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Hearing Of The Energy And Environment Subcommittee Of The House Energy Committee - The Future Of The Electrical Grid

Chaired By: Rep. Edward Markey

Witnesses: John Wellinghoff, Federal Energy Regulatory Commission, Department Of Energy; David Coen, National Association Of Regulatory Utility Commissioners; Lauren Azar, Wisconsin Public Service Commission; Paul Hibbard, Massachusetts Department Of Public Utilities; Rich Halvey, Western Governors' association; Ralph Izzo, Public Service Enterprise Group; James Nipper, American Public Power Association; Glenn English Natural Rural Electric Cooperative Association; Reid Detchon, Energy Future Coalition; Joseph Welch, ITC Holdings; Chris Miller, Piedmont Environmental Council, David Joos, CMS Energy

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REP. MARKEY: Welcome, ladies and gentlemen, to the Subcommittee on Energy and Environment on this very, very important hearing on the future of the grid and the proposals for reforming the national transmission policy.

There is no more central issue to resolve here than this question.

Three weeks ago, the Energy and Commerce Committee passed the American Clean Energy and Security Act of 2009. This landmark legislation, on which the House will soon vote, will revolutionize our nation's energy policy, creating millions of clean-energy jobs, saving consumers billions of dollars in energy costs and unleashing trillions in new investment.

The 21st-century grid will play a central role in this revolution, wheeling the country's vast wind, solar and geothermal energy resources to market; enabling the electrification of our transportation system; and multiplying energy productivity through smart-grid technologies. The Waxman-Markey Bill recognizes this role by establishing a new framework to plan the grid of the future. We task the Federal Energy Regulatory Commission with establishing national grid planning principles which it will use to support and coordinate regional planning processes across the country.

Within three years, the commission must report back to Congress on the results of this effort, together with recommendations for further congressional action if necessary. Some believe we should go further, by substantially expanding federal authority to plan and site new transmission lines. That includes overriding state decisions to reject proposed lines, and using federal eminent domain authority if necessary.

I think we need to look closely and skeptically whether such a step is warranted at this juncture. I urge caution, for three reasons. First, if it ain't broke, don't fix it. As several of our witnesses emphasize, there are a number of innovative and promising bottom-up planning processes now under way, from New England to the Midwest to the West. We should give those processes time to succeed. Moreover, as Commissioner Azar's testimony emphasizes, one of the greatest obstacles to developing the grid of the future is not a lack of federal authority, but rather uncertainty as to what energy policy that grid must serve.

By establishing a national renewable electricity standard, a firm cap on carbon pollution, and efficiency programs that will dramatically curb growth in electricity demand, the Waxman-Markey Bill will provide the certainty needed to guide private, state and regional development of the transmission system of tomorrow.

Second, look before you leap. Transmission is amongst the most complex and controversial aspects of energy policy. Today's hearing is literally the first hearing in this committee, in this Congress or the last Congress, on transmission. We cannot afford to take a ready- fire-aim approach in this area.

Further, there appears to be little common ground amongst core stakeholders. To give just one example, we invited the Edison Electric Institute, which represents investor-owned utilities, that own most of the nation's transmission system, to testify today.

EEI cordially declined, in part because it was unable to agree on a witness that could represent the disparate views of its membership. The testimony before us confirms that it is very tough to find agreement in this area.

And third, to a man with a hammer, everything looks like a nail. Precipitous action could result in a policy that is ill suited to address the problems at hand and could lead to perverse consequences.

For example, the Western Governors' Association will testify today that, quote, "western governors see little benefit in preempting state transmission line permitting processes" because, quote, "the major hurdle for permitting transmission in the West has been securing permits from federal agencies." In other words, it is the federal government, not the states, that is the problem from the perspective of the western governors.

Several witnesses in the East emphasize that federal planning or siting authority could actually undermine regional efforts to develop renewable resources and encourage expansion of high carbon generation in the Midwest.

We need to take time, take a careful look at this and see what really makes sense. Today's hearing is an excellent beginning to this process. We have a great lineup of witnesses, and I look forward to their testimony.

I would like now to turn to a matter related to the subject of today's hearing which has been brought to my attention. After I agreed last month to hold an oversight hearing on the subject of electricity transmission and the question of whether to adopt additional new legislation in this area, in addition to the regional transmission planning language that is already in the Waxman-Markey bill, I directed my staff to obtain additional information about two important provisions of the 2005 Energy Policy Act that also dealt with transmission and which are directly relevant to today's hearing.

As part of that effort, the subcommittee sent two letters to the Federal Energy Regulatory Commission. The first letter, dated June 3rd, dealt with the impact of the 2005 bill's incentive rate provisions on the construction of new transmission around the country. That letter was sent out last week. The second letter, dated June 9th, dealt with the impact of the 2005 bill's repeal of the Public Utility Holding Company Act on the construction of new transmission.

That letter was sent out Tuesday.

Neither of these letters were related in any way to the allocation hearing that the subcommittee held on Tuesday on MidAmerican holding CEO David Sokol's testimony before the subcommittee. They were being drafted prior to our even being aware that Mr. Sokol would be invited by the minority to be a witness at the Tuesday hearing. Both letters were aimed at helping the subcommittee better understand the impact of previously adopted transmission legislation.

The PUHCA letter contained eight questions, two of which referenced Mr. Sokol's earlier testimony before Congress in support of PUHCA repeal. Mr. Sokol was one of the leading proponents of repealing PUHCA, which is why his prior testimony was relevant to the issue. However, these questions were in no way seeking to target Mr. Sokol or to intimidate him in any way for his appearance before the subcommittee earlier this week.

The day following the release of the PUHCA letter, I heard from Representative Barton that minority members of the subcommittee had concerns about the questions relating to Mr. Sokol and the timing of the letter's release. In response to those concerns, I made it clear that there was no attempt or intent to intimidate any witness.

In addition, to make it absolutely clear that this was the case, I sent a second letter to FERC, clarifying that the FERC should respond to the subcommittee's questions generically, and not just look at MidAmerican specifically. I shared a draft of that letter with Mr. Barton's staff and Mr. Terry's staff on Wednesday night, immediately after they brought this issue my attention. I responded immediately to their concerns.

And finally, I reached out to Mr. Sokol to inform him of what my intent was, to clear up the misunderstanding and to make it absolutely clear that neither he nor his company are the focus of the subcommittee's inquiry.

So I want to say to Mr. Barton, to Mr. Upton and to the members on the other side of the aisle publicly what I have already said to them privately: that I would never seek to intimidate or retaliate against a person from having to come in and testify before this subcommittee. I value hearing the perspectives that all of our witnesses bring to the issues that we are considering. I regret any misunderstanding or misimpressions that the contents of the letter or its timing may have raised.

That is why I immediately, after learning of the minority's concerns, prepared a second letter to the FERC, to direct them to respond generically to the questions rather than focusing on MidAmerican. That is also why I contacted Mr. Sokol directly, to let him know of my intentions and to express my apologies, which I have done.

Joe and Fred and the other members, I just want to let you know that I have the personal greatest regard for you, and that in no way do I want to leave any impression at any time that we would conduct hearings that were not fair and open to all of the members of the subcommittee, or to the witnesses who appear before this committee. And I just want to make that very clear, very publicly at this hearing.

I now turn to recognize the ranking member of the subcommittee, the gentleman from Michigan, Mr. Upton.

REP. FRED UPTON (R-MI): Well, thank you, Mr. Chairman. And I, like many members on this side, do value your friendship. And I realize that we're adversaries, good adversaries, on a number of fronts, and we've been together on a number of fronts. And I know, as we have talked about this privately, that it is very important that there is no intention to intimidate or pressure witnesses to testify in something that they perhaps don't believe in. And I, for one, appreciate your statement this morning.

I also appreciate you calling for the hearing today on national transmission policy. The electricity grid is of vital importance to our nation. We all know that. However, it is an area that is often overlooked, as evidenced by the fact that there were only minor mention of transmission in the Waxman-Markey Climate Bill, and the fact that today, weeks after the climate bill has been passed out of committee, we're having our first really big transmission hearing.

We do have a long and distinguished panel today, and I would like to thank all of our witnesses for joining us. And I would like to give special recognition to the heads of two Michigan-based companies, Dave Joos and Joe Welch. I know that ITC and CMS do not exactly see eye-to-eye on this issue, but I know that they have Michigan's interests at heart. And I would hope that we can all work together on this issue as we move forward.

This committee passed a sizeable renewable electricity mandate without any consideration to the question of getting the renewable electricity to population centers. The strongest winds are concentrated in low-population areas. The strongest sun exposure is found in low-population areas as well. Existing transmission lines are centered in areas of high population, and there are inadequate high-voltage lines to the areas with the most abundant sources of renewable power. If we're going to be serious about renewable power, we have to revamp the grid. And to properly do so, we'll have to block the lawsuits from environmental groups that have increased costs and blocked much-needed transmission lines.

But let's put it in perspective. According to DOE, it would cost 60 billion (dollars) -- yes, "b" as in "big" -- in new transmission lines to reach the 20-percent mark for wind power. Al Gore's lofty goal of fossil-fuel electricity would cost perhaps as much as $400 billion in transmission lines. And if we're serious, we must block the lawsuits and make real investments in the needed infrastructure.

Good example of these lawsuits is found in California. The proposed Sunrise Powerlink in southern California will connect the region to existing and proposed renewable energy sources, whether they be wind, solar or geothermal, located east of San Diego. Energy experts estimate that there is perhaps as much as 2,000 megawatts of geothermal power and tens of thousands of megawatts of solar available in the area. However, without new power lines, the clean, green energy could not be delivered to its customers. Studies show that the line will reduce greenhouse-gas emissions by as much as 1.3 million tons, yet various environmental groups, like the Sierra Club, are fighting it, well documented in publications like the Wall Street Journal.

The areas that are best for wind power and solar are often in these very remote areas away from population centers. Transmission lines are needed to get electricity from wind and solar farms to consumers, and I feel it is a mistake to legislate a costly renewable mandate without addressing the transmission issues.

With all of that said, we must also recognize that many renewable energy sources are unreliable and can bring instability to the grid. Transmission lines cannot distinguish between the green electrons or the brown ones. So we just can't be planning a transmission system for renewables. We have to take all sources into account: wind, solar, nuclear, hydro, coal, clean coal, everything else. Changes need to be made to the current regulatory system. FERC can provide a backstop, but we must not completely abandon the state and local process.

We must also be mindful of the cost. Renewable power is not free. Transmission lines are not free. Consumers deserve to know what the real costs are of any policy and understand exactly what they're going to pay for and what they're getting for their hard- earned money. Consumers are already going to be saddled with increased -- rate increases, and these costs will only go up under the Waxman-Markey bill. Transmission policy shouldn't add to those burdens.

I yield back.

REP. MARKEY: Great. Gentleman's time has expired. The chair recognizes the gentleman from Washington state, Mr. Inslee.

REP. JAY INSLEE (D-WA): Thank you, Mr. Chair. And thanks both for holding this hearing and your great work assembling the Waxman- Markey bill. I think that bill is a tremendous mosaic of using multiple tools to solve our energy problems.

But it really is missing one critical piece, and that is the piece that will help us spur the development truly of a 21st-century national grid. And I think we have to recognize that today, despite the tremendous efforts of people in this field, we have a grid fit for the 19th or 20th century, but not for the new challenges of the new American energy policy.

And the way I would categorize that new challenge is that we used to be able to move our energy components around by truck and rail. We could move coal to the site we wanted to generate electricity. We could move natural gas to the site where we wanted to generate electricity or heat. But we cannot ship photons on rail cars, nor can we ship wind by packages by truck. They have to be generated -- the electricity has to be generated, in fact, where they are located.

Our existing policy on the grid is satisfactory for the first scenario, but not the second. So I have now been at this for some time hoping to advance our ability to plan, site and finance the new grid system that's fit for the 21st century. I've introduced H.R. 4059 and had made some progress in the bill, and hope to make further progress in hopes to achieve this goal in this energy bill.

I want to note several things. Number one, our grid system is doing good work today. I'm not sure you can say the grid is broken, but you can have a horse-and-buggy system that's working but not fit for today's new world. And we know that it will not be fit for the challenges of tomorrow. So while it may not be broken, it is certainly not fit for what we are now asking it to do, and it's my belief that, if we are going to meet our appropriate and necessary 15- percent renewable energy goal, we will need to allow transmission moving forward.

Second, I would point out that the reason we're here today and the reason we need to act today is that this is the only vehicle moving out of town, and it will be the last chance and only chance to really move forward on this effort. And we can't move forward with a renewable electrical standard without a transmission piece.

So I think Lincoln's old quote fits: "As is our case is new, so should we think anew." And thinking anew means federal backstop authority in the event that regional governments are unable to site these necessary facilities.

And the reason national backstop authority is necessary is twofold. Number one, our grid has always been designed to respond to local and regional interests, but with the challenges of global warming and national-security needs, we now have a national need for a national grid. And second, we know that while all of our constituents love electricity, virtually none of them love electrical lines.

And there is a time and a place where Uncle Sam needs to step in to overcome at times the reluctance of all of us to bear with some of the onerous aspects of moving electricity. It's simply necessary, and we know we cannot wait decades to move these electrons.

So I'm very excited about hearing this testimony. Mr. Chairman, thank you. And I hope we can get this job done in this bill. Thank you.

REP. MARKEY: The gentleman's time has expired.

The chair recognizes the gentleman from Kentucky, Mr. Whitfield -- I'm sorry. The chair recognizes -- I'm sorry -- the ranking member of the full committee, the gentleman from Texas, Mr. Barton.

REP. JOE BARTON (R-TX): Thank you, Mr. Chairman. Since we have an oversight hearing on upstairs, it helps me if I could give my statement. I'm going to give a double statement, kind of a bifurcated statement. I'm going to talk a little bit about this hearing, and then I want to comment on your -- your personal comments, because I think we need to -- to elaborate on that a little bit.

But first, on the hearing before us, it's a scary thing when I agree with Jay Inslee -- (laughter) -- but I do agree with Congressman Inslee. His amendment in the committee on the climate change bill was directed, as I recall, towards green energy, or clean energy for transmission. But once you generated that electricity -- whether it's by wind, solar, or even coal power -- electricity is electricity, and it's going to go on the same wires, and the wires don't know where it -- what the source of the generation was. So we do need to update our transmission grid.

We started that process in the Energy Policy Act of 2005, and I thought we had bipartisan support, and it became law. The Fourth Circuit has ruled recently that parts of EPAct are not as they should be. I disagree with that court ruling, and I hope that the Supreme Court will overturn it. But in any event, I agree with Congressman Inslee that we do need to modernize our grid. We do need to give FERC more authority, in my opinion, to make decisions in interstate commerce when the states can't do it themselves. We tried to do that in EPAct, and if that's not the right way to do it, perhaps we can try it a little bit different way.

In the Natural Gas Act, we give the right of eminent domain to the FERC. Now, I don't know that we need to go that far for electricity transmission. There is in all probability a middle ground where the states and the FERC can work together. But in any event, Mr. Chairman, this is a good hearing.

And hopefully out of this will come some consensus, on both sides of the aisle, about what to do legislatively.

Now let me comment on what you said, Chairman Markey, when you were talking about the letter of June the 9th and the comments towards the CEO of MidAmerican, David Sokol.

First of all, I'm very appreciative of what you've said, that it was not intended to intimidate Mr. Sokol, and that you've called him and taken steps to make sure that -- to correct what you say is that misunderstanding. To say that publicly means a lot, and I appreciate you doing that.

But let me elaborate on why people like myself have expressed concerns. You can't make the best public policy if you don't have witnesses come before this committee and give their full, honest assessment of whatever the issue is that's before this committee.

If we adopt a standard that the only witnesses that are going to be received are witnesses that testify to the side of the question that the majority is supporting, you don't really have a full and fair debate on the issue. And in the instance that you alluded to, David Sokol represented a point of view that was contrary to the majority's position on the climate change legislation and the allocation system that's a part of that, the allowance system. That's a side that needs to be presented to the American people.

Now, it may be serendipity and it may be inadvertent. But within two hours of him giving that testimony, a letter was sent under your signature to the chairman of the Federal Energy Regulatory Commission, who is sitting before us today, asking six generic questions and two specific questions about David Sokol and his company. And the chairman of the FERC was asked to respond in writing, to you, by close of business yesterday.

How can that not be perceived as an attempt to intimidate? Testify in the morning, adverse to the position of the majority. Receive -- a letter is sent in the afternoon, to the chairman of the regulatory commission with jurisdiction over your industry and your company, asking probing questions about the conduct and business decisions of your company.

Now, I take you at your word, when you say that that was not intended. And you are beginning to take steps to correct it. But what upsets myself and the others on the minority is that we do not accept that we can develop the mechanism where we allow any member, majority or minority, to threaten, to intimidate, to abuse the power of the office that we're given, by the people of our congressional districts, on behalf of the people of the United States of America.

Now, you're already taking steps to correct the perception that perhaps intimidation was being attempted and I commend you for that. You're going to get a letter from myself and Mr. Upton and other members in the minority later today, asking that we consider those discussions to make sure that we make it absolutely clear that any citizen of this country that comes before this committee can testify to whatever they believe is the truth as they know it without fear of intimidation or retribution.

And I think members on both sides of the aisle will share that goal if we are absolutely clear that that's the way it's going to be, then nothing will be said. But again, you and I have been friends for 25 years and I hope we're going to be friends for another 25 if we both live that long.

I have nothing but the utmost personal and professional respect for you and your conduct and I'm honored to sit on the same committee as you. I've sat in that chair as chairman of this subcommittee, so I think we can get this worked out, but it's a serious issue and it deserves serious consideration and to your credit, you're giving it serious consideration.

With that, Mr. Chairman, I yield back.

REP. MARKEY: I thank the gentleman very much and I thank the gentleman for his words.

The chair now turns to recognize the gentleman from California, Mr. McNerney.

REPRESENTATIVE JERRY MCNERNEY (D-CA): Thank you, Mr. Chairman.

I want to thank you for holding this hearing. This is a complex and difficult issue. I want to thank the panel for appearing this morning, in particular, the chairman of the FERC. I had the opportunity to visit the FERC this week and it was a good, worthwhile use of my time.

This issue is complex and difficult as I've just said. It's got economic challenges, technical challenges and political challenges and I believe the outcome will be best if we do our homework, consider the challenges and devise a rational and bipartisan plan.

So thank you for appearing, and I look forward to your testimony and I hope I can stay most of the time this morning, and with that, I yield back.

REP. MARKEY: The gentleman's time has expired. The chair recognizes the gentleman from Kentucky, Mr. Whitfield.

REPRESENTATIVE ED WHITFIELD (R-KY): Thank you, Mr. Chairman, and we look forward to this hearing today and welcome the witnesses and we look forward to their testimony.

I just want to make a couple of points. If the advocates for a renewable energy mandate are successful, there are going to be large portions of the Midwest that do not have solar, do not have wind power sufficient to meet their needs. It's going to be extremely difficult for them to meet this 20 percent renewable mandate without some federal involvement regarding the sighting, the financing, the building of additional transmission lines and particularly when you consider the Department of Energy's 20 percent wind energy by 2030, saying that they're going to have to build at least 12,000 new transmission, 12,000 miles of new transmission lines to meet that need and on top of that when you consider this recent 4th Circuit Court of Appeals decision that Ranking Member Barton mentioned, which does make it more difficult for FERC to operate in this area. I do think we have some significant issues and I hope this hearing can help us resolve those.

And I yield back the balance of my time.

REP. MARKEY: Time has expired. The chair recognizes the gentle lady from Wisconsin, Ms. Baldwin, for an opening statement.

REPRESENTATIVE TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman.

Transmission is critical to our nation's electrical system and I certainly support grid expansion. I have significant concerns; however, about many of the recent federal proposals that jeopardize state and regional efforts to develop the transmission grid, specifically, these efforts ignore progress and may actually slow investments being made in states like Wisconsin and others in the Midwest.

Over the last seven years, my home state of Wisconsin, the Wisconsin rate payers have supported more than $2 billion in investments in our transmission system. These actions have and will continue to improve reliability and increase the flow of renewable energy in Wisconsin and our neighboring states.

Congress must ensure that we are not undermining the existing processes if we are going to venture into the transmission arena, especially when sensitivities already exist to state authority, cost allocation, safety and eminent domain issues.

As we examine these issues, there are some questions and challenges that we must keep in mind. Who is going to pay for this? Will those not receiving the benefits of transmission have to pay for the cost of lines of traversing this country?

I'm hearing strong concerns about designing our transmission system for one specific purpose. It's not the job of transmission planners or transmission companies to choose the types of generation that may interconnect with the transmission system. Transmission is needed plain and simple, regardless of the type of generation. And where I come from, transmission is a sensitive subject. It will be very difficult to convince Wisconsinites and other Americans that in the name of national interest, the federal government is taking their property to essentially stretch an extension cord across it to power a larger urban area many, many miles away.

So what will this process be like for public input if it is a federally directed process?

Well, the sighting of underground transmission lines may be easier than that of above ground lines, the costs are significantly increased perhaps as much as $3 million per mile. So mandating technologies on states and regions has significant ramifications.

Again, I share the goal of ensuring that critical new investments are made in our transmission system, but we must proceed with caution not undermining existing efforts that are already working in this process.

Thank you, Mr. Chairman. I yield back.

REP. MARKEY: Great. The gentle lady's time has expired. The chair recognizes the gentleman from Pennsylvania, Mr. Pitts.

REPRESENTATIVE JOSEPH PITTS (D-PA): Thank you, Mr. Chairman. Thank you for holding this hearing on our national transmission policy.

The official report on the 2003 Northeastern blackout concluded that, quote, "As evidenced by the absence of major transmission projects undertaken in North America over the past 10 to 15 years, utilities have found ways to increase the utilization of their existing facilities to meet increasing demands without adding significant high voltage equipment," end quote.

Clearly, there is a significant need for an increase in transmission capacity. This need is amplified as we consider adding more and more renewable energy to the grid. And while I am fully supportive of adding more transmission capacity, I believe we do need to keep in mind the legitimate desires of localities to preserve green spaces and historic sites.

My district includes some of the most pristine historic landscapes in the mid-Atlantic. My district also has some of the most productive farmland in the United States, Chester County, the home of Valley Forge and the Brandywine Valley where I come from is one of William Penn's original three counties.

The tradition of preserving land and being good stewards of the earth have been passed down from generation to generation. We're not against progress, but we want to protect our heritage and be wise about how we use and develop the land we have.

Having the needed energy to turn on lights and heat water is critically important to the quality of life to every American, however, the preservation of our historic resources and natural environment of peoples' communities contributes to our qualify of life as well.

We need to ensure that all stakeholders are included in deciding where and when transmission lines are sighted. Dialogue and compromise are key in this issue, indeed, it is critical to strike a delicate balance between the crucial electricity needs of the country, while at the same time maintaining the historic open space areas that make our country beautiful and unique.

As this committee continues to consider this issue, I hope that we hear from all affected parties and work towards viable solutions.

Mr. Chairman, I'm grateful for the opportunity to discuss this issue, and it's my hope that today's hearing is only one in a series of hearings on this issue to ensure a robust and well-rounded approach to our national transmission policy and I look forward to hearing from our witnesses and yield back.

REP. MARKEY: Great. I thank the gentleman. The chair recognizes the gentleman from Vermont, Mr. Welch.

REPRESENTATIVE PETER WELCH (D-VT): Thank you, Mr. Chairman.

I actually want to just get my microphone to work here.

I am proud that we have here today as one of our witnesses, David Cohen. David is a member of the Public Service Board in Vermont, serving on his third term and he's been appointed by Republican and Democratic governors alike. He's done a tremendous job. He's now Vice President of the National Association of Regulatory Utility Commissioners.

David is acutely sensitive to the particular needs of rural utilities. We're a small stat, but this issue of transmission is incredibly important to us as it is all around.

So I want to welcome him and thank you, Mr. Chairman, for inviting David to be here and add to the testimony.

Thank you.

REP. MARKEY: The gentleman's time has expired. The chair recognizes the gentleman from Louisiana, Mr. Scalise.

REP. STEVE SCALISE (R-LA): Thank you, Mr. Chairman.

Renewable energies will play an important role in the future of our national energy policy and I support the development of renewable sources of energy. As a matter of fact, Republicans have drafted legislation, the American Energy Act, which will invest in heavily in the development of renewable sources of energy.

As we explore the advancement and promotion of energy sources like wind, solar and hydro and as the Congress and this administration discuss the future of our national grid and its capacity, we must not neglect that many of these renewable sources of energy are intermittent and need to be backed up by other sources of energy.

And we would be remiss if we do not emphasize the importance of diversifying our energy portfolio and ensuring that nuclear power is part of any comprehensive energy policy we discuss.

Wind and solar power still need to overcome fundamental obstacles and we cannot today exclusively rely on these sources of energy alone to power our nation. When the wind stops blowing and the sun stops shining, our hospitals that care for our families and schools that teach our children must continue to have reliable sources of energy that ensure that the lifesaving equipment and the lights stay on.

Transmission infrastructure, planning and sighting policies are all important to this conversation, as is the regulatory framework that will surround these policies. I believe it is also important for the Congress to carefully weigh regional considerations as we further discuss this issue.

I look forward to today's hearing and I yield back.

REP. MARKEY: The gentleman's time has expired. The chair recognizes the gentleman from North Carolina, Mr. Butterfield.

REP. G.K. BUTTERFIELD (D-NC): Thank you very much, Mr. Chairman.

I'm going to move one seat down so I can have the benefit of this microphone. Thank you very much, Mr. Chairman, for convening this hearing. I particularly want to thank the five witnesses who have come forward today to make their testimonies available.

And it goes without saying, Mr. Chairman, that I support the expanding of the grid, using 21st century technology. We certainly must do that. Waxman-Markey takes dramatic steps to further the growth of renewable electric generation. The nationwide RES standard demands use of those sources and the price signals sent from a carbon cap will further the use of clean fuels.

As we move forward, Mr. Chairman, we must focus on developing policies that ensure electricity generated from these new sources gets to the load centers that demand them and this means we must address the deficiencies in our transmission grid that will delay us from reaching our full renewable generation potential or hamper grid efficiency.

There are a number of challenges to improving transmission, but sighting will be particularly difficult to overcome. Balancing the federal and state and regional and local stakeholder needs and interests will be difficult, but critical to the completion of a modernized grid. Comprehensive planning, cost allocation and ownership will also present challenges as we have heard today. I applaud the collaborative nature of this subcommittee; look forward to discussing the issue further.

I yield back.

REP. MARKEY: Thank the gentleman. The chair recognizes the gentle lady from California, Ms. Harman.

REP. JANE HARMAN (D-CA): Thank you, Mr. Chairman.

We're debating on the floor a bill to have the FDA regulate tobacco and I have to say it's a long time in coming and I'm absolutely thrilled that we will finally, I believe, pass it and it will become law very soon.

So while I'm celebrating about that, I'm thinking about another hard issue, this one, which will require all of us to step up and think about some risky strategies to make certain that the promise of renewable energy and the absolute need for transmission of electricity throughout the country can be accomplished.

I think anything we do in this committee will make us a few friends and make us a few enemies and that applies to us regardless of which party we're in and which region we're from, but I think we have to step up as many people finally have stepped up in both parties to the need to regulate tobacco.

I just want to point out some of the obstacles. The U.S. electric transmission system encompasses about 167,000 miles of high voltage transmission lines and another 300,000 miles of lower voltage lines. The grid is operated by approximately 130 balancing authorities, which are typically utilities that own transition systems and operate control centers to monitor and control the grid. Those transmission systems are owned by several hundred private and public entities.

So let's just start with that. It's incredibly complex and if we don't get a handle on that and don't step up to the tough decisions, we won't solve the problem. But I would just close by saying that if we really want renewable energy in this country, we really have to fix the grid.

Thank you, Mr. Chairman.

REP. MARKEY: The gentlelady's time has expired. The chair recognizes the gentleman from Texas, Mr. Green.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman. And I have a full statement I'd like to place into the record, and just a little history in the '05 Energy Act, we actually provided for the federal transmission corridors that are so needed and like my colleagues, some of my colleagues have said, we disagree with the court decision, hopefully, it will be overturned by the Supreme Court, but there are things we can do that may help, Mr. Chairman.

I appreciate both Mr. Inslee's legislation and to expand and have a national grid. We know that -- and it can't be just limited to renewables because those electricity protons don't decide where they come from, they just go down those lines.

And so that's why I'm happy to be part of the hearing, and again, I'd like my full statement to be placed in the record and again support our effort to expand the national grid.

I have a huge transmission corridor right behind my neighborhood and I guess in Texas we don't have any problem with pipelines or transmission grids because our PUC just approved $5 billion for the renewable fuel -- electricity to come from West Texas to our urban markets.

So thank you, Mr. Chairman, I yield back my time.

REP. MARKEY: Great. The gentleman's time has expired. The chair recognizes the gentleman from New Jersey, Mr. Pallone.

REP. FRANK PALLONE (D-NJ): Thank you, Mr. Chairman.

I want to first thank you, you know, for all that you've done on this issue, I mean, I know its been so many years and we finally passed a bill out of committee and I know that we'll pass it on the floor and send it to the president eventually.

I wanted to point out that Ralph Izzo, Chairman and CEO of the Public Service Enterprise Group, a New Jersey-based energy company will be testifying on today's second panel and under Ralph's leadership, PSEG has been a leader in renewable energy and investments throughout the state of New Jersey.

Today, the committee will address policy proposals for transmission planning, cost allocation and sighting authority. A strong transmission grid is essential to ensure energy reliability and to move clean, renewable energy from remote locations to population centers.

I think we can all agree that planning and investing in the reliable grid is a national priority. That said, we need to be very careful how we craft any new national transmission policy. Two main areas of concern for the Northeast and specifically for New Jersey are how to site new transmission lines and how to pay for those new lines. It's critical that states like New Jersey have authority over the sighting of new transmission lines that would run through the state, giving FERC greater authority to site high voltage electric transmission lines will generate widespread local opposition. Any new transmission legislation must give states adequate authority over sighting to ensure that states can protect property, the environment and cultural and historical sites.

Another issue that will affect my state is cost allocation, specifically how do we craft legislation that encourages investment in new transmission lines to move renewable energy such as wind to population centers? I believe we should think regionally. New Jersey has tremendous potential to meet our renewable energy goals through solar and off-shore wind. It does not make sense for New Jersey rate payers to subsidize the cost of moving wind from the Midwest to the East Coast, a cost of $10 million per mile. This can slow development of alternatives closer to home.

I believe the transmission provisions that were passed in the American Clean Energy and Security Act provide a balanced approach that respects regional differences and local concerns. Before we pass comprehensive transmission legislation, we must consider how it will affect the economies of local renewable energy projects and whether it provides adequate siting authority for the states.

But again, thank you again, Mr. Chairman.

REP. MARKEY: I thank the gentleman very much. The chair recognizes the gentleman from Georgia, Mr. Barrow.

REP. JOHN BARROW (D-GA): I waive.

REP. MARKEY: The gentleman waives his opening statement. All time for opening states has been completed.

We'll now to turn to our very distinguished panel and our first witness who is Jon Wellinghoff. He is the chairman of the Federal Energy Regulatory Commission which oversees wholesale electric transactions and interstate electric transmission and gas transportation in the United States. He is also co-chair of the Demand Response Collaborative launched jointly by FERC and the National Association of Regulatory Utility Commissioners.

We thank you so much for being here in your first appearance before our committee. We welcome you, sir. Whenever you are ready, please begin.

MR. JON WELLINGHOFF: Good morning. And thank you, Mr. Chairman.

REP. MARKEY: Could you just push the microphone a little bit closer and turn it on?

MR. WELLINGHOFF: Good morning. Thank you, Mr. Chairman, Ranking Member Upton, members of the subcommittee. First I have two quick preliminary issues. One is, I'd like to recognize and thank my colleague, Commissioner Phil Muller, who's here with me today. And I'd also like to request that my full profile testimony be placed in the record.

REP. MARKEY: Without objection, so ordered.

MR. WELLINGHOFF: The following is a summary of that testimony.

I appreciate the opportunity to appear before you today to discuss our nation's electric transmission grid. Mr. Chairman, your invitation for this hearing envisions, quote, "a transmission system that will serve the goals of substantially reducing greenhouse gas emissions, developing renewable energy resources, and improving energy efficiency while preserving or enhancing reliability." A transmission system that meets the goals you have articulated will result from a strong and smart electric grid that can assist in promoting fuel diversity, reducing greenhouse gas emissions, strengthening our national security, revitalizing our economy, enhancing competition, and ensuring reliability.

Such a reliable and robust transmission grid is essential to allowing regions, states, and our nation to meet these goals. The commission has taken a number of important steps in recent years to promote the development of such a transmission system. For example, in February of 2007 the commission issued Order 890 which, among other things, required open, transparent and coordinated regional transmission planning and required evaluation in that planning of demand resources on a comparable basis to other resources.

The commission also approved an initiative proposal from the California Independent System operator to better allocate costs of facilities needed to interconnect location- constrained resources such as wind and solar to the transmission grid.

Nonetheless, I believe there are gaps in the commission statutory authority. The absence of an adequate regulatory framework is the principle obstacle to developing a transmission system that can support the goals you have outlined. If we are to overcome that obstacle, we need a national policy commitment to develop such a transmission system, and in developing that policy Congress should consider three closely related issues: planning, siting and cost allocation.

First, the scope of existing regional planning initiatives needs to be expanded. To achieve greater benefits and efficiencies we must create a structure that includes coordination on an inter-regional basis. Such coordination will facilitate, for example, the development of facilities to transport power from areas rich in renewable energy resources to load centers, as well as the deployment of distributed resources and key smart grid equipment and systems.

Second, states should continue to have the opportunity to site transmission facilities, but transmission developers should have recourse to the commission as a federal citing authority under appropriate circumstances. Federal citing authority would be helpful even if limited only to transmission facilities needed to reliably meet renewable energy goals.

Third, if Congress determines there are broad public interest benefits in developing the transmission system necessary to meet the goals discussed, then Congress should consider clarifying the commission's authority to allocate costs of such infrastructure to the load-serving entities within an interconnection or part of an interconnection where it is appropriate to do so.

Of course the commission would need to ensure as it does today that these costs are allocated fairly to the appropriate entities and that due deference is accorded regions that work together to develop cost allocation mechanisms that garner broad support.

Finally, it's important to recognize that the issue not how to choose between nearby renewable or more distant renewable resources. Both should be part of the mix of energy resources to achieve our national goals. And appropriately allocating the costs of transmission facilities needed to connect remote resources should not disrupt the implementation of state policies or disadvantage local renewable or other distributed resources.

Rather, full planning analysis that reveals respective costs of alternative resource scenarios and a fair cost allocation of necessary transmission to reliably deliver those resources to loads will eliminate a barrier to the development of new clean resources and thus will facilitate competition.

Such a measured approach should inform consumers of the least cost sustainable resource options to meet state and national environmental economic and security objectives. And enacting a regulatory structure that enables such an approach to be implemented will ensure our national energy goals can be achieved.

Thank you again for the opportunity to appear before you. I'd be happy any questions that you may have. I thank you.

REP. MARKEY: Thank you, Mr. Wellinghoff, very much.

Our next witness is David Coen. He is the first vice president of the National Association of Regulatory Utility Commissioners. Mr. Coen has also served as a member of the Vermont Public Service Board since 1995 and has continued. He has served in a variety of regional and national leadership positions including the chair of the Consumer Affairs Committee of the New England Conference of Public Utility Commissioners.

We welcome you, sir. Whenever you're ready, please begin.

MR. DAVID COEN: Good morning, Chairman Markey, Ranking Member Upton, and members of the subcommittee. My name is David Coen. I am a member of the Vermont Public Service Board. I also serve as the first vice president of National Association of Regulatory Utility Commissioners also known as NARUC. I'm honored to have this opportunity to appear before you this morning and offer a state perspective on transmission.

In addition, I would like to thank Representative Wells for his kind introduction and his service to our state. He is certainly my favorite congressman from Vermont. (Laughter.)

At the state level, we deal with transmission planning and siting requests regularly, and I can tell you that the issues and concerns are not policy or procedural but multifaceted, and do not lend themselves to a one-size-fits-all solution. State commissioners are obligated to act deliberately to ensure that any new projects will benefit the public. This means regulators must determine whether demand response, energy efficiency, or perhaps a local renewable energy source is more appropriate than putting steel transmission towers in the ground.

A major impediment to siting energy infrastructure is the great difficulty in getting public acceptance. As a country we want our electricity to be affordable, reliable, and increasingly clean; but we also want to ensure that transmission infrastructure does not impact our quality of life. Public hearings on transmission lines are always packed with concerned rate-payers and landowners with nearly all of them in opposition to the project. I can assure you that no level of federal involvement will make this go away.

Still, the state and local level provides an important venue for all parties to be heard. State regulators know the geography and citizenry better than any federal agency can. Our processes are transparent and give all parties a voice, but some interests may consider roadblocks or impediments we consider due process.

Let me say a few words about what we're doing in Vermont. Vermont has a transmission planning process that analyzes potential transmission constraints over a 20-year horizon and considers various alternatives including distributor generation and targeted energy efficiency programs that would address any identified reliability issues. The process ensures that solutions to transmission constraints serve the long-term needs of consumers at the lowest cost.

After decades without any major transmission investment, the Public Service Board has approved three major transmission projects from 2005 through 2008 with total projected capital investment over half a billion dollars. At the regional level, that in decades without any major transmission investment, nearly $4 billion of transmission infrastructure has been placed in service in New England since 2002.

Despite the activity on the state and regional level, there is momentum in Congress to provide the federal government with broader transmission authority, although we are just four years removed from the enactment of the Energy Policy Act of 2005. EPA gave the Federal Energy Regulatory Commission backstop siting authority in specific areas designated by the Department of Energy. Not enough time has passed to determine whether this law needs to be revisited, but the Congress is addressing this issue nevertheless.

NARUC recently updated our transmission policy in anticipation of federal action. We believe that a bottom-up state and regional driven approach is the most appropriate model going forward, while we are not convinced that the case has been made for expanded federal authority.

If Congress chooses to act, we recommend the following principles. Any such additional authority granted to FERC by the legislation would allow for primary siting jurisdiction by the states and provide FERC's backstop siting authority be as limited as possible. In no event should FERC be granted any additional authority over the siting or construction of new interstate transmission lines.

In no event should FERC be granted any additional authority to approve a new interstate transmission line that is not consistent with a regional transmission plan developed in coordination with an affected state commission or other siting authorities or regional planning groups.

In no event should FERC be granted any additional authority to approve a new interstate transmission line unless there is already in place either a cost allocation agreement among all the states to which the proposed project will pass, governing how the project will be financed and paid for or a FERC-approved cost allocation rule that covers the entire route to the proposed project.

In no event should any legislation allow FERC to preempt state authority over retail rate-making, the mitigation of local environmental impacts under state authority, the interconnection to distribution facilities, the siting of generation, or the participation by affected stakeholders in state and/or regional planning processes.

And in no event should any legislation preempt existing state authority to regulate bundled retail transmission services.

In conclusion, the electric transmission system must have the capacity to meet the growing energy needs of the nation. Regardless of the generation source, the solutions to the challenges will not come quickly or easily and will require the cooperation of all stakeholders including state and federal governments.

Thank you. And I look forward to your questions.

REP. MARKEY: We thank you very much.

I'm now going to turn to Congresswoman Baldwin to introduce our next witness.

REP. TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman. I am pleased to welcome a very special constituent to our hearing today. In 2007 Governor Jim Doyle appointed Lauren Azar to the Wisconsin Public Service Commission. As a commissioner, she has played a leading role in confronting the challenges associated with transmission development. Just yesterday the Wisconsin PSC sited a very significant transmission line. Lauren also serves as president of the Organization of MISO States where she's leading a regional planning and cost allocation effort for developing electrical transmission over the Midwest ISO region which includes 13 states and one Canadian province.

Prior to her appointment to the Wisconsin PSC, Commissioner Azar worked as an attorney and practiced extensively in the areas of electric and water utilities, representing both rate-payers and utilities. She helped to create the nation's first standalone transmission company, American Transmission Company otherwise known as ATC, and helped to site a 210-mile extra high voltage line in Wisconsin and Minnesota.

In addition to all of these credentials, I can also tell you that I know what she eats for breakfast and what she grows in her vegetable garden because for those of you who don't know, Lauren is also my partner. And it's a thrill and a very proud moment to have her here to testify based on her significant expertise on the issues before us. I welcome her to our subcommittee.

MS. AZAR: Thank you, Congresswoman.

REP. MARKEY: We welcome you. Whenever you're ready, please begin.

MS. AZAR: Thank you. Ranking member Upton and the members of the subcommittee, thanks for inviting me to appear at this hearing on the future of the grid.

And my primary messages for today are, number one, before a transmission grid can be cost effectively planned, Congress must define the goals for that grid.

Number two, states with technical assistance from the regional and utility transmission engineers should plan the grid and site transmission lines.

Three, Congress should define the framework through which the states will design and site the grid. If the states fail, then it's appropriate for the federal government to step in.

And four, Congress should agree to do no harm by not selecting a specific grid design or technology and by not selecting a specific cost allocation.

As to point number one, Congress should define the goals. The renewable energy standards and carbon limits that Congress may set will define the generation portfolio that our nation will need to develop. With clear identification of RES and the carbon mandates, the states can begin designing the transmission grid that is necessary for that generation portfolio.

Point number two, states should develop the plan and site the lines. There are a variety of reasons why a state-led process will lead to better results than a federally-led process. And these reason include, first, state commissions have the ultimate responsibility for retail electric rates. Second, planning must accommodate state choices for generation and demand-side programs, the distribution decisions that they have made. Third, planning must incorporate the designs for the existing state transmission and distribution systems. And lastly, state decision-making allows more complete public information, participation, and acceptance.

Point number three, Congress should define the process. Congress could define the process. Congress could define the parameters for a state-led process. Such parameters could include the following: essentially require the states to participate in regional planning initiatives to design a grid that will meet the congressional mandates. Set strict but reasonable deadlines for the planning product and the siting of lines in that plan. Ensure the parties who will profit from this grid build-out do not make the decisions for that build-out. And lastly if states do not complete the plan or the siting of the lines in that plan, then the federal government should intervene.

Point number four, Congress should do no harm. I ask you to take a Hippocratic oath today. And such an oath would require you not to do two things. Number one, do not pick technologies or plans. While the moniker, quotes, "transmission superhighway," end quote, sounds good, depending on the goals of Congress it may not be what we need. I suspect the one-size-fits-all solution such as the 765 grid overlay will not be cost-effective, will likely be over-sized, and will harm some areas. As an aside, the parties who are advocating for 765 grid overlay are the very parties that will make a lot of money off of that plan.

And the second point about not doing harm is, do not select a specific cost allocation for the grid because cost allocation should be tailored to the plan developed, Congress should not preselect such an option. If Congress mandates a specific cost allocation, it will be indirectly endorsing a specific type of design. For instance, endorsing a so-called "postage stamp" which allocates the costs evenly over a very large area is more appropriate for an alternating current solution than a direct current solution.

In conclusion, I ask Congress to promptly set renewable standards and carbon limits so that the problem is defined. I also ask that Congress essentially lock the states in a room and instruct them to solve the problem within a specified time period. The $80 million already appropriated under the ARRA will provide the funding necessary to conduct this endeavor.

After being locked in the proverbial room for a reasonable period of time, if the states are unable to design a transmission grid, meeting the congressional mandates, then the federal government should step in. The same framework should also be applied to transmission siting.

I see I still have 43 seconds, so I'm going to just quickly provide a quick summary of some of the efforts that are currently happening within the states as far as regional planning and siting. The chairman and Congresswoman Baldwin already referenced one of them, which is namely the Organization of MISO States, and that's the Midwest Independent System Operator. The states within that 13-state region and one Canadian province are currently developing a regional plan and cost allocation process, and we expect to have that done by the end of the year.

More, I think, importantly to this committee's work, in the ARRA Congress identified that they wanted to have interconnection-wide plans. And on May 15 leaders from the eight different regions within the eastern interconnection met to begin the process of planning on the interconnection-wide basis. At the end of this month we expect to have all 40 states present at a meeting in which we will begin to discuss just how we expect to go forward in that process and what the states' role should be in that process.

Thank you very much, Mr. Chairman.

REP. MARKEY: We thank you very much for being here today and for your testimony.

Our next witness is Paul Hibbard. He is the chairman of the Massachusetts Department of Public Utilities. Chairman Hibbard previously worked for the Massachusetts Department of Environmental Protection.

We welcome you, sir. Whenever you're ready, please begin.

MR. HIBBARD: Thank you, Mr. Chairman. I also want to thank the members of the committee for inviting me here today to talk to you about this critical topic.

On behalf of Governor Deval Patrick and the Commonwealth of Massachusetts, I want to thank you all for your leadership in addressing our energy challenges and global climate change and for your wisdom in addressing both at the same time in the ACES legislation. And we support your efforts and encourage Congress to move forward with the ACES legislation expeditiously.

On transmission, we think that ACES has got the transmission planning and siting question exactly right. In its current form, it presents a measured and sensible approach that supports the continued and vital primary role of state and regional resource planning and siting efforts and expands the role of FERC to coordinate regional planning across a broader geographical footprint and with an added focus on national energy policy. But most importantly it does so without jeopardizing the critically important role of competition in wholesale energy markets.

In contrast, I have serious concerns with the more aggressive proposals that have been put forward to expand federal authority in transmission planning and siting. At their core, these proposals appear to put FERC in three roles. First, in the role of requiring the development in a short period of time of interconnection-wide plans like the JCSP, ostensibly to access renewable resources.

Second, it puts FERC in the role of deeming transmission included in such plans as needed for the public convenience and welfare, triggering the siting over-ride and eminent domain authorities.

And third, it puts FERC in the role of approving or imposing the allocation of associated costs on a broad basis across all load.

Under these proposals FERC's traditional authority is expanded to where it becomes a de facto central planning authority to select and direct the build-out of renewable generating resources across the national, potentially diminishing the development of the abundant level of demand reduction and renewable resources that are available at the local level in all of our regions.

Developing renewable resources locally is a top priority for the commonwealth as I'm sure it is for states across the country. We believe that renewable resources in our state and along the eastern seaboard, both on-shore and off-shore, represent one of our nation's most promising, yet underdeveloped, renewable resources, sources of energy.

While off-shore wind installation costs currently exceed those of on-shore installations, these resources are much closer to our load centers. And resource and development efforts that are focused on reducing costs and improving reliability promise to make off-shore wind competitive with distant by on-shore wind farms on a delivered cost of power basis. As regional on-shore projects move forward and off-shore wind moves into commercialization in the United States, they all must have the opportunity to compete on an even playing field with the on-shore and more remote sources of renewable power and not be disadvantaged by up-front transmission subsidies.

The threat that unsubsidized local renewables would be unable to compete, in fact, has been taken very seriously in our region and beyond. A bipartisan group of 11 governors representing every coastal state from Maine to Virginia, as well as Vermont, recently joined together to raise these concerns in a letter to the committee chairman.

A top-down central planning process is in stark contrast to how free markets are supposed to operate. In our region and at the direction of FERC to ensure fair competition, all generating resources, renewable or otherwise, are responsible for all development costs including the costs of environmental compliance and the cost of delivering their power reliably to load.

In this competitive market context, it's the lowest cost provider based upon the price at retail that prevails, ensuring that society's electric reliability and environmental goals are met at the lowest possible cost.

Notably, this is the design principle under ACES, where the prices offered by fossil fuel resources will be higher and less competitive due to the additional marginal costs associated with purchasing carbon allowances and the price offered by renewable resources will be lower and more competitive due to the additional marginal revenues associated with the generation of renewable energy credits and other incentives.

In this framework, there is no need for central planning decisions to force development or to pick the winning resources because by definition the cost of carbon allowances and the value of renewable energy credits will rise to levels that are needed to support the resources that must come on-line in order for our nation to meet our carbon cap and our renewable resource floor.

This is the way it's supposed to work and indeed has worked in emission markets over the past couple of decades. By suggesting that FERC needs to engage in resource planning to build transmission to preselected renewable resources is to concede at the outset that the free market structure for emission control and renewable development contained in ACES will fail.

In my view, the more aggressive proposals for transmission legislation, thus, are about much more than siting. They force the federal government into an administrative role of central renewable resource planning, a role that I believe in the long run will damage the operation of competitive markets, suppress the technological innovation and creativity that come from the operation of competition, and ultimately will result in our meeting our climate objectives that prices to retail consumers of electricity are higher than they otherwise would need to be.

So I want to again thank the members of the committee for this opportunity, and I look forward to questions.

REP. MARKEY: Thank you, Mr. Hibbard.

Now we have one final very important witness representing the Western States Governors who I think we should all hear from before we cast our vote on the floor on the last vote of the day. Then we'll reassemble after that roll call. But I think since we're all here right now, that we'll hear from Rich Halvey who is the energy program director for the Western Governors Association and representing those western governors before this subcommittee today.

We welcome you, sir. Whenever you're ready, please begin.

MR. HALVEY: Thank you, Mr. Chairman. Members of the committee, thank you for the invitation to testify here today.

REP. MARKEY: Could you move that microphone in a little closer? Thank you.

MR. HALVEY: Over the last eight years, the Western Governors Association has assumed a strong leadership role in defining policies for transmission planning, cost allocation, and regional cooperation. In 2002, a protocol governing cooperation among state and federal agencies in the siting and permitting of interstate transmission lines in the Western United States was developed and signed by the WGA, the Departments of Energy, Interior, and Agriculture, and the Council on Environmental Quality.

In June 2006 the Western Governors Association published a report that explained that while vast renewable resources exist throughout the West, many reside in remote areas without ready or cost-effective access to transmission. Lack of transmission access was and remains the greatest impediment to the rapid development of utility-scale, renewable-rich resource areas.

In April 2008 the Western Governors partnered with the United States Department of Energy, Interior, Agriculture and the Federal Energy Regulatory Commission to create the Western Renewable Energy Zones Project. This project will ultimately identify those areas with the highest potential for large-scale, cost-effective renewable energy development across the western region, and the high voltage transmission that would ensure this electricity can be delivered to demand centers.

This coming Monday the Western Governors Association will be releasing the Project Phase I Report quantifying the potential the richest renewable resource areas. WGA will continue to work on the project over the next two years. We are partnering with utilities and the Western Electricity Coordinating Council to evaluate transmission needs to move power from preferred renewable energy zones. We'll be working to improve the integration of wildlife and environmental values in decisions on the development of generation and transmission associated with these renewable energy zones.

Ultimately we will propose conceptual transmission plans to move electricity from the most desirable zones to markets. We will work with load-serving entities to coordinate purchasing for the desirable renewable energy zones and to foment interstate cooperation for renewable energy generation and transmission.

The Western Governors support the development of interconnection- wide transmission plans. However, if the Federal Energy Regulatory Commission is given the authority to approve such plans, Congress needs to set explicit criteria by which FERC evaluates these plans. At a minimum, statutory criteria should require that the states approve electricity future scenarios to be studied and approve interconnection-wide plans corresponding to the future scenarios.

Even with the success of our past efforts, the Western Governors recognize that we need help from the Congress. I'll mention four positions the governors have consistently emphasized as necessary elements of transmission planning, cost allocation and regional cooperation where legislation will be critical.

First, the federal government should be responsible for ensuring that near-term projects proposed to serve large, geographically constrained, low carbon resource areas are adequately sized to meet long-term needs. When we know future demand will materialize, action by the federal government to correctly size lines will help projects capture economies of scale in building transmission and avoid environmental impacts from the construction of multiple lines to the same area. We propose that the federal government pay for the incremental cost of building higher capacity lines to these areas.

Second, Congress should redirect the implementation of Sections 1221 and 368 of the Energy Policy Act of 2005 to preserve important transmission corridors and ensure the timely siting and permitting of large transmission lines to move geographically constrained, low carbon generation. Specifically, once high priority zones and associated conceptual transmission have been identified, Congress should direct federal land management agencies to use those results when evaluating and designating corridors.

Third, the Western Governors see little benefit in FERC preempting state transmission line permitting processes. The major hurdle for permitting transmission in the west has been securing permits from federal agencies. The implementation of federal law has resulted in lengthy and inflexible federal permitting processes. Enabling FERC to preempt state siting processes will not fix the underlying problem.

I'd like to mention the limited instances in which the governors could agree with FERC backstop siting authority. It must be demonstrated that the transmission line is needed to meet national carbon and renewable generation requirements, comports with an interconnection-wide transmission plan, is right-sized to meet the long-term needs for geographically constrained low-carbon generation, is the lowest-cost option to meet long-term needs, and where the state has failed to make a decision within a reasonably set statutory period.

Finally, the Western Governors believe the current system for cost allocation in the West has worked well. And we believe it will continue to be adequate for the future. The exception of course would be the cost allocation as it applies to the kind of right-sizing we described.

We are attaching two letters to our testimony, and we ask that they be included—two letters that the Western Governors have sent to the Congress in 2009 regarding transmission issues.

Thank you for the opportunity to talk with you today.

REP. MARKEY: Thank you, Mr. Halvey, very much. I think this is about as important a hearing as we're going to have this year. We appreciate the opening statements from the witnesses. There are five minutes left on the House floor for us to cast our vote. And so what I will recommend is that we reconvene this hearing in 15 minutes, and then we will begin with questioning of the witnesses by the subcommittee members. The subcommittee stands in recess.

(Recess.)

REP. MARKEY: (In progress) -- intention of all of our audience on the witnesses. Thank you.

So the chair will recognize himself, and I will ask you, Mr. Halvey, to please elaborate on your testimony that permitting on federal lands is the major obstacle to siting transmission in the West. That issue is not generally within this committee's jurisdiction but rather within the jurisdiction of the Committee on Natural Resources. But I don't think this is a widely understood kind of political reverse take-down that it's not the problem that the federal government has with the states, but the problem that the states have with the federal government, as represented by the management of the federal lands, especially across the West. Could you elaborate on that, and perhaps give us some specific examples?

MR. HALVEY: Sure. Thank you, Mr. Chairman. Let me mention a couple of things. At a meeting of the Western Governors in February, Governor Otter from Idaho made the statement very clearly that in those instances where we have the opportunity to site transmission lines and not go through federal lands, we're often going to exercise that.

There are a couple of issues I think that come to mind in terms of the permitting with federal lands. One, if you live in the West it's difficult to avoid federal lands. Many of the states are covered with lands under federal jurisdiction, both the Departments of Interior, the Departments of Agriculture. So that's certainly an issue.

Second, there's no priority system for dealing with lease applications. It's on a first come, first served basis. One of the things that we're doing with the Western Renewable Energy Zones is really pointing out where we think is a critical issue which is that there are places that are really better for not only locating renewable energy but there are also transmission corridors that are going to be more important in moving that renewable energy. We believe that there ought to be some kind of a way to recognize that priority and to do the transmission work, the permitting work that's necessary to get those facilities located.

We think in many cases it's not unusual to see five, seven or even 10 years to locate transmission lines when they go through federal land.

REP. MARKEY: Would you repeat that? Repeat that back.

MR. HALVEY: That it's not unusual to see five, seven, 10 year time periods in terms of getting lines approved through federal lands.

REP. MARKEY: So when the states go to federal agencies --

MR. HALVEY: Right.

REP. MARKEY: -- it takes five to seven to 10 years?

MR. HALVEY: It can -- there are certainly instances where it has taken that long. Many of the applications that we see now that are going through that process, in fact Governor Rounds from South Dakota was talking about a line to run from South Dakota to Minnesota and at one of our meetings he mentioned that they'd been working on it for two years and they've had very little success in moving it through the federal permitting process. And he sort of had a response of a chuckle from people in the audience, especially suggesting two years you've barely started.

And so I think, you know, there's a great frustration on it --

REP. MARKEY: So what you're saying is that the states were working together cooperatively --

MR. HALVEY: Yes.

HOUSE-ENERGY-GRID REP. MARKEY: Not to make too fine of a point of this, but you're saying "out West" it's very difficult if you're dealing with the remote areas where the wind and the sun might be strongest, geothermal as well, to create any kind of a transmission system without at some point confronting this federal issue?

MR. HALVEY: That's absolutely true.

REP. MARKEY: And no matter how cooperative the states are. And your testimony is that in most instances states are trying to resolve these issues; the federal government serves as an impediment sometimes of such a nature as to just paralyze the process?

MR. HALVEY: That's correct.

REP. MARKEY: Okay. That's very helpful to us. Thank you. Let me now turn and recognize the gentleman from Kentucky, Mr. Whitfield.

REP. WHITFIELD: Thank you, Mr. Chairman. And thank you all for your testimony. Mr. Wellinghoff, back in April of 2009 and the New York Times quoted you in an article saying that "new coal and nuclear plants may be unnecessary." And I know that Chairman Bardon and Mr. Walden and some others sent you a letter about that, and I've not had an opportunity to read your response. But you're certainly not opposed to coal and nuclear power, I'm sure of that?

MR. WELLINGHOFF: That's correct. I'm not opposed to coal and nuclear power.

REP. WHITFIELD: And since I didn't even read the New York Times article, would you basically explain what you were referring to when you made that statement?

MR. WELLINGHOFF: I'd be happy to. Thank you for the question. I was referring to basically a scenario where if we look at the diversity of the number of renewable resources which would include potentially Midwest wind that may have a diversity of delivery from off-shore wind and include solar and geothermal, biomass, and also include the demand side. Looking at demand response, energy efficiency, distributed generation, combining these things together with a smart grid—and the whole answer and response was in the context of the smart grid—if you combine these things together it may in fact be possible with a smart enough grid to effectively provide these renewables as if they are base-load, and that way with displacing baseload. And that was the context of my statement.

REP. WHITFIELD: And when you talk about a smart grid, do you have any idea or thoughts or have you seen any studies about what the cost would be to complete transformation to a smart grid?

MR. WELLINGHOFF: I've seen cost estimates anywhere from $50 to $60 billion up to $200 billion.

REP. WHITFIELD: Okay. And to reach the scenario that you referred to in the New York Times article that you just explained, what sort of timeframe would you view this transformation taking place in?

MR. WELLINGHOFF: At least a 10 to 15-year time frame.

REP. WHITFIELD: Ten to 15. Okay. Now on the Fourth Circuit Court of Appeals decision, have you all appealed that decision? Has FERC appealed the decision?

MR. WELLINGHOFF: It's due in July. We haven't yet made a decision. We're looking at it now.

REP. WHITFIELD: Okay.

MR. WELLINGHOFF: I will tell you though, I personally disagree with the Fourth Circuit decision.

REP. WHITFIELD: Okay. Well, I know there are many of us that hoped you will appeal, but that's a decision that you all make of course.

Mr. Coen, Ms. Azar, Mr. Hibbard, could you tell me when the last new transmission line was built in each of your states?

MR. COEN: We are actually in Vermont in the process of upgrading most of our transmission systems, so we actually have ongoing projects as we speak. The most major transmission line that has ever been sited in Vermont, the docket ended two years ago and the line is currently almost complete today.

REP. WHITFIELD: And how many miles is that line?

MR. COEN: Well, this is Vermont. The line was 60 miles.

REP. WHITFIELD: Sixty miles. And what about you, Ms. Azar?

MS. AZAR: Just yesterday we approved a 32-mile 345 KV line that costs about $220 million through the city of Madison. So in other words, the three commissioners essentially sited a transmission line through their back yards. Over the last eight years we've spent $2.5 billion upgrading or creating about 1700 new miles of transmission in the state of Wisconsin. We have construction going on all over the state. A line was just energized I believe last week, which was over 100 miles long. And as Congresswoman Baldwin indicated, before I became commissioner I was, on the other side I was getting permits for a 210-mile line between Minnesota and Wisconsin. And that line has been energized.

REP. WHITFIELD: Mr. Hibbard?

MR. HIBBARD: In Massachusetts, our most populous --

REP. MARKEY: Can you turn on your microphone, please?

MR. HIBBARD: Sorry about that. In Massachusetts, our most populous area of course is the Boston region, and it's where our heaviest electrical load is.

And over the past 10 years we have sited and -- have sited and have constructed a number of transmission enhancements to support the flow of power into Boston including two major 345 kV lines to eliminate constraints between the Boston load pocket and the remainder of Massachusetts.

REP. WHITFIELD: Just one other question to you three. With the anticipated increase in demand of electricity needs over the next 15 or 20 years do you think the existing system is adequate in your state?

MS. AZAR: With regards to the increase in demand, we continually update our system. So we're going to continue to do updates. We've been doing updates all along. So I don't think that process ever stops.

REP. WHITFIELD: Okay.

MR. COEN: In Vermont, we've actually been able to mitigate the -- any increase in our load over the last five years with energy efficiency. So I would say offhand that with the completion of what is called the Southern Loop in a couple of years that I think our transmission grid will be adequate for the next 10 to 15 years.

REP. WHITFIELD: Mr. Hibbard?

MR. HIBBARD: And I would give a similar answer. The answer to your question is yes. When we look at potential scenarios for load growth over time within Massachusetts and indeed within the New England region we see that the transmission system including what's existing today and what's in the process of going through the regional planning process and siting will -- (audio break) -- will be more than adequate to support the movement of power throughout our region for a decade or two.

REP. WHITFIELD: Okay. Mr. Chairman, I see I've gone a minute and 25 seconds over.

REP. MARKEY: Okay. I thank the gentleman. By the way, we will be having our second round and perhaps a third round of questions of the witnesses if the gentleman is interested. Let me turn and recognize the gentleman from Washington State, Mr. Inslee.

REP. INSLEE: Thank you. I'd like to put in the record with no objection a letter from University of California, Berkeley, Dr. Dan Kamen, who has a letter describing the reason and the appropriateness of expanding new transition lines. If I could put that in the record I'd appreciate it.

REP. MARKEY: (Inaudible) -- without objection it will be included.

REP. INSLEE: Chairman Wellinghoff, I wanted to ask you to expand on your thoughts on how FERC could implement if it does receive (backstop ?) siting approval how it could implement a greenhouse gas performance interconnection standard for new transmission and/or some criteria associated with compliance or fulfillment of the nation's renewable energy goals. Several of the other witnesses made reference to something in that nature. Could you tell us how you think that could work? Even though we've heard the physical explanation that an electron is an electron is an electron, how could this -- how could this function?

MR. WELLINGHOFF: Thank you, Congressman Inslee. Well, first of all, we would initiate a (rule ?) making and certainly as part of that all stakeholders would have an opportunity to provide any proposals as to how to implement such a greenhouse gas performance standard. But in doing so there's a couple ways that it could be done. Certainly in looking at the current emission permits from the generation stations, from those it's based on known items such as model and configuration of the generator and its mission control equipment and composition of fuel, and the approximate run time of the generator.

You could take from that also the annual emissions are typically capped by a permit that can be used as the baseline to determine compliance. So we could take compliance, I think, from their current permit applications or new permit applications from generating stations and take that data, put it into a database, and ultimately from that use it to determine a greenhouse gas performance standard for particular plants that were (into the interconnect ?).

REP. INSLEE: So you can obviously do that for particular plants but could you effectively reference that to particular lines? In other words, are the plants specific enough to the lines that this type of standard could be applicable to lines?

MR. WELLINGHOFF: I think you'd have to do that by regions because it's all a matter of sort of displacement. You're not really delivering electron A to point B necessarily over an AC line. It's really pushing one electron down the road. So I think you'd have to do it basically on a regional basis but I feel that we can do it, yes.

REP. INSLEE: Thank you. Commissioner Azar, I appreciated your comments, first off, about the appropriateness of federal backstop authority and it's a general view that I share -- that it is appropriate -- and I appreciate your views on that because of your incredible background in this area. But I also appreciate you making reference to the necessity of considering demand side issues when you do siting and planning, and I just -- I want to make sure you're aware that in the ACES bill we do have a very specific policy.

It's the policy of the United States and regional electrical grid planning to meet these objectives should take into account all significant demand side and supply side options. You want to comment on that? Is it a good idea? Is there anything we should do to expand on that to make sure we consider that in part of our planning process?

MS. AZAR: It is a very good idea and my point in raising it is that those kinds of solutions are oftentimes best made at the state level and -- because the states are going to understand how they're going to be setting up their distributed generation, how they're going to be setting up their energy efficiency and conservation measures, better than the federal government. So that's -- that was -- the point I was trying to make with regards to why I thought a state-led process would be better with regards to those specific items.

REP. INSLEE: Thank you. Chairman Hibbard, I wanted to ask you about cost allocations. I'm told there recently has been a -- the 345 kV NSTAR reliability project in transmission to the Boston area and I'm told that the total cost of that was $334 million and 325 (million dollars) of that was spread across New England in a cost allocation system. Only 3 percent was assigned directly to Boston area ratepayers. So regional cost allocation seems to work at least in your area. If cost allocation in general of that nature seems to be acceptable, should we not be able to fashion some other cost allocation more widely?

MR. HIBBARD: Certainly. Thank you, Congressman. I think it's instructive when thinking about the cost allocation issue to draw a very clear line between transmission projects that are needed to maintain grid reliability and transmission projects that are essentially for the benefit of generation developers. In the New England system, we have exactly that split. If there's -- if through the regional planning process lines are identified that are needed to maintain reliability on a regional basis -- and the NSTAR line in Boston was exactly one such line -- then we support the socialization of cost across the entire region because it benefits everyone within the region to maintain the reliability of the grid.

So the N -- the cost of the NSTAR line was -- is shared by everyone in New England. In Massachusetts, we're about half of the load and we pay about half of the bill. Similarly, the project that Commissioner Coen referred to in Vermont, other projects that are on the books in New Hampshire and Maine and Connecticut, all focus on reliability of the grid, projects for which even though they're not within Massachusetts, Massachusetts will -- consumers will pay half of.

It's a vitally important component of cost allocation then when looking at reliability there be a willingness within an integrated power grid to share that cost across load. The distinction I want to make here is that the issue of cost allocation for building lines to interconnect generation resources departs from that. We want the -- in order for our consumers to be protected we want the cost of developing generation including the cost of meeting compliance measures, the cost of delivering power reliably to load, and making sure you don't adversely impact the reliability of the system to be borne by the generation developer and included in the price that they're charging customers.

REP. INSLEE: I really appreciate that. I just want to comment. I think this is a new approach that some of us are suggesting because there is a new national need just as important for reliability and that's to prevent the Earth from turning into toast. So that's the reason for our thinking. Thank you very much.

REP. MARKEY: Chair -- the gentleman's time has expired. Again, there will be a second round of questions for all members who are interested. The chair recognizes the gentle lady from the state of Wisconsin.

REP. BALDWIN: Thank you, Mr. Chairman, and I want to direct this question to Commissioner Azar. One of the proposals that we hear a lot about on Capitol Hill is the possibility of a 760 kV line, often known as the transmission superhighway, and I would like to hear your insights on how a 765 kV overlay might affect a state -- a profile like a state of Wisconsin and if you could describe any concerns you might have that it would be detrimental to Wisconsin or others.

MS. AZAR: Thank you, Congressman. When you add a high-voltage overlay into a state you've got to make sure that the underlying system is built up to accept that. In Wisconsin, as you -- both you and I have noted, we've spent billions of dollars at this point in time designing a specific kind of system. American Transmission Company has designed a 345 kV system. If there is a 765 overlay built into Wisconsin we're going to -- it's essentially going to mess up our very deliberate 345 kV design. So we're going to have to build up our underlying grid.

That being said, you know, ultimately if Congress, you know, gives us the mandates and the group of states decide that the best thing to do would be a 765 grid overlay, then we're going to need to accommodate that. But I think there are better ways to do it. The one size fits all will likely be, in my estimation, probably oversized and not cost effective.

You know, the one way in which I think about a 765 grid overlay is you've got a -- somebody with a hose on one side of the swimming pool and he's got to get the water to the other side of the swimming pool. There's a drain at the other side of the swimming pool. There's two ways -- two options he's got -- one, he can extend the hose or the second option is he fills up the swimming pool and the 765 grid overlay is more akin to filling up the swimming pool than extending the hose.

So I think there are better ways to do it than one size fits all. Bottom line is -- the primary message is we need to do the calculus. We can figure this out. A tailor-made answer is better than a sort of generic answer.

REP. BALDWIN: Another proposal that we hear a lot about that's been floated is making RTOs the final decision makers with regard to transmission decisions, and I wonder how you would analyze this as an option. Do you think that RTOs have all the correct interests in mind when they -- when they would approach these sort of decisions?

MS. AZAR: You know, the decision maker in selecting the plan for the grid needs to be beholden to only one interest and that's the public interest. The RTOs are -- they've got a lot of different stakeholders and they are very adept, and I compliment them on trying to balance the competing needs of the stakeholders. But I can speak for the Midwest independent system operator. They actually have a contractual obligation to their transmission owners to maximize the revenues of the transmission owners, and it's -- when you've got those kind of interests they will not be thinking about the public interest when they're making their decisions.

They will be thinking about their contractual obligation to the transmission owner. So no, I do not believe the RTOs should be the ultimate decision maker in this. That being said, their expertise with regards to planning and their planning engineers absolutely needs to be involved in this process.

REP. BALDWIN: I don't know if Mr. Coen or Mr. Hibbard have any comments on that same question.

MR. COEN: I would concur with Commissioner Azar's comments as well.

MR. HIBBARD: As would I.

REP. BALDWIN: (Off mike.)

REP. MARKEY: Okay. Great. I thank the gentle lady. The chair will recognize himself for another round of questions. Let me move to you, Mr. Hibbard, so that we can put this out on the table. A lot of people when they think of the solar revolution they think well, we're going to bring it in from the deserts of the United States and bring it in to the cities of our country, and that is true. And they also think that when we consider wind that we're going to go out to the prairies of the United States and we're going to bring it in to the cities in order to provide the electricity.

But people don't really think about the oceans as much as a source in the future of renewable electricity, and you made a reference to all of the eastern states' governors from Maine down to Virginia who are very concerned that their plans for bringing in wind off of the coastline or other renewable sources might be undermined by this kind of a proposal. Could you talk about that and talk about what your vision is that as the -- all of these governors in terms of what the long-term renewable prospects are for the East Coast?

MR. HIBBARD: Certainly, and thank you, Mr. Chairman. You know, in Massachusetts and, I think, throughout the New England region we are strongly supportive of the climate goals that are inherent in the ACES legislation and the renewable goals. Certainly in Massachusetts we are, and we want to find the best way to meet them.

We see offshore wind as being an enormous renewable potential for the coastlines of our country -- a potential that is very close to load centers and can interconnect in multiple locations on the lower- voltage type networks, like Commissioner Azar mentioned, in a way that will strengthen the reliability of the grid and that it represents -- there is also a huge amount of onshore renewable potential up and down the East Coast. The concern that we have is that by -- if you take, for example, what's included in the joint coordinated system plan it would essentially dump --

REP. MARKEY: Could you expand on what that is?

MR. HIBBARD: Sure. It's a multiregional plan that was done, I think, coordinated by MISO but state and local --

REP. MARKEY: Can you explain what MISO is?

MR. HIBBARD: The Mid --

REP. MARKEY: Could you -- as you all continue your testimony we have C-SPAN watching this, and I think it would be a very interesting subject if it was actually communicated in English to the watching audience. (Laughter.) So we're going to be on acronym alert, okay, for the rest of this hearing and I'm going to stop you every time you use an acronym --

MR. HIBBARD: Okay. I'm sorry --

REP. MARKEY: -- (inaudible) -- every time you make an assumption that everyone in the room knows what you're talking about. This is a very important issue that has a very profound impact on families so please explain what you're talking about.

MR. HIBBARD: Thank you, Mr. Chairman. I'll try not to use a lot of acronyms. I hope my Boston accent is okay though.

REP. MARKEY: You sound very eloquent. All these -- (laughter) -- all of the other people in this room have such funny accents, don't they?

MR. HIBBARD: I agree.

REP. MARKEY: How about those Red Sox and Yankees last night, huh? Isn't it --

MR. HIBBARD: Well, you know, I was -- I was going to, on a personal note, commend you for your astute observation about the link between our national economy and baseball because we are seeing signs that our economy is improving, and it occurred to me that at the same time if you watch the Red Sox once again sweep the Yankees over the past few days, David Ortiz is hitting home runs again.

REP. MARKEY: I'm going to just stop right here. I'll give you an extra minute just so everyone -- again, people -- (laughter) -- people won't know what you're talking about. I gave a speech in Boston on Monday and I said that -- I said in Boston that the economy was in a David Ortiz-like slump but that I had faith that our economy and David Ortiz would be hitting home runs again.

Now, unfortunately The Boston Globe ran a little editorial the next day questioning my judgment in linking David Ortiz's recovery to the American economy. That night, David Ortiz hit a home run. Last night, David Ortiz hit a home run. Today and yesterday, we -- (inaudible) -- received all this new positive commentary about the American economy. I'm not saying it's directly related to my speech on Monday. However -- (laughter) -- I do believe that -- and I thank you for pointing this out -- that my comments were accurate. So please continue and we'll add back the time onto your (statement ?).

MR. HIBBARD: I'll see if I can remember the original.

(Laughter.)

MR. HIBBARD: There was -- what I think has gone hand in hand with the efforts to push for extended federal oversight over transmission there have been a couple of major studies done recently by DOE and also done by a group of regional planning entities across the country to look at this idea about how do we actually expand the development of renewable generation in the parts of the country where it exists and move that across the multiple regions and deliver it into subregions. So the joint coordinated system plan was a very large technical analysis of how to go about doing that, what the transmission network would look like -- a high-voltage -- super high- voltage transmission network would look like to accomplish that result.

As part of that plan when you look at it one of the things it does is it would dump on extra high-voltage lines on the order of several thousand megawatts of power into New England at a very high voltage. Now, in addition to the issues that Commissioner Azar has mentioned, that would require a lot of building out of the transmission network within New England. The concern I have is that we have a competitive market framework in New England that is absolutely essential to keep commodity prices low for our consumers.

We have a need in the region over the next couple of decades only on the order of several hundred to 1,500 megawatts for new power. If we were to administratively put in a large high-voltage transmission line that put that quantity of power into our region it would eliminate the market signals that our local renewable resources require in order to move forward with financing and development. So that's the threat.

Our position is we absolutely have to meet the carbon goals that the country is now warming up to and that we need to meet in the coming, but the way to do that is to do it through ensuring that the resources that are brought online are those that make the most sense to customers from the standpoint of the delivery price of electricity and we think we can do that without this level of federal oversight.

REP. MARKEY: So if I may -- so one of your concerns and New England's concerns generally -- those six states -- would be that as you put together regional plans to generate renewable electricity within the region offshore or onshore -- there's a huge project up in Aroostook County in Maine that could be ultimately in the thousands of megawatts if it's built out completely but there will be an issue there of getting that electricity down into the population areas but nonetheless it's contained within New England that have had historic relationships and worked through all of the reliability cost allocation and siting issues over the years -- but you would be concerned that if there was some superimposed decision made to build transmission lines in from other parts of the country that that would then change the economics of developing the renewables that are indigenous to Massachusetts and New England whether it be in Aroostook County, Maine or it be off the coastline of New England.

I think -- and I'll add this as well -- one of the things that is not well understood about the East Coast of the United States is that when you go out 10 miles, 20 miles, 30 miles, 40 miles you're still only in 200 feet of water. When you go out that far on the West Coast you're out -- you're miles deep in the ocean. And so in terms of these siting issues along the East Coast for wind especially, you can go out miles and miles and still be just hundreds of feet from having to site these wind facilities, and then with superconducting technologies just bring them in to the shore and hook them into the preexisting grid that already is there in New England with the states having to work out, of course, what the cost allocation is but knowing that all of New England, for example, and New York for that matter and New Jersey and Maryland are all committed to resolving and cooperating in the production of new renewable energy resources.

So just opening up this whole question of the remote areas of Maine, for example, most people don't know that 95 percent of Maine is forest. It's woods. It's rural. So there's a lot of opportunity there as well although -- and it's a huge state as well. So I just raise that issue because we have to strike a balance here because we do want each region's indigenous resources to be developed as well. Let me just stop there and recognize the gentleman from California, Mr. McNerney, for his questions.

REP. MCNERNEY: Thank you, Mr. Chairman. I was expecting you to recognize Mr. Inslee there first so --

REP. MARKEY: He has already been recognized for this first round so I think it's appropriate for you to be recognized, then I will recognize Mr. Inslee.

REP. MCNERNEY: Well, thank you. First of all, I want to thank Chairman Wellinghoff for his hospitality this week and I think your testimony was rational. I noticed one thing, though. You were seeming to advocate that the fed has a significant large role and the state regulators were all saying well, the states should have a larger role and the fed should have a littler role. So I guess that's not too surprising. I wanted to ask you, though, do you think that the U.S. faces significant technical hurdles or do you think it's mostly political hurdles to improving our national grid?

MR. WELLINGHOFF: Thank you, Congressman McNerney. First, on the issue of the federal role, I really believe that we should primarily defer to the states. I mean, I think what we need is to have federal pressure to ensure that the states can move forward with (interconnect wide ?), regional planning, siting, cost allocation but I largely agree with Commissioner Azar and her testimony. I think that really it needs to be primarily (informed ?) by the states. We certainly, though, have to have some entity who would overlook that state activity to ensure that the national goals are also incorporated into what the states --

REP. MCNERNEY: Well, and I liked her -- Ms. Azar's suggestion that we lock all the state people in one room until some decisions are made. But I don't know that that's really going to happen.

MR. WELLINGHOFF: But on your second question with respect to whether it's technical or political, I think it's a good mix of both, and on the technical side I think it's important to understand that -- and I know that New England and the Eastern seaboard states are very interested in offshore wind and I support offshore wind. I think that's a great resource. But we have to understand that they're not an island either.

They are interconnected to the entire Eastern -- (inaudible) -- connect. So, for example, if we had offshore wind from Rhode Island, New Jersey, New York, all the way up through New England put in place, developed at, say, 10 gigawatts -- 10,000 megawatts of wind -- put in to the East Coast we could not simply, as I understand it from my reliability engineers, simply interconnect that into the existing grid.

REP. MCNERNEY: Right.

MR. WELLINGHOFF: We, in fact, if we had that happen and we had as little as perhaps 2,500 or 3,000 megawatts of that go offline we could black out Florida. So we ultimately need to look at -- (audio break) -- strengthen the entire interconnect so that all the regions, in fact, can meet the renewable goals and can do it with their local renewable resources and with distant renewable resources if necessary.

REP. MCNERNEY: Thank you, Mr. Chairman. Mr. Halvey, I certainly appreciate your work toward the Western region. I understand that -- your desire to streamline the permitting process. Do you have any specific recommendations along those lines?

MR. HALVEY: Yes. I think a couple of -- a couple of recommendations. One, because of the work that we're doing with regard to the Western Renewable Energy Zones project we think it'll become very clear very quickly which areas represent the most desirable, the richest, and the most developable renewable resource zones. Given that identification, we think that there's the opportunity to prioritize those areas. Where they exist in concert with federal lands we believe that there should be a priority given to the permitting on those areas.

Same thing with the transmission lines that would be necessary to move that power from those renewable energy zones to the market centers where it's needed. One of the other aspects of the project is that we will identify, conceptually at least, where the transmission lines need to be in order to use that power.

REP. MCNERNEY: So you're really addressing the prioritization, not the actual process of -- (inaudible).

MR. HALVEY: Well, we think it's both. I think it's one -- one recommendation is the prioritization. The second is that -- to look at the requirements and certainly limit the number of requirements that agencies have to go through that have no value added in terms of that permitting process -- that there's a way to protect wildlife -- that there's a way to address environmental values -- that there's a way to go through these processes and not take the kind of time that we're seeing with many of these applications.

REP. MCNERNEY: Okay. I agree, and I just want to remark on Mr. Hibbard's optimism that offshore wind can be as significant as it can and the fact that it's proximate to load centers, and that's an important consideration as opposed to putting in a lot of transmissions. So I appreciate that and also the observation about just putting in large transmission capacity can have a negative impact on renewables. So those are appreciated. Those comments are appreciated. And with that I'll yield back.

REP. MARKEY: Okay. Gentleman's time has expired. The chair recognizes the gentleman from Washington State, Mr. Inslee.

REP. INSLEE: Thank you. I wanted to read just a little portion of Commissioner Azar's testimony and then ask a couple questions of the three of you about it. Commissioner Azar said, "Congress can and should play an important role in bolstering and catalyzing state efforts by sending clear mandates and guidelines as well as strict deadlines for state and regional transmission planning efforts. If these planning efforts fail to meet these mandates or deadlines, Congress can set up additional backstop authority for federal agencies to take action and ensure that projects identified in the regional planning efforts move forward."

I'm paraphrasing now. Examples of the type of leadership that would be helpful include the following, and then the commissioner lists four things but -- and the fifth thing is clear and powerful backstop authority for federal action to plan for, approve, and site transmission lines that are identified as vital in the state-led transmission planning process.

I agree essentially with that statement and I think in a bill I've introduced and -- I think heads in that direction. The question I'd like to ask Mr. Hibbard, Commissioner Azar, and Chairman Wellinghoff is Mr. Hibbard has identified this issue that he doesn't want to see offshore wind intruded upon by, say, coal coming in from Ohio or somewhere else, and I believe if we do have this backstop authority we can and should build something in that would make sure that we preserve our goal of enhancing low-carbon-based fuels as part of what you might think of as bonus backstop federal authority.

Is there a way to do that, and if you could give us your thoughts on the best way to do that -- I'll just start with Mr. Hibbard. If we were going to adopt this backstop federal authority what would you encourage us to do to prevent the scenario that you fear?

MR. HIBBARD: Well, let me start by saying I think that the legislation as it stands contains that backstop authority. By setting a cap on carbon and by setting a floor on renewable resource development you're providing competitive markets. The markets signal they need to spur the development. The question you're posing is what if that's not enough -- what if at some point we look and we see that for whatever reason we're not getting the level of development of renewable and low-carbon resources to meet our clear caps and our clear floors.

My -- what I would urge all of you to consider is to try to come up with a framework that does so while maintaining the importance of competitive market solutions. Again, we -- under FERC's leadership our wholesale competitive markets in New England are critical for keeping prices low to consumers, and not violating that is extremely important. Now, are there ways to do that?

The one example I can give you is that in Massachusetts we recently enacted legislation that requires our distribution utilities to enter into long-term delivered price contracts with renewable power sources so that the utilities themselves would issue solicitations and would select the lowest cost option for meeting that goal of the Massachusetts state legislature. You could consider something along the same lines where at some point you could evaluate whether or not the country is heading towards meeting its carbon cap and its renewable power floor, and if there is a deficiency identified have FERC step in in essentially a backstop planning mode and require that regions, RTOs, utilities, or interconnecting transmission owners issue solicitations for long-term contracts for renewables on a delivered price --

REP. INSLEE: I want to make sure I have the other two -- if you could kind of wrap up. I want to make sure I get the other two witnesses. Thank you.

MS. AZAR: Thank you, Congressman. I am optimistic that if Congress sets the goals and sets the process and has a strong backstop authority that we'll be able to get this done. If we don't get it done, again, I think that's when the role of FERC steps in. So if FERC, for instance -- if the states came up with a specific plan and the plan did not meet the objectives of Congress that Congress set, I think there needs to be essentially an overseer, and I personally would be fine with that being the federal government saying, yeah, this plan actually meets those objectives. But the plan itself has to be designed by the states.

REP. INSLEE: Mr. Chairman?

MR. WELLINGHOFF: Thank you, Congressman Inslee. Just to respond to Mr. Hibbard, I want to make very clear that FERC is very committed to competitive market solutions and we wouldn't choose to do anything that would be contrary to that. But I think when we look at transmission there's some non-market barriers and those include the issues of siting and cost allocation.

Again, agreeing with Commissioner Azar, I think that it's necessary to allow the states to move forward in those areas to see if they, in fact, can do some interconnect wide planning collectively, that they're moving forward to do that both in the eastern and western interconnects, and then see from that if the siting and cost allocation can be agreed upon. But if not we have to, I think, have that pressure -- that federal pressure behind it to inform that process, to make sure that it moves forward, to ensure that we meet our national goals.

REP. INSLEE: Thank you.

REP. MARKEY: Great. Gentleman's time has expired. The chair recognizes the gentle lady from Wisconsin.

REP. BALDWIN: Thank you, Mr. Chairman. When I hear the discussions about connecting Dakota wind generation through transmission to load centers on the East Coast, I sort of feel like Wisconsin could become a state that has an extension cord just running through it. Maybe I should use the swimming pool analogy instead. But that's the image that it conjures up for me and I worry that it disincentivizes distributed generation, and as I pondered in my opening statement earlier this morning how we propose to pay for the transmission upgrades that are coming down the pike is a critical question.

Will those who do not receive the extensive benefits of this transmission have to pay for the cost of traversing lines across the country? The ratepayers that I represent, as you've already heard, have supported their share of more than $2 billion of new investments in the Wisconsin transmission system. Clearly, there are transmission technology decisions that need to be made and there are cost allocation decisions that need to be made, but I guess I would ask the whole panel and anyone who wants to comment how we best protect those ratepayers, how we set up the system in a way to best protect those ratepayers who will not be receiving the huge benefits of this transmission buildup.

MR. HIBBARD: If I may jump in, Congressman, I think the model of -- that I've been discussing here this morning of requiring that the cost on -- of transmission associated with moving generation from the generation source to market be included in the price that's offered to consumers that will be purchasing it is our first-line defense on that so that if transmission were coming from the Dakotas and being put into New England the price of that would include not just the cost of developing the generation but also the cost of the transmission. We can then compare that price to other generation prices available to us within the New England market for local renewables, for demand resources, or for more traditional generation, and that ultimately the projects that will go forward will be the ones that benefit ratepayers.

MS. AZAR: As far as cost allocation, I don't think we can actually speak to what would be the best cost allocation at this point in time. It should be tailor made to the grid that is essentially planned. As I mentioned in my initial comments, if you pick a specific cost allocation right now it's likely to steer the plan in a specific direction, and I'd rather have the physics drive -- the physics and the economics drive the plan and then we can figure out how to pay for it after the plan is designed. So that's my recommendation.

MR. COEN: As a Vermont commissioner, I would concur with my colleague from Massachusetts as to and from a NARUC perspective where we would be looking to take a position case by case as it comes forward.

MR. WELLINGHOFF: And, again, I would agree with Commissioner Azar. We should not dictate a particular method, number one. But number two, you know, my preference would be to have the states try to work it out ultimately and if those states that were involved in the line -- the line went across the state -- that state could make a case that there wasn't real benefits to that state then hopefully that solution could be worked out and ultimately resolved in a collaborative way.

But ultimately at the end of the day if the decision had to be made and it couldn't be made by the states and the region collectively, I think it would be appropriate for FERC to determine that allocation and the allocation, in fact, may decide that a particular state like Wisconsin did not benefit depending upon the definition and breadth of the term benefit to -- from a particular line and as such may not be allocated costs.

But, again, you have to provide the flexibility for that kind of a decision to be made. You can't restrict specifically or dictate in a rule how that has to be done. It has to be in a very broad -- in a broad way that allows FERC to meet its mandate to ensure that rates are just and reasonable.

REP. MARKEY: Great. Let me now turn and recognize once again the gentleman from California for another round of questions.

REP. MCNERNEY: Thank you, Mr. Chairman. I had a question for Commissioner Azar. You had some recommendations for congressional action to facilitate projects -- transmission projects. Do you feel that those recommendations are widely shared across the country by state commissioners?

MS. AZAR: I have not had the opportunity to float that idea by my colleagues so I can't speak to that.

REP. MCNERNEY: Okay. Thank you. Well, that's my only question and I yield back.

REP. MARKEY: I thank the gentleman. Chair will recognize self and just to pursue a few questions here. Mr. Hibbard, perhaps you could deal -- Mr. Wellinghoff said that if there was 3,000, 5,000 megawatts of wind brought in from offshore up in New England that it could cause reliability problems down in Florida. But the converse could also be true, huh -- that what Florida Power and Light and hopefully some day the Southern Company is doing in Florida to generate renewable electricity could cause reliability problems up in New England. How do we resolve that issue?

MR. HIBBARD: Thank you, Mr. Chairman. The issue -- the engineering issue that the chairman refers to is really one of the size of the transmission and the associated capacity being put onto the transmission network in the region. So, for example, if, as Commissioner Azar was referring to, you have a 765 kV line and it's dumping --

REP. MARKEY: You know, I have to say -- you know, can you imagine the audience right now? All right. Okay. What is that? Can you -- what -- what is that?

MR. HIBBARD: Okay. If you have a really extra high-voltage line --

REP. MARKEY: What does that mean?

MR. HIBBARD: -- dropping a lot of --

REP. MARKEY: Now, what does that mean? What -- how -- dropping? What does that mean?

MR. HIBBARD: Think of it this way. There's --

REP. MARKEY: Okay. Try again. Okay.

MR. HIBBARD: When a transmission line interconnects or it hooks up with the transmission system in New England, it looks like a generating facility. So if you have a really high-voltage line it looks like a really big power plant.

REP. MARKEY: So when people are riding down the street or out on the highway and they look off and they see something -- explain it in those terms just so they can understand why people's sensibilities might be affected by what it is that's constructed. So that -- if you can put it in those terms because 765 kilovolts doesn't really mean anything to people, right?

MR. HIBBARD: Well, I mean, what they would actually see is a really big tower. But from the standpoint of how it affects the grid it just puts a lot of electricity onto the grid in a single location and if that were suddenly to disappear then there could be problems if the transmission system can't withstand it and cause the type of widespread outage --

REP. MARKEY: Okay.

MR. HIBBARD: -- that he was referring to. The value I see in offshore wind technology along the Eastern seaboard is it completely overcomes that problem because it can be built out incrementally at lower voltages that hook on individual lines into the major load centers along the East Coast so that we can build it out without the need for increasing the reliability -- the potential reliability risk on the underlying transmission system. So that while I think if we were to take the path of interconnecting 3,000 megawatts in a single point that would be the problem that the chairman is referring to but that offshore wind has the potential to be dispersed on a much more widespread geographic basis and actually potentially enhance the reliability of the grid.

REP. MARKEY: Mr. Wellinghoff, would that solve your Florida problem or, from our perspective, our New England problem?

MR. WELLINGHOFF: I'm not sure that it would, Mr. Chairman.

REP. MARKEY: Could you explain why?

MR. WELLINGHOFF: I'm not sure that it would, Mr. Chairman. Ultimately, even though you may disperse the 3,000 megawatts over a number of locations the issue is going to be the variability of that wind and the effect of that variability on reliability across the interconnect with respect to frequency. And I have actually directed a reliability division to commence a study that will look at this issue and determine how that incursions in frequency can affect reliability across both the eastern and/or western interconnect.

REP. MARKEY: Mr. Hibbard, you're back at a FERC hearing right now. What are you going to say to Mr. Wellinghoff when they raise that issue?

MR. HIBBARD: First, I will commend the chair and FERC for looking into - (inaudible) -- reliability.

REP. MARKEY: Always (the nice guy ?). Good -- good -- good. (Laughter.)

MR. HIBBARD: And I would encourage him to consider in that study the difference between variability of 3 (thousand) or 4 (thousand) or 5,000 megawatts being connected at a single point to the variability and the impact of it being spread over a very wide geographic region, and whatever the outcome is I'm certain it will be the right answer.

REP. MARKEY: And would you agree that there could be a distinction made between a concentrated renewable source and something that is dispersed over hundreds or thousands of miles?

MR. WELLINGHOFF: Mr. Chairman, I try to not practice electrical engineering without a license but I would agree there may be a difference between the two.

REP. MARKEY: Okay. Thank you. And by the way, would those same issues exist in a western state, for example, that might want to produce 3 (thousand) or 4 (thousand) or 10,000 megawatts of renewable in their state and try to move that, for example, into a metropolitan area in another state or several other states? Would it create that very same issue?

MR. WELLINGHOFF: Yes. It could be applicable in either interconnect.

REP. MARKEY: Uh-huh. So it's an issue that we ultimately have to resolve here. I think that going back to this 765 kilovolt issue is an important thing to understand because in my experience at least, on this committee for 33 years, there are -- (inaudible) -- there are corporate entities that really think big -- the bigger the facility, the bigger the plan, the better it is. And then there are others who think well, maybe we can disperse, you know, the way in which we generate electricity -- maybe we can do this in a way that in here it's going to be increasingly important to generate solar and wind and other renewables for more dispersed sources where the -- and that's to a certain extent where the smart grid comes in, you know, so that we're doing it.

But we not only need a smart grid but we need smart people planning a smart grid so we don't overbuild it and put those burdens back on to the consumer, and we saw all of that happen back in the 1970s and early 80s where all of these nuclear power plants that were guaranteed to be needed by the year -- if we didn't build 500 new nuclear power plants, they told us, by the year 2000 we would have blackouts all over America so we need to think big, put all these costs on the shoulders of ratepayers all across America.

In New England region, we really suffered from the over enthusiasm, I'll say, of these big central planners. And so we have to be careful here that those types of -- we'll call it planners -- don't control this process because it's just the opposite era that we hope that we're entering in terms of the development, and I can just feel the hoof beats of the large central planners, you know, moving towards this whole concept, right, and after 33 years I'm kind of aware of what can happen.

You know, there's an old saying that a smart man learns from his own mistakes and a wise person learns from other people's mistakes. But at my age and service in Congress I'm an expert in both areas of mistakes and so I just don't want to see that happen again, and that overbuilding issue is really something that's quite important to me. So if you could, Ms. Azar, could you go to the question of AC/DC and, first of all, explain to our viewing audience what that is and why different results occur depending upon -- depending upon the decision which is made?

MS. AZAR: Yes. The alternating current system is the primary transmission grid we have right now --

REP. MARKEY: Uh-huh.

MS. AZAR: -- and it's completely interconnected. So when you put an electron on that AC grid it's going to go to the path of least resistance and we -- with models you can predict where it's going to go but you can't direct it. It goes -- the electron goes where it wants to go. On a DC line, it is actually very directed. It has one direction. You have very --

REP. MARKEY: So DC means directed current?

MS. AZAR: A direct current -- thank you -- the direct current line. You have a lot of control over it -- (inaudible) -- the electron goes in one direction. You know, for instance, when you drop an electron on one end of a DC line you know where it's going to end up. It's going to end up on the other side of the DC line. Whereas in an AC grid if you drop an electron at the same point you're not quite sure what path it's going to take. The only thing you know is you're pulling power off at certain locations. So it's a very -- they're two very different models.

REP. MARKEY: Okay. And for the purposes of our discussion today how does that instruct this discussion in terms of the goals that we're seeking to achieve?

MS. AZAR: You know, I can give two answers to that. One is we need to know what the goals are from Congress and then we're going to be able to decide which of those or the combination of both of them will solve the problems that you're going to put forth to us. I can tell you from a personal perspective that the DC lines -- if your problem is trying to get power from a fairly localized location, let's just say in the Dakotas, and you're trying to get it far east it's -- as long as you're over 400 miles long DC lines will likely be a very good solution to that problem and -- (inaudible) --

REP. MARKEY: Are they more or less expensive?

MS. AZAR: That's a good question. As a general rule, I would say they're less expensive. But it depends on what kind you're building.

REP. MARKEY: Uh-huh. And that should be a decision, in your opinion, made by the regions?

MS. AZAR: That is correct.

REP. MARKEY: Uh-huh. And that could actually turn on how much burden is placed upon consumers in terms of their electricity bill each month?

MS. AZAR: That is correct.

REP. MARKEY: Uh-huh. Mr. Wellinghoff, if I may, you heard Mr. Hibbard and others talk about what the impact would be of the Waxman- Markey bill on the marketplace. The signal will be sent to move away from carbon-producing electrical generation. There'll be a national renewable electricity standard now as a result encompassing an additional 20 states, and he largely believes that that's going to now force states on a regional basis because of these national goals to reach (accommodation ?) on these new lines and that the federal government is actually going to be less needed in the future, perhaps with the exception of the federal lands issue, to resolve these issues.

What is your response to that in terms of the -- because we are trying to create a market-based response and I'll just give you an analogy and perhaps you -- or an analogous situation and perhaps you could reflect upon it. After we passed the 1996 telecommunications act, all of a sudden there was an explosion of broadband deployment across the country. Telephone companies, cable companies, others who had been telling the local PUCs, oh, it's not, in fact, cost effective to be deploying fiber optic or, you know, broadband technology.

We're now in a mad race to do so because there is now a new federal law which is placing a premium upon it and by the time we reached 2000 we actually had a dot com bubble because of the vast and very rapid deployment of broadband across our nation. Now, we created thousands of new companies. Some survived. Some didn't. But it was great for our country in the long run.

Is there any reason to believe that the legislation as it's now drafted won't unleash a similar and very, very significant deployment of renewables across the country and kind of press regions and individual utilities to finally resolve their longstanding -- call it -- I won't call it opposition -- I'll call it skepticism. Because I saw it in the telephone sector. I saw it in the cable sector. They moved overnight to changing their perspective. Do you think the legislation will do that and as a result perhaps this federal role isn't going to be as needed with the exception of the federal lands issue?

MR. WELLINGHOFF: Well, certainly, as you're aware, Chairman Markey, there's approximately 29 states now that have renewable portfolio standards and in fact -- and my state, Nevada, is one of those. We have a standard that's 20 percent by 2015. So it's far ahead of most states' standards. And those standards have, in fact, created markets -- created markets for renewable energy and moved renewable energy into those markets very effectively.

So I think that's happening already, on the one hand. But on the other hand, I have people coming into my office who tell me that wind is being curtailed in the Midwest because we don't have adequate transmission. So that tells me we have a problem. It's not simply the markets (or ?) creating these new markets for renewables. It's the need to somehow ensure that this transmission gets built to make it deliverable. We need to make it deliverable.

REP. MARKEY: You're saying that the states are not cooperating in the Midwest in the transmission of wind?

MR. WELLINGHOFF: No, I'm not -- I'm not saying necessarily the states or the federal government. I think it's a combination of the fact that we have certain barriers which include issues of planning, siting, and cost allocation that need to be relooked at in ways that we can facilitate more transmission for -- (inaudible) --

REP. MARKEY: But you're saying that -- you're basically saying the federal government needs more authority because the states aren't doing the job in moving that wind around in the Midwest?

MR. WELLINGHOFF: I'm saying that ultimately what we need to do is ensure that the states understand --

REP. MARKEY: No, and I appreciate that.

MR. WELLINGHOFF: -- those priorities and that, in fact, we have --

REP. MARKEY: But you're saying -- you're saying they will need that.

In addition to the new law which we're passing which will create all those incentives for utilities to move and to states to move, you're saying that that's not going to be sufficient -- that you believe that the states themselves have some built-in inertia and some of those utilities do as well and that because they don't move, even though we passed this new law and create these high goals that have to be met by national mandate, that we will still need the federal government to come in as a club. Is that what you're saying?

MR. WELLINGHOFF: I'm saying that I'm not blaming the states nor am I saying the federal government is the panacea. I'm ultimately saying -- (inaudible) --

REP. MARKEY: Right. But here's the problem. In terms of -- and I appreciate what you're saying and you're trying -- you're engaging in a bit of terminological inexactitude which is necessary for you to maintain good relationships with the states, and I appreciate the position that I'm putting you in. But at the same time we're going to create a brand new law here that is going to affect all of these states.

MR. WELLINGHOFF: That's correct.

REP. MARKEY: And so we need some evidentiary basis for preempting the states that is based upon, you know, a federal perception of the problem that exists in these states. So while we won't use the word blame we need to find some way in which we pinpoint what it is that is occurring that is the problem and then we can tailor our solution to it. But we can't deal with it in kind of broad generalities.

We need to have the specifics and then even in the report language of the legislation we can ensure that we're explaining the problem as it exists, let's say, in a particular region, and here we're talking about the Midwest and the fact that wind is not moving around even though it's readily available. So pinpointing what that problem is helps us then to tailor the language to reflect that problem. So maybe you can elaborate a little bit on that Midwestern problem -- where the bottlenecks are, what causes it, and then we can kind of contemplate, cogitate on what might be necessary.

MR. WELLINGHOFF: And I'm suggesting part of the bottlenecks are the fact that, number one, FERC really doesn't have the authority to allocate across boundaries. So between MISO and PJM, for example, we don't have the ability to allocate costs of transmission across these boundaries and as such we're not really getting the types of transmission built and I think you're going to hear from Mr. Walsh (sic) from ITC on the next panel, and he has a very interesting transmission project that I would commend you to explore this with him further because he is in the Midwest trying to get large amounts of wind out of the Dakotas into the Chicago area, and I think one of his issues he's talking about is cost allocation across two regions.

So what I'm suggesting ultimately is that Congress needs to look at a entire structure of planning, siting, and cost allocation that is initially deferred to the states, and I would say that the states should, in fact, ultimately solve that problem. But if they can't then the pressure should be there to allow the federal government to step in if necessary.

REP. MARKEY: I thank you, Mr. Wellinghoff. You know, I was the -- I was the author in 1992 of the wholesale transmission access provisions in that -- in the energy policy that for the very first time gave the FERC the ability to force utilities to stop blocking requests for open and nondiscriminatory access to wholesale transmission lines so that there could be more competition in that area. The FERC then built upon that new law that I created and issued a generic order, Order 888, on transmission access, which is a historic, you know, order and that's based upon my 1992 law.

So I'm very sensitive to this issue. But again, I don't think we should tailor something that goes beyond what is needed. And I say this to you, Chairman Wellinghoff, that part of the problem we have up in Massachusetts and New England as well is with the -- and it's not you, it's your predecessor of FERC that has just left office -- but preempting our state and local governments from granting FERC siting authority on wholesale electric transmission lines.

That issue is illuminated by the fact that the FERC has (seemed ?) to be completely unresponsive to our local concerns when it comes to the siting of the liquefied natural gas facility in Fall River, Massachusetts. I have an LNG facility in my district in Everett, Massachusetts. Massachusetts, working with the federal government, has licensed two LNG facilities about 10 miles off of our coastline to bring in LNG into our market and into the New England market.

It's upwards now of 30 percent of the natural gas that we use in New England, and we support LNG and we have licensed two facilities. But notwithstanding Massachusetts saying to the FERC, we don't need another one on land -- we're doing it offshore and we've licensed them -- the FERC -- not your FERC but the FERC up until this point -- has been saying, no, you're going to have another one in Massachusetts. And even that decision itself could affect the amount of renewables that we need, right?

It could -- notwithstanding the fact that natural gas may be half of the carbon in its use as coal it's not nearly as good as renewables will be. But it's going to affect our marketplace by having that be forced upon us, and the FERC is -- you know, it has been pressing that now for the last four or five years. So that kind of calls into question, you know, kind of this federal one-size-fits-all process where even when the state is saying back off the FERC continues to come in and says, no, this is what you're going to have for New England. So how do we -- (audio break)?

MR. WELLINGHOFF: Mr. Chairman, I'm not suggesting a one-size- fits-all process. Again, I'm suggesting unlike the LNG process where FERC has the primary and initial responsibility with respect to siting and permitting that, in fact, states be -- (audio break) -- the initial opportunity in this regard and that that opportunity, I think, should be given all the tools necessary for it to succeed.

REP. MARKEY: Okay. I thank you, Mr. Wellinghoff. And are there other members who wish to ask questions? (Audio break.) Let me recognize the gentlelady from Wisconsin.

REP. BALDWIN: Thank you. Just one more rather big question. But I appreciate the chairman for asking our witnesses to make this understandable for a viewing audience.

And we had a discussion recently of, you know, follow the electrons. And I actually would like to pose a question about following the money. I ask anyone who wants to, give just a very brief primer on the economics of transmission. Is there a guaranteed rate of return? How is that determined? Who decides? And if so, what is that guaranteed rate of return for transmission?

MR. WELLINGHOFF: Congresswoman Baldwin, I'll attempt that. I like to believe in rate-based regulation. And first of all, you have to understand transmission is not a market item. It's an item that we have limited number of entities who are putting in transmission, and it is under a rate-based, cost-service scheme.

So they are authorized a return on their investment, and they have an opportunity to earn a return. But to earn that return, they have to manage their expenses, and they have to manage their operations in an efficient way to ensure that their expenses match what their projections are so that their return comes out to be the level they hope to achieve.

The regulators, whether it be a state regulator or a federal regulator, would authorize a level of return on equity that would be authorized. But again, that's only an opportunity to earn that level of return.

REP. BALDWIN: Do you have any averages of what that rate of return might look like?

MR. WELLINGHOFF: I'm sorry, what it might look like?

REP. BALDWIN: What is the average rate of return? I know there's variables.

MR. WELLINGHOFF: I'm sorry.

REP. BALDWIN: A ballpark or --

MR. WELLINGHOFF: I can submit that to you in writing, but I don't have an average today for you.

REP. BALDWIN: Okay, thank you.

REP. MARKEY: I thank the gentlelady, and I thank all of our witnesses. You have been absolutely fantastic.

And you, Mr. Wellinghoff, I want to tell you how much we appreciate your willingness to take on this job. This is one of the toughest jobs we're going to have in America. You have an outstanding record, and I've already had an essential conversation with you privately. And I really am very, very glad you have this job. I think you're going to do a tremendous, tremendous service to our country there in that position. It's very sensitive. It's going to require people like you, who are willing to spend the time to get this right so we have a long-term solution.

And as we're going forward, especially over the next week or so, we're going to need some specifics to help us to think through this issue in terms of where the problems have been, you know, what has caused the problems and what would be needed in order to correct those problems. We'll need some examples and some specifics with regard to what, you know, has been used as a blocking mechanism to the resolution of these regional issues, because we want to get at that issue, we want to have real competition out there in the marketplace.

So, for you, especially, Mr. Chairman, we hope that we can work with you in the next week. You have an outstanding staff, and you're an outstanding individual. And I think we can accomplish that.

MR. WELLINGHOFF: We'd be happy to do that, Mr. Chairman. And thank you very much for your kind words.

REP. MARKEY: I thank you.

What I'm going to do is to now work in reverse, and we're going to give each one of you one minute to tell us what you want us to remember as we consider this issue over the next week.

And we'll begin down in this end with you, Mr. Halvey. You each have one minute apiece.

MR. HALVEY: Thank you, Mr. Chairman.

I think the two things that we would emphasize are the issue of supersizing, which relates directly to the cost-allocation issue that we spoke about. It doesn't make a lot of sense for us to use up whatever good will we might have trying to locate a line that's undersized.

The second thing is, I think, the federal lands issue, the permitting issue. I've elaborated some on that. But this is a very impediment. Those would be the two things that I think we'd like you to bear in mind.

REP. MARKEY: Thank you, sir.

Mr. Hibbard.

MR. HIBBARD: Thank you, Mr. Chairman.

I would just say that, certainly from our perspective in the commonwealth, we completely agree with the goals of the ACES legislation. We absolutely have to address the carbon issue, and we have to address it now.

What I would urge you to consider from the standpoint of transmission is to try to retain the competitive market structure that delivers benefits to our rate payers in the designs that you implement going forward. The carbon cap that provides a value or cost, additional marginal costs associated with allowance purchase for fossil-generating resources, in a renewable portfolio floor that provides additional revenues to renewable resources should provide the financial resources to get the renewables and the associated transmission built.

And that we want to maintain the distinction between who's responsible for paying for transmission if it's a generating facility and who's responsible if it's needed for reliability.

Thank you.

REP. MARKEY: Commissioner Azar.

MS. AZAR: Thank you.

Number one, define the goals that we need with the transmission grid.

Number two, define a state-led process by which we can meet those goals. One of the primary aspects of that needs to be that the decision-maker must be beholden only to the public interest.

Number three, ensure there's federal backstop authorities so that we get our job done.

Number four, don't do harm. And with regards to that, don't define a specific technology, and please don't define a cost- allocation process.

REP. MARKEY: Thank you.

Mr. Coen.

MR. COEN: Thank you, Mr. Chairman.

Very, very briefly, I just want to reiterate that the states are here to help. We would like to work closely with your committee in developing some transmission planning. And that federal preemption of transmission siting should only be used as a last resort.

REP. MARKEY: Thank you.

And Mr. Wellinghoff.

MR. WELLINGHOFF: I would suggest that hopefully you come away with this, number one, that we're not as far apart as we initially seemed to be, I think, when we started out in our testimony. But we all have the same goals -- to reduce carbon and to ultimately develop as much renewables as possible to do that.

But I think we need to remember that there are non-market barriers that we need to look at to how to get that development done. And as part of those non-market barriers, I think we need to put a construct together that would allow the states to initiate the processes of planning, siting and cost allocation, to have the transmission developed to deliver renewables.

We also have to have that back pressure of the federal government standing there, being able to step in if necessary to make it happen and get it done.

REP. MARKEY: Thank you, Mr. Wellinghoff, very much. And in the spirit of what Mr. Wellinghoff said, we may not be as far apart as the initial statements indicated. Let's work towards that goal. Time is of the essence, so all of these conversations now continued outside of this hearing room over the next week or so would be very helpful to us.

With the thanks of the committee, this panel is dismissed. And we will ask the next panel to come up to the table.

(Pause.)

So thank you all very much, and please sit down. And if someone could distribute these cards with the names of the witnesses and do so in a way that reflects where they will be sitting on the panel, I would very much appreciate it. And then they will know where they should sit.

Or why don't we do it the other way? Sit wherever you want, and then we will recognize you in --

(Off mike.)

Sit wherever you want, and I'll recognize you in the order that I was going to recognize you, regardless of your seats. It's like musical chairs. We have enough chairs for each of you. And if you can find the open one, it will be very helpful to us.

We thank you all very much for being here, and we apologize for the delay. This is obviously a very important issue. We may be writing the transmission rules for the next generation of electricity generation in our country over the next couple of weeks. We'll see if that can be accomplished. Perhaps it can. Perhaps we can't.

But your testimony is going to be essential to accomplishing that goal. We could not do it without your participation. We apologize to you for the delay in your panel being recognized and for it being Friday afternoon, getting later as the minute transpire.

We'll begin with Ralph Izzo. He is chairman, president and chief executive officer of the Public Service Enterprise Group Incorporated. He is a leader within the utility industry and the public policy area. We thank you, once again, for being here, Mr. Izzo. Whenever you're ready, please begin.

MR. IZZO: Mr. Chairman, members of the subcommittee, thank you for this opportunity --

REP. MARKEY: Could you move that microphone in just a little bit closer?

MR. IZZO: Sure. Thank you for this opportunity to appear before you today to testify. PSEG distributes electricity and natural gas to more than 2 million customers in New Jersey, and it owns and operates electric-generating capacity in the Northeast, Midatlantic and Texas.

PSEG has long supported policies to promote renewable generation. We are planning major investments in solar, offshore wind generation and an energy storage technology that will make renewable energy more competitive.

The question today is not whether we should vigorously promote renewable generation but how. Specifically, how should we use transmission policy to promote renewable generation at the lowest- possible cost? This would include not just federal siting authority but decisions about transmission planning and cost allocation that are fundamental to determining how much transmission is built and where.

There are two competing views on this. One view, which I strongly favor, is that government should establish prices for externalities, such as the cost of emitting greenhouse gases, and let market forces determine which technologies and which locations are most promising for investment.

This is the approach taken in the landmark ACES legislation. It establishes a price for carbon through a cap-and-trade program and a market-based subsidy for renewable generation through the renewable electricity standard. With these price signals, developers can compare the costs of renewable generation in different locations, including the associated transmission costs.

The alternative view is that some central entity should plan and site transmission that will connect areas with strong renewable resources to areas of high electric demand via some green transmission superhighway, paid for by a broad group of taxpayers.

Under this model, government would essentially pick winning renewable technologies and locations and build transmission to facilitate them. I have several concerns about this approach.

First, it could lead to unnecessarily expensive outcomes. All business owners know that if they establish their factory at a distant location to keep production costs down, they have to weigh that against shipping costs. But if we socialize shipping costs of renewable generation, we skew decisions away from locally based options that may have a lower total cost.

That is why a bipartisan coalition of 10 northeastern governors wrote to Congress, warning that this policy would undermine their efforts to grow renewable industries.

Moreover, building thousands of miles of transmission lines in anticipation of the arrival of renewable generation may lead to an expensive excess of transmission capacity.

Transmission planning is a deliberate process meant to respond to long-term reliability and economic concerns. It is not intended to predict and facilitate dynamic markets.

Second, as has been said so many times already, there is no such thing as a green transmission line. Transmission lines carry all electrons without regard to the carbon footprint of the generator. In fact, the dispatchability of renewable resources would suggest you would have a significant underutilization of the transmission line unless you filled it with other forms of generation.

So a green transmission line will give market advantage to any power plant fortunate enough to be close to the new line.

Third, creating a new planning process across regions is unnecessary. We already have regional planning processes that are effective and sensitive to local concerns. Cross-regional issues should be addressed through improved coordination between regional planning bodies, which is exactly the approach taken when the committee passed the bill.

Finally, existing tools can help renewable projects connect to the grid without distorting locational price signals and without potentially burdening customers with an excess of expensive transmission. For example, if the costs of connecting to the grid and getting power to market and too much for one developer to bear, multiple developers can share costs among their projects, or FERC can require the rate payers initially bear these costs, provided they are reimbursed by developers after the projects become operational.

In closing, I believe we will meet our long-term carbon reduction goals. But sitting here today, I cannot tell you what renewable technologies and, more importantly, in what locations it will take to get us there to serve our customers at the lowest-possible costs, and neither can government.

That is why I strongly support policies, such as an RES and carbon prices, that send price signals to the market and unleash the creativity and entrepreneurial spirit of the American people. Thank you.

REP. MARKEY: Thank you, Mr. Izzo, very much.

Our next witness is Joe Nipper, who is the senior vice president for Governmental Affairs of the American Public Power Association representing the nation's more than 2,000 community-owned electric utilities. We thank you for being here. And whenever you're ready, please begin.

MR. NIPPER: Thank you, Mr. Chairman, and members of the subcommittee. Appreciate the opportunity to be here today.

APPA, as you mentioned, represents the interests of 2,000 publicly owned, state and locally owned utilities across the country, collectively serving 45 million Americans. One hundred ten public- power utilities collectively own about 8 percent of the nation's transmission lines of 138 kilovolts or greater. However, the great majority of APPA's members are transmission dependent, that is dependent on facilities owned by others, in order to acquire the electricity they need for distribution to their retail customers.

Our members report that more transmission is needed in almost area of the country to serve a variety of purposes, including increased use of renewable energy, reliability and to enhance competition. In our view, the single most significant impediment to getting new transmission built continues to be siting, and we urge Congress to clarify and continue to support the federal backstop siting authority included in EPAct '05.

EPAct '05 siting authorities were a major step forward, but have been called into question by the recent court decision in the 4th Circuit Court of Appeals. As an intervener on the side of FERC in this case, APPA believes that legislation should clarify the original congressional intent in EPAct '05 by expressly providing FERC with the authority to consider backstop transmission siting applications when a state denies an application.

It's important to note for us that as units of local and state government, public power utilities are not typically supportive of federal policy that diminishes state authority. And we certainly have had concerns about Congress and FERC's -- (inaudible) -- in other areas -- (inaudible) -- the importance -- (inaudible) -- transmission lines cannot be understated. And thus, our continued support of the compromise crafted in EPAct '05.

There is some misconception, though, that higher voltage lines are always better. In actuality, the interconnected nature of the grid is such that a lower voltage line, if located strategically, could have a greater ability to relieve congestion and to enhance reliability than a higher voltage line and could experience less local resistance to the siting and cost less than a higher-voltage line.

Of course, there are situations where higher-voltage lines is preferable and necessary, but we want to make it clear that bigger is not always better when it comes to the grid.

This is one reason why regional planning is so important. The impact of proposed new higher-voltage facilities on the existing transmission network needs to be fully considered so that the optimal mix of facilities can be determined.

Encouraging proportional joint ownership of transmission facilities by load-serving entities, including public power utilities in a given region, is another way to get more transmission built. If the responsibility for building and owning the transmission grid is spread more broadly among the entities serving customers in a region, then joint transmission planning will be facilitated simply because there are more participants at the planning table, supporting the needed projects.

If network customers of a dominant regional transmission provider are encouraged to own their load-ratio share of the transmission system, transmission usage and ownership will be more closely aligned, and the friction between transmission-dependent utilities and transmission owners can be reduced. There are many examples, Mr. Chairman, where that is the case.

With respect to planning, APPA supports the transmission planning provisions included in the committee-passed version of the American Clean Energy and Security Act, as we believe that they will bolster rather than duplicate or further complicate the existing and extensive transmission planning process under FERC Order 890, occurring at the regional and subregional levels across the country.

The manner in which transmission facility's costs are allocated -- (inaudible) -- transmission-owned, transmission-dependent utilities and other stakeholders is one of the most controversial topics related to transmission. APPA strongly supported the language included in EPAct that underscores FERC's flexibility in determining the appropriate transmission pricing methodology. While we don't always agree with the decisions made by FERC on cost allocation, we continue to believe that Congress had it right in leaving these decisions, with appropriate stakeholder input and administrative due process, to FERC to determine under Section 205 and Section 206 of the Federal Power Act.

The issue of who pays for transmission facilities provides regional benefits is a difficult one. Such facilities can provide residents future system benefits that extend well-beyond the specific entities wherein the facilities are constructed. Therefore, APPA urges FERC to provide greater guidance on cost allocation for new major transmission facilities that afford regional benefits.

APPA does not support the allocation of costs of facilities to regions, subregions or entities that will receive little or no benefit from the facilities and, therefore, opposes a federal statutory requirement to allocate such costs on an interconnection-wide basis.

And lastly, Mr. Chairman, APPA has concerns with respect to FERC's application of its incentive rate authority provided up EPAct '05. FERC seems to regard Section 219 as a statutory requirement to offer a variety of different transmission incentives to applicants, and it appears that these entities have been helping themselves to those incentives. The commission has not taken a sufficiently disciplined approach to awarding rate incentives.

We appreciate your long-held concern in this area and your recent letter to FERC, asking for an explanation of their use of their incentives. And we look forward to their response and to work with the chairman on that issue.

Thank you very much.

REP. MARKEY: Thank you, Mr. Nipper, very much. And I appreciated the very diplomatic way in which you used the word "entity" in your testimony.

Our next witness is Glenn English. He is the chief executive officer of the National Rural Electric Cooperative Association, but, more significantly, he served in the United States Congress for 10 terms as one of our most distinguished members. And it's our honor to have you back before the subcommittee

Glenn, whenever you are ready, please begin.

MR. ENGLISH: Thank you very much, Mr. Chairman. I appreciate that. I'm not sure my board of directors would agree with the "more significantly" but I appreciate that and understand where you're coming from on that.

REP. MARKEY: I think the one thing that the board and I can share in common is that we'll each reserve to ourselves which of us believes that you had a more important job.

MR. ENGLISH: Well, I appreciate both of you thinking I --

REP. MARKEY: The fact that you're so important to both of us -- (inaudible).

MR. ENGLISH: (Laughs.) You're very kind, Mr. Chairman. I appreciate that.

As I think the members of the committee know, electric cooperatives are consumer owned. We're in 47 states across the country, and we serve, however, 7 percent of the population through about three-quarters of the land mass of the United States.

So when we talk about transmission and when we talk about the fact that you're talking about generating renewable energy in this country, it's most likely going to come from areas that are served by electric cooperatives. So we have a big stake in that. We plan to have a big part in the future as we move forward in that general direction.

REP. MARKEY: Could you just repeat that number again? Seven percent of the customers but --

MR. ENGLISH: We've got three-quarters of the land mass.

REP. MARKEY: Okay, thank you.

MR. ENGLISH: And it's all owned by those individual consumers throughout those 47 states, Mr. Chairman.

Also, I think we can all agree that the signing of the American Clean Energy and Security Act of 2009 is going to bring about a profound change in the way that not only energy is generated in this country but the way we use energy in this country. It's going to change our lives.

And with that understanding, I hope that we can also recognize that we've got to be prepared for that kind of a dramatic change. And the transmission system as it exists today was certainly not designed for this kind of change. In fact, it wasn't designed for the 1992 Energy Act with deregulation on the wholesale level. So we're still trying to adjust to that.

What we would suggest, Mr. Chairman, is that we need a sense of urgency here. And certainly we need transmission as a part of this act. It needs to be addressed in this act. And as a result of that, we think there are some very basic principles that need to be incorporated as you move forward with any kind of legislative language as it applies to this new transmission system, new transmission policy that the country is going to be following.

As I think you know, Mr. Chairman, we have established now a national renewable cooperative so each cooperative in every one of those 47 states can participate in any renewable project in any part of that there-quarters of the land mass of the United States. So a wind project in South Dakota, for instance, may be invested by people from Wisconsin, co-ops from Wisconsin, or they may be from Alabama or Georgia or wherever. They can own a piece of that.

And what we're looking for is a way in which we can generate that power through renewables in the most efficient way possible, no matter where it's located. We should be looking for the most cost-effective way in which we can do that.

And just as we know that certain wind corridors exist that will provide us with a great amount of production of wind energy throughout the Great Plains, not every farm is the same, not every state is the same, that we also then have got to make sure that when we locate that kind of generation in those areas that we can move that power out of those regions. So we need an efficient and effective transmission system to do it.

But we also, I think, have to be very aware of the fact, and it's been our experience, that bottom-up planning works the best. So you need local, regional planning. You need local folks putting this plan together to determine what's the best way to move forward on this. So that is a principle that I think we need to adhere to -- a bottom-up rather than top-down as far as planning the transmission system of this country.

I would also suggest that under these conditions and given the fact that we're going to have to move in a more efficient transmission system, we're going to have to move that transmission across state lines, that we may run into difficulties and incumberances, we may run into delays that, quite frankly, the national best interest is not being served.

So I think we've got to, while we're having that local planning, we've got to also make sure that we don't have impediments put in the way that is going to prevent that local planning from being implemented. We've got to make sure that the overall national policy of moving across state lines is dealt with.

And for that reason, we do think that there is going to have to be some authority on the federal level as far as siting is concerned. But again, it should be focused on certain qualifiers as we look at that siting authority.

First of all, it should be facilities that are only identified on regional (plan ?). Should be facilities that are interstate projects. It should be in fact the owners of those facilities should not be eligible for enhanced rates or any other financial incentives as far as where they're building that transmission.

And the cost of the facility should be fairly and broadly allocated along with the use of the facilities should not be limited to just one kind of power, should not just be renewables only. And that's mainly because of the fact that the laws of physics, as we've heard expressed here today, doesn't distinguish between electrons. They're all the same once they get into that transmission system.

And we'd also suggest that the law which we're proposing this become part of would in fact itself dictate the direction that we would be manufacturing or generating those particular electrons.

Also, we would suggest there needs to be broad, fair cost allocation. We think that's a very important point. Obviously, those of us who are electric cooperatives are very sensitive about that. We would have a few people, and all the costs being dumped on those few people would be unbearable. So it should be allocated on the basis of who's getting the benefit. Who are the folks that are receiving the benefits of that energy that is being generated and produced?

Also, we would suggest, Mr. Chairman, that we move forward and recognize the fact that there are more benefits to building such transmission systems across this country or in different areas of this country than just the movement of that power. The right-of-ways for any kind of transmission like that would become extremely valuable. And it would also be a way in which it would in fact become a new technology's right-of-way, ways in which you could move new technologies. And I know you're particularly interested in the smart grid. And obviously, there are many uses that could be incorporated into any new transmission system along those lines. Fiber between the towers is obviously another way in which we can make good use of that transmission system.

So Mr. Chairman, I would suggest to you that we need a new transmission system to go along with the legislation that's being proposed.

Thank you.

REP. MARKEY: Thank you, Glenn, very much.

Our next witness is Reid Detchon. He is executive director of the Energy Future Coalition, a nonprofit organization that seeks to reform U.S. energy policy.

We welcome you, sir. Whenever you're ready, please begin.

MR. DETCHON: Mr. Chairman, thank you for inviting me to testify today on this important and timely topic. I find a great deal of agreement across the table and particularly with Congressman English.

Last year, in partnership with the Center for American Progress and the Energy Foundation, the Energy Future Coalition undertook a series of listening sessions with a diverse group of stakeholders, including federal agencies, grid operators, transmission companies, utilities and environmental groups. And we found broad support for changes in federal law to facilitate the transmission needed to bring stranded renewable resources to market -- wind in the Great Plains, solar in the desert Southwest and, yes, offshore (wind ?) in the East.

Our vision statement for the National Clean Energy Smart Grid, which is attached to my full statement, was endorsed by some 55 organizations, including the AFL-CIO, the Council on Competitiveness and the Digital Energy Solutions Campaign, along with many renewable energy advocates and environmental groups, including the Sierra Club, who are not usually prone to supporting new transmission capacity.

What brought these environmental groups to the table and ultimately to agreement was the imperative of action to address with urgency the growing climate crisis. Time is running out for the world to avoid serious harm from climate change.

Mr. Chairman, you understand this challenge very well, and we owe a great debt of gratitude to you and Chairman Waxman for your leadership and acumen in advancing H.R. 2454, the American Clean Energy and Security Act. You have set the appropriate long-term target for emissions reductions, more than 80 percent by 2050.

The changes in our energy system needed to reach this goal are profound. We need to begin planning today to reach those reductions by 2050. And one thing is clear. We cannot deliver that much low- carbon energy without changes to the grid. Low-carbon electricity will be expected to power not only our homes and businesses but also an increasing portion of our vehicle fleet.

The system we have today for planning, permitting and financing transmission lines was not designed to respond quickly to a challenge of this magnitude, moving many thousands of megawatts of renewable energy from remote areas to load centers.

Our discussions with those who must deliver on this promise, renewable energy developers and transmission companies, quickly focused on the obstacles of planning, siting and cost allocation that we have heard repeatedly today. Of these, planning turned out to be the linchpin, as our group concluded that better planning could reduce the difficult of siting and financing new lines.

We recommended enlarging the scale of the planning process to the two principle power grids in the United States, the eastern and western interconnections, for two reasons.

First, long-distance transmission is needed to support development of some renewable energy resources and necessarily across state and regional boundaries. For example, almost 300,000 megawatts, an enormous amount of wind, 300,000 megawatts of proposed wind projects, which is more than enough to meet 20 percent of our electricity needs, are waiting to connect to the grid because there is inadequate transmission capacity to carry the electricity they would produce.

Second, planning for transmission to support the renewable energy standards in state and federal legislation must occur on a broad, regional basis, just as the benefits of such investments will be shared on a broad, regional basis. Your discussion of the impact of wind resources in the East is a good illustration of the need for planning across the entire interconnection.

An enhanced regional planning process of this kind should build on, not replace, the current engagement of stakeholders, including states, grid operators, utilities, consumer and environmental interests and land-owner groups. This will remain a state, not a federal process. Siting authority would rest with FERC, but the states collectively would have more power, not less, than than they do now because their plans would govern the exercise of that federal authority. Only if the planning process breaks down would FERC have the ability to resolve disputes and get transmission built to bring renewable energy to market.

We've been gratified to see many of our recommendations reflected in H.R. 2211, introduced by Congressman Inslee, a system of interconnection-wide transmission planning, supported by broad-based cost allocation and underpinned by federal siting authority. And we would be pleased to work with the committee on further legislative language if you think that would be helpful.

Mr. Chairman, you and your colleagues have taken an enormous step forward by reporting legislation that will begin the process of transforming our nation's energy system to deal with the threat of global climate change. Expanding and modernizing our transmission grid is essential to that transformation. By addressing transmission directly and comprehensively, you can help our common goal of a clean energy future become a reality and not be left stranded by regulatory impediments. Our economy, environment and national security deserve no less.

Thank you very much.

REP. MARKEY: Thank you so much for your testimony.

Our next witness is Joseph Welch, chairman and president and chief executive officer of ITC Holdings. That is the nation's first independent transmission company.

We welcome you, sir. Please begin.

MR. WELCH: Thank you and good afternoon.

REP. MARKEY: Could you move that microphone in a little bit closer and turn it on?

MR. WELCH: Thank you and good afternoon, Chairman Markey and members of the subcommittee.

As the chairman said, my name is Joseph Welch. I'm chairman, CEO and president of ITC Holdings, the nation's first and only independent transmission company in the United States.

Being independent means we are not affiliated with any market participant. We have no ownership or have any dealings in energy transactions. Our job is to facilitate the market, to facilitate the interconnection of any sources of generation that are put before us and to make sure that we connect the loads and reliably do so.

We own and operate about 15,000 miles of high-voltage lines in Iowa, Minnesota, Illinois, Missouri, Michigan, and are developing regional transmission projects in Kansas and Oklahoma. As we have worked through these various states, each time we come to the point where we need to build transmission for whatever reason, we have come up against a set of obstacles, each one different in every state.

Probably that is as it should be, but when we get to the outcome of where we want to go in this country, this is going to become a major impediment for us to move forward as a country who dearly and necessarily needs to seek energy independence.

I brought with me today a report from the Council on Competitiveness and Energy Sustainability, which I believe is a good framework, and I will leave it with you to all for you to read. I think it offers a lot of information which is very consistent with the very principles and items that you're considering here.

But going to the fundamental principles that we need and at the top of the list, and I want to go right to the top of the list, we need a policy for energy in this country. We've talked about all the things underneath, and we debate about whether it's right or wrong, but the fundamental issue is that we need a policy and something to plan to.

With that policy in place, the rest of the items become a lot clearer and a lot more succinct and a lot of the debates that we hear from all of us, who really are closer than further apart, really start to come together.

For instance, with a policy, then the planners -- and when I say "the planners," and we talked about this in an item that I support and my company supports, is that we need independent planning authority. We need to take the policy and get the policy implemented in a very clear and succinct way.

Secondly, if you have the policy, then the cost allocation can be dictated by the policy itself, meaning that from that policy, we now know where we want to go, we now know who are the benefactors and what those benefactor issues are. And so that policy sits at the top, and we need that.

And last but not least, when we get down to the very bones, I always tell people, being in the transmission business, it's a great business until I do one of two things. And the first item is build- through transmission lines. The minute we start to build them, it becomes a nightmare. And the process is hard, and it's long. And what we need is true federal backstop siting authority. That is not meant to cut the states out of the process; the states should be involved in the process. They are the most knowledgeable about local issues.

But at the end of the day, we have to get a regional transmission grid built. As you've heard here, there are literally thousands upon thousands of megawatts of renewable energy that this country needs to deploy, and we need to deploy it now. And if we start now, we are years and years away from our goal line.

So please, let's have this conclusion and bring it to it. And I thank you very much for my opportunity to speak here today.

REP. MARKEY: Thank you, Mr. Welch.

Our next witness is Christopher Miller. He is president of the Piedmont Environmental Council, an environmental organization focused on conservation issues in the Piedmont region of Virginia.

We thank you for being here, sir.

MR. MILLER: Thank you, Congressman Markey. Thank you for the opportunity to testify on behalf of Piedmont Environmental Council and also land trusts and land conservation organizations throughout the country.

We're a very active member of the Land Trust Alliance and working hard on this issue with them. And they have asked us to express some of their concerns.

I have a couple of maps which I hope the staff can put up, because I think they'll help instruct this conversation.

We appreciate the time and attention that this committee is taking to consider the complex issues associated with transmission. We appreciate the willingness of the committee to deal with the transmission as part of a broader energy policy, not as an end in itself.

From our perspective, transmission is only a tool for moving electricity from the source of generation to the end user, but much more important are the policies that will reduce demand for electricity, modify peak demand so that the need for generation and transmission infrastructure is minimized and encourage clean generation close to load centers, which will reduce the losses of energy caused by long-distance transmission.

But in the end, the high-voltage transmission lines with towers that can exceed 180 feet in height and wide rights-of-way are the part of the energy system with the largest footprint and often the most dramatic impacts on communities that lie along them.

The transmission system has a potential for substantial land-use impacts, including impacts that directly conflict with federal, state and local policies to protect and enhance important natural and cultural resources.

In the brief amount of time, I want to focus on a couple of issues that have not been raised yet. The first is the assertion that the only way we can meet national and state goals to reduce greenhouse gas emissions and increase the role of renewable sources of energy is to build a national transmission grid.

And one example of this grid is up here. This is the grid proposed by AEP for the 765 kV system that would link resources. It was originally overlaid over wind resources. But in fact, the correspondence with coal resources is actually higher when you actually go and see where those lines are laid out. And that's one of the causes of concern is that in fact what you'd be doing by doing a transmission-loaded set of incentives is in fact encouraging greater transmission of coal-fired generation than in fact of renewables.

And the reason for that is that nowhere in the legislation do we recommend a change in the economic dispatch rules that govern which generation is brought online first. All the renewable goals not withstanding, we dispatch energy by price. The auctions are by price. And we've heard lots of calls for competitive pricing.

But the potential that that will in fact increase the amount of transmission that is carrying coal-fired emissions and in fact from the dirtiest and oldest plants is very real. Unless this committee can also ensure that before that transmission is made available we are in fact putting in the carbon cuts through the carbon cap and trade, otherwise there's governing the emissions of grandfathered coal plants that have never reduced their emissions, there's a very real possibility in the eastern interconnect that the gains that have been made by (Reggie ?), the 45 million tons or so of carbon emissions reductions, could be offset.

A second issue that has not been addressed so far is the issue of peak versus average demand. The transmission and generation system is being designed to meet peak loads. And the more we can do to reduce peak loading, the less we have to build across our landscape. And so it's very important that this committee address the fact that transmission planning that has been done to this point really hasn't addressed the full incorporation of some of the policies that are in the ACES legislation.

They did not take into account the amount of demand-side management that is recommended. And in fact, assume a level of per- capita electricity use that steadily increases over time rather than is reduced.

The final thought is this. To the extent that transmission is necessary -- and obviously, connecting some renewables will require transmission -- it's very important to respect the other public policy values that are out there, particularly related to the lands that have to be crossed by transmission. We should be seeking to avoid, wherever possible, the natural resources, the historic resources, the cultural resources and, yes, even the landscapes that America values so much.

Current legislation draws a distinction between publicly owned lands and privately owned lands. And that's something that I think this committee needs to look at hard. East of the Mississippi, most natural resources lands, most historic lands are privately owned but protected through public-private partnerships, whether it's the designation of historic districts or the donation of conservation and historic easements. Those easements are often approved by state government. In the case of Massachusetts, hundreds of thousands of acres are actually individually approved each time by the attorney general. The same is true in the state of Virginia. And they are due all of the respect that a national park, a national wildlife refuge, a state park would be due.

So as you think forward on those transmission lines that have to be built, make sure that we're avoiding the private resources as well as the public resources and make sure that we mitigate and compensate for the impacts on those resources.

REP. MARKEY: Thank you, Mr. Miller, very much.

And our final witness is David Joos. He is the president and chief executive officer of CMS Energy and chief executive officer of its principal subsidiary, Consumers Energy.

We welcome you, sir.

MR. JOOS: Thank you, Mr. Chairman. And thank you also for pronouncing my name properly. Appreciate that.

REP. MARKEY: It took one minute up here to get it right. But I wanted to make sure. (Laughs.)

MR. JOOS: I appreciate the opportunity to address the subcommittee this afternoon.

Consumers Energy, our principal subsidiary, serves 1.8 million electric customers, 1.7 million natural gas customers in the lower peninsula of Michigan. I would suggest that we have a bit of a unique opportunity, having developed, owned and operated transmission assets, along with distribution and generation assets, for a century. Consumers Energy now no longer owns transmission assets. We sold our transmission system in 2002, and it is now independently operated.

We therefore appreciate the difficulty in siting new transmission and support federal backstop authority for new interstate lines as a last resort.

We also see a need for new transmission in Michigan to interconnect new wind resources that are being developed in the thumb, in particular, and along the Lake Michigan shoreline, as part of the renewable portfolio standard compliance effort in the state of Michigan.

We believe new transmission development should meet three key commonsense principles. Number one, benefits to proposed projects should exceed the costs by a reasonable margin.

Number two, proposed project should be similar or should be superior to other alternatives which would include other transmission solutions, distribution solutions, perhaps lower voltage transmission solutions and generation solutions.

And finally, costs ought to be fairly allocated to the beneficiaries of the project, as determined through the planning process.

I would concede that these principles are complex to apply and, therefore, need an independent planning authority of some sort to apply them. A regional transmission organization or a group of RTOs, for example, to conduct the evaluation. They cannot be objectively performed by market participants, including independent transmission owners that have a vested interest in new transmission.

In our view, overly generous FERC incentive policies have created a rush to invest in transmission, often not justified on a cost- benefit basis. I provide some specific Michigan examples within my written testimony and won't go over those now.

Fortunately for new intrastate projects in Michigan, we have a certificate of need process that fully vests these projects before allowing condemnation. I suggest that might be a model that's appropriate at the federal level, as a federal backstop.

Now there are proposals to build massive new high-voltage infrastructure over the entire eastern interconnect, the so-called overlays. Part of that, a $3.2 billion, 765 kV project largely in Michigan has already been evaluated by the Midwest independent system operator and determined not to meet the cost-benefit test for the state of Michigan.

A number of independent system operators and planning authorities in the eastern interconnect recently studied a joint coordinated system plan that was referred to earlier, involving a $56 billion high-voltage overlay. Some have referred to it as the equivalent of constructing the interstate highway system. That study concluded that Michigan would receive virtually no benefit at fairly large cost.

Looking just at consumer's customers if costs were spread on a, quote, "postage stamp" basis to all our customers, we'd pay about $159 million a year of increased costs for roughly a $2 million annual benefit. I would submit that Michigan simply can't afford that.

Another 10 (billion dollars) to $12 billion that's been proposed to bring wind power from the Dakotas to as far east as Chicago, of course, does not reach Michigan. But further, when the cost of that transmission is included in the equation, Michigan-based generation is less expensive to develop. On that score, we agree with the 10 Northeast and Midatlantic governors with regard to the potential implications on developing renewable resources locally.

Let me be clear. We don't object to such projects if the benefits exceed the cost by a reasonable margin, reasonable alternatives have been considered and the costs are spread appropriately to the beneficiaries. That might be, for example, Dakota wind developers or purchasers of that power who need to meet their own standard.

Finally, Michigan transmission rates today are four times what they were in 2002 when we sold the system. Even without these overlay projects, we're forecasting they'll increase by another 50 percent from today's rates over the next six years. Transmission investment is occurring in the state of Michigan.

We don't feel that FERC rate-making oversight currently is sufficient in states where transmission is independently owned and, therefore, not subject to state regulatory oversight. That situation, along with overly rich incentives, are causing, in our view, transmission development that is sometimes not in the best interest of our customers.

In summary, we think targeted transmission and investment is needed, both in Michigan and nationally. We believe that planning and evaluation by RTOs or groups of RTOs that are independent from market participants is an appropriate way to pursue that. And we think three key principles need to be followed. One, benefits exceed costs by a reasonable margin. Two, reasonable alternatives have been considered. And three, the costs are appropriately allocated to the beneficiaries.

Thank you, again.

REP. MARKEY: Thank you.

And we thank our entire panel.

Now I'm going to turn to recognize the gentleman from Washington state, Mr. Inslee.

REP. INSLEE: Thank you.

First, I'd like to put into the record a white paper which is quite instructive. It's titled "Green Power Superhighways" provided by the American Wind Energy Association and the Solar Energy Industries Association, Mr. Chair, if I may.

REP. MARKEY: Without objection.

REP. INSLEE: Thank you, Mr. Chair. I appreciate that. And this white paper does confirm what some of the witnesses talked about, which is that we've got 300,000 megawatts of wind projects waiting in line, essentially, to connect to the grid. And they point out that the lack of transmission capacity is also hindering state's ability to meet multiple renewable energy goals. And it just confirms what several of the witnesses have testified today.

I wanted to ask Mr. Detchon about the greenhouse gas interconnection standard that your proposal has incorporated. It basically would essentially allow federal backstop authority, and it would encourage it in relationship to those sources that are low and zero greenhouse gas-emitting generators. Could you tell us how you envision that working?

And by the way, would it help, in at least some sense, some of the concerns of the Northeast states who don't want to see their offshore wind projects intruded upon by, say, if we can call it dirty sources from far away intruding on their corridor?

MR. DETCHON: Thank you for the question. I think there's a lot of confusion about how a greenhouse gas interconnection standard would work. In the first place, it's an interconnection standard. It doesn't govern what electrons are on the line because, as everybody has pointed out, you can't distinguish between green and brown electrons.

But if we are going to provide some additional authority to site and pay for special new transmission lines to benefit renewable energy, let's make sure that the generation that's hooked up to it is not conventional coal.

And so what we have suggested is that since you're going to need probably gas to balance renewable energy on these lines, that up to a single-cycle gas turbine, emission level, would be acceptable to connect to these lines, but above that would not. And that seems like a fairly straightforward way to approach that.

With regard to the question of competition with local resources, I think what should be important and, I think, inevitably would happen if the states are driving this planning process, even on an interconnection-wide basis, is that they take into consideration state policies considering local resources and use delivered prices, as was mentioned in the last panel, as the basis for comparing different resources. I think that's a very straightforward way to make sure that the competition is fair.

REP. INSLEE: I'll ask you what I hope is a rhetorical question, but in the bill that I've introduced, we've tried to preserve the bottom-up planning so that the states and regions really do the planning rather than a cramdown from the federal government. Do you think that's a fair characterization of the proposals that we've made?

MR. DETCHON: Absolutely. And I think that there's been a lot of talk about top-down or federal intervention here. But I think the legislation that you have proposed, Congressman, establishes the mechanisms for states to work collaboratively, addressing these regional issues. And those decisions will be executed with the assistance of FERC, but FERC would only be able to step in if the states are unable to reach a plan.

REP. INSLEE: And could you suggest any other solutions to the concern that the gentleman from Massachusetts expressed about this offshore wind being crowded out, if you will? I perceive that this greenhouse gas interconnection standard would help solve that problem because it would essentially allow the use of the federal backstop authority for clean sources, green sources of energy. And I think that would help solve that problem. Do you agree with that? And is there anything else that you could suggest that would help solve that concern?

MR. DETCHON: Well, I think that a stronger step, which Mr. Miller suggested, would be to have federal intervention on the loading orders for the use of different kinds of resources. I doubt that that would be politically salable right now. So I think that within the context of what's doable, I think that the approach you've outlined is about as strong as it could be.

And I might add that I think that the greenhouse gas standard, to a certain extent, over time gets overtaken by the requirements of the cap-and-trade legislation, assuming that that's enacted. But I think your legislation reflects that as well.

REP. INSLEE: Thank you.

Thank you, Mr. Chair, for your cooperation.

REP. MARKEY: The gentleman's time has expired. The chair will recognize himself now for a round of questions.

Let's go down the line, and each of you could answer yes or no. Do you support giving FERC the authority to modify any transmission plans that are established through bottom-up regional planning processes?

Mr. Izzo.

MR. IZZO: I would not.

REP. MARKEY: You would not.

Mr. Joos.

MR. JOOS: Nor would I.

REP. MARKEY: Okay.

Mr. Nipper.

MR. NIPPER: No, sir.

REP. MARKEY: No.

Mister --

MR. : No.

REP. MARKEY: No.

MR. DETCHON: I think that if the plans are developed by a broad array of states in the way we're describing, I would agree no.

REP. MARKEY: No.

Yes, Mr. Welch.

MR. WELCH: "Bottoms-up" is each state brings it up, or how do you envision that?

REP. MARKEY: A regional planning process that's agreed to by the state. Should the FERC be able to modify a regionally agreed upon plan?

MR. WELCH: If the planning process is independent, no. If the planning process is not independent, yes.

REP. MARKEY: "Not independent" meaning?

MR. WELCH: That it's influenced by market participants and other political entities. The planning process, to me, being in the --

REP. MARKEY: Even if the -- even if the state governor, the state governments agree to it?

MR. WELCH: I believe that all the transmission within the state that is not regional in nature should -- the state should have as much authority over it as they want when we develop regional transmission, which is for the good of the region or the good of the country.

REP. MARKEY: Should the FERC be able to override that regional plan agreed upon by the states?

MR. WELCH: I stand by what I said. If it's done by an independent planning authority, yes -- or, I'm saying no. And if it's not, yes.

REP. MARKEY: Mr. Miller?

MR. MILLER: I think one of the concerns we would have, if FERC were involved, that the right of appeal ought to be not only limited to the transmission proposers, but also those with other perspectives. Right now --

REP. MARKEY: Under those circumstances, you would give FERC the authority to modify a transmission plan?

MR. MILLER: Well, I think there are legitimate federal issues with anything involving interstate transmissions. But, if you are going to create that, it ought to be equally available to both the proponents and those that have concerns.

REP. MARKEY: Okay. Let me ask -- let me go down the line again, how many of you would support a greenhouse gas interconnection standard of the type proposed by Mr. Inslee? Can we go down and ask how many of you would support that?

MR. : I would not, for the simple reason that a greenhouse gas interconnection standard does not speak to existing carbon- intensive generation being able to piggyback.

REP. MARKEY: Okay, thank you.

Mr. Joos?

MR. JOOS: I'll have to qualify my answer. I'm not 100 percent sure (of) the specifics of the standard. I haven't read them. I would say we have, of course, standards for interconnecting all kinds of renewable capacity already. I would not be supportive of something that limited the use of the transmission line to certain types of technology simply because I agree with what's been said earlier, that you can't label the electrons.

REP. MARKEY: Okay, thank you.

Mr. Nipper?

MR. NIPPER: No, sir. We would not support that.

REP. MARKEY: You would not.

Mr. English?

MR. ENGLISH: I believe that the bill, in itself -- and since this is going to be part of the legislation, the bill, in itself, takes care of that issue. So, no.

REP. MARKEY: No.

Mr. Welch?

I know you do support it. (Speaking to someone else.)

Mr. Welch?

MR. WELCH: With my company, we're an independent transmission company, you make the policy, we're going to support the policy.

REP. MARKEY: Thank you.

Mr. Miller?

MR. MILLER: I think it's an interesting concept (that ?) would apply two lines that feed into the grid. But, unfortunately, the authorities that are being discussed would apply to transmission that's not simply for bringing new generation onto the grid, but for expansion of the grid as a whole.

REP. MARKEY: Thank you --

MR. MILLER: So, I would have to say, no.

REP. MARKEY: Okay.

And I'll let you answer for the record, Mr. Detchon.

MR. DETCHON: Well, just to touch on these two points: We are talking specially authorized renewable energy transmission lines that would be feeding into the larger grid, not to the larger grid (sic).

And I agree with Glenn that if this is attached to H.R. 2454, and enacted, then some of the reason for it goes away. But, there's always the possibility that this will become disconnected from that bill, and as a free-standing measure on transmission we think that a greenhouse gas standard would be important.

REP. MARKEY: How many of you would limit federal authority to only lines that affect renewable electricity that is generated? How many of you was limit federal authority just to that?

MR. : I would do quite the opposite, Mr. Chairman. I would limit federal siting authority to the lines that affect reliability.

REP. MARKEY: You mean liability -- ? Okay, thank you.

Mr. Joos?

MR. JOOS: Well, I would limit federal authority as only a backstop provision, and rely on local or regional planning as the primary mechanism.

REP. MARKEY: Okay, thank you.

Mr. Nipper?

MR. NIPPER: Assuming -- excuse me, sir, the backstop authority, no we wouldn't limit that.

REP. MARKEY: You would not limit? Okay.

Mr. English, would you limit?

MR. ENGLISH: And, again, backstop.

REP. MARKEY: Okay.

Mr. Detchon, would you limit it just to renewables?

MR. DETCHON: What I would say is that if we're going to create special new authorities, they ought to be targeted at the problem, which is renewables.

REP. MARKEY: Okay.

Mr. Welch?

MR. WELCH: I would not limit the federal backstop siting authority.

REP. MARKEY: Okay. Thank you.

Mr. Miller?

MR. MILLER: I think we would support limiting it, and also respecting the Fourth Circuit opinion that (we were involved in. ?)

REP. MARKEY: Okay. Thank you.

Mr. Izzo, do you support federal backup siting authority for lines for any reason other than reliability?

MR. IZZO: No, I would not.

REP. MARKEY: Could you talk a little bit about that first map, which Mr. Miller put up, that showed very rich wind resources along the East Coast of the United States, with the exception of some portions of the Great Lakes and out on the West Coast? It looks like it's the -- has the greatest potential for renewable electricity generation in our country.

MR. IZZO: You're absolutely right, Mr. Chairman. And, as I may have mentioned, we are pursing a 150 megawatt wind farm. And, as you mentioned, we can do that 20 miles out and still be in 140 feet of water.

That's not to underestimate the challenges of construction, and operations and maintenance costs, but we expect to fully bear the costs of the short-haul transmission, and would be opposed to having nation-wide support for long-haul transmission and be unfairly disadvantaged.

REP. MARKEY: Well, could happen if we take Mr. Miller's charts -- I guess they're not Mr. Miller's charts, they're AEP's maps that have put together.

Is that right, Mr. Miller?

MR. MILLER: The transmission map is AEP's. We overlaid it on wind, and then coal resource maps.

REP. MARKEY: If that transmission plan was implemented, it would bring that transmission line in from the Midwest very close to the East Coast. What impact might that have on your planning for renewable electricity off of the coastline, or other parts of New Jersey?

MR. MILLER: We would stop planning for that.

REP. MARKEY: Why would you stop?

MR. MILLER: Well, because we would not be able to be competitive with the costs of the wind if it's not burdened by the cost transmission. So, the wind from the Midwest, if it does not face the transmission charge, would be cheaper in that case.

REP. MARKEY: Now, you're up in the Great Lakes, Mr. Joos. Could you talk about that as well, in terms of the potential renewables coming in off the Great Lakes, and what impact that could have for Michigan, and what could happen if, instead -- (audio interrupts) -- (power was reeled ?) in from other parts of the country -- (audio interrupts) -- federal preemption, federal eminent domain takings?

MR. JOOS: Right, well, it's a bit similar. But, maybe two aspects to what Mr. Izzo has said. First of all, it's clearly windier in the Dakotas, for example, than it is in Michigan. Michigan has wind resource even on land, but it's not as windy in the Dakotas (sic). So, instead of 42 percent, roughly, capacity factors, you might see in the range of 30 percent capacity factor. However, once the cost of transmission to get the power from the Dakotas to Michigan is taken into account, it's cheaper to develop it in Michigan.

Now, you mentioned off-shore. Michigan does have a very strong offshore wind resource. Unfortunately, off-shore is still about twice as expensive to develop than on-shore resources. And so when that calculus is taken into account, we think it makes more sense to develop the on-shore resources in Michigan first.

REP. MARKEY: Now, you heard the earlier testimony about the problem getting renewable energy resources from the Dakotas over to Minnesota, and the blame being laid at the feet of the federal government. In that region, do you believe that is one of the main problems, that otherwise the regions have been able to harmonize their electricity transmission policies in a way that is viewed as fair to all states?

MR. JOOS: Well, I'm not familiar with specific federal government problems that may have come up in Minnesota. My observation is that the regional planning process has been effective and is a good solution to the problem.

I think, as many of us are pointing out, you warp the economics when you start putting, effectively, free transmission, or "postage- stamp" transmission along broad regions and then you change the economics dramatically, rather than have them compete on a stand-alone basis.

REP. MARKEY: Now, for our audience, when we say "postage-stamp," what are you referring to? Why is the phrase "postage-stamp" --

MR. JOOS: Well, I said free transmission.

REP. MARKEY: -- why is the phrase "postage stamp" used?

MR. JOOS: Effectively, what a postage-stamp rate is -- and it's used as an analogy to the federal postal system where you put a stamp on a letter and you send it anywhere for the same price.

REP. MARKEY: You could send it from the Dakotas to New Jersey --

MR. JOOS: Exactly.

REP. MARKEY: -- for the same price?

MR. JOOS: And the reality, of course, is the costs are not the same.

And when we look at the cost of transmission to move power from West to East, there's a significant cost involved. However, if that cost is ignored, and everybody pays the same price regardless of how far it moves, it changes the economics. And, yes, Dakota wind would then be more economic on that basis; once the cost of transmission is ignored, then Michigan or the East Coast. We don't think that's the right way to look at it.

REP. MARKEY: Yeah, and one of the things that we're really trying to accomplish, obviously, in the Waxman-Markey bill is to generate renewable electricity and renewable energy jobs generally, in all 50 states.

So, Mr. Izzo here has a plan to -- along with many other people in New Jersey, to generate new renewable energy jobs that help with the employment in his company, but in the State of New Jersey as well.

And we don't want to invoke the law of unintended consequences here, and have a great revolution, have a standard that's imposed upon New Jersey, and then not have the jobs created in New Jersey, especially if they have the richest renewable energy resource right off their shore.

Mr. English?

MR. ENGLISH: Mr. Chairman, I think you're making a good point, but I'd also suggest one other thing: That it might make more sense -- in light of the objective of the legislation, and in light of the fact that we're entering into a little different world than we have in the past, that really what we're trying to do here is maximize the amount of renewable energy that we get produced all over this country.

Now, the fact of whether it's produced in one state versus another state, as long as it's the most cost-effective way in which we can produce it, and we can, in fact, make use of it all across this nation, I would think would be the ultimate objective.

Now, I can understand why some folks maybe want to look at this very localized and (it) may be a very parochial thing, but this is a national piece of legislation and we're trying to achieve a national objective, and the thing that's limiting us to being efficient is this transmission system.

REP. MARKEY: Absolutely.

And, by the way, we couldn't agree more on this, okay.

MR. ENGLISH: So, if you're looking at this map, and the fact that we're talking about along the coast and they may have more wind there, then obviously we ought to be looking -- that's where we ought to produce it. And we should use that most cost-effectively, and that's what we -- should be the driver in where we go.

If we can't do that, and we have to do it out in the Dakotas, then fine. Do it in the Dakotas. But, it shouldn't matter whether it's off the coast of Massachusetts or in the Dakotas, as long as we're meeting the nation's needs. And we're going to have a huge amount of power that is going to be necessary to come from renewable energy if we're going to meet these objectives as outlined in the legislation.

And one quick point, I know -- I've got a home down in South Carolina. It's up on a mountaintop. We got a huge amount of wind up there. But, I can assure you, if you try to build a wind generator up on that mountain, you're going to have a lot of people that are going to be very -- they're going to be objecting to it, unlike what you'll find in the Dakotas.

REP. MARKEY: Absolutely.

So, I think the point that Mr. Izzo is making, and Mr. Joos as well, is that using this "postage-stamp" analogy it doesn't cost 47 cents to really move a letter from New Jersey to New York City, okay. It probably costs less. But, the average is 47 cents. So that someone from South Dakota can mail a letter into New York City, and that we have this communications across the whole country. And that's great. We accept that. It's the way it should be.

What Mr. Izzo is saying is that if you do the same thing for electricity, and you make it the same price to transmit electricity in from the middle of America to New Jersey as it would be to bring it in off the coastline of New Jersey, then that's going to undermine the economics of all the projects along the East Coast because it hasn't factored in how much it costs to transmit that electricity 1,500 miles all the way into the East Coast market.

And so the question then becomes, how many new jobs will be created along the East Coast of the United States if there is no incentive any longer -- for Mr. Izzo, because he's almost bound by his obligation to his shareholders to take all of this very inexpensive, but subsidized, electricity coming in from the Midwest?

So, how do we square this circle, Glenn, so that Mr. Izzo, and Mr. Joos, and others aren't disincentivized to produce renewable electricity within their own service areas?

MR. ENGLISH: Broad-based, fair rates. That's basically what you're talking about. The people that are receiving the power -- that are using the power, are paying the cost. That's what it really comes down to.

If you're not talking about mailing that letter from the Dakotas to some other region of the country, and you're talking about instead what it costs to actually mail that letter to that location, that's the real issue that you're coming down to.

REP. MARKEY: And, Mr. Izzo, what would you respond to that?

MR. IZZO: So, I would say that if I look at just this last year alone, the price difference associated with transmitting power from the Plains states to New Jersey, depending upon how busy the transmission waters were, range from $20 to $80 a kilowatt hour --

REP. MARKEY: Mm-hmm. (In affirmation.)

MR. IZZO: -- typically, it was $30 to $40 a kilowatt hour.

That means it would be cheaper for a customer in New Jersey to use a wind farm operating 25 percent of the time than to use a wind farm operating in the Plains 40 percent of the time, because it's the total cost that matters.

If you eliminate transmission, then suddenly the 40 percent time of the Dakota farm looks cheaper, but you've put a burden on the American taxpayer and you've ended our economic development in that region.

REP. MARKEY: Uh-huh.

Well, we want to be fair here, though, right? I mean, that's our goal of the bill, we want to incentivize renewable -- you know, this green energy revolution should be everywhere, not just in certain parts of the country.

So, we need to find a way, then, to make sure that we don't invoke this kind of consequence that undermines economic development in states that have incredible resources indigenous to them. And that's a -- that's a real difficult problem here and something that we have to work through.

I apologize to everyone. I really could spend a whole afternoon with you. And next week I might spend an afternoon with each one of you in working out this issue, because we have to be fair -- we have to be fair. We have a big vision.

But everyone -- every state can actually play a role here. There is actually a role for everyone. And we have to make sure that we render to the East Coast the things that are theirs; the things to the South that are theirs; and the Midwest that are theirs; and the West theirs -- the prairie, the desert.

And, Glenn, even as you were saying you represent 75 percent of the land mass of the United States, there's an ocean mass too (laughs) that is also out there, and we have to --

MR. ENGLISH: (Off mike.)

REP. MARKEY: Excuse me?

MR. ENGLISH: (Off mike.) They do have coastal coops, Mr. Chairman.

REP. MARKEY: No, that's what I'm saying to you. And so this whole --

MR. ENGLISH: (Off mike.)

REP. MARKEY: -- and so I want to make sure those coastal coops are able to go out into the ocean and have the incentive to --

MR. ENGLISH: (Off mike.) I'm with you, Mr. Chairman.

REP. MARKEY: Excuse me?

MR. ENGLISH: (Off mike.) I'm with you.

REP. MARKEY: Yeah, so we have to work out a fair formula.

So, I thank each of you. And we're going to have to stick very close together over the next couple of weeks, so we can have this conversation, and reflect what our national goals are, but with each state, each region; and the history of each state and region -- you know, states that aren't even states, they're commonwealths, whether it be Virginia or Massachusetts, have their own traditions in terms of what lands are sacred, that might not follow the traditional Federal Lands Act, but have just the same impact in terms of the relationship with the history of our states.

So, I thank each of you. And I'm going to turn over the remainder of the hearing to Congresswoman Baldwin, who will bring it to a conclusion. Thank you so much.

REP. BALDWIN: And I don't get to sit in this chair very often, but I won't make you stay long just because I'm enjoying it.

(Laughter.)

First, a quick comment -- and I'm not -- I'm construing or interpreting from some of Mr. Welch's testimony that there's a frustration with some of the planning occurring at state-level process, and one of the things that I would just point out -- and certainly we heard some testimony in the first panel about very successful state-level planning, but if you look at Order 890 in this process, it's really relatively new, and I think I would argue hasn't been yet given the chance to play out.

If you look at the area that I'm most familiar with, the first time MISO Order 890 planning processes were approved by FERC -- and then subject to additional compliance requirements, was on May 15, 2008; and thereafter they had to do a filing in August of 2008; it was just approved on May 20, 2009.

So, you could make an argument that really just three weeks ago this is getting underway, and it's a process that's to be given 12 to 24 months to occur. So, it certainly concerns me to have a characterization of this state and regional planning processes as not being -- as being broken or not working, when really much of the new focus is subject to Order 890, is just underway.

I have one question for the panel with regard to -- it goes without saying that construction of a transmission superhighway will be a money-maker for certain parties involved. And we heard the chairman of FERC testify about the economics of transmission siting and construction, as well as the guaranteed rate of return. And so I guess I'd like to ask you all what role, if any, should these entities, with profit interest, play in the transmission siting and decisionmaking process? How should we appropriately limit, or not, the role that they play?

And, why don't we go from left to right this time, and start with Mr. Miller.

MR. MILLER: Well, I appreciate that question.

That's been one of the most troubling aspects of the planning process in the PJM region. The PJM is essentially, from our perspective, a trade association of utilities who are proposing projects and then ratifying the proposals amongst themselves.

They do not have a -- until very recently, have a process that complies with the FERC Order 890. They were looking only at transmission solutions and not at alternatives. And they do not do the kind of balancing of impacts -- you know, other issues of the public interest that state utility commissions more clearly have authority to do.

So, the current way we do regional transition planning is very disturbing. The owners of the transmission lines propose projects; there's a reactive approval process; and there's no balancing of other considerations, even within the alternative energy solutions like energy efficiency/DSM. They're starting to incorporate those things, but the process is very conservative and very oriented towards producing transmission solutions.

REP. BALDWIN: Mr. Welch?

MR. WELCH: Well, to go to your question, first, you know, the frustration that I feel with the planning process is -- I would agree with you that Order 890 went a long way, but the one thing that we don't have is, in MISO or any of the other RTOs, we don't have full (participation ?) -- (audio interrupts) -- from all of the -- (audio interrupts) -- And, as a result of that, when you're trying to do regional planning you're not going to get to the solution set that you need, number one.

Number two, like when we had problems in 2003 with the largest blackout that affected this country, we finally came to the conclusion that NERC was funded improperly and wasn't independent in their decisionmaking for setting reliability standards.

As a result of that, we changed the way NERC was funded. It reports to FERC; it's funded through an assessment through all the utilities; and that assessment is paid to FERC, who then pays NERC. And, we've taken the financial incentives of the market participants out of the hands of the RTO or, in this case, the Reliability Council.

So, when we talk about independent planning, it's not about some kind of closed-door deal here. It's about getting the financial impacts off the back of the RTOs so that they can do the job that they're there to do.

Then, when we get to that point, you have the question that says, "Hey, who should participate; and what should be the rates of returns that these companies should earn?" I think that the fair thing to say here is that, you know, when you start to build regional projects that everyone's affected by, they should be all participating in as financial investors. This shouldn't be just a one-stop, one-person place, but those people should be part of that investment proposition because they are all there to make the grid work and work in a concert way.

When you build a regional grid you have to have yourself in a position where you can also maintain it. No one company could ever go across thousands of miles, have linemen, line crews, warehouse facilities, and everything that we need. And so it's going to take the participation of all of those people along the route.

But, without everyone being there at the table this gets very tough to do. So, when you get to that point, whatever the FERC sets as just and reasonable, that's what it'll be.

REP. BALDWIN: Mr. Detchon.

MR. DETCHON: Thank you for the question.

Let me suggest a way to think about cost allocation and rate-of- return together. Under the current system private companies enter into agreements to provide transmission, and they go and they raise the capital on the markets to do that. So, as regulators consider that, they have to provide the cost of that, at the high cost of raising that capital; and then a rate of return on top of that.

If the costs are more broadly shared, first of all, you have a guaranteed revenue flow which will reduce the cost of capital to raise the money in the first place. And in the second -- and, therefore, a reduced rate of return to the companies would be justified. So, there would be two ways, by sharing the costs, that you would reduce the cost of building out this transmission, sharing it across a broader range of customers.

REP. BALDWIN: Mr. English?

MR. ENGLISH: We've had many complaints about the fact that it's difficult for electric cooperatives to participate in this process, both because of the size, and the complexity, and the type of expertise that's required to participate independently. But, also, I think a lot of it does come down to the situation that the big entities of the region, quite frankly, are the ones that seem to have the control and the influence, or least they feel that they should. And many of those -- so that basically does not have an all-inclusive, broad participation locally in designing many of the systems that come forward.

So, I think there's much work that needs to be done (on ?) the improvements in that, and, hopefully, we're going to see that in the future. But, we need a broad-based planning system in place.

REP. BALDWIN: Mr. Nipper.

MR. NIPPER: Yes, ma'am.

We would agree with the comments that have been made that it really requires participation by everyone involved -- all that stakeholders. It's varied, in our members' views, among regions -- some a bit better than others. But, it really is necessary that everyone be at the table, and be participating, and that their input be counted.

I will say that, in following up the comment on the RTO and ISO regions, and they vary a bit, as well, among them, but the opportunities to participate in the -- equally participate in the stakeholder process with some of the other stakeholders, for our members, leaves a lot to be desired, I'll say that.

And then I would just, lastly, mention the benefits that I mentioned in my testimony about joint ownership. And if there are opportunities, equal opportunities for folks -- and, again, American Transmission Company is a good example of this, where an opportunity for broad and joint ownership by multiple entities provides planning and other benefits as well.

REP. BALDWIN: Thank you.

Mr. Joos?

MR. JOOS: Well, I might just pick up on something Mr. Miller said.

I think that FERC's incentive policies have created a situation where not only independent transmission companies, but integrated utilities that hold distribution transmission and generation favor investment and transmission for solutions to the problems, even if they're not the most optimum solution. Because, frankly, the rates of return are higher, and the level of risk are significantly lower, than other kinds of investments that might be under state regulatory policy. For example, vis-a-vis, what the FERC has put in place.

So, our concern is, you see a rush to invest in transmission. Now, I want to clarify again there are transmission projects that make sense. And if the make good economic sense, they ought to be supported. I think we have to be careful not to incent investment because of the low-risk/high-return environment vis-a-vis the public interest. And, therefore, I do think broad public planning of some nature is necessary, with broad participation.

REP. BALDWIN: Thank you.

Mr. Izzo.

MR. IZZO: We operate both a regulated transmission and distribution business, and an unregulated generation business. And the regulated transmission business provides reliability 99.999 percent of the times through a regional planning process. It works, and it works well. And that is regulated, and rates are based upon our cost of service. Our unregulated generation business always has to consider the cost of connecting to the grid as part of its investment strategy, and fully bears that cost.

We need to dispel the notion that renewables are not being built because of the transmission system. Renewables are not being built because we're not sending clear price signals. This committee deserves congratulations on doing that through cap-and-trade, and through setting an RES.

And now, at the risk of being a little bit flip, the next thing I expect to hear from people is that "If only we had refrigerated freight trains running free of charge from the North Pole our local supermarket would get its ice cubes from there." It just doesn't make sense to ignore the transportation charges.

REP. BALDWIN: I want to thank all of you gentlemen again for your time, and expertise and your patience.

Before I adjourn I need to ask unanimous consent that two letters from FERC to Chairman Markey are put in the record. Without objection, so ordered.

And, with that, our hearing is adjourned.


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