[Senate Hearing 108-631]
[From the U.S. Government Publishing Office]
S. Hrg. 108-631
SUEDEEN G. KELLY NOMINATION
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
ON
THE NOMINATION OF SUEDEEN G. KELLY TO BE A MEMBER OF THE FEDERAL ENERGY
REGULATORY COMMISSION
__________
JUNE 8, 2004
Printed for the use of the
Committee on Energy and Natural Resources
______
U.S. GOVERNMENT PRINTING OFFICE
96-177 WASHINGTON : DC
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
DON NICKLES, Oklahoma JEFF BINGAMAN, New Mexico
LARRY E. CRAIG, Idaho DANIEL K. AKAKA, Hawaii
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
CRAIG THOMAS, Wyoming BOB GRAHAM, Florida
LAMAR ALEXANDER, Tennessee RON WYDEN, Oregon
LISA MURKOWSKI, Alaska TIM JOHNSON, South Dakota
JAMES M. TALENT, Missouri MARY L. LANDRIEU, Louisiana
CONRAD BURNS, Montana EVAN BAYH, Indiana
GORDON SMITH, Oregon DIANNE FEINSTEIN, California
JIM BUNNING, Kentucky CHARLES E. SCHUMER, New York
JON KYL, Arizona MARIA CANTWELL, Washington
Alex Flint, Staff Director
Judith K. Pensabene, Chief Counsel
Robert M. Simon, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
C O N T E N T S
----------
STATEMENTS
Page
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 3
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 1
Kelly, Suedeen G., Nominated to be a Member of the Federal Energy
Regulatory Commission.......................................... 4
APPENDIX
Responses to additional questions................................ 9
SUEDEEN G. KELLY NOMINATION
----------
TUESDAY, JUNE 8, 2004
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:04 a.m. in
room SD-366, Dirksen Senate Office Building, Hon. Pete V.
Domenici, chairman, presiding.
OPENING STATEMENT OF PETE V. DOMENICI,
U.S. SENATOR FROM NEW MEXICO
The Chairman. The committee will come to order. I wonder if
you would go ahead and take a seat, please, Suedeen.
Good morning, everyone. Ms. Kelly, I welcome you back to
our committee so that we may consider your nomination for an
additional term as commissioner of the Federal Energy
Regulatory Commission. While your first term, which concludes
on June 30, has been brief since you were filling an unexpired
term of a former commissioner, I note that you are generally
regarded as conscientious and diligent in the performance of
your duties.
The rules of the committee which apply to all nominees
require that you be sworn in connection with your testimony.
Please rise and raise your right hand. Do you solemnly swear
that the testimony that you are about to give to the Senate
Committee on Energy and Natural Resources shall be the truth,
the whole truth, and nothing but the truth?
Ms. Kelly. I do.
The Chairman. Please be seated. Before you begin your
statement, I'll ask you three questions that are always asked
of our nominees. Would you be available to appear before the
committees of the Congress and other Congressional committees
to represent departmental positions and respond to issues of
concern to the Congress?
Ms. Kelly. I will, Mr. Chairman.
The Chairman. Are you aware of any personal holdings,
investments, or interests that could constitute a conflict or
create the appearance of such conflict should you be confirmed
and assume the office to which you have been nominated by the
President?
Ms. Kelly. My investments, personal holdings, and other
interests have been reviewed both by myself and the appropriate
ethics counselors within the Federal Government. I have taken
appropriate action to avoid any conflict of interest and there
are no conflicts of interest or appearances thereof to my
knowledge.
The Chairman. Are you involved or do you have any assets
held in blind trust?
Ms. Kelly. No.
The Chairman. We'll move now to opening statements from
other members who may wish to make them. I assume that you
would like to make a statement, Senator Bingaman.
[The prepares statement of Senator Dorgan follows:]
Prepared Statement of Hon. Byron L. Dorgan, U.S. Senator
From North Dakota
I want to thank the Committee for holding this hearing and
reconfirming Ms. Kelly in such an expeditious manner. Ms. Kelly has
served the Commission well and will continue to play a vital and
pivotal role as the Federal Energy Regulatory Commission (FERC) moves
forward in the coming years to secure our energy needs and ensure
consumer protections and reliability.
While commending Commissioner Kelly on the job she has done since
last November, I also want to bring her attention to a developing
situation at FERC. This issue involves some FERC jurisdictional
utilities and the contracts they entered into with non jurisdictional
utilities. As the Commissioner may know, the Midwest Independent System
Operator (MISO) recently proposed an Open Access Transmission and
Energy Market Tariff (EMT). While understanding the need to provide a
more efficient and reliable transmission infrastructure, I am concerned
about the way this EMT will be implemented. As you will recall, the
issue of Standard Market Designs (SMD's) was debated during
consideration of the comprehensive energy bill, and it was ultimately
decided that FERC would not implement any SMD's for 5 years. While this
energy measure remains stalled in the Congress, it does shed light on
Congress's view of SMD's.
Before MISO was formed, over 300 contracts were entered into
between jurisdictional and nonjurisdictional utilities. Since that
time, many of these jurisdictional utilities have joined MISO and
deposited their transmission assets for MISO to operate. There is a
concern that MISO is trying to abrogate these contracts and force
utilities within the MISO region to join MISO either directly or by
default. It troubles me when the government intervenes into a
contractual situation that has been negotiated between two private
parties. These contacts were negotiated to facilitate jointly
delivering electricity to the utilities in an efficient and reliable
manner with cost savings to each.
Additionally, the implementation of this EMT could have significant
price increases to consumers, especially those citizens living in rural
areas of my state. If these contracts have to be renegotiated, some of
the additional costs that were not included in the original contracts,
including congestion costs, marginal losses and administrative costs
will need to be put into the new contracts. Ultimately, I am concerned
consumers will get stuck with the bill.
During the West Coast energy crisis a few years ago, FERC refused
to abrogate ``over-priced'' California wholesale contracts entered into
under duress, citing the sanctity of contracts and the importance of
settled expectations. However, FERC, apparently in the MISO case, is
willing to abrogate over 300-grandfathered agreements in the MISO
region. These grandfathered agreements have served both jurisdictional
and non jurisdictional utilities very well. These longterm contacts
were negotiated to facilitate jointly delivering electricity to the
utilities in an efficient and reliable manner with cost savings to
each.
FERC seems to be pushing a Standard Market Design (SMD) through
MISO over the objections of a large percentage of stakeholders in the
region and MISO appears to see the grandfathered agreements as an
obstacle to moving forward.
While I don't want you to comment on ongoing proceedings, there is
an important broad policy here on which I think you can and should
comment.
QUESTIONS
1. Do you believe that grandfathered agreements, on which
transmission customers rely for access for reliable, reasonably priced,
power should be given at least as much protection as the Commission
gave to the high-priced wholesale power contracts in California?
2. Do you believe that long-term transmission agreements between
jurisdictional and nonjurisdictional utilities should be changed
because an RTO wants to initiate an energy market concept?
3. FERC has been pressing forward with implementation of its
Standard Market Design (SMD) aggressively, especially through MISO.
However, there remain significant concerns about costs associated with
this effort. Will you undertake a serious effort to evaluate the costs
and benefits of the SMD model prior to its implementation?
STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW MEXICO
Senator Bingaman. Thank you very much, Mr. Chairman, for
holding this hearing.
I am very pleased to make a short statement in support of
Suedeen Kelly's nomination to a full 5-year term. As you
recall, she was confirmed by the Senate last November and has
only been in the position she now holds for a little over 6
months. I think it is very important that she be approved for a
full 5-year term so that she can continue in that position. Her
current term expires at the end of this month.
She had a very impressive record of public service while in
New Mexico, first as an attorney with the public utility
section of the attorney general's office, then as a member, a
commissioner, and then chairwoman of the New Mexico Public
Service Commission. Of course, she taught at our law school. I
thought last year the President made a very good choice in
nominating her for this position and I am very pleased with the
job she is doing. I think everyone who works with her is very
impressed with the talent, experience, and dedication that she
has brought to the position.
So I commend you again for holding this hearing and I hope
we can move very expeditiously to report her nomination to the
full Senate and get her confirmed for a full term. Thank you.
The Chairman. Thank you.
Senator Bingaman, you mentioned that the President
nominated her. I want to also acknowledge that you recommended
her, and I appreciate that. I was pleased to encourage the
administration to proceed and so she is here.
I have about seven questions. Most of them have to do with
reliability and a few related things. But I think I will submit
them to you so that you can answer them. I would hope you would
expedite those because, as I understand it, we ought to be
approving you rather quickly. We cannot do that today. In a
couple of weeks you should have these answered and we will have
all of them here, and then we will confirm this, you will go on
the calendar, and we hope there will not be any delays there
because you are a sitting commissioner.
I think that Senator Nickles also may have a question. I
should have it, I apologize. He told us what it was, but we do
not have it.
So with that, unless you have something else, Senator
Bingaman.
Senator Bingaman. I think just any statement she would
have.
The Chairman. That is correct. It is your turn to tell us
what you are going to do. I was going to not even let you
speak. Go ahead, ma'am.
Ms. Kelly. Thank you, Mr. Chairman. I am prepared to say a
few things.
The Chairman. I was kind of in a hurry to get you out of
here. But go ahead.
TESTIMONY OF SUEDEEN G. KELLY, NOMINATED TO BE A MEMBER OF THE
FEDERAL ENERGY REGULATORY COMMISSION
Ms. Kelly. I will speak quickly.
Mr. Chairman, Senator Bingaman. I am honored to appear
before you today and I would like to express my appreciation to
President Bush for the confidence he has placed in me. I know
that the committee has a full agenda of issues, so I am
especially grateful to you, Mr. Chairman, and to your staff for
scheduling the hearing expeditiously.
I would like to thank Senator Bingaman for the support and
the friendship he has provided me for over 20 years, and I
would note that I learned a significant amount of energy law
working for him when he was attorney general for the State of
New Mexico.
I have served as a Commissioner for 6 months now and I
found the Commission staff to be very impressive. I have
brought five of my personal staff members with me. They are
experts in their field, very hard-working and dedicated to
serving the public interest.
I have appreciated also Chairman Wood's handling of matters
that come before the commission. He seeks open discussion and
consultation with me as well as the other commissioners.
The pace at FERC is challenging and there have been some
significant developments in energy policy since I began serving
on the Commission. In the area of reliability, many initiatives
have begun. In April, shortly after the U.S.-Canada Power
System Outage Task Force issued its final report on the August
14, 2003, blackout, FERC took several actions designed to
increase the reliability of the country's interstate
transmission grid.
The Commission addressed the need to expeditiously modify
the North American Electric Reliability Council's, NERC's,
reliability standards in order to make them clear and
enforceable. Priority matters that need to be handled by the
NERC standards include vegetation management on transmission
rights of way, transmission operator training, and adequacy of
operator tools. NERC is working on coming up with mandatory
reliability standards by January 2005 and the Commission is
very supportive of this effort.
FERC and NERC also agreed that by June 20 of this year NERC
would undertake audits of the reliability readiness of 20
control areas in the United States. These chosen control areas
serve 80 percent of the U.S. electricity load.
FERC has also announced that it expects public utilities to
comply with reliability standards, stating that the commission
interprets the phrase ``good utility practice'' that is present
in most tariffs for transmission service to include compliance
with reliability standards.
FERC has also ordered all transmission owners to report on
the status of their vegetation management practices by June 17
and based on this information FERC will report to Congress on
this matter.
In the natural gas arena, FERC remains concerned that
natural gas supplies are going to be tight this year in
relation to demand. Since the fall of 2003, FERC has authorized
12 natural gas pipeline projects to increase deliverability of
gas in the United States, 4 gas storage projects and 2
liquified natural gas projects. I would like to note that four
of the projects will allow access to additional natural gas
supplies in the Rockies and there are pending 11 project
applications that would do the same thing.
Finally, in the area of hydroelectricity, FERC, before I
joined the Commission, adopted the Integrated Licensing
Process, which is a new process option for the licensing and
relicensing of hydrologic facilities. Its goal is to expedite
the licensing process through better coordination with the
processes of the other Federal and State agencies with
responsibilities in licensing as well as through increased
public participation during the pre-filing phase.
ILP provides for the development by the applicant of a
Commission-approved plan of studies and encouragement of
informal resolution of disagreements at the beginning of the
process. Since November, I am pleased to report that seven
licensees have chosen this option for the processing of their
applications, and I am hopeful that the process will indeed
provide applicants and the public with a more efficient and
satisfactory way to handle their license and relicense
requests.
In closing, Mr. Chairman, I thank you for the opportunity
to appear before you today and if confirmed I will endeavor to
serve the public with diligence, concern, and responsiveness to
the many energy challenges the country will be facing in the
next 5 years.
Thank you.
[The prepared statement of Ms. Kelly follows:]
Prepared Statement of Suedeen G. Kelly, Nominee to be a Member of the
Federal Energy Regulatory Cmmission
Chairman Domenici, Senator Bingaman and distinguished members of
the Committee, I am honored to appear before you today as a nominee for
Commissioner of the Federal Energy Regulatory Commission (FERC). I
would like to express my appreciation to President Bush for the
confidence he has placed in me. I know that this Committee has a full
agenda of issues, so I am especially grateful to Chairman Domenici and
his excellent staff for scheduling this hearing expeditiously. I would
like to thank Senator Bingaman for the support and friendship he has
provided me for over twenty years. I learned a significant amount of
energy law working for him when he was Attorney General for the State
of New Mexico. He hired me to work in the office he set up to protect
the interests of New Mexico's residential and small business consumers
in public utility matters.
I have served as a Commissioner for six months now. I have found
the Commission's staff to be very impressive. They are experts in their
field, very hardworking and dedicated to serving the public interest. I
have appreciated Chairman Wood's handling of matters that come before
the Commission. He seeks open discussion and consultation with me as
well as the other Commissioners. The pace at FERC is challenging, and
there have been some significant developments in energy policy since I
began serving on the Commission.
In April, shortly after the U.S.-Canada Power System Outage Task
Force issued its final report on the August 14, 2003, blackout, FERC
took several actions designed to increase the reliability of the
country's interstate transmission grid. The Commission addressed the
need to expeditiously modify the North American Electric Reliability
Council's (NERC) reliability standards in order to make them clear and
enforceable. Priority matters that need to be handled by the NERC
standards include vegetation management on transmission rights-of-way,
transmission operator training, and adequacy of operator tools. NERC is
working on coming up with mandatory reliability standards by January
2005. The Commission is very supportive of this effort. FERC and NERC
agreed that by June 20, 2004, NERC would undertake audits of the
reliability readiness of twenty control areas in the United States.
These chosen control areas serve 80% of the U.S. electricity load. FERC
has also announced that it expects public utilities to comply with
reliability standards, stating that it interprets the phrase ``good
utility practice'' that is present in most tariffs for transmission
service to include compliance with reliability standards. Thus,
violation of good reliability practices will amount to violation of the
utility's FERC tariff, and the Commission will consider taking utility-
specific action on a case-by-case basis to address significant
reliability matters. FERC has also ordered all transmission owners to
report on the status of their vegetation management practices by June
17th. Based on this information, FERC will report to Congress on this
matter.
In the natural gas arena, FERC remains concerned that natural gas
supplies are going to be tight in relation to demand. Since the Fall of
2003, FERC has authorized twelve natural gas pipeline projects, four
gas storage projects and two liquefied natural gas projects. Four of
the projects will allow access to additional natural gas supplies in
the Rockies.
Last year, before I joined the Commission, FERC adopted the
Integrated Licensing Process (ILP), a new process option for the
licensing and re-licensing of hydroelectric facilities. Its goal is to
expedite the licensing process through better coordination with the
processes of the other federal and state agencies with responsibilities
in licensing, as well as through increased public participation during
the pre-filing phase. ILP provides for the development by the applicant
of a Commission-approved plan for studies of project impacts on
environmental resources and encouragement of informal resolution of
study disagreements, backed up by a formal dispute resolution process.
Since November, I am pleased to report that seven licensees have chosen
this option for the processing of their license applications. I am
hopeful that the ILP process will indeed provide applicants and the
public with a more efficient and satisfactory way to handle their
license and re-license requests.
In closing, I thank you for the opportunity to appear before you
today. If confirmed, I will endeavor to serve the public with
diligence, concern and responsiveness to the many energy challenges the
country will be facing in the next five years. I look forward to any
questions you may have.
The Chairman. Thank you.
On the pipeline issue and the liquefaction, could you tell
us about the liquefaction? You said there were two. What does
that mean and where are they?
Ms. Kelly. There were two LNG projects that were approved
last fall. They were actually approved right before I arrived
at the Commission. One is the expansion of the Trunkline LNG
Import Terminal at Lake Charles, Louisiana, and the other is a
new LNG import facility at Cameron, Louisiana, that provides
capacity for 19.6 Bcf of LNG storage and sendout capacity of
2.7 Bcf of regassified LNG.
There were also two pipeline approvals that FERC issued in
the last several months for pipelines from the Bahamas to
Florida associated with LNG facilities in the Bahamas. The
United States--FERC does not have jurisdiction over the
facility itself, but we approved the pipelines.
The Chairman. In the Bahamas?
Ms. Kelly. In the Bahamas.
The Chairman. That would be--the United States has no
regulatory agency that has anything to do with the Bahama site?
Ms. Kelly. Mr. Chairman, I am not certain if it would be
the Coast Guard that would be involved in that or not. But the
Bahama government, the Bahamian government, is involved in the
approval process.
The Chairman. I got you.
With reference to the regular pipeline--let me stay on
liquefaction for a minute. Does the local community have any
input before you approve such things? I know this one, these
two LNG's, were approved before you, but could you tell us--I
think you would know. I understand it is not so easy now in
various parts of the Nation to get a liquefaction, an LNG plant
built; is that correct?
Ms. Kelly. Mr. Chairman, there have not been any built in a
while. We do have approximately seven other proposed terminals
pending before us, and the process is very inclusive of public
participation. FERC is responsible for the NEPA assessment and
for ensuring that the facility as it is planned will be safe.
We have a memorandum of understanding with the Department
of Transportation as well as the Coast Guard, and we work
cooperatively with them to ensure that all aspects of the
import of LNG and the regassification are safe and that the
environmental impacts are fully analyzed before any approval is
given.
The Chairman. Those two that are in Louisiana, would their
product just go in the gas lines that are there?
Ms. Kelly. That is correct.
The Chairman. So wherever we put them, an LNG plant, once
they produce the gas it is the same as any other and if the
pipelines accommodate that is where they will go?
Ms. Kelly. That is exactly right. Actually, we do have an
initiative at FERC right now to ensure that the LNG that is
imported is interchangeable with U.S. domestic gas that is in
the pipeline. The Natural Gas Council has convened an industry-
wide collaborative initiative to come up with a process for
ensuring that everything is interchangeable.
The Chairman. Thank you very much.
I forgot to have you introduce your daughter, who is here.
Ms. Kelly. Thank you, Senator.
The Chairman. Would you do that, please.
Ms. Kelly. Yes. With me is my daughter, Vickie Kelly.
Vickie, last Friday, finished her first year of medical school
at the University of New Mexico. So I am very happy that she
could come to be with me today.
My other daughter, Katherine, is not with me. As we speak,
she is sitting in a classroom at summer school at the
University of Pennsylvania. She tells me that she is taking her
laptop to class, that she has gone to the web site, she is
following the webcast, and that her professor has no idea that
she is watching television instead of taking notes.
[Laughter.]
I also have some friends of the family with me: Ian
Medlock, who is from Thousand Oaks, California, and a graduate
student at the University of New Mexico; and Tim Reynolds from
Newport Beach, California, who is a senior at the University of
Pennsylvania.
Mr. Chairman, if I might introduce my staff.
The Chairman. Let us go.
Ms. Kelly. Thank you. Carrie Blocker, my secretary; Donna
Glasgow, my confidential assistant; Rahim Amerkhail, my
economic advisor; Maria Vouras, my legal advisor; and Laura
Vallance, my legal advisor.
Mr. Chairman, I also have a number of friends and
colleagues in the audience and I would just like to acknowledge
them and thank them for being here.
The Chairman. Very good.
Senator Bingaman.
Senator Bingaman. Mr. Chairman, I have no questions.
Ms. Kelly. Thank you, Senator.
The Chairman. All right. We stand in recess.
[Whereupon, at 10:19 a.m., the hearing was adjourned.]
APPENDIX
Responses to Additional Questions
----------
Federal Energy Regulatory Commission,
Office of the Commissioner,
Washington, DC, June 14, 2004.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: Enclosed are my responses to questions for the
record of your committee's June 8 hearing to consider my reappointment
to the Federal Energy Regulatory Commission for the term expiring June
30, 2009.
If you have further questions or need additional information,
please let me know.
Sincerely,
Suedeen G. Kelly.
[Enclosure.]
Questions from Senator Domenici
Question 1. As you noted in your testimony, since December of last
year, FERC has taken a number of steps to address electric reliability
matters. Are you supportive of NERC as the lead organization on
reliability matters until mandatory reliability rules are in place?
Answer. NERC is currently undertaking several initiatives on
reliability matters, and I am supportive of them and of NERC being the
lead organization regarding them. For example, in response to the Final
Report of the U.S.-Canada Power System Outage Task Force on the August
14, 2003 Blackout, NERC is working to replace its existing reliability
standards with standards that are clearer and will be enforceable. NERC
expects to adopt an integrated set of new reliability standards by
February 2005. In addition, NERC is reviewing the reliability readiness
of reliability coordinators and the major control areas. NERC plans to
complete the 20 highest priority reviews by June 30 of this year. The
operators that will be audited by NERC serve over 80 percent of North
America's electric load.
Question 2. There is some debate about how an Electric Reliability
Organization should be funded to ensure independence. Can you describe
for us the funding models under consideration and tell us how you would
ensure that non jurisdictional utilities as well as Canadian and
Mexican transmission owners participate in the funding?
Answer. FERC has assembled a staff task force and directed it to
explore all possible options for funding an Electric Reliability
Organization to ensure its independence in relationship to the entities
whose actions it will oversee. FERC asked the task force to conduct its
study and report its findings to the Commission as expeditiously as
possible. The task force is currently working on this project.
I will work to ensure that all transmission owners pay their fair
share of the costs necessarily incurred by an effective Electric
Reliability Organization. I am hopeful that all non jurisdictional,
Canadian and Mexican transmission owners will be willing to enter
voluntarily into binding agreements to participate fairly in the
funding. I am willing to work with the Electric Reliability
Organization to achieve this goal.
Question 3. FERC has been supportive of utility cost recovery for
reliability-related expenditures. A significant percentage of
utilities' transmission revenues are recovered through state-approved
charges. How does FERC plan to work with the states to ensure that
reliability costs are fully recovered?
Answer. Since I have been at the Commission, FERC has embarked on a
series of reliability initiatives. One of them is a new, comprehensive
liaison effort with government, as well as industry, leaders to foster
better electric reliability across North America. We have begun
reliability-related outreach efforts with the National Association of
Regulatory Utility Commissioners, which is the organization of state
utility regulators, as well as with Natural Resources Canada, the
Canadian provincial regulators, the Department of Energy, the Nuclear
Regulatory Commission, NERC and representatives from the electric
industry. This is the effort we will use to work with the states to
help ensure that utilities' prudently incurred reliability costs are
fully recovered.
Question 4. Do you believe that the business model of a vertically
integrated utility can coexist with competitive wholesale markets and
RTOs?
Answer. Yes, I do. Although a vertically integrated utility
structure can present a situation where a utility affiliate operating
in the competitive market could benefit unfairly from preferential
treatment by the utility, I believe that the Commission's rule
prescribing standards of conduct governing the relationship between
transmission utilities and their energy affiliates goes a long way
toward eliminating this potential for abuse. The Commission's standards
of conduct rule was adopted in November 2003 and clarified and
reaffirmed in April 2004.
Question 5. How would you envision the balance of roles for the
states, FERC, and the RTOs in overseeing the planning and acquisition
of generation resources to serve native load?
Answer. States have primary responsibility for ensuring that their
utilities acquire generation resources sufficient to serve native load.
RTOs have a role in planning for the adequacy of transmission in a
region. Because transmission is the means of getting generation
resources to load and because transmission and generation are sometimes
alternatives for providing electricity to load, transmission planning
is inevitably tied to generation planning and location. Therefore, RTOs
will have a coordination role in regional planning for generation
adequacy; and states, in turn, would likely benefit from receiving
regional resource adequacy information from RTOs when the states are
looking at generation adequacy. I do not believe RTOs should be in the
business of acquiring generation resources, although I would hold out
the possibility that an exception might be made to this rule in the,
hopefully unlikely, situation of a generation emergency that for some
reason cannot be adequately addressed by the affected state. Finally,
in carrying out its statutory responsibilities under the Federal Power
Act to approve acquisitions and mergers if they are in the public
interest, and to ensure that rates are just and reasonable in reviewing
contracts for wholesale sales of power, FERC may be required to look at
the acquisition of generation resources.
Question from Senator Nickles
Question 1. As you are aware, the recent OG&E case regarding market
power and the acquisition of generation facilities has caused some
controversy at the Commission. Parties to the case have filed
settlement plans with the Administrative Law Judge and FERC has stepped
in to expedite the appeal of the case. Can you tell me what the
expected timeline is for resolution of that matter?
Answer. Chairman Wood, in his role as motions Commissioner,
referred both OG&E's settlement offer and Intergen's competing
settlement offer to the full Commission for consideration on May 10 and
May 18, respectively. The Commissioners are currently giving this
matter their full consideration, and I am hopeful that we will issue a
decision quickly. I understand the importance of this case to the
people of Oklahoma and your desire to have it settled as expeditiously
as possible.
Questions from Senator Dorgan
Question 1. Do you believe that grandfathered agreements, on which
transmission customers rely for access for reliable, reasonably priced,
power should be given at least as much protection as the Commission
gave to the high-priced wholesale power contracts in California?
Answer. I believe that grandfathered agreements, like the high-
priced wholesale power contracts you reference, should be protected as
written unless there is record evidence that the contracts are unjust
and unreasonable, unduly discriminatory or preferential or contrary to
the public interest pursuant to the Federal Power Act.
Question 2. Do you believe that long-term transmission agreements
between jurisdictional and non jurisdictional utilities should be
changed because an RTO wants to initiate an energy market concept?
Answer. I do not believe that the Commission should change the
terms of long-term transmission agreements unless there is substantial
evidence in the record that the contracts are unjust and unreasonable,
unduly discriminatory or preferential or contrary to the public
interest pursuant to the Federal Power Act.
Question 3. FERC has been pressing forward with implementation of
its Standard Market Design (SMD) aggressively, especially through MISO.
However, there remain significant concerns about costs associated with
this effort. Will you undertake a serious effort to evaluate the costs
and benefits of the SMD model prior to its implementation?
Answer. Yes. In fact, the Commission recently requested specific
evidence from MISO and its Market Monitor regarding the benefits,
including any reliability benefits, of the MISO's proposed congestion
management system. In determining whether to approve this proposal, I
will give careful consideration to the costs and benefits of
implementing it, as well as to all other facts in the record developed
at the Commission.
Questions from Senator Cantwell
Question 1. As you know, the Western electricity crisis of 2000-
2001 has left my region with deep economic scars. We are still paying
the price for the schemes of Enron and other unscrupulous actors in the
market, which conspired to drive up prices and gouge our consumers.
People in the State of Washington are shocked and disgusted by the
evidence that continues to surface, demonstrating the brazen and
despicable attitude of the Enron traders, who knew they were
essentially ``stealing from Grandma Millie'' while the crisis was
unfolding. As you probably know, I have proposed legislation (S. 2015,
the Enron Act) that would--based on securities law that has been on the
books for 50 years--put in place a broad statutory ban on manipulative
practices in our nation's electricity markets. Further, it would
declare rates resulting from market manipulation ``unjust and
unreasonable'' under the Federal Power Act. This language has
previously passed the Senate with 57 votes. Personally, I believe that
FERC already has authority to take a strong stand against market
manipulation. But by making this ban explicit, this legislation would
leave no doubt in the mind of FERC or the energy industry that Congress
will no--t abide the types of Enron schemes we saw in California, and
would eliminate the inevitable legal challenges. Do you support
legislation, such as the ENRON Act, that would make explicit a ban on
manipulation in our nation's electricity markets?
Answer. Yes. I agree with the goals of S. 2015, the Electricity
Needs Rules and Oversight Now (ENRON) Act. This legislation would
significantly enhance the Commission's authority to prohibit market
manipulation, and I support it.
Question 2. I think there is one other piece of electricity-related
legislation that Congress must pass this year before we adjourn:
electric reliability legislation. The Northeast-Midwest blackout last
summer caused an estimated 50 million consumers and businesses in the
Northeast and Midwest to lose power-in some cases, for up to four days-
and cost Americans an estimated $4 billion to $10 billion as a result
of lost economic activity. Therefore, I think adjourning this year
without passing legislation to make reliability standards mandatory and
enforceable would be nothing short of irresponsible. Here in the
Senate, we have a tripartisan reliability bill--S. 2236--with 30
Senators as cosponsors. I think it is very unfortunate that it is being
held hostage to broader politics surrounding the energy bill conference
report. In the very least, passing stand-alone reliability legislation
now would serve as an insurance policy--in the very likely event no
consensus is reached on comprehensive energy legislation. Do you agree
that Congress should pass stand-alone reliability legislation as soon
as possible?
Answer. It is my hope that Congress acts swiftly to pass
legislation to make reliability standards mandatory and enforceable in
whatever fashion Congress finds appropriate.