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Hearing of Senate Committee on Energy and Natural Resources on Power Generation Resource Incentivesand Diversity

Location: Washington, DC

Hearing of Senate Committee on Energy and Natural Resources on Power Generation Resource Incentivesand Diversity

Senator Salazar. Thank you, Senator Alexander and Senator Bingaman. Thank the members of the panel for your presentation today.

Let me also just acknowledge Wayne Brunetti and your work in Colorado and your efforts on the implementation of Amendment 37. As you know, Amendment 37 is something that we are mutually supportive of in Colorado, and it does create an RPS in Colorado with 10 percent renewable energy required to basically be in place by the year 2015. And I appreciate the public comments of support that you have made, and look forward to seeing that program implemented in the years ahead.

I am a supporter of renewable energy, frankly, because I think it makes sense from an economic point of view, an
environmental point of view, and it helps, at least to a small degree, lessen our over-dependence on foreign oil.

I would ask, Mr. Brunetti, for you to just comment to the panel on how it is that we are moving forward with the
implementation of Amendment 37 in Colorado, and how your company, that delivers much of the power within our State, is
moving forward to try to get to that 10 percent threshold.

And then, while I'm asking--while you're answering that question, I would just ask a second question to Assistant
Secretary Garman, so you can be answering it. I want to ask you why it is that what we have done in Colorado--has been done in many States, including Texas and New Mexico--isn't really something that we ought to be doing at a national level. Every time that I have dealt with industry on natural resources and energy issues in my professional life, there's always a sense
that industry would rather be subjected to one set of regulatory standards, as opposed to 50 different sets of programs that we establish around our country. And so, it makes sense for us to develop something, from my point of view, that might be able to bring more coherence to what we're doing all across the country, as opposed to leaving many of the RPS standards to be pushed by initiated measures, where we're going to have 50 different sets of programs within each one of the 50 States.

So, Wayne, if you will answer my question first, and then perhaps Secretary Garman.

Mr. Brunetti. Thank you, Senator.

For the committee's information, Amendment 37 was a ballot initiative that was passed in November in Colorado that
mandated a renewable standard. The legislature in Colorado, for the past almost 3 years now, has been dealing with a renewable portfolio standard which our company has supported. We've found ourselves in an awkward position of opposing Amendment 37, because it had some poorly drafted language. That's the only reason.

We have since, with the help of the environmental community, passed through committee some amendments to that
Amendment 37 which will make it, certainly, easier to implement, but doesn't change the standard, itself, in Colorado.

We have also announced, in Colorado, that we went out with an RFP for 500 megawatts. Because the production tax credit has a limitation by the end of this year, we were not able to secure enough resources to be in production by the end of the year. We've tailored that back. Hopefully--and I encourage Congress, please, to extend this over a longer period of time,
because it takes time to site--get the developers in there, site these facilities; and, with a short window, it's very difficult. But we will meet that standard there, as well as four other states that we serve that have renewable standards in it.

Senator Salazar. Mr. Brunetti, is it, in your mind, being an expert in electrical generation, feasible to do what we're
doing in Colorado in other states across the country?

Mr. Brunetti. Not the same kind of program, no. It would not work. One of the reasons I put that chart up is because you
have to look at the resources available, by region. For instance, if we had a standard like that in the Southeast, I
don't--if I was running a utility in the Southeast, I wouldn't know how to go about implementing it, at all, unless you expand--broadly expand the definition of what a renewable resource is. And that's what I suggest by my written testimony.
But you have to expand it, because they just don't have the availability for wind, and even solar, if you look at the solar
charts on it, it's just not there.

Where we serve--Colorado, the Dakotas, Minnesota, Texas, and New Mexico--there's great resources available. So we can
take advantage of that, but I don't know how some of my colleagues could ever do that, without expanding the

I just want to make one comment. I think--let's think about this from a business point of view. What problem are we trying
to solve? And is it a security problem? Is it an environmental problem? Or, as was suggested, is it to help technologies
develop? I would say--I would lean toward the first two, it's--environmental and energy security is what the policy should
concentrate on.

Senator Salazar. Secretary Garman.

Mr. Garman. Thank you, Senator Salazar.

And my answer to that question largely follows on the heels of what my colleague here said. As this map illustrates, the
distribution of renewable resources across the country is very uneven. And a single ``one size fits all'' federally-mandated
standard would tend to create winners and losers, if you will, or wealth transfers. There are ways you can try to design a
national standard to diminish those impacts; but, in general, the winners would be the regions that have ample renewable
energy resources, and the losers would be those regions without. And, inevitably, you'd have some kind of trading
mechanism where funds would flow from those that have--or from those that don't to those who have. It's the short answer.

Senator Salazar. If I may--I know my time is up, but just to push you a little bit on that question--the reality of it is that, in the same way that Amendment 37 has happened and the same way that we have an RPS in Texas and in many of these
other States, inevitably, I think what we're going to see across this country is going to be the phenomenon where groups
are going to get together, they're going to put these measures on the ballot, they're going to push legislatures to move them
forward. So you're going to have programs that are like Amendment 37 in most of our States around the country, but each
one of them is going to be different.

Could we craft something that would be a Federal RPS that would provide the kind of flexibility within it that would
recognize the diversity of renewable sources from region to region or from State to State?

Put it this way, if I were in Wayne Brunetti's shoes, and I was the CEO of his company, and I knew that I had to comply
with one RPS out of Colorado and another one out of Texas and another one out of any of the other States that he works in, it
would cause me some difficulty, I think, in terms of managing my compliance with these multiple RPS standards.

Mr. Garman. That would be true, but retail electricity sales are largely regulated at the State level today, so he's
already having to deal with a multiplicity of State regulators. So I don't know that this gains him a whole lot. But I would
let him answer that on his own.

Senator Salazar. Thank you.


Senator Salazar. Yes. This is just for any member of the panel who would wish to comment on this. But, as we talked
about these renewable energy sources and the different kinds of renewable energy that are out there--solar, wind, biomass--do a couple of you want to take a stab at giving, to me and to the members of the panel, which ones of those are the most
promising to pursue?

I think the administration should go first.

Mr. Garman. Yes, sir. And, as you know, your State is home to the National Renewable Energy Laboratory, where many of
these technologies are under development, we're quite excited about the potential of a number of them.

Wind has tremendous potential. And one of the things we're looking at to ameliorate the concerns of Senator Alexander and
others who are concerned about the aesthetic impact of wind turbines on hilltops, is to develop new wind turbine designs--
and this work is underway at the National Renewable Energy Lab--to allow wind turbines to be placed in areas of the
country with lower wind speeds. And this is a long-term effort. We'll still have aesthetic issues, because these turbines will
be even larger than the turbines we have today. But if they can be placed in a less sensitive spot, where aesthetics are less
of a concern, then wind has tremendous potential.

We also think that wind has tremendous potential offshore, perhaps even in some areas of the country out of sight of the
shoreline, so that the electricity can be generated, but without the visual impact. And we think that has tremendous
potential, particularly in the Northeastern United States, where electricity prices are quite high and there is a
tremendous wind resource offshore, much of it in shallow water, where we can place wind turbines and send that power to shore.

And, similarly, I'm bullish on the long-term prospects of solar. If we are successful in our target of developing 6 cent/
kWh electricity by 2020, which is what we're working on at that lab in Golden, Colorado--if we're successful, then I don't know
that we'll have to have a lot of discussions about renewable portfolio standards or other mandates to force people into a
behavior; I think people will be choosing renewable energy because it's the cheapest source available to them by that

So, those are our hopes. That's what we're bullish on. That's what our R&D program is targeted for. And we're grateful
for the support that we've received for that program from this committee, and the Congress, as a whole.

Senator Salazar. Where are you with respect to ethanol and biomass energy?

Mr. Garman. Ethanol, again, has potential if we start to think beyond the ethanol that we derive from corn. We generate
about, I believe, 3.4 billion gallons of ethanol a year from corn, but we use 135 billion gallons of gasoline. We can't
offset a lot of petroleum with ethanol from corn. However, if we are successful in bringing down the cost of ethanol derived
from cellulosic materials and other waste products, such as corn stover, rice straw, wheat straw, other things that would
normally be left in the field or thrown away, even some forms of municipal solid waste, if we're successful in doing that--
and that work is also underway at the National Renewable Energy Lab--then we could make a sizable dent--say, 40, 50 billion
gallons a year--in our gasoline use.

Senator Salazar. I would ask your continued support of NREL in Colorado, because I do think it is one of the facilities
that has great promise for showing us a future that we need to find.

My time is not quite yet up, but does anybody have any other thoughts, in terms of what that portfolio of renewable
energy sources should be, in terms of the possibility of any of the different components that David Garman spoke about?

Mr. Brunetti. Senator, from a practical standpoint, we have to, once again, look at what surrounds you and what's available
to you. And, from our perspective, wind is--in those States that we serve, is the number one source. And one of the issues
with wind is that, where the wind blows, there's no load, so transmission is an incredible--an important issue. That was
part of the energy bill, dealing with the transmission issue. I encourage you to keep that in the energy bill, viability--
building more transmission--encouraging more transmission. But besides wind in our portfolio, conservation is a big
part of our program approach to dealing with environment--particular environmental issues. And load control is also a
very important part of our particular portfolio, particularly in Minnesota, growing in Colorado, not so much in the southern--the states that we serve.

We've tried some other programmed approaches. They're not at the economic point now. We work--I had my whole team down to NREL about 2 months ago, looking at some different program approaches. I also encourage Congress to keep supporting NREL, because it's a terrific lab.

Senator Salazar. Thank you.


Senator Salazar. Thank you very much, Senator Alexander.

And thank you, as well, to the panelists for giving us such diverse perspectives on the issue of the RPS.

My question is to you, Don Furman. Mr. Furman, you heard the comments from another energy producer, Mr. Bowers, where he comments that we ought not to have a national renewable energy portfolio standard. And, as his argument goes, and the argument of Mr. O'Shaughnessy and some of the panelists from before, the view is that we have such diversity across the Nation, in terms of what is available for renewable energy sources, that it would make no sense to have this national standard that has been dealt with by this Senate before. How would you respond to Mr. Bowers, Mr. Furman?

Mr. Furman. Thank you, Senator Salazar.

A couple of ways. One is, while there is a lot of diversity across the country, there are renewable resources in almost
every part of the country. The Southeast has a lot of renewable resources in the form of biomass. And I'm not just talking
about the potential of burning--co-firing biomass in large power plants; there are, you know, specifically--specific
designed plants that will burn biomass much more efficiently.

I think the other thing that is frequently missed is the concept of a national trading system. If you were to put in place--I mean, from our standpoint, the benefits of an RPS are that it creates a platform in which you can allow market forces
to work. And if every utility has a requirement to either acquire renewable resources or acquire the credits from others
who do, you create a market-based solution where only the most cost-effective, the most environmentally sound projects will
get built. That's in contrast to the system we have right now with tax credits, which, besides the fact that they're
politically undependable--let me just put it that way--the other problem is, every--you know, a wind plant on top of the
Smoky Mountain National Park is going to get the same tax credit as a wind plant in the middle of Wyoming that nobody's
going to see. And I think one of the thing is that we would see in a--with an RPS and combined with a trading system is that
you would be able to smooth out those inequities across the country.

Senator Salazar. And, Mr. Furman, how would you respond to this notion and reality that we're dealing with that we have 18
States that have already passed a renewable energy standard? And I'm sure there are many more States on the way. Mr.
O'Shaughnessy's own State is pursuing that. So how--what are the practical implications of having 50 different sets of those
kinds of standards around the country to a power generating company like yours?

Mr. Furman. For us, it's particularly difficult. And we're a little bit different from some of the other multi-state utilities, in that we're not a holding company with operating companies. And I won't go into the technical aspects of that. But, essentially, we are subject to an RPS currently imposed by the State of California. We serve northern California. We don't have an RPS in the State of Utah. Utah considered an RPS, but they've made a policy decision not to require that. And yet our six State system serves all six of those States, and we recover our costs through State regulation in all six of those States.

We have not faced this yet, but one of the nightmares that we are concerned about is, we comply with an RPS mandate in one State, and another State says, ``Wait a minute, I didn't tell you to do that. I'm not going to allow you to recover those
costs.'' And, again, I want to emphasize, we haven't gotten to that point with our State commissions, but it's not hard to
imagine that sort of a situation emerging.

I guess a corollary to that, if I could continue, is that I think this is a national issue. And that's what I tried to emphasize in the beginning of my remarks. And, for that matter, the whole issue of carbon is a global issue. And it is something that I think is suitable to national policy. And rather than having 50 different State legislatures making 50 different polices, it just makes a lot of sense to me, from a public policy standpoint, in adhering to principles of federalism, that the Federal Government would, you know, be the one to step forward and establish policy.

Senator Salazar. Mr. Bowers, to make sure that we give you equal time, from your point of view, why are the comments that
Mr. Furman talked about in error? You don't believe we ought to have a national RPS, and you talk about the uniqueness of the Southern, or Southeastern, part of the Nation. Tell us why you think he's wrong.

Mr. Bowers. Well, I would add that the transference of credit trading--our job, in the Southeast, is to add generation
resources that provide power for our local customers. And to pay penalties under--or buy credits from other parts of the
country transfers funds to those regions without adding a single kilowatt to serve our customers.

We do believe that local--in contrast to a national issue, we think the whole renewables discussion should be done at the
State level. It's about a regional availability of the regional resources available to a local utility company, and, I think,
best served at the State level.

Senator Salazar. Does it bother you that perhaps--and this'll be my last question, Mr. Alexander; I see my time is up--that, within your own region of service, that, over time, you may end up having three or four different sets of standards that you're having to deal with, based on what happens within the respective states that you serve?

Mr. Bowers. Sir, we already operate across four States, and we have to deal with four state commissions. And so, we're
pretty accustomed to dealing with the issues in different states.

Senator Salazar. Okay. Thank you.

Senator Alexander. Thank you, Senator Salazar.

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