they produce reciprocal and necessary
benefit.
Third, I think the initiatives, policies, and processes
arising from the memorandum are duplicative of our existing
efforts, as I noted. And this appears to be the case in WAPA,
from what I have seen. But I know it would be the case with
respect to BPA. If applied to BPA, we would be creating added
efforts and processes that parallel efforts already underway.
We would have the same people who are already struggling to
keep up with the workload on these very complex issues,
discussing the same topics at redundant meetings, putting
enormous strain on limited resources, and I believe threatening
the progress that is underway on the very matters of interest
to the Department of Energy.
In light of these and other concerns, PPC appreciates and
extends its thanks to the many Members of Congress, especially
those from the Northwest, who have raised these concerns with
the Department. And especially, also, the Chairman's recent
bill that Mr. Crisson mentioned, putting a restriction on
funding in the bill. That also provides many good provisions
for promoting renewable hydropower.
To conclude, the Power Marketing Administrations and their
utility customers and, indeed, many other regional parties,
have worked very well together for 75 years in a regionally
focused, bipartisan, collaborative process of policy-making.
And, in fact, many of us will be at Bonneville Dam this
Saturday to note at an event the 75th anniversary of the
Bonneville Power Administration. Together, the PMAs and their
customers have created an impressive record, and continue to
address the many new challenges facing the energy industry,
with more progress being made every day. A DOE role that is
supportive, rather than prescriptive, would allow us to
continue to get the job done right.
Thank you very much for the opportunity to testify today.
[The prepared statement of Mr. Corwin follows:]
Statement of R. Scott Corwin, Executive Director, Public Power Council
Good morning, Chairman Hastings, Ranking Member Markey, and Members
of the Committee. My name is Scott Corwin. I am the Executive Director
of the Public Power Council (PPC). We are a trade association
representing the consumer-owned electric utilities of the Pacific
Northwest with statutory first rights (known as ``preference'') to
purchase power that is generated by the Federal Columbia River Power
System and marketed by the Bonneville Power Administration (BPA).
At the Committee's April 26 hearing, I observed that the
Secretary's March 16 memorandum appeared to be a solution in search of
a problem. The power marketing administrations already are leaders in
pursuit of forward-looking energy policy. But, their leadership arises
from regional initiatives that are derived from the many statutory
directives they already follow. While the Department has offered
varying explanations for its initiative, issued additional written
materials, and conducted several workshops in the footprint of the
Western Area Power Administration (WAPA), there is no more clarity, nor
compelling rationale, today than there was at the beginning of this
process.
A variety of justifications have been given--ranging from renewable
energy development to electric system reliability. However, these
justifications do not hold up in light of a factual review of the
status of other processes already underway in the PMA regions. While
meetings and conferences on energy topics in all corners of the country
have grown exponentially in recent years, implementation of the
Memorandum's objectives appear to have created another set of meetings
that were mostly for information only, or were redundant of other
efforts, or both.
As you know, the Department's efforts to date have focused on the
WAPA. While BPA has not been a direct participant in this process, PPC
has closely monitored this effort since the Department has stated that
BPA could be the next focal point. As part of our monitoring efforts, I
attended the July 31, 2012 DOE workshop in Loveland, Colorado. The
conclusions I have drawn from that session and my observation of the
rest of this initiative are:
1. DOE is only now beginning to understand the relationship
between the PMAs and their customers. PMA customers are not
simply another stakeholder group. Our relationship with the
PMAs is embedded in statute. We are legally and contractually
bound to repay the costs of the federal hydropower system. In
many cases, we also shoulder the costs of other features of the
multipurpose dams that generate federal hydropower. This is a
partnership, and DOE's failure to understand that dynamic up-
front was a key flaw in this exercise.
2. DOE does not fully understand the rate-setting standards
for the PMAs or their importance. We appreciate that the
Department has acknowledged the importance of cost-based rates.
But the statutory rate standards go beyond simply ``cost-based
rates.'' Federal law requires PMA rates to be ``the lowest
possible rate consistent with sound business principles.'' This
more detailed definition makes clear that: costs should be
incurred, and added to PMA rates, only when they produce
comparable and necessary benefits; PMAs policy and acquisition
decisions should be ``least-cost'' and PMAs should be
conservative in their business decisions. A proper application
of this standard would obviate some of the policy initiatives
outlined in the Secretary's memo.
3. The initiatives, policies and processes arising from the
Memorandum would duplicate existing efforts. At the beginning
of this process, PPC and others noted that some of what DOE
seemed to be driving toward was already underway in the
Northwest. The closer I review this effort, the more apparent
it becomes that, if applied to BPA, we would be creating new
efforts and processes that parallel efforts already underway.
We would have the same people, discussing the same topics,
putting enormous strain on limited resources. What this tells
me is that DOE wasn't able to understand what is occurring in
the region, or it doesn't like the expected conclusions and is
hoping a second bite of the apple will produce a different
answer.
PPC appreciates and extends its thanks to the many members of
Congress of both parties, especially those representing us in the
Northwest, who have weighed in with the Department of Energy regarding
the Memorandum. We also offer our thanks to members of the
Appropriations Committee for including funding prohibitions in
legislation and to Chairman Hastings for his recent introduction of
H.R. 6247 doing the same, and including many other provisions
beneficial to clean, renewable hydropower.
Background on the Nature of PMAs
For generations people have gathered around the great waters of the
Northwest for food, for transportation, for irrigation, for recreation,
and then for power. As in other areas with great waterways, this
uniquely public resource of navigable water creates a unique source of
clean and renewable power to be shared among the citizens of the region
from whence that power was derived. Thus were formed the Power
Marketing Administrations to ensure the power value of these public
resources was sent to those within the region best able to pass the
benefits through to the end consumer.
The PMAs and the treasured assets with which they are entrusted,
being funded regionally, are not just another tool for federal policy
pursuit. These are statutory creatures with a rich history from which
evolved specific missions, specific goals, and specific purposes.
Because of the public and regional nature of the assets, the process
around them is very public and regional. In a sense, the people were
asked to take ownership and stewardship of the mission for these local
assets, and their representatives in Congress likewise work to protect
the assets and the needs of the citizens within the region.
BPA and its customers have worked and struggled together with the
Army Corps of Engineers and the Bureau of Reclamation to keep this
power supply reliable and affordable while fulfilling myriad statutory
and regulatory mandates. We have nurtured this incredible renewable
resource of hydropower, and it has helped enable new renewable
resources. We have achieved staggering levels of energy conservation to
make more efficient use of existing resources. And, we have become the
world's foremost experts in anadromous fish passage.
In recent decades, we've been faced with a host of new challenges
in the form of volatile energy markets, transmission constraints, new
intermittent generation, environmental concerns including emissions and
renewable portfolio standards, a renewed focus on system reliability,
energy security concerns, and unstable economic conditions. The PMAs
have met these challenges and are forging ahead into the new frontier
as well as any large utility can in this setting.
This Saturday, there is a celebration at Bonneville Dam marking the
75th Anniversary of BPA. Over this time, the primary mission of BPA is
and always has been to provide reliable electricity at affordable
prices. Throughout this history the agency has accomplished this
mission well, partnering with consumer-owned utilities to bring
economic benefit to citizens of the region through cost-based power.
Today, BPA must continue to pursue its core obligations as it evolves
to meet new challenges.
To fully understand why consumers are very concerned about
potential changes to the mission or function of PMAs, one must truly
understand how PMAs work with their customers. While federal in nature,
BPA is not supported by taxpayer dollars. Rather, customers pay for all
of the power costs incurred by BPA. The agency is a pass-through entity
with respect to its costs and obligations. And, consumer-owned
utilities likewise must pass costs on to their consumers. Because of
this, extensive regional processes have grown up around budget and rate
setting, and any major policy that the agency pursues.
Power costs borne by PMAs are borne by the region, so the regional
view weighs heavily in the decision-making. Along with this regional
consideration is a close relationship with the region's representatives
in Washington, D.C.--the Northwest Congressional delegation. In a
simplified analogy, if the power customers who have paid for the
Federal Columbia River Power System are the shareholders, the region's
Congressional delegation is viewed as the Board of Directors. These
directors have a long history of working in a bipartisan way for the
good of the region. The Northwest Congressional delegation has
responded time and again to defend the value of the Columbia River
system.
We have found that directives from outside the region rarely work
as well as solutions crafted by regional parties with knowledge of the
unique nature of each power system. Lending context to ratepayer
concerns about the DOE memo is the long history of proposals to shift
the mission of the PMAs, and shift the value from these regionally
funded entities. Over the years this has taken the form of federal
deficit reduction proposals that would have the effect of imposing a
regional tax to benefit the federal budget. It has also taken the form
of pressure from FERC and others to create new forms of standardized
markets or bureaucratic institutions that threatened to add higher
costs to customers in exchange for worse access to power from the
federal system.
Cost Concerns
While the Northwest has been hit hard during the last few years,
BPA, with its legally mandated cost-based rates, has been an important
economic engine. Any additional costs on BPA customers without
corresponding benefits risks sacrificing the power rates that have been
a lifeline for the Northwest economy. After recovering some from the
enormous increase following the West Coast energy crisis in the last
decade, BPA power rates have started to go up again with an almost
eight percent increase last year, and potential for a double digit
increase next year.
Under statute, BPA has an imperative to focus on the least-cost
means of achieving policy objectives that fall within its authority.
Redesigning rates to achieve various policy goals has the potential to
threaten the important rate design principle of ``cost causation'' in
which costs are paid by the parties that cause the action. Direction to
pursue policy objectives that would impose costs on BPA ratepayers
without offsetting benefits is a dangerous threat to the region.
BPA Processes and Customer Achievements
BPA continues to achieve greatly in the areas of the Memorandum's
focus without new statutes or directives.
BPA has achieved the highest rate of wind penetration
of any balancing authority in the country (42 percent by
generation to peak load). This spring, BPA's system passed the
mark of integrating 4,700 megawatts of wind generation, and
expects to have 5,000 megawatts of this variable resource
connected to its system by 2013, several years ahead of
estimates. This is a ten-fold (1000 percent) increase over the
amount of wind on the BPA system in August of 2006.
BPA and its customer utilities achieved 130 average
megawatts of energy efficiency last year, exceeding targets and
adding to the nearly 5000 average megawatts of efficiency
achieved by the Northwest region since passage of the Northwest
Power Act in 1980. In addition, BPA now has a tiered rate
structure that effects efficiency, and there are dozens of
demand response projects underway in the Northwest.
BPA owns and operates over 15,000 circuit miles of
high voltage transmission lines. The agency responds to new
needs and requests through extensive regional processes that
analyze many considerations such as environmental impact,
system operational impact and reliability, cost, risk,
potential for recovery of cost, feasibility, and alternative
options. As of the start of the fiscal year, BPA had underway
217 miles of new 500 kilovolt lines, 82 miles of rebuilding for
230 kilovolt lines, and 3 new substations.
BPA and its customers are involved in myriad
processes developing solutions to issues relating to energy
efficiency, integration of renewable resources, development of
possible imbalance services constructs or imbalance markets,
open access tariff development, network open seasons for
transmission development, transmission planning and cost
allocation, associated rate case and budget setting processes,
and many other efforts.
Conclusion
The Power Marketing Administrations and their utility customers
have worked well together for 75 years in a regionally focused process
of policy development. These processes are reflective of a
collaborative spirit, and of the many operational, economic, and
political dynamics unique to each region. Together, the PMAs and their
customers have created an impressive record in addressing the many new
challenges facing the energy industry, with more progress being made
each day.
Future initiatives must continue to be consistent with each PMA's
statutes and responsibilities, and must not create costs to ratepayers
without reciprocal benefits. Previously, I testified to the lack of
need for the DOE Memorandum and to some of our concerns about its
implications. The process to date has not changed our view in both of
those respects.
Thank you very much for the opportunity to testify today. I look
forward to answering any questions.
______
The Chairman. Thank you very much for your testimony. I now
recognize Ms. Lauren Azar, the Senior Policy Advisor to
Secretary Chu.
Ms. Azar, you are recognized for 5 minutes.
STATEMENT OF LAUREN AZAR, SENIOR POLICY ADVISOR TO ENERGY
SECRETARY STEVEN CHU, U.S. DEPARTMENT OF ENERGY, WASHINGTON,
D.C.
Ms. Azar. Thank you. Mr. Chairman, Ranking Member Markey,
thank you, thank you, for inviting me to speak about the
Secretary's memo setting forth his foundational goals for the
Power Marketing Administrations. I am Secretary Chu's Senior
Advisor.
I arrived here 15 months ago from the great State of
Wisconsin, where I was a Commissioner at the Public Service
Commission, overseeing the electric, natural gas, water, and
telecommunication industries. As a Commissioner, my charge,
among other things, was to ensure that the electric customers
had a safe and reliable and affordable electricity at their
disposal. While I was a Commissioner, I chaired the efforts of
the Midwest ISO to determine how 12 Midwestern States and 1
Canadian Province would pay for needed transmission. I also
organized and led the 38 States east of the Rockies in the
interconnection-wide transmission planning that was funded by
Congress.
Prior to serving as a Commissioner I was an attorney in
private practice at a corporate law firm where I had
represented both utilities and customers.
Three of the four PMAs own and operate 33,700 miles of
transmission lines that comprise a significant portion of the
Nation's power grid. As part owners and operators of the
Nation's grid, the Federal Government must maintain its aging
facilities and, if necessary, update and replace them for the
benefit of their consumers. The Federal Government can and
should be leading the way in ensuring that our Nation has a
reliable transmission grid that supports a competitive
marketplace.
The PMAs have two primary obligations: one is marketing
electricity to preference customers at the lowest possible
rates consistent with sound business practices--today I am
going to call those cost-based rates; and two, maintaining and
operating their portion of the transmission grid.
Let's talk about the marketing of the power. Beginning in
the late 1800s, the Federal Government began to build dams with
hydroelectric power. Congress mandated that the electricity
generated be sold to preference customers at cost. DOE will
comply with all applicable laws relating to the rates for the
sale of electricity for preference customers, which includes
the obligation to sell at the ``lowest possible rates to
consumers consistent with sound business practices.''
But the overwhelming majority of the proposed activities in
the Secretary's memo relate to the PMA's obligations and goals
for transmission. To bolster the competitiveness of the
electricity marketplace, we need to ensure the grid's
resilience. And Congress, in 1992 and 2005, passed
comprehensive legislation creating obligations on grid
operations and reliability. The Secretary's memo is intended,
among other things, to ensure that PMAs are complying with
those obligations.
In meeting those obligations, the Federal Government must
respond to a rapidly changing electric industry. Today's
industry differs quite markedly from that of even 10 years ago.
And examples include, number one, security threats and
natural disasters. Our Nation faces increasing security
threats, and the electric sector is no exception. Congress has
mandated a hardening of our electric infrastructure against
physical threats, natural disasters, and cyber attacks.
Number two, technological advancements. Consumers are using
more technologies that create challenges and opportunities for
the transmission grid. Examples include large electric water
heaters used as storage devices, rooftop solars, electric
vehicles, and demand response applications.
Three, removal of portfolio standards that have been
enacted by the States. Thirty-seven States have enacted RPSs,
either standards or goals. The transmission system must be
flexible enough to accommodate these new sources of generation
that are mandated by the States. While the Secretary's memo
asks the PMAs to effectively respond to these continued
changes, our overall goal is to keep consumers' bills as low as
possible, while ensuring our Nation has the infrastructure it
needs to remain competitive in a global marketplace, and
accommodate regional choices to meet customers' demand.
Now, let's turn to the implementation of the memo and WAPA.
WAPA and DOE had jointly convened a team which is charged with
preparing recommendations to the Secretary. So far, the team
has received extensive input from preference customers,
stakeholders, Tribes, and Congress through the following: six
listening sessions, five workshops, two webinars, three
sessions for House and Senate staff. We have received over 100
written comments online.
Based on the results of this outreach, WAPA's own internal
reviews and reports, external resources, and their own
expertise, the joint Western and DOE team will be deliberating
and developing a set of draft recommendations. They will be
sending those recommendations to the Secretary after folks have
an opportunity to comment on them. And they will be potentially
revising them based on the comments they receive. The team
intends, as I just indicated, to publish those draft
recommendations in the Federal Register, so everybody knows
what they are.
This work has been and will continue to be a robust,
collaborative process, sensitive to the unique character of
each of WAPA's regions.
And I look forward to answering your questions. Thank you.
[The prepared statement of Ms. Azar follows:]
Statement of Lauren Azar, Senior Advisor to the Secretary,
U.S. Department of Energy
Chairman Hastings, Ranking Member Markey, thank you for the
opportunity to testify on the Federal Power Marketing Administrations
(PMAs), and specifically, Secretary Chu's March 16, 2012 Memorandum
(Memo) setting forth ``foundational goals'' that the Department of
Energy (DOE) is considering for the PMAs. In order to address these
goals, DOE intends to work with each PMA sequentially to develop
tailored approaches to ensure each region has the infrastructure
necessary to power the U.S. economy. DOE has begun this work with the
Western Area Power Administration (WAPA) and our approach to the other
PMAs will be revised in light of our experience with WAPA.
PMA PRIMARY MISSIONS: POWER MARKETING AND TRANSMISSION
The PMAs have two primary obligations: (1) marketing electricity to
preference customers so as to encourage the most widespread use of
federal power at the lowest possible rates to consumers, consistent
with sound business principles,\1\ and (2) maintaining and operating
their portion of the Nation's transmission grid.\2\ Below, I will
describe these obligations and how they relate to the Secretary's Memo
in more detail, but it is important to note from the outset that the
overwhelming majority of the goals set forth in the Memo relate to the
PMAs' transmission infrastructure and not to the marketing of federally
generated power to the preference customers.
Power Marketing
Beginning in the late 1800s, the federal government began to build
dams with hydroelectric power generation. The dams were initially built
primarily for flood control, navigation, or irrigation, while in some
systems the selling of the electricity was a secondary consideration.
Today, the electricity generated by these federal facilities is
incredibly valuable: with water as its fuel source, it is generally
inexpensive \3\ and produced without air-pollution emissions. As the
demand for clean energy grows, so does the value of these federal
assets. The Secretary is committed to taking good care of the federal
hydropower system and the clean energy it represents.
Congress has mandated the electricity generated by federal
hydroelectric plants be sold at cost. Congress also specified who in
each region should get priority access to this federal electricity,
namely the ``preference customers.''\4\ Understandably, the preference
customers have a strong interest in protecting their ability to
purchase cost-based, clean federal electricity. Other consumers in the
PMA regions, however, do not have access to this federal electricity,
and therefore must build their own generation or purchase electricity
on the open market.\5\ To be clear, preference customers also rely on
the open market to purchase electricity over and above their allocation
of federal hydropower to fulfill their customers' electricity needs.
Hence, both preference and non-preference customers benefit from a
robust and competitive electricity marketplace. (Herein the
``electricity marketplace'' refers not only to the buying and selling
of electricity but also includes all facets of generating, delivering,
and consuming electricity.)
The Secretary has expressed his continued commitment to driving
down consumers' bills while ensuring we have the infrastructure we need
to power the U.S. economy. DOE will comply with all applicable laws
relating to the rates for the sale of electricity to preference
customers, which includes the obligation to sell at the lowest possible
cost consistent with sound business principles. This commitment will
not waiver as the individual plans are developed. The DOE will continue
to support the PMAs' fundamental obligations to operate and maintain
the federal hydropower assets and sell their power to preferred
customers at cost.
Transmission
In addition to selling federally generated electricity, three of
the four PMAs (WAPA, BPA, and SWPA) own and operate 33,700 miles of
transmission lines that comprise a significant portion of the Nation's
power grid.
To bolster the competitiveness of the electricity marketplace and
to ensure the grid's resilience, Congress in 1992 and 2005 passed
comprehensive legislation creating obligations on grid operations and
reliability. As explained below, the Secretary's Memo is intended,
among other things, to ensure the PMAs are complying with these
obligations. In cases in which Congress exempted the PMAs from some of
these requirements, DOE has further required that the PMAs comply with
transmission requirements, to the extent allowed under the PMAs'
enabling statutes, to enable market competition and ensure grid
resilience. That policy remains in place to this day.
As part owners and operators of the Nation's transmission grid, the
federal government must maintain its aging facilities and, if
necessary, update or replace them for the benefit of their consumers.
The Secretary is committed to ensuring the PMAs' transmission is
managed to support cost-effective transmission expansion, grid
reliability and open, non-discriminatory access consistent with the
PMAs' statutory requirements. The federal government can and should be
leading the way in ensuring that our Nation has a reliable transmission
grid that supports a competitive marketplace.
To be clear, anyone using the PMAs' transmission lines pays for
that use, whether or not they are preference customers. As is true for
any transportation system supporting a marketplace, at a minimum, our
Nation's transmission system should accomplish the following for the
electricity marketplace:
Efficiently and reliably deliver electricity;
Eliminate barriers to competition and operate in a
non-discriminatory fashion; and
Accommodate the emergence of new technologies and
market opportunities/segments.\6\
The proposals described in the Secretary's Memo would seek to
accomplish all of these goals, through actions that are in harmony with
the PMAs' enabling statutes. And as mentioned previously, the
overwhelming majority of the proposed activities relate to the PMAs'
obligations and goals for transmission and not to the marketing of
federally generated power to the preference customers. As a
consequence, the Secretary's Memo will have minimal applicability to
the Southeastern Power Administration, which owns and operates no
transmission.
TODAY'S ELECTRICITY MARKETPLACE
Today's electricity marketplace differs markedly from that of even
10 years ago. For example:
(1) Security Threats and Natural Disasters: It should come as
no surprise that our Nation faces increasing security threats
and the electric sector is no exception. By establishing an
electric reliability organization and mandating the enactment
of reliability standards, including cybersecurity standards,
Congress has mandated a hardening of our electric
infrastructure against physical threats, natural disasters, and
cyber attacks. Protecting the transmission grid is particularly
important. Blackouts not only threaten human health and safety,
but also cause immense economic injuries to our Nation's
businesses.
(2) Technological Advances: As consumers adopt new or
improving technologies and practices such as large electric
water heaters used as storage devices, rooftop solar, electric
vehicles, and demand-response applications both the
transmission grid and the electricity marketplace will face
challenges and opportunities.
(3) State Renewable Portfolio Standards (RPS): Thirty-seven
states \7\ have now enacted RPS standards (mandatory) or goals
(voluntary). In other words, 37 states have decided to
incentivize the production of electricity from renewable
sources, which often are variable resources. The electricity
transmission system should be flexible enough to accommodate
these new sources of generation into the grid.
The Secretary's memo asks the PMAs to effectively respond to the
continued changes in the electricity marketplace to better serve their
customers and stakeholders within the limits set by their enabling
statutes.
CONSUMERS' BILLS
The evolving nature of the electricity system requires the owners
and operators of the transmission grid to adapt. As owners and
operators of a significant part of the transmission grid, the PMAs
should explore more effective ways to invest in the future and keep
pace with the changing industry. Our overall goal is to keep consumer
bills as low as possible while ensuring our Nation has the
infrastructure needed to remain competitive in a global economy and
accommodate regional choices to meet consumer demand.
JOINT OUTREACH TEAM
WAPA and the DOE have jointly convened the Joint Outreach Team
(JOT), which is charged with preparing recommendations to the Secretary
in response to his Memo. The JOT held six listening sessions and five
substantive workshops throughout WAPA's service territory soliciting
comments from customers and stakeholders on the issues presented in the
Memo. Additionally, over one hundred written comments have been
submitted on-line through [email protected]. In advance of the workshops and
listening sessions, JOT held a webinar for registered participants and
those unable to participate in the workshops and listening sessions.
JOT also held a webinar after the workshops and listening sessions
providing a high-level summary of those sessions. JOT also held a
separate tribal conference call and will shortly be holding a separate
tribal webinar as part of its government-to-government consultation
plan.
Based on the results of the workshops and listening sessions, input
received online and through webinars, WAPA's own internal reviews and
reports, external resources, and their own expertise, the JOT will
deliberate and develop a set of draft recommendations to the Secretary.
Though not legally required, the JOT intends to publish those draft
recommendations in the Federal Register asking for public and
congressional comments. After receiving the comments and revising the
draft recommendations, the JOT will submit its final recommendations to
the Secretary.
In addition to the JOT outreach, DOE and WAPA held three
informational sessions for House and Senate staff during which the
workshops and listening sessions were summarized and questions
answered.
This work has been and will continue to be a robust collaborative
process sensitive to the unique character of each PMA. I look forward
to answering your questions.
ENDNOTES
\1\ This standard--to encourage the most widespread use of Federal
power at the lowest possible rates to consumers, consistent
with sound business principles--is often simply referred to as
``cost-based rates'' or ``at cost''. The truncated versions are
used hereafter.
\2\ The PMAs have many responsibilities beyond these two missions. For
example, BPA has a third primary mission: fish and wildlife
protection.
\3\ The relative expense of federal hydropower differs from system to
system. As a consequence, it is not ``inexpensive'' for every
system.
\4\ ``Preference Customers'' refers to municipalities and other public
corporations and agencies.
\5\ There are exceptions. BPA and WAPA have a few non-preference
customers who are grandfathered and able to purchase federal
electricity. Certain non-preference customers of BPA receive,
from the power revenues, annual benefits for their rural areas.
\6\ These bulleted items refer to both legal requirements and policy
goals.
\7\ In addition to these 37 states, the District of Columbia and
Puerto Rico both have an RPS.
______
The Chairman. Thank you very much for your testimony. And I
will recognize Mr. Jim Baak, the Director of Policy for
Utility-Scale Solar in San Francisco.
You are recognized for 5 minutes.
STATEMENT OF JIM BAAK, DIRECTOR OF POLICY FOR UTILITY-SCALE
SOLAR, THE VOTE SOLAR INITIATIVE, SAN FRANCISCO, CALIFORNIA
Mr. Baak. Mr. Chairman, Ranking Member Markey, members of
the Committee, good morning and thank you for inviting me to
participate in this hearing on the Secretary's memorandum to
the PMAs. I am representing The Vote Solar Initiative. It is a
non-profit, non-partisan, foundation-funded organization
working to promote rooftop and utility-scale solar deployment
in America. As a Director of Policy for Utility-Scale Solar, I
am involved in regional and State transmission planning efforts
throughout the Western interconnection.
But the testimony I am providing today also reflects the
input and views of many members of the Western Clean Energy
Advocates, a large and diverse coalition of renewable energy
developers and advocates, independent transmission developers,
environmental organizations, consumer advocates, energy
efficiency proponents, and other stakeholders who support clean
energy development.
There is very little disagreement in the utility sector
that the Nation's grid is aging and in need of modernization.
The grid today was never designed to support modern demands
such as a reliance on digital technology, integration of
variable resources, threats from cyber attacks, smart grid
technologies, and a host of other innovations that are underway
or on the horizon.
The PMAs operate a significant amount of electric
transmission. The measures identified by the Secretary are
being undertaken by all operators of electricity grids
throughout the country. The PMAs must not be the weak link in
the grid. Indeed, many of the PMAs are undertaking the measures
that are outlined by the Secretary. From DOE and Western
meetings that took place over the course of the summer, it was
evident that the preference customers support the substance of
the Secretary's memo. There was obviously disagreement over the
process and the tone of the memo, but I am not here to address
the process or the actions of the Department of Energy, but to
focus on the substance of the memo, and benefits and
consequences of not modernizing the grid.
The PMA's role extends beyond just supplying hydropower to
preference customers. There is no dispute that the PMAs have an
obligation to provide reliable, cost-based Federal hydropower
to preference customers. PMAs also have an obligation in an
increasingly interdependent grid to all users of the grid to
ensure reliable, cost-effective operation of the grid. And we
saw evidence or the consequences of the lack of cooperation a
year ago with the black-outs in Southern California and
Arizona.
And the PMAs also have an obligation to support national
and regional energy security and climate goals.
The essential question in this discussion should be, what
are the consequences of not modernizing the grid? Without
undertaking these measures, can the PMAs continue to reliably
operate the grid, given the historic changes that are taking
place in this country? If the PMAs do not undertake these
measures, will it prevent them from fully benefitting from a
more efficient and cost-effective grid enabled by an energy
imbalance market?
Without the measures, how can the PMA support national
energy security and climate goals and the actions of other
Federal agencies, such as the Department of the Interior's
solar programmatic environmental impact study and the rapid
response team?
How will the preference customers be able to cost-
effectively comply with the RPS, or renewable portfolio
standards or climate policy requirements, such as those that
are mandated in California?
And finally, we know that hydro resources are diminishing.
In the Sierras, reports to Governor Brown indicate that there
is less snowfall and earlier snow melt-off. But there is also
increasing use of wind, solar, and geothermal. How will
preference customers be able to access other affordable sources
of energy without these modernizations?
Undertaking these measures will result in significant
benefits throughout the entire country. Just as an example, in
the West, the solar industry has been growing tremendously in a
down economy. It is projected by 2016 there will be 100,000
jobs in the solar industry, alone. There are already 2,500
solar companies with projects worth a projected $3 billion.
There is an additional $10 billion of solar projects that are
in the works now. And in the wind industry, there are 30,000
jobs and 128 manufacturing facilities in the Western
interconnection alone, representing $60 billion in capital
investment. We applaud the DOE's efforts and we encourage the
DOE, the PMAs, and the preference customers to work together to
realize these benefits.
Nothing here takes away from the PMAs' primary obligations
to deliver cost-based, economical hydropower from Federal
projects to their customers. To the contrary, we believe these
changes that are outlined by the Secretary are absolutely
necessary to ensure their ability to continue to meet their
obligation into the future, and do their part to ensure
continued reliable and cost-effective operation of the entire
grid.
Thank you again for inviting me to testify before this
Committee, and I look forward to your questions.
[The prepared statement of Mr. Baak follows:]
Statement of Jim Baak, Director of Policy for Utility-Scale Solar,
The Vote Solar Initiative
New Demands on Old Infrastructure
The Power Marketing Administrations (PMAs) operate a significant
amount of transmission in the US and are an integral part of an
increasingly interdependent grid. While the system has operated to meet
the demands of the past, the existing electric grid is not designed to
meet the demands of the 21st century economy. Increasing reliance on
digital technology, integration of variable resources, threats from
cyber attacks, development of smart grid technologies, and a host of
other innovations are stressing an aging electric transmission
infrastructure.
There is very strong agreement among those in the utility sector
that the grid needs to be modernized to keep pace with these changes to
continue to deliver reliable, cost-effective electricity to consumers.
The measures outlined by Secretary Chu in his memorandum explore these
options, and are in large part already being implemented or considered
by grid operators throughout the country.
It is therefore imperative that the PMAs keep pace so they are not
the ``weak link'' in the grid. Failure to keep pace with grid
modernization efforts will result in increased costs to consumers,
including preference customers, stemming from reduced reliability,
increased security risks, and inefficient and more costly operation of
the grid.
Messages From the DOE/Western Workshops--There is Agreement on the Need
for Grid Modernization and Enhanced Coordination and Planning
Vote Solar participated in the Department of Energy (DOE) and
Western Area Power Administration (Western) jointly hosted Workshop
``Defining the Future'' in Rancho Cordova, California.\1\ There were a
large number of Western's preference customers in attendance, with a
relatively small number of other stakeholders participating.
---------------------------------------------------------------------------
\1\ This workshop was one of a series of stakeholder workshops and
listening sessions hosted by the DOE and Western.
---------------------------------------------------------------------------
During the workshop, some objected that the process was not very
open or transparent. There were also objections to the tone of the memo
and what was perceived as top-down control by DOE. There were also
objections that the DOE is misinformed about the condition of Western's
grid.
However, we did not hear any major objections to the overall goals
of the memo, nor did we hear disagreement over the value of the
measures outlined by the Secretary. In fact, we heard that Western and
its customers are already doing many of the things outlined in the
Secretary's memo. From the descriptions of the upgrades and programs
being undertaken by Western and the individual preference customers,
it's evident that they share the same goals outlined by the Secretary.
PMA's Obligation Extends Beyond Preference Customers
The PMAs have an obligation to continue marketing and delivering
reliable, renewable, cost-based Federal hydropower to their customers--
that message is clear and undisputed. But, as is the case with Western,
they also have an obligation to the American citizens that funded the
projects that provide their customers with low-cost hydropower. As part
of an interconnected and highly interdependent grid, all of the PMAs
have an obligation to all users of the electric grid, as does every
transmission operator. Finally, as agencies of the Federal government,
the PMAs have an obligation to support the efforts and programs
established by the Administration, Congress, and other agencies of the
Federal government that support national energy, economic and
environmental goals.
Preference customers are obligated to serve the interests of their
citizen-owners, and that is as it should be. But the PMAs play a larger
role as major transmission service providers. While PMAs are involved
in many transmission planning and coordination activities, they need to
be looking at the broader regional and long-term implications.
Consequences of Business-As-Usual
As the Secretary outlined in his memo, the nation faces significant
new challenges that the existing electric grid was not designed to
handle efficiently or effectively. The central question in this
discussion is this: What are the consequences of not doing the things
outlined by the Secretary in his memorandum?
While Western and the other PMAs have undertaken some of the
modernization measures outlined in the memo, they may not take into
account the broader regional implications, and they may not support the
many efforts underway or being planned for the broader Western
Interconnection.
For example, how do the modifications undertaken or underway by
Western support the Department of the Interior's (DOI) Solar
Programmatic Environmental Impact Study (SPEIS)? Will they allow
preference customers to fully benefit from a west-wide Energy Imbalance
Market (EIM)? Do they support the more aggressive Renewable Portfolio
Standard (RPS) Governor Brown has suggested for California, or the
expansion of renewable energy being studied by Western Electricity
Coordinating Council for the 2013 Regional Transmission Expansion
Planning process? How well do Western's planning efforts mesh with FERC
Order 1000 regional and interregional planning requirements?
Finally, there is the issue of cost. What will be the impacts on
rates if Western does not fully participate in initiatives like a west-
wide EIM that will support more a efficient and less costly grid? If
climate change continues unabated, how much low-cost hydropower will
continue to be available to Western's customers and what will be the
price? What's clear is that there will be more renewable energy in the
generation mix throughout the West--without adequate preparation, will
Western be able to cost-effectively integrate larger amounts of
renewable energy and bring those benefits to its customers?
Supporting National and Regional Goals
FERC has recently issued orders on integrating variable resources
and developing regional and interregional plans, including
consideration of public policy requirements for the first time. Federal
efforts to slow climate change, promote the development of the
country's vast homegrown, inexhaustible renewable resources, wean off
of imported energy and enhance our energy security and other federal
goals will benefit greatly from these proposed changes. Already the
country is benefiting from the economic activity generated from these
policies.
For example, the transition to a clean energy economy will continue
to yield dividends to both rural and urban America. Despite the worst
recession since the Great Depression, renewable energy has emerged as a
strong economic force, growing and creating jobs for Americans. The
solar energy industry alone is projected to support upwards of 100,000
jobs by 2016 in the 15 states Western serves. Already there are more
than 2,500 solar companies in these states, with more being added each
year. The approximately 1,800 MW of installed solar capacity in these
states in 2010 is valued at over $3 billion. There are an additional
26,800 MW of large-scale solar projects under construction or in
development in these states, representing over $10 billion in
additional investment.
There are also over 30,000 MW of wind power in the states served by
Western, representing approximately $60 billion in capital investment
and 65% of all the wind built to date in the U.S. The capital
investment from wind projects has helped reinvigorate the manufacturing
sector in the region with the creation of 128 manufacturing facilities
in Western's service area. In 2011 alone, the wind industry was
responsible for over 30,000 good paying manufacturing, construction and
other jobs in these states. For rural economies in these Western
service area states, the investments result in annual economic benefits
including more than $210 million in county property taxes and close to
$90 million in lease payments to land owners--an important factor for
continuing the region's rich heritage in farming and ranching.
The PMAs can and should play a role in supporting these and other
national and regional goals.
PMA Leadership is Needed
We applaud DOE's leadership on this issue. We strongly believe the
measures outlined in the Secretary's memo will greatly improve
reliability, reduce costs and bring about significant economic
benefits. We encourage DOE, the PMAs and their customers to work
together to implement these measures.
We support the recommendations outlined by the Secretary to help
guide PMA planning to meet their obligations to their customers. In
particular, we encourage the PMAs to undertake the following measures:
Maximize efficient operation of the PMAs' grids via
consolidation of their Balancing Areas
Eliminate rate pancaking across the PMAs' grids
Implement conditional firm service rates to allow for
fuller utilization of existing transmission resources
Implement advanced technologies such as
synchrophasors
Improve coordination with neighboring Balancing
Authorities (BA), as recommended in the FERC/NERC September 8,
2011 Blackout report
Participate in the development and implementation of
a west-wide Energy Imbalance Market (EIM) (Western and BPA)
Participate more actively in the Regional
Transmission Expansion Planning process and Scenario Planning
Steering Group effort (Western and BPA)
Continue to participate in the development of
regional and interregional planning efforts in compliance with
FERC Order 1000, identifying opportunities for PMAs to support
regional and interregional goals
Use Section 1222 funding, leveraging private sector
financing to support regional and national goals, such as
building transmission to Solar Energy Zones that have been
identified by the Bureau of Land Management (BLM)
Actively support efforts of other federal agencies,
such as Department of the Interior's Solar Programmatic
Environmental Impact Studies (SPEIS) and Restoration Design
Energy Project (RDEP), the Department of Energy's SunShot
Vision Study, implementation of FERC's Variable Energy
Resources Integration Order, and support for the Rapid Response
Transmission Team efforts. For example, BLM lacks the
transmission expertise to evaluate transmission capacity to
serve the proposed SEZs. Western should lend its expertise to
BLM in screening SEZs for access to existing or planned
transmission capacity.
Nothing here takes away from the PMAs' primary obligations to
deliver cost-based, economical hydropower from federal projects to
their customers. To the contrary, we believe these changes are
absolutely necessary to ensure their ability to continue to meet their
obligations into the future and do their part to ensure continued
reliable and cost effective operation and enhancement of the entire
grid.
Thank you for the opportunity to comment.
______
The Chairman. Thank you, Mr. Baak, for your testimony.
I will now recognize W. Kent Palmerton, the General Manager
of the Power and Water Resources Pooling Authority out of
Carmichael, California.
STATEMENT OF W. KENT PALMERTON, GENERAL MANAGER, POWER AND
WATER RESOURCES POOLING AUTHORITY, CARMICHAEL, CALIFORNIA
Mr. Palmerton. Mr. Chairman, Ranking Member Markey, thank
you for allowing me this opportunity to testify before you
today on behalf of the Power and Water Resources Pooling
Authority. I am its General Manager. The Pooling Authority is a
publicly owned joint powers authority serving the aggregated
electric needs of its eight irrigation districts and six other
water districts, collectively known as its ``participants.''
Virtually all of the electricity provided by the Pooling
Authority is used by its participants for pumping water and for
water treatment activities. Participants, particularly the
participants in the Central Valley, deliver water to growers
that farm over 1 million acres in California. Our diverse
membership includes: the Glenn Colusa Irrigation District north
of Sacramento; the Sonoma County Water Agency on the coast; the
Santa Clara Valley Water District in the Silicon Valley; and
the Arvin-Edison Water Storage District south of Bakersfield in
the San Joaquin Valley.
Each participant has a Western allocation for power, which
they have assigned to the Pooling Authority. Each participant
also has one or more contracts with the Bureau of Reclamation
for water supply from the Central Valley Project, the CVP. The
Pooling Authority relies on Western power for approximately 50
percent of our energy needs on an average year. And in wet
years that can grow as much as 90 percent, as our loads are
inversely proportional with the amount of surface water that is
available to us.
As you can see, the future of how Western's power is used,
and how it is brought into question by the Secretary's memo, is
of critical importance to our participants. There are many
problems with the primary thrust of the Secretary's proposal,
which is to use Western power--or at least it promotes the use
of Western power--to integrate renewable energy resources into
the grid.
Most importantly, Western does not operate the dams. That
is done by Reclamation. As is in the case for most Reclamation
projects, power generation is a secondary or even a tertiary
purpose of the projects. In the case of the CVP, our
authorizing legislation states that the project is to be used
first for river regulation, improved navigation, and flood
control.
Second, for irrigation and domestic uses. The power
generation is a byproduct of water releases made for the CVP
project priority uses. Federal law does not allow power
generation to impair the efficiency of the CVP for water
delivery purposes. In our view, any change in the CVP statutory
priorities would violate existing water contracts, existing
power contracts, and would require congressional legislation--
pardon me.
Further, changes to Western operations that shift emphasis
away from current statutory duties, including power deliveries
to its customers, in favor of priorities that have been
identified in the Chu memo will raise our costs. Higher costs
means higher water delivery costs. It means an impact to the
economy of the farming communities in the Central Valley.
The impact of the Secretary's proposal to cost shift the
impact--pardon me. The impact of the Secretary's proposal is to
cost shift to Western customers by authoring the operation of
the Federal dams. And since water delivery obligations are the
basis of how the CVP is optimized, using hydropower to
integrate renewable resources will shift water release patterns
in a manner that we expect to erode the benefits of the CVP to
the Pooling Authority and our farm communities.
The Secretary's memo implies that Federal hydro facilities
are ideal for integrating renewable resources. For that reason,
DOE is urging Western to participate in an energy imbalance
market, or an EIM. An EIM would not save our participants any
money. It may, in fact--and we expect it to increase our cost.
Hijacking the CVP hydrogeneration to create an EIM and
socialize the cost of integrating renewable resources would
violate most, if not all, of CVP water obligations and
contracts that exist today or might exist in the future.
Although we believe that the Chu memo was ill conceived,
the Secretary should be pleased that the goal of increased
renewable development is a goal we all share. The Pooling
Authority is on track to meet its 33 percent renewable resource
penetration, as the California RPS requires. And even a small
entity like the Pooling Authority is expected to spend millions
of dollars to meet that goal.
In the interest of time, I would be happy to answer
questions if you have any for me, particularly as it relates to
the trade-off between investments and transmission and the use
of generation for integrating renewable resources. Thank you.
[The prepared statement of Mr. Palmerton follows:]
Statement of W. Kent Palmerton, General Manager,
Power and Water Resources Pooling Authority
Mr. Chairman, on behalf of the Power and Water Resources Pooling
Authority, or the ``Pooling Authority,'' I greatly appreciate the
opportunity to testify before the Committee on Natural Resources, with
respect to the issues raised by the March 16, 2012 Memorandum issued by
Secretary of Energy Chu (``Chu Memo'') on potential reforms to the
Power Marketing Administrations, including the Western Area Power
Administration (``Western'').
The Pooling Authority is a joint powers agency that was formed by
eight Irrigation Districts pursuant to California law. The Pooling
Authority is a publicly-owned retail electricity provider that serves
the aggregated electric energy needs of its eight Irrigation District
members, as well as six other types of water districts. Collectively,
we refer to these 14 districts as the Pooling Authority's Participants.
Virtually all of the electricity provided by the Pooling Authority is
used by its Participants for pumping water and water treatment.
The Pooling Authority's Participants are diverse, and include the
Glen Colusa Irrigation District located amidst the rice fields north of
Sacramento, the Sonoma County Water Agency which spans from world-
famous Napa Valley to the Pacific coast, the Santa Clara Valley Water
District serving part of the Silicon Valley, and the Arvin-Edison Water
Storage District which supports the agriculture in the southern San
Joaquin Valley. The Pooling Authority's retail electric load varies
depending upon hydrological conditions, which can greatly affect
pumping to serve our Participants and their growers. The Pooling
Authority's electric load ranges between approximately 300 and 500
gigawatt hours of energy per year, with a peak load of nearly 110
megawatts during the summer irrigation season in dry years.
Using this power, Pooling Authority Participants deliver water to
growers that farm over one million acres of farmland in California's
Central Valley. All totaled, the Pooling Authority's Participants
deliver over 3.85 million acre-feet of water annually for various
purposes.
The retail customer load that the Pooling Authority serves consists
mainly of the pumping and water treatment load of its 14 Irrigation and
Water District Participants. Each Participant has a Western allocation
for power that they have assigned to the Pooling Authority. In the
aggregate, the Pooling Authority represents nearly 7% of the Western
Base Resource power allocations. Each Participant also has one or more
contracts with the Bureau of Reclamation for water supply from the
Central Valley Project (``CVP''). The Pooling Authority relies on its
Western Base Resource contract for approximately 50% of its energy
needs across all water conditions. In wet years, the Western Base
Resource may serve more than 90% of the Pooling Authority's aggregate
load requirements. As you can see, the future of Western, which has
been brought into question by the Secretary's Memo, is of critical
importance to the Pooling Authority Participants and their water
customers.
My message today is simple. Changes to the PMAs that shift emphasis
away from their statutory duties, which include power deliveries to
their customers, will raise costs to the Pooling Authority. Higher
costs to the Pooling Authority means higher water delivery costs to the
farm communities that Pooling Authority Participants serve. Our
communities have struggled in the depressed economic climate of the
past several years. Pooling Authority Participants cannot afford the
increased costs that would likely flow from shifting Western's mission
away from service to its customers and toward the purposes set forth in
the Chu Memo, namely integration of renewable resources.
Although the Chu Memo was short on specific proposals, the goals of
a modern and secure infrastructure, increased renewable resource
development, and transmission improvements are goals the Pooling
Authority shares. But we are already doing all of this and more, and we
achieve these goals using our existing partnership with Western. These
goals include: (1) Grid Modernization--In the Western Sierra Nevada
Region, Western customers formed a partnership with Western and the
Bureau of Reclamation (``Reclamation'') to prioritize and fund
improvements to and modernization of federal generation and
transmission, with customer dollars not reliant on annual
appropriations. The Western system is reliable and modern, due in large
part to the partnership between Western and its customers, and without
using taxpayer dollars; and (2) Renewable Resources Development--the
Pooling Authority is pursuing and will comply with California's
aggressive renewable energy goals to achieve 33% renewable resources by
2020. Even a relatively small entity like the Pooling Authority will
invest millions of dollars beyond our base costs for power to achieve
these goals. Changes to Western will actually disrupt Western
customers' ability to comply with California's renewable energy
mandates, and will likely increase the use of fossil fuels to
supplement Western's carbon-free hydropower.
In my time here today, I would like to emphasize just a few of the
issues raised in the Chu Memo.
Reoperations of the Central Valley Project (``CVP''), Versus the
Statutory and Practical Limitations on How Federal Dams are
Operated.
The Chu Memo makes passing remarks that Western should engage in a
centralized dispatch to better integrate Variable Energy Resources
(``VERs'')--Renewables. The Secretary goes on to imply that federal
hydro facilities are ideal for integrating VERs. Notwithstanding our
objections based on the potential cost increases to our Western power
deliveries, the plain fact is that Western does not operate the federal
dams; this is done by the Bureau of Reclamation (Reclamation).
Further, power delivery is a secondary, or even tertiary purpose of
Reclamation in its operation of the CVP. The CVP authorizing
legislation states that the project is to be used, first, for river
regulation, improved navigation, and flood control; second for
irrigation and domestic uses. Generation of electricity is a by-product
of water releases made for the CVP project priority purposes. Federal
law forbids power generation to impair the efficiency of the CVP for
water delivery purposes. Any change in the CVP's statutory priorities
would require congressional action.
Impacts on Water Deliveries
As the Committee is aware, California has long-standing disputes
over water usage, which are not the purpose of this hearing. In order
to achieve their objectives, the Secretary's proposals are likely to
involve reoperation of federal generation. Under existing operations,
power output from the CVP is already optimized to provide flexible
peaking and ancillary service capability to existing power customers.
It is difficult to envision how reoperation of the CVP would avoid
trampling arrangements with existing customers like the Pooling
Authority, which were developed through a thorough public process and
are embodied in existing contracts.
What the Secretary is proposing is a cost shift to the Pooling
Authority and other Western customers by fundamentally alternating how
federal dams are operated in order to firm up renewable resources. And
since water delivery obligations form the basis on how the CVP is
optimized today, using federal hydroelectric resources to integrate
wind and solar generation may shift water release patterns in a manner
that could erode the benefits of the CVP to the Pooling Authority and,
therefore, to the farm communities that we serve.
Using Western to Build Transmission
California utilities are building transmission at a tremendous
rate, primarily to interconnect new renewable resources and comply with
state law. Evidence of this fact is that the Pooling Authority's
transmission costs have roughly tripled in the last five years as new
transmission is added to the system.
Secretary Chu's Memo suggests that Western should take a leadership
role to improve the transmission infrastructure in the West. The
Secretary does not explicitly explain what a ``leadership'' role might
entail. Our concern is that Western customers will be called upon to
pay for this leadership, either through cost responsibility for new
transmission, or by the diversion of attention and resources from
Western's core mission.
Western's costs have always been allocated upon a principle that
the ``beneficiary pays'' for new investment. Any use of Western to
facilitate the development of new transmission must follow that
principle. Further, this principle is not a vague notion of quantifying
indirect benefits, but allocates cost responsibility to the direct
users of the facilities. The Pooling Authority, as a direct user of
existing transmission of Western-Sierra Nevada Region, pays for the
cost of that transmission system. The Pooling Authority should not be
forced to pay for a transmission line from Wyoming to California that
interconnects wind resources, unless the Pooling Authority has
contracted for those wind resources. Given that it is unlikely that
these resources would qualify toward California Renewable Portfolio
Standard credit because of limitations in state law, we are highly
concerned about the prospect that Western will be used to spread
transmission costs across the region. Such a result would eviscerate
entirely the concept of ``beneficiary pays.''
Conclusion
I would like to conclude with the following observations and
recommendations.
First, any effort to expropriate the value of the federal assets
from Western customers in favor of renewable resource developers is a
cost shift that Pooling Authority Participants, and the communities
they serve, simply cannot afford.
Second, given that power generation from the CVP is constrained by
statutory purposes and operated by Reclamation, it seems likely that
some of the main objectives in the Secretary's Memo are outside of DOE
control and contrary to law.
Finally, given that the Pooling Authority and others in California
must already achieve by state law many of the objectives the Secretary
espouses, it is difficult to see what benefits the Memo's proposals
would bring with respect to the CVP.
The Chu Memo seems to be a solution in search of a problem, and an
expensive one at that. The Pooling Authority urges the Secretary to
start over, and work with the Pooling Authority and other Western
customers as partners to craft improvements to PMA operations that work
within the statutory and operational limitations of federal projects,
and which appropriately reflect the roles of the PMAs to market power
to its customers.
______
The Chairman. Thank you, Mr. Palmerton, for your testimony.
And I will recognize Mr. Joel Bladow, the Senior Vice
President of Transmission of the Tri-State Generation and
Transmission Association out of Westminster, Colorado. And you
are recognized for 5 minutes.
STATEMENT OF JOEL BLADOW, SENIOR VICE PRESIDENT, TRANSMISSION,
TRI-STATE GENERATION AND TRANSMISSION ASSOCIATION, INC.,
WESTMINSTER, COLORADO
Mr. Bladow. Thank you, Mr. Chairman, Ranking Member Markey.
I appreciate the opportunity to provide testimony concerning
the directives articulated in the Secretary's memo. And,
really, the proposal unilaterally restructured the PMAs, and it
really concerns us. As this process started, we weren't sure
how the listening sessions would go. And now that they are
done, and I have attended, it gives us great concern.
A little background on Tri-State. We are a not-for-profit,
member-owned G&T. Tri-State covers four States: Colorado,
Wyoming, New Mexico, and parts of Nebraska. We have been a
partner in the Federal power program for over 60 years now. And
it was around before we were, and we have had a great
partnership over the years.
I think it is important to understand some of the basics.
And a lot of the other panel members articulated things about
WAPA and the Federal power program. But people, I think, have
made a mistake. They continue to refer to--there is a power
marketing and delivery of preference power mission and there is
a transmission mission. And the reason WAPA has a transmission
system is to deliver Federal power. It is kind of like saying
we are going to work on the engine in your car. The engine is
part of the car. You can't do things with the engine and not
impact the rest of the vehicle. It's the same with the PMAs.
You can't go and say, ``We are only going to touch the
transmission,'' because it is linked with the power generation,
and they work together. That is how they were designed.
The Federal power program, it has been a success for almost
100 years. As I said, we have partnered with it for over 60
years. And we have put in millions of dollars and hundreds of
millions of dollars into supporting the program. And we have
this partnership that goes way back, and I think that is a real
important aspect of it is not just the Federal grid, it is not
just the customer grid, it has been a partnership. So simply
saying the Department of Energy is going to restructure WAPA or
move them to do things differently, it really doesn't work.
One of the things that we discovered in the listening
session is WAPA has already shortened a time they require for
people to schedule power. The challenge is nobody else around
them has done that. Therefore, it is meaningless. So one
utility cannot march out in front of everybody else and decide
that they are going to change the way the grid is operated,
because nobody else is out there with them. It just doesn't
work. It has to be done in partnership. And Western has been
very active and very involved in meeting the goals of the
utility industry and the challenges.
Another thing I would focus on is WAPA is an operating
entity. The Department of Energy has other functions. For
instance, renewable energy gets--I think it is $2.4 billion
this year to promote and help assimilate renewables. They spend
about $150 million a year on policy development, very good
activities. There is a place for them. But WAPA is an operating
entity. When you take a handful of key people--and there is a
whole bunch of them--working on this initiative, when we are
trying to hook up load, when we are calling WAPA, a lot of key
decisions have been delayed because those folks are busy
working on this initiative. There are impacts with that, and
they concern us.
In terms of the process, one of the things I see is DOE
defined the road we are on, and then went out and asked for our
input on that road. They may be on the wrong road. One of the
things that was clear at the listening session I was at, and we
started at 8:00 in the morning and finished at 8:00 at night.
And I would say the 80 people there were power customers of
WAPA and very concerned about what may happen to their costs
and the impacts on their system and the long-term partnership.
But it is important to--you know, we are giving feedback on
DOE's road and not giving feedback on what could we all do
together. One of the strong messages that came out by all the
participants was a ``Don't divert WAPA resources in order to
start new missions. It is really up to the Department of Energy
and Congress to allocate new resources if you want them to have
a new mission. Otherwise, you are going to impact, really,
constituents out there and consumers' electric bills, as well
as their reliability.''
Another thing that I think was loud and clear is in 100
years of the program, it is very difficult to have 5 or 6
meetings over about a 3-month span and understand it fully, and
understand it enough to make a lot of changes without having a
lot of unintended consequences. The process is moving extremely
fast for a program that has been around so long, and it is
extremely complex. The industry is changing and has a lot of
moving parts.
So what I would emphasize is we are willing to work
together to identify common ground where we can work and look
at changes. But the way it is now, the changes have been
somewhat defined, and whether you agree to them or not, they
seem to be going in that direction. And that is our concern.
And I appreciate the opportunity, I would be happy to
answer questions.
[The prepared statement of Mr. Bladow follows:]
Statement of Joel Bladow, Senior Vice President, Transmission,
Tri-State Generation and Transmission Association, Inc.
Mr. Chairman, Ranking Member Markey, my name is Joel Bladow. I
currently serve as Tri-State Generation and Transmission Association
Inc.'s Senior Vice President of Transmission. I appreciate having
another opportunity to testify before the committee on the impact the
``Chu Memorandum'' will have on Tri-State's ability to provide
affordable and reliable electricity to small businesses and residential
consumers throughout the Intermountain West.
Tri-State Background
Tri-State is a not-for-profit wholesale electric cooperative based
in Colorado. Our mission is to provide reliable, cost-based wholesale
electricity to our 44 not-for-profit member systems (electric
cooperatives and public power districts) while maintaining high
environmental standards. Our members serve 1.5 million predominantly
rural consumers over 200,000 square miles of territory in Colorado,
Wyoming, Nebraska and New Mexico. To meet our membership's electricity
needs, Tri-State generates, or purchases power produced by coal,
natural gas, and hydropower, as well as from intermittent renewables
like solar and wind. Since the end of 2010, we have integrated just
over 30 megawatts of solar from the Cimmaron Solar facility in Northern
New Mexico and 50 megawatts of wind from Duke's wind farm in
Burlington, Colorado. Tri-State recently signed a 20 year agreement to
purchase all 67 megawatts of generation from the Colorado Highlands
Wind Project located in Logan County, Colorado. In addition to these
larger scale projects, Tri-State's Board of Directors has established
policies to encourage local renewable energy projects on our member
systems. Under this policy our members have added, or are scheduled to
add, another 42 megawatts of distributed renewable generation
resources. Tri-State is not unique with respect to the integration of
traditional sources of coal, natural gas, federal hydropower and
intermittent resources. Other customers of the Western Area Power
Administration (WAPA) have undertaken similar initiatives and have
comparable generation portfolios.
We are proud of the great strides we have taken to integrate
intermittent renewable and local distributed generation into our
production fleet. However, our most important source of renewable
generation is still the reliable, dispatchable hydropower generated at
the multi-purpose projects of the U.S. Army Corps of Engineers and
Bureau of Reclamation and marketed by WAPA. Hydropower purchased from
WAPA accounts for approximately 12% of our generation needs. Given that
it is an important component of fulfilling our mission to provide
affordable and reliable electricity to the rural membership we serve,
we are very concerned about the directives for WAPA and the other power
marketing administrations laid out in the Chu memo of March 16th, 2012.
Affordability and Reliability
As I noted, Tri-State's 44 members serve the predominantly rural
areas of our four state service territory, which includes New Mexico,
Nebraska, Wyoming and Colorado. On average these member systems serve
five consumers per mile compared to 37 consumers per mile served by
investor owned utilities. Many of the tribal customers served by our
member systems reside in the poorest economies in the country. We are
similar to other electric cooperatives nationwide who collectively
maintain 41% of the electric distribution network, yet only have 12% of
the consumers to shoulder the costs of building and maintaining this
infrastructure. In times of economic recovery our consumers--whether it
be the residential customer struggling to pay their mortgage, or the
small business struggling to meet payroll--cannot be burdened with
additional costs leading to unaffordable electricity. Unfortunately, we
believe the Chu memorandum will add costs to our consumers' electricity
bill, not reduce them. The DOE/WAPA sponsored workshops and listening
sessions on the Chu Memo that took place this summer have not reduced
our concerns over the DOE undertaking initiatives that may compromise
the fundamental core principle of providing affordable electricity.
DOE/WAPA Workshops
During June and July 2012, the DOE and WAPA jointly sponsored
workshops to discuss and further explain WAPA's future mission as
outlined in the Chu Memo. These meetings were billed as an opportunity
to discuss the memo in an ``open and transparent'' manner. In other
words, the sessions were an opportunity for DOE to collaborate with
customers and other interested parties on the initiatives laid out in
the memo. Unfortunately, they focused on what the DOE thought the
future should be as opposed to listening to the participants to better
understand what the people most directly impacted by Secretary Chu's
proposed realignment of the agency thought.
As Tri-State noted in the submission of its comments, the DOE/WAPA
workshops were,--to put it lightly--disorganized. This appeared to be a
direct result of a goal to get the workshops done quickly as opposed to
a focus on collaborating with customers and stakeholders to identify
and prioritize issues and concerns of impacted consumers. It was clear
from the meeting I attended that significant resources and cost, on
both WAPA and the participants' parts, were expended on this effort. It
is shame that time was not allowed to conduct a more meaningful,
collaborative process that could have built support for important
changes as opposed to a top-down, time constrained process that has no
support from those it will impact the most.
Given the superficial nature of the DOE workshops and listening
sessions that transpired over the summer--Tri-State remains concerned
about the initiatives highlighted in the Chu Memo and the associated
costs. It is important to re-emphasize that the Federal power system
operates under the fundamental principle that the beneficiary pays for
the initiatives from which it benefits. Therefore, the existing Federal
power customers should see no harm to their rates as a result of these
initiatives; if the initiatives do not benefit existing customers, the
funding should come through the form of non-reimbursable
appropriations. One customer should not be burdened with the
subsidization costs of an initiative which solely benefits another
customer.
If DOE publishes a report proposing new initiatives for WAPA based
on the findings of the DOE listening sessions and workshops, or other
feedback collected since the issuance of the Chu Memo, these
initiatives should be non-reimbursable appropriations unless they can
specifically demonstrate direct benefit to Federal power customers. As
operators of the Federal transmission grid, WAPA has an obligation to
deliver electricity generated at Bureau of Reclamation and U.S. Army
Corps of Engineers facilities at a cost-based rate. This rate ensures
recovery of operation, maintenance and investment costs (principal and
interest to the U.S. Treasury). If there is excess transmission
capacity available for purchase, it is WAPA's obligation to offer it on
a non-discriminatory basis via the OASIS. The additional revenues
realized from such sales should be used to help pay for the
transmission system that is used and not diverted to pay for other
public policy initiatives.
Conclusion
Little has changed since Secretary Chu released his March 16th,
2012 memo outlining new initiatives for WAPA and the other three
Federal power marketing administrations. If anything, the series of
workshops and listening sessions have only hardened our view that DOE
embarked upon this mission without a fundamental understanding of
WAPA's mission and the underlying statutes providing the framework for
its mission. As I noted during my last testimony, WAPA is a real
utility with real obligations to its customers, not a test-bed for
policy initiatives and technology deployment. Many of the new missions
outlined in the Chu memo are better suited for implementation by retail
utilities, not a wholesale supplier such as WAPA. If the DOE is really
interested in implementing changes that benefit consumers and the
nation, a fresh start at examining WAPA's future is in order, not the
continuation of the present top-down unsupported initiative.
Thank you, Mr. Chairman. I'd be happy to take any questions from
the committee.
______
The Chairman. Thank you very much for your testimony. We
will now start the round of questioning. I will recognize
myself first.
This is to Mr. Crisson and Mr. Corwin. Apparently, the
Secretary's staff is--in the memo it says something to the
effect that they want to bring the PMAs into the 21st century.
Now, when you say things like that, you imply that there is
something lacking or outdated. Do you believe that the PMAs are
outdated, Mr. Crisson and Mr. Corwin?
Mr. Crisson. No, Mr. Chairman. We do not believe the PMAs
are outdated. In fact, I think if--the time it has taken to
look at the status quo, what the PMAs have been able to
accomplish in the last few years, it is a--I think a very
exemplary record. They have dealt with challenges ranging from
maintaining and operating a reliable transmission grid to, I
think, successfully conferring the challenges of integrating
renewable resources.
So, no, I think that is an overstatement and is inaccurate.
The Chairman. Mr. Corwin?
Mr. Corwin. Yes, and I just build on that with an example
for BPA. For example, I think they have been innovators. They
are in the public eye. They know they are. And their
capability, for example, on wind integration has led the
country. They have put in systems of forecasting, balancing,
the physical connections, the manpower, the expertise, the
software, overlaying that over the existing hydropower system
and nuclear resource. And they have done that going from about
almost no wind to 4,700 megawatts integrated in their system,
all in a matter of several years, which is really incredible,
and doesn't sound like a stodgy Federal agency to me.
The Chairman. Thank you for that. Another question for both
of you. I come from the Northwest, as you know, and hydropower
is a very big part of our electricity. Do either of you have
any concerns about the Chu memo, as it would potentially impact
hydro in the Northwest and other places, Mr. Crisson and Mr.
Corwin?
Mr. Crisson. Well, Mr. Chairman, I think our fundamental
concern is the potential impact on costs of the hydropower. As
a number of witnesses have pointed out, the statutory
requirements are for the rates of that hydropower sold to our
customers to be as low as possible, consistent with sound
business practices.
But there are also potentially, I think, operational
impacts on the system. Mr. Corwin can probably elaborate, I
think, on some difficulties that have been experienced as a
hydrosystem or any other operational system is used to
basically plug the gaps in the variable output of renewable
resources. Some of these consequences can be predicted. Some of
them, I think, are unintended but, nonetheless, they are very
real.
So, for example, in the Northwest this past year--or it was
2 years ago--they had a significant amount of surplus hydro, to
the point where it necessitated shutting down other generation
in the region, including the wind resources. In return, they
were basically sued by the wind developers, because they wanted
to continue to receive production tax credits. So there are
some fairly kind of perverse results than can occur when you
have that much renewables on a hydro system, and particularly
in the Northwest.
The Chairman. Real quickly, Mr. Corwin. I have questions
for the other witnesses.
Mr. Corwin. Sure, yes. I would concur with that. There is
the integration of the transmission system and the hydropower
system that Joel mentioned. And so we are doing a lot already.
And the real question that arises from the memo is if you are
going to do something different, or something more, what
exactly is that, and how will that impact the system?
The Chairman. Mr. Baak, speaking of hydro, do you believe
that hydro is renewable?
Mr. Baak. I believe that hydro is a clean source of
energy----
The Chairman. No, no, Mr. Baak, it is a pretty
straightforward question. Do you believe it is renewable?
Mr. Baak. I believe it is renewable, yes.
The Chairman. It is renewable. OK. Ms. Azar, you heard the
testimony of your fellow panelists, and a lot of it focused on
the process. In your oral testimony you talked about the number
of meetings which, of course, is quantity and potentially not
quality. How do you respond to what has been said here by some
of the other Members?
And let me ask this question in this regard. Is your
December 31st deadline still the deadline?
Ms. Azar. Yes. The----
The Chairman. Yes, it is. OK, now----
Ms. Azar. The Western DOE team that is working on this is--
--
The Chairman. Yes, OK. That is your deadline. Now, you have
heard from people that are concerned about the deadline as far
as quality, rather than quantity. How do you respond to that?
Ms. Azar. The Western DOE team has not asked for an
extension. If they do, I am sure the Secretary would consider
it.
Right now--and I want to emphasize that the folks that are
working on this are a team comprised of Western employees and
DOE employees. They pick their own team. They are working very
extensively. And they are using the input that they received at
the listening sessions and workshops.
Let me give you some actual numbers, so that you get an
idea----
The Chairman. Well, my time has expired.
Ms. Azar. Oh, drat.
The Chairman. So I don't have other time. But if you want
to submit that for the record, I would be more than happy----
Ms. Azar. I would love it.
The Chairman. But what I would like--and maybe this is an
opening for somebody else--I heard very distinctly there is a
problem with the process, and the process meaning the quality
of the process. Your response was quantity. With that, I will
recognize the Ranking Member.
Mr. Markey. Thank you. The production tax credit for wind
expires on December 31st this year. And the Democrats want to
extend it. Otherwise, there is going to be an increase in the
cost for wind generation in our country. So I would like to
just go down the line.
Would raising taxes on the wind industry increase or
decrease rates for consumers? Just right across. Would it
increase or decrease? Mr. Crisson?
Mr. Crisson. All things being equal, I think it would
increase.
Mr. Markey. Increase? Yes. Next?
Mr. Corwin. I believe so.
Mr. Markey. Excuse me?
Mr. Corwin. I said yes, I agree with that.
Mr. Markey. Increase? Yes.
Ms. Azar. I would need to answer that for the record.
Mr. Markey. OK. Yes, sir?
Mr. Baak. It would increase, yes.
Mr. Markey. Increase, yes. Yes, sir?
Mr. Palmerton. I suppose it would increase it.
Mr. Markey. OK, thank you.
Mr. Bladow. Increase.
Mr. Markey. It would what?
Mr. Bladow. Increase.
Mr. Markey. OK. Thank you. So, now, let's just say here
that is what Governor Romney's proposal is. He has been very
clear. He wants to raise taxes on the wind industry if he
becomes President, even though it will kill 40,000 jobs. He
also wants to keep $40 billion worth of tax breaks for the oil
industry, while killing the tax breaks for the wind industry,
which will raise costs of wind generation for all of the
consumers out in these public marketing authorities.
So now, let's do some more PMA arithmetic. Here is our sink
or fly formula. Generation plus transmission equals rates.
Let's talk generation. The Western rates are 1.6 cents per
kilowatt hour. Again, that is only for generation, 1.6 per
kilowatt hour. Doesn't include transmission, but that is
incredibly low, cheap power. Wow, wow from New England.
Now, isn't it true that the Chu memo is chiefly about
transmission, and the grid, and not about generation? Can we
all agree that the Chu memo is not suggesting that anyone lose
that capability to buy cheap Federal power at the cost-based
rates I just mentioned? Is that correct, Ms. Azar?
Ms. Azar. That is correct, the----
Mr. Markey. OK, 1.6 cents. So, everyone is keeping their
cheap generation, which, by the way, is the largest piece of a
customer's electrical bill.
Now, let's get back to the arithmetic again. Transmission--
average transmission costs for Western's preference customers
in 2011 were .46 cents per kilowatt hour. That was 15 percent
more than the customers paid in the PJM Eastern United States,
which serves all the parts of 14 Eastern States and the
District of Columbia. It is 51 percent more than the customers
paid in the Midwest market. It is 140 percent more than
customers paid in the New York market.
Ms. Azar, is it possible that the PMAs may be able to
actually do better than they currently are when it comes to
providing reliable low-cost, secure transmission?
Ms. Azar. Yes. We hope part of this initiative will result
in capturing efficiencies that are going to drive down the cost
for the consumers.
Mr. Markey. It just seems like, you know, you can't have it
both ways. You can't believe in Darwinian capitalism on the one
hand, and then over here say, ``No, we want a Socialist
system,'' and then within the Socialist system say, ``Now we
don't have to improve,'' because obviously they are falling
behind where there is capitalism. So that is creating some real
problems.
So, here is the formula: cheap generation plus lower, long-
term transmission costs equals reduced cost to consumers. Is my
arithmetic right, Ms. Azar?
Ms. Azar. You are generalizing, but yes.
Mr. Markey. So one of your overall goals in the Chu memo is
to reduce cost?
Ms. Azar. Absolutely.
Mr. Markey. So it is arithmetic, then. The goal is cheaper
rates for consumers. And we did that in New England, actually.
Transmission costs are higher in New England than Western, but
that is because we have spent money upgrading transmission in
the last few years. That has allowed us to save money
elsewhere.
See, you have to think of it as an integrated subject of
reducing costs for consumers. Because of the upgrade, we have
about 2,000 megawatts of demand response online. We have
drastically reduced our reliance on coal and oil. We have
brought online more than 1,000 megawatts of new natural gas.
Peak demand has dropped 9 percent, 3,000 megawatts of wind are
being developed. And now we see the arithmetic in action. Total
electricity costs in New England are at their lowest point
since 2003 because we think of it as an integrated subject, not
separate subjects, which is, of course, what the Socialist
system that they have in these government-run systems, you
know, ignore.
So, all we are trying to do is just add a little bit more
of the modernization of the innovation that, whenever you see a
Socialist system, you know they are going to resist it because
they don't want to be part of the whole.
So, I yield back the balance of my time.
The Chairman. The gentleman yields back his time. I
understand that Mr. Costa has to leave, and the gentleman would
like to submit questions for the record. Is that correct?
Mr. Costa. Thank you, Mr. Chairman. That is correct,
although I am informed that in the regular order, that Mr.
Kildee would be willing to yield----
The Chairman. OK, then. We will go regular order.
Mr. Costa. OK.
The Chairman. With that, we will recognize the gentleman
from Colorado, Mr. Coffman.
Mr. Coffman. Thank you, Mr. Chairman. I would like to thank
Chairman Hastings for holding this important hearing on
Secretary Chu's memorandum that could increase energy rates for
millions of American families. In light of this
Administration's and Secretary Chu's troubling energy policies,
it is imperative that the Committee vet the objectives laid out
in this memorandum. With that, I want to thank the witnesses
for providing valuable testimony so we can illuminate these
issues.
Mr. Bladow, at the end of the day, what would be the
implementation of the Chu memo directives--what would they mean
for United Power customers?
Mr. Bladow. Those customers would be in your district, Mr.
Congressman. And if implemented the way I understand some of
them, they would shift some costs to those customers. I think
it would add to their cost.
In terms of cost we pay to WAPA, I am not sure where the
1.6 cents comes from, but we pay over $.04 for WAPA power. And
so there may be some averaging going on there that really isn't
reflective of what each pays. But when we pay those costs, when
you have perhaps electric vehicles or a shift and add more
renewables, and the guys adding the renewables through an EIM
process do not pay for their transmission, those costs have to
be absorbed by somebody. It would be Tri-State, and we would
end up passing that along to our members, which include United
Power.
Mr. Coffman. So it could mean increased utility costs.
Also, what about reliability of the grid? Would that also--
would that be at stake?
Mr. Bladow. I----
Mr. Coffman. First to the cost, and then to the grid.
Mr. Bladow. You know, I think reliability can be impacted,
if not implemented correctly. As others have pointed out, there
are many processes going on. And having another duplicative
process that overlays it can lead to confusion and probably
reduce the reliability.
Mr. Coffman. OK. It is my understanding that, after the Chu
memo was released, that DOE and WAPA led a series of joint
workshops and listening sessions in such places as Loveland,
Phoenix, and other parts of the West to gather input and
collaborate with interested stakeholders on the initiatives
outlined in the memo. What was your impression of these
workshops and listening sessions?
Mr. Bladow. Again, my concern with the sessions is they
started down a road and asked us for input on the direction
they were taking, not sitting down and asking us what are the
important issues of the day that we should come together,
identify, and solve. So the whole goal was, ``How do we solve
the issues we have presented?'' Whether or not they need
solving, or whether or not they are the right issues didn't
seem to be the point. And that is our concern.
Mr. Coffman. OK. Did Tri-State, as one of WAPA's largest
customers, have any advance notice of the directives laid out
in the Chu memo before it was released on March 16th?
Mr. Bladow. No, we had absolutely no knowledge or were
asked for any input.
Mr. Coffman. WAPA is a real utility, and with customers and
obligations to maintain the integrity and the reliability of
the Western electrical grid. Are you concerned that by
implementing the directives of the Chu memo, WAPA would be
departing from its mission of providing cost-based power to its
customers, which would possibly affect the reliability of the
Western grid?
Mr. Bladow. You know, one of our concerns is--you saw it
with outage on September 8th of 2011, where the Western
Electric Coordinating Council, the one overseeing the
reliability, really had too many missions. And I think there
was some confusion. And that is one of our concerns. If WAPA
becomes less of an operating agency--keep the lights on,
operate things--and becomes more of a policy-driven
organization, we will end up in a situation where they won't do
either job very well. And that very much concerns us.
Mr. Coffman. OK. I see the Chu memo calls for the
establishment of a revolving fund to help implement its
initiatives. How does the creation of a revolving fund for WAPA
affect the oversight responsibilities of Congress and WAPA's
customers?
Mr. Bladow. Well, I think it significantly reduces the
oversight that Congress would have with a revolving fund on
WAPA. They do have some of those funding mechanisms today, and
I think there is less input and less responsiveness to
customers, because the money, you might say, flows at their
discretion, at DOE's discretion, and a lot of the oversight is
reduced.
Mr. Coffman. Thank you, Mr. Chairman. I yield back.
The Chairman. The gentleman yields back his time. The Chair
recognizes the gentleman from Michigan, Mr. Kildee.
Mr. Kildee. I will yield.
The Chairman. The gentleman from California is recognized.
Mr. Costa. Thank you, Mr. Chairman, and thank you,
Congressman Kildee, for yielding, given my time situation.
I would like to change the focus of the questioning as it
relates to the Chu memo to an area that I have been working on
for many years. And that is the potential impacts--I say
potential impacts--to what I believe are some of the largest
power users in California, which is both the Federal and State
water projects, otherwise referred to as the Central Valley
Project, the CVP, or the State Water Project.
And, Ms. Azar, I will get to a couple questions I have for
you in a moment. But first of all, Mr. Palmerton, what we are
talking about here, I believe, to put it in context, is public
power agencies, and transferring a cost, if the Chu memo were
successful, to public water agencies.
And we are talking about wholesale versus retail, in terms
of the eventual cost of that water to those public water
agencies who are now paying some of the highest costs for
water, at least in California, not only in terms of their
maintenance and the operation of their projects for both the
Federal water project and the State water project, but also the
costs that are then also passed on. Part of those costs are for
the repayment of the projects that were built over a period of
time, and that is required to be paid for the cost either to
the Federal or State government for those projects, but also
they have additional costs above and beyond that.
Now we are talking about passing an additional cost. And
these are to farmers and ranchers who are trying to grow food.
Mr. Palmerton, what do you think would be the impact on the
irrigation and water districts your authority serves if the Chu
amendment were implemented in its current form? Quickly.
Mr. Palmerton. Quickly, we pay about 3\1/2\ to 5\1/2\ cents
for Western power during an average year or a dry year,
depending on what----
Mr. Costa. You are paying wholesale rates or regional
rates?
Mr. Palmerton. Those would be wholesale rates from Western.
Mr. Costa. Right.
Mr. Palmerton. So any time that that supply is disrupted,
it is being replaced by higher-priced power. In 2008, Western
cost 5.5 cents, and it was having to be replaced with $.10
power.
Mr. Costa. So you would have to pass those costs on to----
Mr. Palmerton. Those costs are passed on directly in the--
--
Mr. Costa. To the farmers and ranchers for how much acre
foot they pay for water.
Mr. Palmerton. Exactly.
Mr. Costa. In some cases they pay as--anywhere from $30 per
acre foot to as much as $130 an acre foot, depending upon the
water district you are at.
Is the authorizing legislation for the Central Valley
Project consistent with the initiatives in the Chu memo, in
your opinion?
Mr. Palmerton. Not as I understand them at all.
Mr. Costa. Is the Pooling Authority doing anything now to
integrate renewables into the energy supply? And are you
subject to California's 2030 law that requires 30 percent
renewables by the year 2020?
Mr. Palmerton. Yes, we are purchasing renewables, we are
looking at solar, and we have a number of small hydro projects
and gas projects.
Mr. Costa. Even though, by the definition of that State
law, hydropower is not considered renewable, right?
Mr. Palmerton. That is correct.
Mr. Costa. Which I would take issue with, because I believe
it is renewable----
Mr. Palmerton. I----
Mr. Costa [continuing]. As the Chairman stated. What is the
Pooling Authority and the Western Area Power Administration
doing to upgrade this Central Valley Project grid?
Mr. Palmerton. We participate directly with Western
initiatives. Individually, our districts do not participate in
building transmission.
Mr. Costa. Ms. Azar, as a Senior Policy Advisor, is it the
Department of Energy's view, or have you examined, how the
changes in the Power Marketing Administration will affect the
cost of power for the need of management and delivery of water,
this wholesale of water, to the water districts which then pass
those costs on to the farmers and ranchers that purchase that
water?
Ms. Azar. There are no changes to the Power Marketing
Administration's mission here. This memo--let me just quote the
last two sentences of the memo. ``Just as DOE is calling on the
private sector to help our Nation win the future, DOE and the
PMAs must do the same. The Federal Government should be leading
the way for a modern, secure, reliable electric
transmission''----
Mr. Costa. OK. Well, my time has expired, and you have read
your last sentence. Let me ask you, then, in the final-final,
then do you believe it is appropriate for some Federal
customers, like my constituents with the Central Valley
Project, to bear a greater cost to facilitate the delivery of
renewable energy that will primarily be used elsewhere?
Ms. Azar. That is not what this initiative is about.
Mr. Costa. Well, it seems like that might be, in the law of
unintended consequences, a potential impact.
Ms. Azar. Folks here are assuming quite a lot with regards
to what the joint Western-DOE team is going to be
recommending----
Mr. Costa. Would you say categorically that it would not
then increase the cost?
Ms. Azar. Our goal is to actually drive down the cost to
consumers by capturing efficiencies, and ensuring we invest in
our infrastructure for the future.
Mr. Costa. My time has expired, but would you please look
at that as a potential outcome? If you say it is not intended
to be an outcome, then I think it would be important to look at
it so that we can make sure it is not an outcome.
The Chairman. The time of the gentleman has expired. The
Chair recognizes the gentleman from Arizona, Mr. Gosar.
Dr. Gosar. Mr. Palmerton, I want to go back to the
gentlelady's comments. I am from Arizona, so these are very
similar irrigation-type situations. Can you comment on those,
in regards to raising irrigation costs?
Mr. Palmerton. Yes, I can. The Federal hydro system is
optimized for a number of purposes: releasing water,
environmental purposes, and other arrangements. If you are
going to integrate renewable resources and use the generation
capability of Western--actually, the Bureau of Resources--that
change will change the operation of the project, it will
decrease the net amount of energy available to sell to
customers, and it will have to be--energy would then have to be
replaced at different times, typically at much higher costs,
and those costs have to then be passed on to our customers. And
that raises the cost of food and the cost of agriculture, in
particular, for our organization.
Dr. Gosar. So, Ms. Azar made the comment--do you agree--
that we are misinterpreting the language of the bill?
Mr. Palmerton. Well, Ms. Azar spoke of three items:
security threats, technology advantages, and RPS. And for
technology advantages and RPS, I think it is a question of
transmission investment versus generation. And any time that
you are going to use generation and move it to integrate
renewable resources, you are having to move the water, because
that is how you generate the power with a hydro project. When
you move the water, you change the balance. When you change
that entire relationship, we expect costs to increase.
So, if there is efficiency in the transmission system, that
is investing in transmission infrastructure. We believe the
beneficiaries should pay. My customers that have no benefit
from an increased transmission system from Wyoming to
California shouldn't have to pay for that.
Dr. Gosar. I guess they don't realize that whiskey is for
drinking, water is for fighting over.
Mr. Palmerton. That is true.
Dr. Gosar. Mr. Crisson, I want to go back to a comment that
was made earlier by my colleague here behind me, in regards
to--because I think it needs mentioning again. Actually the Chu
memo proposes ``reforms that would limit Congress' ability to
oversee power administration and its revenue.'' Should Congress
have a legislative and oversight role in the new authorities
laid out by the Chu memorandum? And how so?
Mr. Crisson. Yes, sir. We believe that Congress should play
a role here. Simply going by precedent, every time there has
been a change in the mission of the PMAs, or change in their
authorities, Congress has played an integral role there. It is
really a good way to work through the issues, and make sure
there is transparency and a public airing of the concerns that
the customers have. So, we think Congress should play a key
role.
Dr. Gosar. Mr. Bladow, you made a couple of comments that
the path has already been pre-set, and you were never included
in this direction. Given that opportunity, what would you see
as a forecast that you could see in going down from the PMA
standpoint?
Mr. Bladow. Could you clarify that?
Dr. Gosar. Yes. They said that--you made the comment that
they have picked the road, and they are asking you to comment,
instead of asking you what is the road. Tell me what you see,
from your insights, on that road.
Mr. Bladow. I mean what we heard, in terms of feedback at
the session in Loveland, there is concern about the reliability
of the system, in terms of all these renewables coming on. But
the thing people want to know is how are we going to integrate
them without shifting costs around, as opposed to let's figure
out how to integrate. Things like an energy imbalanced market
in the West, some folks think it is the greatest thing ever;
other folks think, you know, it is a big cost shift.
And that is really one of the issues that I saw, was let's
come together and identify how we do this, and who is going to
pay for it. Because beneficiary pays sounds good. But WAPA had
a call on Friday, from the joint team, and they said, ``But we
really haven't defined who the beneficiaries are yet.'' And so,
if you start spending money, and you have a very broad
definition of ``beneficiary,'' everybody is going to get swept
up in that, and start paying.
So, those are some of those foundational issues that--what
are the key issues out there? Is it integrating renewables? Is
it reliability? They have pre-defined a few of them that we
don't necessarily feel are the right ones to go on.
Dr. Gosar. So, at those listening sessions, would you
quantify the majority of those that were there share your
views?
Mr. Bladow. Yes. Actually, even the folks who were non-
customers, I think, were concerned about WAPA resources being
diverted to new initiatives and not being replaced with
additional appropriations or staffing in order to take over
what they are doing today. That was expressed even by non-
customers, just average stakeholders.
Dr. Gosar. Well, that is the same thing that we heard from
Arizona. So very, very consistent. Thank you very much. I yield
back.
Mr. McClintock [presiding]. Mr. Kildee.
Mr. Kildee. Thank you very much, Mr. Chairman. Ms. Azar,
what have been the most effective and productive steps the
outreach team has taken to hear from customers and other
stakeholders? And has the team made an effort to consult with
the travel groups on this topic?
Ms. Azar. Thank you. And let me just first say that the
joint Western and DOE team determined what the outreach was
going to be. And I spoke with one of the team members yesterday
and asked how this outreach effort compared with others that
Western normally holds, and he said this was extraordinary, as
far as the amount of outreach that has been done with the
customers, stakeholders, and Tribes.
Though I don't want to focus on numbers, I do want to give
you some statistics, because I think it does reflect how
extraordinary this is. At the listening sessions there were 568
folks registered for those. There were six of those. Workshops,
there were five of them. There were 553 registered. We had a
webinar last week, 192 folks participated. The website--and
mind you, regardless of what folks thought of the workshops,
they had the opportunity to submit any comments they wanted on
the website.
And, you know, the Western-DOE joint team is committed to
reviewing all of those and determining how best to implement
the Secretary's memo. We don't know what they are going to be
recommending. And until we do, I think some of the comments
today here are premature.
Mr. Kildee. And your contacts and your efforts to consult
with the tribal groups?
Ms. Azar. Yes, a conference call was held very early on for
tribal consultation. The Tribes did participate in the
listening sessions and workshops. But we are going to hold a
separate webinar for the Tribes. That has not been scheduled
yet, but they will be holding that, I am assuming, in the next
few weeks.
Mr. Kildee. Have you had any feedback from the tribal
areas, that they feel they have really been treated properly,
and have had the opportunity to give their input?
Ms. Azar. Well, let me say, first of all, I am not part of
the joint Western-DOE team, so I am not sure what the Tribes
have been telling those members. I can tell you I went to the
listening sessions, which were, essentially, the public hearing
sessions. And I had Tribe members come up to me and give me
specific input on this initiative. So I do know that they were
engaged and provided their input.
Mr. Kildee. I appreciate that. In my 36 years in Congress,
I have been trying to make sure that every area of our national
life, that the Native Americans are really given full
participation in any of these studies or outreaches. And so to
any degree that--in your area you can encourage--I don't know
what influence you have directly, but encourage the inquiry
among the Tribes, I would appreciate that very much.
Ms. Azar. Thank you.
Mr. Kildee. And I yield back, Mr. Chairman. Oh, Mr. Markey.
Mr. Markey. I thank you. I would just like to say this, we
really don't have these region-wide power marketing
authorities, the Federal marketing authorities in the Northeast
or the Midwest. But if any of you at any point in time would
like to talk about moving toward a privatized system, away from
this public and kind of Socialist system, to move toward what
we have in the Northeast and the Midwest, which is really much
more capitalistic, my door is always open. I am ready to have
the conversation at any point in time that you would like to
move foward. I say the same to any Member that is interested in
doing that. I am ready to talk about it. So I thank the
gentleman for yielding.
Mr. Kildee. Thank you.
Mr. McClintock. Let's have that conversation. Mr. Kildee,
you have concluded?
Mr. Kildee. I have concluded, yes.
Mr. McClintock. Great, thank you. Mr. Tipton?
Mr. Tipton. Well, thank you, Mr. Chairman. I am delighted
to hear Mr. Markey is embracing capitalism. We need to do the
same thing with the health care proposal, as well.
I would like to go ahead and ask a question of Mr. Bladow
and Mr. Crisson. It is a follow-up, actually, to Mr. Markey's
comments. Do you believe that the Chu amendment will reduce
costs to consumers?
Mr. Crisson. Well, no, sir, we don't. There is, I think, a
lack of specificity in the proposals. And so, given some of the
unknowns, it is hard to know, but we are very concerned about
the process, which we really think is the issue. The customers
have not been involved in helping to identify the goals and
work toward those ends.
As was pointed out by a number of panelists, on a broad,
kind of conceptual level, some of the goals are laudable. But
we are not sure how they are going to be attained. And so we
are very concerned that we do it within the statutory mandatory
framework, it requires rates to be kept as low as possible,
consistent with sound business principles.
Mr. Tipton. Good.
Mr. Corwin. Do you want Mr. Bladow or me?
Mr. Bladow. You know, I think Mr. Crisson hit it well. I
don't know that there is enough specificity to say every point
is going to raise rates. There is certainly the potential
there, and the devil is in the details. And since we are not
quite sure of the details, we are concerned.
Mr. Tipton. You know, Mr. Chairman, I think that is what
really concerns me. We all just came off of a month of working
back in our districts. My communities over in Mesa County, 19.5
percent real unemployment. Pueblo County, 12.2 percent
unemployment. These people are struggling right now. And we
seem to continue to want to pursue policies of taxation via
regulation that are driving up costs, ultimately, to consumers,
money that they can never recoup, that is taking money away
from their ability to be able to feed their families and keep a
roof over their heads.
And so, Ms. Azar, I would like you to be able to maybe
address what you said earlier and I think that is admirable--
the goal is to be able to reduce costs. So you did a cost
benefit analysis.
Ms. Azar. Ultimately, our goal is to reduce costs. We do
not know----
Mr. Tipton. I know the goal. But when you are putting out a
memorandum that is going to have an impact----
Ms. Azar. Right.
Mr. Tipton [continuing]. Did you perceive that with some
sort of a cost benefit analysis to see if that is the proper
path to pursue?
Ms. Azar. We don't know what the recommendations are going
to be on implementing the memo. The memo's goal is to ensure
that we have the infrastructure we need for the 21st century.
We can't afford not to have that infrastructure.
So, part of this is to make sure that we have a grid that
is resilient and flexible. And ultimately, we are going to have
to wait to see what the joint team recommends.
Mr. Tipton. Are we saying that the power authorities have
failed in that mission to be able to upgrade their facilities?
Ms. Azar. No, absolutely not. In fact, let me just----
Mr. Tipton. Great. Then why are we----
Ms. Azar. Let me just quote the memo.
Mr. Tipton. Why are we kind of throwing this up into the
wind, as another potential regulation, when you have not
identified the cost, what the impacts are going to be? When I
take you to Grand Junction, Colorado, Pueblo, Colorado, people
can't afford their homes right now, and we have a potential
cost that you can't identify.
Ms. Azar. That is the reason we absolutely need to look at
the costs and make sure that the costs are as low as possible.
Mr. Tipton. OK, I would like to actually go back to----
Ms. Azar. That is precisely what this is about.
Mr. Tipton [continuing]. Mr. Bladow, because when we are
going back to those hearing sessions--we have all sat through a
lot of hearings and had a lot of feedback from my customers
from listening sessions out of this Administration: ``They
listen, but they don't hear.'' It does not flow, actually, back
into the policy. ``Thank you for your comments,'' and they
ignore them.
So, would you like to speak a little more, Mr. Bladow,
perhaps, about some of the hearings?
Mr. Bladow. Well, again, I think the challenge we had is
they are going down a road, and we are trying to identify
things in the path they have decided is the right path to be
on. And it is kind of tough to--as somebody said, the train is
going down the tracks, and you may want to try to push it down
another track. But they are not seeming to want to go on a
different track.
So, again, some of the things they have identified, as Mark
pointed out, and at a high level, the concepts sound good. But
as you look at the details below them, they have the potential
to impact costs and shift costs around. Maybe they lower costs,
on average, for a lot of people. But it could increase them for
a number of other folks. And we tend to be in the area where
the costs are increasing, given our membership out in the rural
areas, where it is pretty sparse, and it is hard to serve those
folks cost-effectively. Very----
Mr. Tipton. You know, I applaud what you do. I represent
rural America, trying to deliver cost-effective energy to
people that are struggling right now. And I agree with you. I
think this policy of get on, get out of the way, or we are
going to run over the top of you is not the best policy
approach that we can possibly have. Let's stand up for the
consumers, the people that are struggling in these communities
right now. And I look forward to having the opportunity to work
with you.
And, Mr. Chairman, I yield back.
Mr. McClintock. Mr. Holt, do you want to get settled first?
You are up, if you would like to be recognized, OK. Mr. Holt.
Dr. Holt. Yes, Mr. Chairman, if I may be recognized.
Mr. McClintock. Go ahead.
Dr. Holt. Thank you. Forgive me for coming in to the middle
of the discussion, but I suspect and I understand this has not
been covered so well yet.
Congress set up the current structure of the Power
Marketing Administrations, in which the Federal Government owns
the transmission assets, and costs are passed directly through
to consumers on a cost basis. But it is the Federal Government
that shoulders the risk. Taxpayers don't get at the profits
from assuming the risk.
Let's turn to Ms. Azar. If Federally owned transmission
lines were to fail, who is liable?
Ms. Azar. Ultimately, the Federal Government owns these
assets, and we are responsible for the liabilities. Ultimately,
the----
Dr. Holt. This might be shorthand--we might shorten that by
saying ``the taxpayers.''
Ms. Azar. Yes. Now, let me just be clear. The preference
customers, if they remain as customers, will pay for it. But
the preference customers can leave, and that leaves us, or the
taxpayers, holding the bag.
Dr. Holt. So, who likely would be called to face Congress
if there were a major failure?
Ms. Azar. Well, the Secretary of Energy is responsible for
the PMAs. And that is why he sent out this memo saying that we
need to make sure that we have the grid that is reliable and is
ready for the 21st century.
Dr. Holt. Secretary Chu, yes.
Ms. Azar. Correct.
Dr. Holt. So, the assets of the PMAs were built with
taxpayer dollars, the PMAs continue to receive ongoing taxpayer
support through annual appropriations and other mechanisms. And
if and when these aging systems fail, the buck stops with the
Secretary of Energy, Secretary Chu.
Ms. Azar. Yes. Let me just note that, because
appropriations haven't been sufficient, the Federal Government
has actually had to go out and get loans from the customers to
keep the grid up.
Dr. Holt. So, Secretary Chu should be, must, needs to be
exercising his PMA authority. I think, following your line of
comments here, it would be irresponsible for him not to.
Ms. Azar. Congress has mandated that the Secretary--the
buck stops with him.
Dr. Holt. Mr. Baak--forgive me, I am not sure of the
pronunciation--does it make sense to you that the Department of
Energy is using PMAs and their public assets to advance our
Nation's broader energy interests?
Mr. Baak. Yes, absolutely. I think that the PMAs operate a
significant portion of the transmission grid, and a grid is
highly interdependent. And I think that the upgrades that were
discussed in the memorandum are also modernizations that are
taking place throughout the rest of the grid. All of the grid
operators are looking at the same set of modernizations.
Dr. Holt. One thing that might help bring renewable energy
to the PMA service areas is new transmission. Western has the
authority to help finance new transmission.
Now, last October in this Committee, the Majority, the
Republicans, reported out a bill that would repeal the
borrowing authority that Western currently has to help provide
financing for transmission servicing renewable energy projects.
Mr. Baak, how many solar jobs have been added in the last
year?
Mr. Baak. Well, I can't speak to how many jobs,
particularly in the last year. But by 2016, as I mentioned in
my testimony, there are projected to be 100,000 jobs in the----
Dr. Holt. Do you think repealing the borrowing authority,
if that legislation were to go through and become law, would
create jobs or destroy jobs?
Mr. Baak. It would definitely destroy jobs. One of the
biggest inhibitors to developing large-scale solar has been
access to transmission. So that borrowing authority has been
really critical for a lot of developers to be able to create
those projects and the jobs that go with them.
Dr. Holt. And would repealing the borrowing authority, as
the Republicans are still trying to do, increase or decrease
rates, do you think, for consumers?
Mr. Baak. I believe that would increase rates to consumers.
Dr. Holt. OK. Well, you make some statements that can be
put into some pretty convincing arguments against what we have
heard from the other side. Thank you.
Mr. McClintock. Mr. Lamborn.
Mr. Lamborn. Thank you, Mr. Chairman. And thank you all for
being here. I apologize for having to leave for a while. I was
here earlier, but I was hosting an event that had been
scheduled some weeks ago, so I had to leave for a little while.
So thank you for being here.
And I do have to say, right off the bat, I am a satisfied
WAPA and Tri-State customer, as are many of the people in the
Fifth Congressional District of Colorado.
Now, I have several questions. And, Ms. Azar, if I can ask
you first, Secretary [sic] Baucus recently urged Secretary Chu,
in a letter about 2 weeks ago, to delay the implementation of
any final recommendations impacting WAPA until, and I quote
``at least February 2013,'' after the elections. Will the
Secretary comply with this request?
Ms. Azar. I have not talked to the Secretary about that.
Mr. Lamborn. OK. So you are unsure about that.
Ms. Azar. Correct.
Mr. Lamborn. OK. I was hoping that the answer would be
that, yes, this would be delayed. But I guess I will just
accept that for now.
Shifting gears, Mr. Bladow, thank you for being here. Some
of you discussed the issue of imposing an energy imbalance
market mechanism to help integrate variable wind and solar
power generation into the grid. This is a central directive in
the Chu memo, and a potentially costly one.
Mr. Marks talks about the benefits of $100 million in
annual cost savings to the customers if this mechanism is used.
I wonder about the validity of that conclusion. It seems that
Secretary Chu is already determined that it is a fait accompli
that there are benefits to an EIM. What do you think about
that?
Mr. Bladow. Well, in our opinion, the jury is still out on
that. There has been studies that show they can benefit $1
billion or you could lose $1 billion. You know, with that type
of money in line, you want to be a little more certain of just
what it is people are proposing. The proposals shift around a
bit.
An energy imbalance market, typically you identify who is
going to pay what for transmission, that is your foundation.
And then you put a market on top of--you might say the rules of
the road. The energy imbalance markets that have been proposed
in the West, they don't identify how the transmission is going
to be treated. They assume it is free. Since then, they have
talked about, well, maybe we should pay a little. But the
analysis doesn't count on any payments going to transmission
owners. And so, from our perspective, we kind of scratch our
heads because we don't know how it works.
So, the analysis that has been done to date is really
lacking. It needs a lot more thorough treatment of a lot of
these complex issues around it. And to date they really haven't
done those. ``They,'' meaning the number of entities that are
looking at the various options.
Mr. Lamborn. OK, thank you. And, Mr. Crisson, you mentioned
that the Chu memo undermines hydropower and its customers by
benefitting wind and solar power. Can you explain that
statement of yours?
Mr. Crisson. Yes, sir. We are concerned that, given the
intermittent nature of wind and solar power, the hydro system
in the case of PMAs has to be operated to fill the gaps in
their output. And so, basically, you are using two sets of
capacity, two different sets of power plants, to provide the
load to the customers. We think that is an inefficient use of
capital. And because you have a situation where solar and wind
are more expensive than the hydropower, it is going to add to
the cost that consumers ultimately pay.
In addition to that, you have some operational issues that
we have talked about a little bit earlier in the hearing that
can result in suboptimal operation of the hydrosystem, in some
cases shifting the water so that water users are impacted, as
Mr. Palmerton has testified.
So, we think there are all kinds of impacts as a result of
that operation.
Mr. Lamborn. Will those result in, potentially, anyway,
costs in the electric bills to rate payers?
Mr. Crisson. Certainly, yes.
Mr. Lamborn. And are you saying it is because of two
reasons, the inefficiencies, number one, and that it is kind of
a cash cow that is being tapped into to pay for this, number
two?
Mr. Crisson. Well, that is certainly one way to look at it.
The hydro customers are certainly writing the checks, you know,
for the operation of the PMA system. Correct.
Mr. Lamborn. Well, just for the record, I would like to say
I think hydropower is a good, clean source of electricity. It
is cheap, it is available, it is already online, and we
shouldn't do anything to its detriment.
Thank you all for being here. And, Mr. Chairman, I yield
back.
Mr. McClintock. My turn. The gentleman from New Jersey just
asserted that repealing WAPA loan guarantees would cost jobs. I
was just wondering. How many jobs are at Solyndra these days?
Oh, wait. I think I know the answer to that question. Zero. But
we are a half-a-billion dollars deeper in debt from that one
scam, alone.
Ms. Azar, Congress is vested with the authority and the
responsibility to make law. The Chu memo appears breathtaking
in its policy implications. And love it or hate it, it is a
legitimate object of Congressional inquiry. I have to say that
the consistent refusal of the Secretary to respond to requests
by this Committee to discuss that memo bespeaks either an
autocratic contempt for the legitimate constitutional authority
of Congress, or an utter lack of confidence in supporting his
position. I am just wondering. Which is it?
Ms. Azar. We welcome the oversight of Congress of this
memo. And, in fact, I am delighted that I was invited here with
regards to that----
Mr. McClintock. Then may I suggest the Secretary appear in
person, as he has been invited on numerous occasions, so that
we can actually have a discussion with the gentleman who
originated that memo?
Ms. Azar. The Secretary asked me----
Mr. McClintock. I guess that is a rhetorical question. My
clock is running.
Ms. Azar. OK.
Mr. McClintock. Mr. Bladow, we are told that we need to
phase out coal and natural gas and hydro-electricity in favor
of wind and hydro. And the Chu memo would dramatically alter
PMA's operations to accomplish this goal. And I would like to
nail down just one more time the impact that this has on
consumers.
First of all, just from an engineering standpoint, how do
wind and solar generating costs compare with gas and coal and
hydro--and, for that matter, nuclear--on a per kilowatt basis?
Mr. Bladow. Well, typically, they are higher, depending on
how much support they are getting, whether it is production tax
credits or the----
Mr. McClintock. Oh, no, no. I am talking about the actual
engineering costs before government comes in and distorts those
costs.
Mr. Bladow. Their costs are typically higher. They are----
Mr. McClintock. Much higher, or just a little higher?
Mr. Bladow. Right now they are considerably higher than
gas, given the low price of gas----
Mr. McClintock. OK, considerably higher. We keep hearing of
the need for grid reliability. How reliable are wind and solar
power, compared to hydro, coal, gas, and nuclear?
Mr. Bladow. Well, their name, intermittent resource, I
think defines that they come and go as the sun shines and wind
blows. And we have some in our system, and that is our----
Mr. McClintock. So now, we have an integrated grid. So we
have to immediately replace that water or that electricity when
the wind suddenly dies off or a cloud passes over a solar
array, we have to be instantly ready to bring replacement power
online. How do we do that?
Mr. Bladow. We do that by making sure there is extra
capacity available, so as----
Mr. McClintock. Well, what does that mean, exactly, if you
have a gas generator, for example, that you are using as stand-
by?
Mr. Bladow. It means it is idling, waiting to be moved.
Mr. McClintock. So you are running it--ready at a moment's
notice to deliver that power. Correct?
Mr. Bladow. Yes, that is how you do it.
Mr. McClintock. So we are basically paying twice for the
power. We are paying once for the gas turbine to be generating,
ready to flip that switch, and then we are paying again the
much higher cost of wind and solar. Is that correct?
Mr. Bladow. That is correct.
Mr. McClintock. OK. Well now, how about transmission cost?
Can we transmit wind and solar power long distances over the
existing transmission system?
Mr. Bladow. We can transfer a certain amount of it. The
challenge is as you get more and more of it, and you have the
intermittent nature, how does that--how do you engineer--how do
you----
Mr. McClintock. But don't you have to have high tension
lines in order to transmit that power?
Mr. Bladow. Yes, you have to have high voltage lines.
Mr. McClintock. So we get hit three times. Once, the
inherent, much higher cost of wind and solar. Second, we get
hit because we have to run back up capacity that is reliable
the moment that wind and solar dies off. And, third, we have to
add new transmission--high tension, expensive transmission
lines in order to transport that wind and solar, usually from
long distances, because it is hugely land inefficient, and we
have to move it long distances to the urban areas where it is
needed. Is that all correct?
Mr. Bladow. That is correct.
Mr. McClintock. So we are whacked three times for the
power. We are literally paying three times for the power. What
consumer in his right mind would voluntarily bear such costs? I
think that is rhetorical.
I will go on to the final point, and that was what was
raised by the Ranking Member. He said ending the production tax
credit would--which is a direct subsidy--would increase the
cost of wind generation. Does it actually increase the cost of
wind generation itself, or does it simply shift the cost from
the taxpayer to the consumer, so the consumer is getting more
accurate price signals about what that power actually costs?
Mr. Bladow. Yes, it actually just shifts it to the
consumer, as opposed to the taxpayer.
Mr. McClintock. Thank you. My time has expired. Mrs. Noem?
Mrs. Noem. Well, thank you, Mr. Chairman. And I appreciate
you holding this hearing today. This memo has created a lot of
conversation in South Dakota and has a lot of concern.
Ed Anderson, who is the manager of South Dakota Rural
Electric Association, was invited to testify today. And so, Mr.
Chairman, he, unfortunately, wasn't able to attend. So I would
like to have his testimony submitted for the record.
Mr. McClintock. Without objection.
Mrs. Noem. Thank you.
[The prepared statement of Mr. Anderson follows:]
Statement of Edward Anderson, General Manager,
South Dakota Rural Electric Association
Mr. Chairman and members of the committee, thank you for allowing
me the opportunity to appear on behalf of the 31 rural electric
cooperatives who are members of South Dakota Rural Electric
Association. SDREA is a member services organization that represents
all electric cooperatives operating in the state of South Dakota. Our
member systems provide service to nearly 300,000 consumers and operate
in every county in South Dakota. Our members maintain 65,000 miles of
power line and yet serve just 2.3 consumers per mile, compared to 26
consumers per mile for investor owned utilities and 45 consumers per
mile for municipal electric systems. The demographic and geographic
challenges our members face to deliver cost based power to their
member's demands constant vigilance, ingenuity and an unwavering
commitment to the partnerships that support the delivery of reliable
and affordable power. The initiatives outlined in the March 2012 ``Chu
memo'' will do nothing to support or advance that commitment.
While I will not address each of the initiatives outline in
Secretary Chu's memorandum, a few stand out as proof that the
administration and Secretary Chu know little about the federal power
marketing administrations and their relationships with their preference
customers. They know even less of the preference customer's efforts
over the last several decades to work with the PMAs' and the agencies
who oversee the federal hydropower system to maintain a reliable and
robust power generation and delivery system. Both Secretary Chu and Ms.
Azar have made statements suggesting that the PMAs' suffer from
significant infrastructure degradation problems. That is simply not
true. What possible sense would it make for my members to allow a
system that is so critical to the delivery of reliable power to their
members to fall into a state of disrepair? Through their rates they
have supported a consistent and aggressive program of infrastructure
maintenance and expansion to meet growing needs at no cost to the
federal treasury. That's right; the federal power program pays its own
way. And when the Western Area Power Administration has faced budget
challenges in the past my members have voluntarily stepped in and
supported amendments to long term power purchase agreements to help
Western address those challenges. That should give you a sense of the
relationship that exists between my members and Western. It is a
relationship that has taken years and the efforts of many hard working
intelligent people from Western and their preference customer base to
develop. Secretary Chu's efforts to take the PMAs' well beyond their
statutory mission, sending rates on an upward path in the process,
threatens to fracture a public/private partnership that should be used
as a model for developing other similar partnerships.
Secretary Chu's memo also indicates that he will push the PMAs'
into a wide range of industry related activities including energy
efficiency programs, demand response programs and integration of
renewable resources. Had he taken the time to ask a few questions he
would have discovered that electric cooperatives have been promoting
energy efficiency and demand response programs for decades and I know
that Western, working with electric cooperatives and others, doesn't
need to be pushed into variable resource integration with thousands of
megawatts of installed renewable resources already integrated into
their system. Forcing the PMAs' to step beyond their current mission
into these areas will only duplicate existing highly successful
programs at significant cost to the end consumers.
Let me finish by noting that I attended two of the workshops that
the Department of Energy staged to seek input on the Chu memo. The
process could be described as frustrating at best. It became abundantly
clear early on that the word ``staged'' would be important in
describing the process. The purpose of the workshops was to publically
roll out the Chu initiatives, not to seek the advice and consent of
those who will be affected. The path that Secretary Chu is on is
clearly not government by the people, but is a perfect example of the
imposition of government upon the people, with little or no discernable
benefit to the people, but will most certainly be paid for by the
people. This is not good government.
Thank you again Mr. Chairman and members of the committee for
allowing me to speak with you today.
______
Mrs. Noem. You know, I have been meeting with many
utilities across South Dakota the last several months, just
discussing some of the challenges that they face. One of them
was telling me just a week-and-a-half ago that they have had a
30 percent increase in their rates that they have had to pass
on the last 3 years to their customers that they can directly
attribute just to regulations that they are forced to comply
with that come from the Federal Government.
They are very unhappy with the way that the meetings and
the listening sessions were conducted by the Department of
Energy as they were held throughout the area that is going to
be impacted by the memo that was put out by Secretary Chu. They
felt as though they were staged, that they were events where
the Department of Energy was dictating and delivering
information, but not necessarily seeking advice or asking for
comments or questions. And so I will pass those concerns on to
you, and maybe you could deliver those to the Secretary as
well, and to the Western Area Department of Energy that was
conducting those meetings.
One of the biggest concerns that comes out of the memo is
obviously the need for infrastructure upgrades and problems
where there have been gaps in delivery and failures that have
been put upon them. And as they have approached the Department
of Energy asking where the concerns are, they have not received
much feedback, as far as specifics on where the concerns lie,
and where the concerns lie within WAPA.
And so, with that, my question for you, Ms. Azar, is how
long, first of all, will the comment period be when the draft
first gets published? Will you have a comment period? And how
long will it be?
Ms. Azar. You know, that is up to the Western-DOE joint
team. I believe they have indicated it is going to be the
standard 30 days that is required by the AVA.
Mrs. Noem. And then will you allow comments when a final is
proposed?
Ms. Azar. They are following, my understanding is, the
standard Western practice, which is you get to respond to the
draft recommendations, and then Western makes a decision. And
they will be publishing--well, they will be sending their
recommendations on to the Secretary.
Mrs. Noem. OK. So the final is not necessarily debatable,
or no input given once that comes out the door?
Ms. Azar. I understand that is not their normal practice.
Mrs. Noem. OK. Mr. Bladow, I would like you to answer some
of the concerns that I was just talking about. The rationale
advanced by the Department of Energy for this effort was
transmission failure, and concerns for that into the future.
And so, my understanding is that, in our region, WAPA has a
higher reliability rating than virtually any other utility. Is
this correct?
Mr. Bladow. Yes. I think WAPA's system, and the area I
operate also, has an extremely high reliability. The customers,
in the partnership with WAPA over the years, have funded--I
know in the Pick-Sloan program--over half-a-billion dollars of
upgrades and improvements and new equipment in that system.
So, to me, it is one of the state-of-the-art--it is a good,
solid system. And I think the reliability figures you quoted
really highlight that.
Mrs. Noem. Yes, that is one of the reasons I wish Ed
Anderson was able to be here, because he did speak about the
fact that the utilities continuously invest in their
infrastructure when they have an, on average, 2.3 customers per
mile that they are trying to serve. Their infrastructure is
critically important for them to do their job and to even
remain.
But the issue that this memo has brought up is that it has
indicated that the Western Area Power Administration is falling
down, and that is a concern that they have. And, Mr. Bladow, is
that true?
Mr. Bladow. No, I don't think it is true at all. I think
the PMAs have done a really exceptional job of keeping their
system up. And it is always a balance. Everything can't be
shiny new all the time. You really need to balance, replacing
the critical components, not just because of age, but because
of failures and conditions. And you want them to last as long
as possible, balancing that as you hit that 30 percent rate
increase. You need to make sure that you only replace it when
it needs to be replaced and not before, and balance that.
So, that is an effort we are all after. Because our
consumers hold us accountable for that reliability----
Mrs. Noem. Well, who is the best person to make that
decision, somebody in Washington, D.C. or somebody who is
actually out there looking at the transmission lines and
judging their ability to continue to deliver the power?
Mr. Bladow. I think it is very much the people on the
ground who can judge which lines are the most important and
which facilities need to be replaced.
Mrs. Noem. Ms. Azar, just another question. I know
Secretary Chu said in the memo that some areas are doing an
admirable job of delivering and implementing DOE's goals, but
that some can do better. And when describing the memo's primary
objective, you acknowledged that one or more PMAs may already
be accomplishing the directive. Why do you believe a mandate is
necessary?
Ms. Azar. First of all, the only mandate that is in here is
to make sure that we have a flexible and resilient grid. The
PMAs, the joint team, is going to be defining what that means
for them. I would love the opportunity to speak on the record
with regard to the aging asset issue, if somebody would give me
that opportunity.
And if you look on Western's website, they actually have a
wonderful piece that says, ``Look, here is what the Secretary
was talking about, and here are the things we have already been
doing.''
The joint team between Western and DOE, they are not going
to be recommending duplicative processes--at least I hope not--
but they are going to say, ``You know what? We can all do
better. And how can we do better in this situation and make
sure that, indeed, we have the infrastructure for the 21st
century''----
Mr. McClintock. Thank you. The gentlelady's time has
expired. Mr. Gohmert.
Mr. Gohmert. Thank you, Mr. Chairman. I appreciate you
being here, each of you. I know it is an imposition.
But, Ms. Azar, I had heard you mention earlier about energy
efficiency, if I understood correctly, along with new and
improved infrastructure, were ways that we could hold down
costs.
As I understand it, one of the things that this
Administration keeps pushing is the idea of more wind and solar
power.
I live in East Texas. And we have rural electricity users
who are quite concerned that they are going to be forced to pay
for extravagant efforts at making things more efficient
somewhere else that they will not see any benefit from. But I
am curious. When it comes to wind energy, how do you make wind
energy more efficient?
Ms. Azar. That is not what this initiative is about. And
let me just say this.
Mr. Gohmert. So is there no way to make wind more
efficient?
Ms. Azar. Absolutely not.
Mr. Gohmert. OK.
Ms. Azar. This is about Western as the transmission
operator. And there are 37 States that have enacted RPSs. As a
consequence, there is lots more renewable generation being
built all over this Nation.
Mr. Gohmert. Right.
Ms. Azar. And it is creating----
Mr. Gohmert. And that is what we are getting to here when
we are talking about PMAs. We are talking about, again, people
that may have to pay in rural areas for things that they are
getting no benefit from. And it seems ironic that, after all
these years of hearing how much more efficient it is to live in
a city, to then put the burden on people living in rural areas
for things they don't see any benefit from--I mean, for
heaven's sake, when it comes to wind energy, as I understand
it, there is no way yet to hold electricity. There is no gray
battery, nothing that just will hang on to electricity until it
is ready for use.
And until that happens, I mean, there is no way that I can
see that we don't get into a situation of being triple-hit with
costs, just so that we can say, ``We are using wind. We are
using these resources,'' solar--most places where we live, it
gets dark at night, and solar is not much help because you
can't hold the energy.
So, even in Washington, where there is so much hot air and
wind, it drops dramatically when we are not in session. There
is no regular source anywhere in the country of wind that will
keep the windmills going, that will keep the electricity
generated. And so, it just seems ridiculous, until such time as
we have some means of holding electricity, that we would keep
blowing these vast amounts of monies and demanding Americans
pay for this.
And it seems to me, as I get around my 12 counties, we have
more and more single moms trying to make it. Because I hear
over and over, for God's sake, for my family's sake, ``Would
you please stop the increase in the electricity and gasoline
prices?'' Well, you know, the Interior Department has something
to do with the price of gasoline, as well.
But for electricity, it just doesn't seem to make sense
that we would keep on with this effort of wind and solar. Give
us something that will hold electricity, and then let's talk
about all these other resources. Otherwise, it just seems like
we are penalizing people like single moms that can afford it
the least. They are hanging on with their fingernails.
But new and improved infrastructure, if I understood, Ms.
Azar, you correctly, that was one of your steps to avoid
increased costs. But I am having trouble understanding how you
get to new, improved infrastructure without increased costs. Or
are we just going to borrow more money, where is that going to
come from?
Ms. Azar. There is a variety of answers to that, but let me
just give you one, which has to do with the aging
infrastructure. It is much like your car. You know, when you
have a car, the older it gets, the more expensive, the more you
have to pay for maintenance on that. There are----
Mr. Gohmert. I am working on----
Ms. Azar. Yes----
Mr. Gohmert. I am hoping I can get a car that will run on
natural gas before long.
Ms. Azar. Well, that is----
Mr. Gohmert. And a lot of those problems are going to go
away, because we won't have to use ethanol in a compressed
natural gas car that keeps destroying the energy and running up
the costs you are talking about.
Ms. Azar. I would love----
Mr. Gohmert. So I really understand. The requirements that
this Administration has put on--and in fairness, some of it
started before this Administration, but it does require
enhanced maintenance costs. But I understand where you are
going.
But still, in the process--and I understand the whole thing
pay me now, pay me later, but it is just that now, as my friend
from California--it is like pay me triple now for single
benefits later.
My time has expired.
Mr. McClintock. That concludes the Committee's questions. I
would like to thank the panel for their valuable testimony
today. Members of the Committee may have additional questions
for witnesses. We would ask that you respond to those in
writing. The hearing record will be open for 10 business days
to receive responses. And if there is no further business,
without objection, the Committee stands adjourned.
[Whereupon, at 1:21 p.m., the Committee was adjourned.]