[Senate Hearing 109-674]
[From the U.S. Government Printing Office]
S. Hrg. 109-674
MARC SPITZER NOMINATION
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
on
THE NOMINATION OF MARC SPITZER TO BE A MEMBER OF THE FEDERAL ENERGY
REGULATORY COMMISSION
__________
JUNE 28, 2006
Printed for the use of the
Committee on Energy and Natural Resources
_____
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30-787 PDF WASHINGTON : 2006
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
RICHARD BURR, North Carolina TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri DIANNE FEINSTEIN, California
CONRAD BURNS, Montana MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia KEN SALAZAR, Colorado
GORDON SMITH, Oregon ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky
Bruce M. Evans, 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
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STATEMENTS
Page
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 1
Kyl, Hon. Jon, U.S. Senator from Arizona......................... 2
McCain, Hon. John, U.S. Senator from Arizona..................... 1
Murkowski, Hon. Lisa, U.S. Senator from Alaska................... 6
Salazar, Hon. Ken, U.S. Senator from Colorado.................... 8
Spitzer, Marc, nominee to be a Member of the Federal Energy
Regulatory Commission.......................................... 4
APPENDIX
Responses to additional questions................................ 17
MARC SPITZER NOMINATION
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WEDNESDAY, JUNE 28, 2006
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:30 a.m., in
room SD-366, Dirksen Senate Office Building, Hon. Pete V.
Domenici, chairman, presiding.
OPENING STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM
NEW MEXICO
The Chairman. Will you please come to order. Senator
Bingaman has authorized me to start in his absence. He
indicated that he will be here very shortly, so I will proceed.
The committees will come to order.
We are here this morning to consider the nomination of Marc
Spitzer to be a member of the Federal Energy Regulatory
Commission. Before we begin, our colleagues, Senator McCain and
Senator Kyl, have asked to make a few remarks. We will start by
asking Senator McCain to proceed and will be followed
immediately by Senator Kyle.
Senator McCain.
STATEMENT OF HON. JOHN McCAIN, U.S. SENATOR
FROM ARIZONA
Senator McCain. Thank you very much Mr. Chairman and thank
you for allowing me and my friend, Senator Kyle, to introduce
Marc Spitzer of Arizona who has been nominated for a membership
position on the Federal Energy Regulatory Commission, known as
FERC.
Mr. Chairman, I've known Marc Spitzer for more than 20
years. During that time, I have had the opportunity to witness
first-hand his professional expertise leadership and personal
commitment to the public service. His integrity for the
Municipal Act, along with his broad experience and ability has
a consensus builder are just a few of the attributes he would
bring to the FERC.
He served as a member of Arizona Corporation Commission
with honoring distinction over the past 6 years and as chairman
for 3 years. He has presided over several cases of national
significance and throughout his career he has promoted a pro-
market philosophy while making sure that Arizonans received
reliable, affordable and safe utility services. His public
service and understanding of the watering power generation and
supply sector, has contributed much to the benefit of Arizona
consumers and producers. I am confident that he would be a
great asset to the Commission.
Before he served on the Arizona Corporation Commission, he
had a distinguished career as an attorney and an Arizona bar-
certified specialist in tax law. In 1992 he was elected by the
Arizona State Senate where he served his term in the judiciary
and finance committees. The respect he commended among his
colleagues and his dedication to citizens of Arizona earned him
a position of Senate Majority Leader in 1996. In that capacity,
Marc Spitzer established a strong legislative record as an
advocate of consumer protection and tax relief and reform.
I'd like to thank the Committee for allowing me to be here,
and I urge your careful and favorable consideration of this
fine man. He's a person of exceptional ability and experience
who is recognized among Republicans and Democrats alike as a
leader and energy expert. Our Nation's energy future is at a
crucial juncture and it's essential that the FERC position be
filled by an experienced and astute leader like Marc Spitzer.
Mr. Chairman, just two additional points I'd like to make.
I know of the chairman's commitment on nuclear energy issue.
Marc Spitzer [inaudible] having been the last nuclear
powerplant constructed in the United States. Marc Spitzer
brings a great deal of expertise and knowledge about this
particular successful utility and power generating
establishment in our city of Phoenix. So he is very well-versed
in the issue of nuclear power and an interest at full
disclosure, and I hope the chairman will not to hold it against
him. He has been involved in a number of my political campaigns
for which I hope the chairman will be forgiven.
I thank the chairman for allowing me to be here today.
Thank you, Mr. Chairman.
The Chairman. Thank you very much Senator and that will all
be taken into consideration. I don't know what the outcome will
be.
Senator Kyl would you proceed please.
STATEMENT OF HON. JON KYL, U.S. SENATOR FROM ARIZONA
Senator Kyl. Thank you Mr. Chairman. Let me associate
myself with the remarks by my colleague, Senator McCain in
support of Marc Spitzer and perhaps just add a few other quick
comments.
In his position as the Senate Majority Leader in the
Arizona State Senate, he occupied the same position that
Justice Senator O'Connor before him occupied and it was said
with her sentencing to the Supreme Court that gave her a
special understanding of the legislative process, the role of
the legislators in our Government here in Washington, and I
think throughout her years on the Court, she demonstrated that
experience, that life experience of hers, brought a unique
perspective, and I think the same thing is true of Marc
Spitzer. It's hopeful I think that FERC which is an
administrative, a crazide judicial, but an administrative body,
had that kind of experience represented on her and Marc Spitzer
brings that perspective to the Commission.
And second, the kinds of issues that he has dealt with are
very similar to the kind of issues that he will have to deal
with on FERC. Let me just mention a few. During his time as
chairman of the Arizona Commission, we focused on policies
which encouraged expansion of the natural gas infrastructure.
Specifically, distribution and storage, creating a demand side
management policy enhancing the Commission's renewable standard
and advancing consumer privacy concerns in the
telecommunications area. He presided over very contentious
issues such as the planning and the permitting of new
transmission line sites and for electric generation. Cases
arising from the California energy crisis came up during his
tenure as chairman. A major rate cases for gas, electric and
telecommunication companies and the Qwest communications' entry
into the long distance market which was a very large issue at
the time. He as chairman was noted for balancing all of these
interests while ensuring that Arizonans received safe and
economical and reliable utility services. And I believe he will
bring that experience to the FERC as well. So, he is a person I
think is uniquely qualified to serve in this position and along
with Senator McCain, I urge the committee's favorable and
speedy consideration of his nomination.
The Chairman. Thank you very much. We thank you both for
your remarks.
Now, Mr. Spitzer, do you have members of your family that
are present?
Mr. Spitzer. Yes, I do.
The Chairman. Would you please introduce them if you would
like.
Mr. Spitzer. I would certainly. Thank you, Mr. Chairman.
Present behind me seated is my wife, Jacque; my mother, Edie
Spitzer from Philadelphia; a close personal friend of the
family, Len Barkan; and my brother also from Philadelphia, John
Spitzer. Thank you, Mr. Chairman.
The Chairman. You are all welcome to the hearing and your
genuine abiding interest in this nominee certainly is helpful.
Are there any Senators who wish to make opening statements
or submit them for the record?
Now we will proceed under the rules of the swearing in. The
rules of the committee which apply to all nominees require that
they be sworn-in in connection with their testimony. Would you
please rise and raise your right hand please.
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?
Mr. Spitzer. I do.
The Chairman. Please be seated.
Before you begin your statement, in accordance with our
rules, I need to ask you three questions that we ask each
nominee that comes before us for confirmation. Please respond
separately to each question.
Will you be available to appear before this committee and
any other congressional committees to represent Departmental
positions and respond to issues of concern to the Congress?
Mr. Spitzer. I will.
Are you aware of any personal investments or holdings or
interests that could constitute a conflict or create an
appearance of such a conflict should be confirmed and assume
the office to which you have been nominated by the President?
Mr. Spitzer. Mr. Chairman, 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
conflicts of interest. There are no conflicts of interest or
appearances thereof to my knowledge.
Are you involved or do you have any assets held in blind
trust?
Mr. Spitzer. No.
The Chairman. Now with those questions having been
completed, we're going to proceed and have you give your
remarks, and we will have questions and I assume if nothing
changes, I will be the only one who will have questions which
means the Senators will submit them in writing and you will
respond to them quickly so we can confirm you quickly.
Mr. Spitzer. Thank you, Mr. Chairman.
The Chairman. With that, will you please give your remarks
to the committee as to why we should confirm you to the job the
President has nominated you for.
Please proceed.
TESTIMONY OF MARC SPITZER, NOMINEE TO BE A MEMBER OF THE
FEDERAL ENERGY REGULATORY COMMISSION
Mr. Spitzer. Thank you, Mr. Chairman. With the preceding
statements of my Senators from Arizona, I feel that I've sat
through my own funeral eulogy, but I have submitted the written
testimony, and I will very briefly summarize, Mr. Chairman.
Mr. Chairman, I'm greatly honored to be before this
committee this morning. This is a busy time at the Senate and I
appreciate the committee holding this hearing today. I will be
very brief again in summarizing my testimony.
Along the many people who have supported me over the years
and in this endeavor, I particularly acknowledge Senator McCain
and Senator Kyl for their support today. I cannot begin to
express my thanks and appreciation for the confidence the
President of the United States has shown in me by nominating me
to this important position.
Service on the FERC is a challenging and exciting
opportunity. I have been fortunate to have had wonderful
educational, employment and public service opportunities. I was
born and raised in the Commonwealth of Pennsylvania and
educated at Dickinson College and the University of Michigan
law school, and I am grateful to those institutions. I was
trained in law by a brilliant lawyer and a wonderful man, Jim
Powers. I have also learned much from my colleagues and the
staff of the Arizona Legislature and the Arizona Corporation
Commission.
Finally, I could not have accomplished very much without
the loving and patient support of my wife, Jacque.
The efforts of this committee have borne fruit in the 2005
Energy Policy Act. Chairman Kelliher and Commissioners Bromwell
and Kelly have been working hard to implement its provisions.
The FERC now has an historic opportunity to enhance energy
infrastructure, strengthen wholesale markets and protect
consumers. It's a great honor to be considered and nominated to
this position and if confirmed, I very much look forward to
sharing in that historic opportunity. I look forward, Mr.
Chairman, to responding to the committee's questions and I
thank you very much.
[The prepared statement of Mr. Spitzer follows:]
Prepared Statement of Marc Spitzer, Nominee to be a Member of the
Federal Energy Regulatory Commission
Mr. Chairman, Senator Bingaman and members of the Committee, I am
greatly honored to appear before you this morning and appreciate your
consideration of my nomination to serve on the Federal Energy
Regulatory Commission (FERC). There are many individuals whose support
in this endeavor I appreciate, but I must especially acknowledge and
thank Senator McCain and Senator Kyl for their support today. I cannot
begin to express my thanks and appreciation for the confidence the
President has shown by nominating me to this position and for the
wonderful opportunity it provides to serve our Country. I would also
like to acknowledge the loving support of my wife, Jacque.
If confirmed, I pledge to bring a balanced perspective to the FERC,
based on my educational and geographical background and professional
experience. After being born and raised in Pennsylvania and attending
Dickinson College in the East, I journeyed to the Midwest to attend law
school at the University of Michigan. In 1982, I moved to Arizona to be
an attorney at an established Phoenix law firm, where my practice
focused on Federal income taxation. In 1987, I was certified as a
Specialist in tax law by the State Bar of Arizona. I continued to
practice law as a partner in that firm until 1997 when I joined a ``Big
Five'' accounting firm as a tax attorney. I have practiced as a sole
practitioner since 2001 and have maintained my credentials as an
attorney and tax law specialist while in public service.
I have always felt a desire to serve society and contribute
meaningfully to my community. This led me to seek election to the
Arizona State Senate in 1992 where I subsequently served as Chairman of
the Finance and Judiciary Committees and was ultimately selected by my
peers to represent them as Senate Majority Leader. As an elected
legislator, I quickly learned to listen to all of my constituencies and
that wise and effective government requires a careful balancing of
competing interests. In my leadership capacities, I was required to
manage people and personalities, mediate issues, and always exercise
good judgment within the political framework. Having authored
legislation, I am deeply respectful of the legislative process. During
my tenure at the Arizona Senate, I had the experience of working on
energy, tax and environmental issues. Of all the issues I dealt with, I
felt these offered the greatest potential benefits to our community.
In 2000, I was elected to the Arizona Corporation Commission. The
Arizona Commission is one of several state regulatory bodies subject to
popular election. In addition to exercising limited regulatory power
over corporations, it is entrusted by the State Constitution with broad
regulatory authority over public utilities. As Commissioner, I sit in
judgment on contested cases and settlement proposals and render
decisions by applying the law to the facts in specific cases. In my
capacity as Commissioner, I am called upon to interpret and follow the
State Constitution and the intent of the Legislature. Further, my
decisions are based upon a written record that documents evidence
presented and established at a contested hearing presided over by an
administrative law judge. During my tenure on the Arizona Corporation
Commission, I have made many difficult decisions, including increasing
customers' rates and siting generation and transmission facilities. I
am proud to have the reputation as one who treats all parties equally
under the law and pride myself on my ability to listen with an open
mind to all sides before rendering a decision.
As Chairman of the Arizona Commission from 2003 to 2005, I presided
over major proceedings involving electricity, natural gas, water,
securities and telecommunications issues. As a Commissioner, I have
been attentive to ratepayer concerns and compassionate in the face of
rising utility costs. As a trained attorney, I deeply respect the law
and recognize legal limits on regulatory authority. If confirmed, I
believe my financial and tax background would be an asset to the
impressive array of skills which already exist at the FERC.
The Arizona Constitution mandates that the Commission on which I
currently serve ensure reliable utility services at just and reasonable
rates. But the Arizona Constitution also requires the Commission to
authorize a fair rate of return for the retail utilities. Meeting these
potentially divergent goals has been challenging in an era of rising
energy prices. I believe our Commission has met those challenges by
supporting critical infrastructure, including pre-approval of gas
pipeline capacity and storage, and siting power plants and transmission
lines. The Arizona Commission has also tackled the difficult task of
balancing competing interests in setting retail rates for electricity
and natural gas. While raising rates is never pleasant for a utilities
regulator, elected or otherwise, it is imperative and ultimately in the
consumers' best interests that the regulated utilities--public, private
and co-operative--remain financially viable.
If confirmed, I would welcome the opportunity to bring my
experience to bear on the many interesting and challenging issues that
are before the Federal Energy Regulatory Commission. By enacting the
Energy Policy Act of 2005 (EPAct 2005), Congress wisely provided a
framework for increasing the supply of energy and diversity of energy
resources. EPAct 2005 also builds upon demand side management and
energy efficiency strategies. In Arizona, our Commission simultaneously
addressed these issues at the retail level. Implementation of
Congressional intent at the wholesale and national platforms would be a
daunting, but exciting task.
By enacting EPAct 2005, Congress has given the Commission new
authorities and tools that will help ensure just and reasonable prices
and guard the reliability of the Nation's transmission grid. I commend
Chairman Kelliher and the rest of the Commission. Their efforts and the
fine work they have done after EPAct 2005 prove that Congress' trust
was well placed. I hope that you will give me an opportunity to assist
the Commission in carrying out its responsibilities under the law and
to ensure that the ratepayers of our Nation receive reliable power at
affordable prices.
In closing, my broad experience in public service in both the
Arizona legislature and the Arizona Corporation Commission provides me
with an appreciation of the governmental process and the need for the
various public bodies to work together to achieve successful results.
Further, my experiences regulating the energy industry have prepared me
well for the great responsibilities with which I would be entrusted, if
confirmed. Being born and raised in the East, educated in the Midwest
and practicing law and serving in public office in Arizona have given
me a wider perspective than would be the case if I were familiar with
only one geographic area of the Country.
I thank you very much for your time and consideration and welcome
any questions you may have.
The Chairman. Thank you very much, sir. Two Senators have
arrived, one from each side of the aisle. The first one having
arrived from the State of Alaska. Would you like to inquire or
comment? We will start with the Senator from Alaska and follow
with the Senator from Colorado.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman and thank you
for allowing this hearing to proceed so quickly. I think it's
significant that for the first time in many years, we might
possibly have a full Commission on the FERC and recognizing
what we did through this committee and through this Congress in
passing the Energy Act last year. We put a great deal on the
plate of the FERC and so it's important that the Commission be
rounded out. I had the opportunity yesterday to meet with the
nominee, Mr. Spitzer and speak to him about some of the issues
that I was particularly concerned with. I wanted to bring up
just one this morning, Mr. Spitzer. It's probably not going to
be any surprise to you, but it relates to natural gas. We had a
chance to discuss the situation in my State of Alaska and, as
you know we have some 35 trillion cubic feet on Alaska's North
Slope, with hopefully another 150 trillion cubic feet awaiting
discovery. The potential for enhancing and increasing our
domestic reserves is certainly there, but as with any resource,
we've got to figure out a way to get it to market.
Our Alaska legislature is reviewing the terms of a contract
as we speak and we're hopeful that we will see very positive
movement in the near future on that.
My question to you this morning is from the perspective of
importance to the Nation as a whole, how important is it to
this country to have additional domestic supplies of natural
gas coming into the market down here in the north ordinate.
Specifically, how important is it to get Alaska's natural gas
to America?
Mr. Spitzer. Mr. Chairman, Senator, thank you very much.
That's a good question. We in Arizona have struggled with high
price of natural gas and there is an old saying, ``don't put
all your eggs in one basket,'' and electricity is increasingly
being generated by natural gas. In Arizona more natural gas
goes into generation of electricity than heating homes which is
a very interesting and striking fact.
We need to do what we can to increase supply. There are
limits to reducing demand of natural gas, so the main issue is
on the supply side. I am not saying LNG within the deployment
of natural gas is not an alternative, but again to put all your
eggs in one basket doesn't seem to be the right choice.
Senator Murkowski. Could you speak a little bit more to the
issue of imported LNG and your recognizing that you mentioned
from Arizona's perspective, focusing on the infrastructure and
the distribution of storage aspects and you certainly have some
background there. How wise is it for us as a Nation to be
looking to imported LNG to meet this growing demand?
Mr. Spitzer. Well Mr. Chairman, Senator, clearly the supply
issue is largely controlled by the Congress at the Federal
level, and it would not be in the realm of a State
commissioner, nor a FERC Commissioner. But my experience in
Arizona suggests that LNG can be problematic. There were
tankers headed towards the United States that, based on price
volatility, changed direction when there was a crisis in Europe
and made delivery to England. So we were without a supply in
that circumstance. In the case of long-term fixed contracts,
some of the producers in very volatile, turbulent areas of the
world are requiring 20-year fixed contracts. The consequence
would be trillions of dollars leaving the United States to
foreign countries. So again, my hopefully not overly simplistic
approach of not putting all your eggs in the basket is to keep
diversity of fuel for generation of electricity. In the natural
gas area, we seek the same diversity with regard to production.
Of course in Arizona we have no coastline, so natural gas
travels via pipes. You and I had the opportunity to discuss the
issue of a pipeline capacity, which is a very important matter,
and FERC has siting authority over pipelines.
Senator Murkowski. And we had discussions, Mr. Chairman
about some of the aging infrastructure that we have in this
country and the recognition as to FERC's role in overseeing so
much of it. If we're going to be able to meet the demand, we
have to have that infrastructure capacity.
Mr. Chairman, again I appreciate that you are having this
hearing. Mr. Spitzer, I appreciate your comments and your
recognition that we do need to have a diversified portfolio of
our energy needs and more importantly, that we must focus on
the domestic side first so we don't have that exposure, that
vulnerability that we have seen certainly with oil. We don't
want to go down the same path with natural gas as we currently
are with oil and our very heavy dependency on foreign
resources. Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Salazar.
STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR
FROM COLORADO
Senator Salazar. Thank you very much Chairman Domenici and
congratulations to you Mr. Spitzer on your nomination and
congratulations as well to your family.
Mr. Spitzer. Thank you, Senator.
Senator Salazar. Let me make a comment and just ask a
question. I continue to believe that one of the finest moments
of the 109th Congress when its looked back in history will be
the work that this committee did last year in putting together
an energy bill which had eluded the Congress for a very, very
long time, and even though there are critics of the bill on
both sides, I strongly continue to defend the bill because I
think it was the right step and it would not have happened
without the bipartisan leadership that we saw in this committee
from Senator Domenici and Senator Bingaman. And so I am proud
of that work of the 109th Congress.
I have a question with respect to wind energy and other
intermittent supplies of the electricity that we might see
coming onto the grid and the Order to which has been proposed
by FERC, Order 888. It's my understanding that historically
there have been excessive transmission tariff penalties on
intermittent generators such as wind-powered facilities and
that has worked to the disadvantage of these intermittent
producers of energy. The proposed Order by FERC, Order 888,
would eliminate that disadvantage to our wind power, and I
would like one, to ask you if you're familiar with that
proposed Order and number two, generally, what your
philosophical approach would be to wind power?
Mr. Spitzer. Thank you Senator. I am familiar with that
Order and because the Order may ultimately come before the
FERC, it would not be appropriate for me to express an opinion
on the merits so not to prejudge it. However Senator, while an
Arizona commissioner for four years we worked tirelessly on a
renewable energy standard of which wind energy is a valuable
component. We have purchased, Mr. Chairman, wind energy from
New Mexico and look forward to wind energy from other parts of
the West being imported into Arizona and having Arizona export
some of its wonderful solar energy to create a Western market
for renewable energy.
The issue of transmission has been a hindrance to the
creation of the west-wide renewable market, and so it's
important from a philosophical point of view that wind have
equal access to the market. You referred, Senator, to the issue
of intermittent resources and the question as to whether some
of the tariff imbalance penalties under the current framework
are to the disadvantage of wind. If confirmed as a FERC
Commissioner, I will give very careful attention to that matter
and balance the competing interests. The competing interest on
the one hand is access to the market by wind generators.
Normally, these generators are non-utility private projects,
but that access to the market needs to be balanced against the
interests of the transmission owners and the reliability of the
system.
So, I look forward to paying very careful attention to the
competing interests in reaching a good result.
Senator Salazar. Thank you, Mr. Spitzer. Will you expound
just a little bit on the program that you alluded to that you
have been involved in Arizona for your taking some of the great
sun that hits Arizona producing solar-generated electric power
and then importing into Arizona some of the wind power from New
Mexico?
Mr. Spitzer. Yes, Senator. In fact, there are non-FERC
jurisdictional entities that have entered into contracts to
purchase wind energy from New Mexico. In an Arizona Public
Service rate case that we decided, we imposed a renewable
provision into that agreement. So Arizona Public Service went
out to market and acquired wind from New Mexico. What I think
is appropriate is for States to reach their own conclusions on
their own renewable standards. I know that we have a very
strong bi-partisan consensus in our legislature with regard to
solar energy by virtue of the fact that we have 310 days of
sunshine. The sun is shining today in Washington, which is
good. We ultimately think there could be great benefit from a
west-wide market including the great State of Colorado, but
there will be additional transmission enhancements needed. I
would point out that in addition to the FERC's responsibility,
the Western Governors' Association has convened a number of
working groups on green trading and green credits. There's
something called the Frontier Line that has been proposed that
would help the transmission of both renewable and coal from
jurisdictions such as Colorado and Wyoming into the very fast
growing areas of the Southwest. Those are the type of
consensual approaches the Governors are working on. The State
commissions working with the FERC, I think would be very
beneficial.
Senator Salazar. Well I appreciate your comments and look
forward to your service. Thank you very much.
Senator Menendez. Thank you Mr. Chairman. Mr. Spitzer,
congratulations on your nomination to you and your family. I
was very interested in seeing your biography at your greatest
achievements and so I don't know if you know that it says at
the bottom of your greatest achievement here.
Mr. Spitzer. I certainly do, Senator.
Senator Menendez. It is not a trick question, but I am
proud to see what your greatest achievement is and happy to see
you here today. I want to pursue a particular interest that
those of us in New Jersey and many other parts of the Northeast
have. The people of New Jersey like so many others around the
country are facing much higher electric bills this year because
of the high cost of natural gas and other fuels and just like
last week, New Jersey tax payers began paying over 12 percent
more, which is bad but as not as bad as it could have been
because the State's competitive auction gets them much better
prices than neighboring States.
But the auction system can't work without a vibrant,
effective and competitive region of power market and so my
question is, if you're confirmed, will you work to ensure that
regional markets in the Mid Atlantic, in the Midwest, the
Northeast, all of which are critical to power consumers in my
State, grow and thrive and can you help guarantee that as many
competitive generating companies as possible get access to a
reliable open transmission grid so that we can--so that they
can compete to provide our constituents with electric power?
Mr. Spitzer. Thank you Senator. In terms of wholesale
competition, that is a mandate of the Congress and the FERC is
directed to follow the law and follow that mandate and provide
for competitive wholesale markets. At the same time Senator, I
absolutely agree with you. In Arizona we had a competitive
auction that saved Arizona ratepayers $150 million by providing
that the utility company purchase power through a competitive
solicitation. That was very successful in Arizona. It sounds
from your statement that the same success for ratepayers
occurred in the State of New Jersey. I know that in some
regions of the country there has been resistance to regional
transmission organizations. In other parts of the country, they
have been embraced, such as in your State.
You may get some confidence from the fact that I grew up
across the river in Philadelphia, and I look forward to having
competitive markets to the benefit of ratepayers throughout the
country.
Senator Menendez. Well I appreciate that answer. The open
transmission grid system to a State like New Jersey which is a
main point of our electricity is incredibly important, and our
regional transmission system has done an excellent job of
operating a competitive market and maintaining the reliability
of the grid was one of the reasons we didn't have the real
consequences of the blackout of 3 years ago as such a
significant problem for us. It could have been without this
effort, so it's my hope that we won't backslide on the gains
we've made.
And one other question, we have as a State and I'm sure
others as well, an interest and I heard some of your responses
to Senator Salazar, so I am pleased by what I hear. Seeing the
development of renewable sources such as solar power, wind
power and demand side resources such as energy efficiencies a
means to diversify our resources and reduce our dependence on
foreign oil, the State has now created a huge boom in solar
power thanks to a number of incentives to homes and businesses,
and I have been told by a number of suppliers of energy
efficiency devices and renewable sources, that a competitive
wholesale power market is the key to stimulating new markets
for energy efficiency and renewable resources. Is that
something that you agree with and will you work as a member of
the Commission to further development of competitive markets
and enable these alternative energy sources to grow and develop
in States like my own?
Mr. Spitzer. Thank you Senator. New Jersey has done a
fabulous job on solar energy, and we in Arizona in crafting our
rules, Senator, looked to New Jersey as a model. And each State
is obviously going to craft its own renewable rules. I am
particularly proud of the Demand Side Management Program that
the Arizona commission implemented when I was chairman, through
Arizona Public Service, which is a way of modulating demand
off-peak to use the least expensive, least cost resource and
avoid the most expensive peaking power. Then there was energy
efficiency that you alluded to Senator, which is a means of
reducing energy demand by using devices that consume less
electricity. They both are laudable. I think the great benefit
that the FERC would employ with regard to renewable generation,
and indeed traditional generation, is a reliable electric grid
and that is of course a mandate of the 2005 Energy Act. The
FERC is working on that currently and putting a great deal of
effort into making sure that the grid is reliable and robust to
serve as a vehicle for getting energy to market.
Senator Mendenez. Thank you. I look forward to supporting
your nomination.
Mr. Spitzer. Thank you, Senator.
The Chairman. Thank you Senator, now Senator Bingaman has
some questions.
Senator Bingaman. Mr. Spitzer, congratulations to you and
it's good to see you again. I am sure you will be a great
addition to the Commission, and I look forward to your service
there. Let me ask you just about one section of the Energy
Policy Act that we passed last year. This is section 203, that
gave the Commission new authorities and new obligations in the
review of mergers and acquisitions and dispositions of public
utility assets. In that section we tried to replace to the
extent that we could the protections for utility customers and
for the competitive markets that were lost with the repeal of
the Public Utility Holding Act. I supported the repeal of the
Public Utility Holding Act, but I did so with the assurance
that these new provisions would be there and would be
implemented. To me, the key new provision was the requirement
that FERC in approving such mergers and acquisitions should
make a determination that the proposed merger or acquisition
would not result in cross-subsidization of a non-utility
associate company and would not result in the pledge or
encumbrance of utility assets for the benefit of an associate
company. It seemed to me that at the time the only way that his
obligation could be fulfilled would be for the Commission to
impose some strict structural rules for these inter-affiliate
transactions in an emerged company, and that was the way I was
envisioning it.
The Commission, however, has now issued a rulemaking which
is not final, but it purports to implement this section, this
section 203 and in my view, it requires something far different
than what I had in mind. The Commission provides that a section
203 applicant, that's some utility who wants to engage in a
merger or acquisition must provide an explanation with the
appropriate evidentiary support of how it's providing assurance
that the proposed transaction will not result in cross-
subsidization of an associate company or encumbrance of asserts
for the benefit of the associate company. So it's true to an
extent that we will know exactly how these protections against
cross-subsidization and encumbrance of assets will work, but we
won't know until cases have actually been brought and the new
rules have been applied, the way I read what the Commission's
has now proposed. I talked of this section I have been
describing here with sort of a heart of the agreement by which
Congress agreed to repeal the Holding Company Act and I think
it's very important for consumers to be protected in the
future. Could you explain any thoughts you have about how this
approach to protecting consumers might work? How we can be
assured that consumers are protected from the kinds of behavior
that have occurred in recent years stemming from the abuse of
these inter-affiliate relationships? I have in mind
particularly the collapse of utilities like Allegany Electric
and West Star. Those are examples which I think we're all
familiar with and any thoughts you have on that subject, I
would be anxious to hear.
Mr. Spitzer. Thank you, Senator. I want to be careful not
to express an opinion on the pending rulemaking that I may be
called to vote upon, so not to prejudge that matter. But I will
Senator, respond to this very interesting question. In general
terms, one of the most interesting cases I've ever dealt with,
including 6 years on the commission, 14 years in public service
and 24 years as an attorney, was the proposed acquisition of
Unisource, the parent company of Tucson Electric Power by KKR.
That transaction was being considered by the commission of
Arizona at the same time the Texas Pacific matter was pending
before the Oregon commission. In both cases the transactions
were denied as not in the public interest by State utility
commissions. So the Westar case was not relevant. We delved
into the details of the cases, but the decision was made based
on State law. The protection of consumer interests and the
particularly salient issues of cross-subsidization and asset
impairment were crucial in both cases. In both cases there's a
term of art used called ring fencing.
The Chairman. Called?
Mr. Spitzer. I'm sorry, Mr. Chairman?
The Chairman. Called what?
Mr. Spitzer. Ring fencing is the State commission's
authority to build a ring fence around utility assets to
prevent cross-subsidization, to prevent from an economic point
of view, earnings of the utility company being diverted to non-
utility separate investments of the holding company. And Oregon
was described as having the gold standard of ring fencing, and
in fact, Portland General Electric survived the Enron collapse
even though it was a subsidiary of Enron because of the ring
fencing in Oregon Law and so it proved very beneficial. In the
Kansas--in the Westar case--there was not authority for the
Kansas commission to impose ring fencing on Westar. Such
authority was granted by the legislature only after closing the
barn door after the horses had bolted, but many jurisdictions,
I think most jurisdictions have some sort of ring fencing
provision. As we went through the process in Arizona, and I
followed the process in Oregon, it seemed to me that the State
commission taking testimony with witnesses sworn under oath and
subject to cross-examination and intervention by the parties
including the commission staff, including the Residential
Utility Consumer Office, including interveners, resulted in a
very robust and thorough discussion on the asset impairment and
cross-subsidization issues. And they were ultimately decided by
the State commissions in rulings not to proceed with those
transactions. So I think the fact that Oregon and Arizona
worked in such ways should give the Senator some comfort that
those issues are being dealt with on a very granular level by
the States and again, serious proceedings that are based on a
written evidentiary record decided by State utility
commissioners.
Now with that being said, there is certainly a role for
FERC with regard to the market power issue and to ensure that
no merger or acquisition gives market power over wholesale
generation to the surviving entity. And of course the Justice
Department has its own review under the anti-trust umbrella,
the anti-trust standard. It may be Senator that some
consideration of cross-subsidization and asset impairment might
be appropriate where the State jurisdiction and State utility
commission lacks the authority, but certainly in Arizona and
Oregon, those cases suggest that the State commissions were
paying very careful attention. The State commissions had
authority under organic State law to deal with these issues.
Senator Bingaman. Well, obviously as you say you can't give
the opinion as to the specifics of the pending rule. It's my
view that in some of the mergers and acquisitions that are
likely to move ahead in coming years, the ability of some
States to properly monitor and properly protect consumers in
those cases may not be adequate, and I think FERC needs to have
this started. That's why we put it in the statute, and that's
not just the authority, but the responsibility to ensure that
the cross-subsidization not exist. So, I hope you'll look
carefully at that. As I say, I think that it's a core part of
what we tried to do in last year's energy bill, and I think if
you're looking ahead 5, 10 years and saying where can we get
into difficulties with things that were in last year's
legislation, I feel that this is one area where we could find
ourselves in difficulties if FERC is not sufficiently energized
or focused on this exact problem.
Mr. Spitzer. Senator if confirmed, I will be zealous not
only in following the mandates of the Congress and Federal law,
but zealous in protecting the interest of consumers to the
extent there is any regulatory gap. The statute suggests that
there needs to be protection of the customers.
Senator Bingaman. Thank you very much. Thank you, Mr.
Chairman.
The Chairman. Thank you Senator Bingaman. Let me on the
same subject Mr. Spitzer, let me suggest a Senator like this
one waited 25 years to see PUCA disappear and probably one of
the most exciting parts of the bill to finally be able to say
that PUCA had left the scene. Now we being from the same State,
working hand in blood bi-partisan lives just didn't happen to
agree totally on PUCA versus an open-market with reference to
mergers. The most compromised we could do is the language read
to you about this. So, we're speaking of what Senators think, I
would like to make sure you know that others thinks as I do
that one of the very powerful features of the Energy Act is the
fact that you might get huge new investments into the utility
industry because PUCA has left the scene. And the reason for
that is that mergers will occur and that if FERC takes the
position that they're going to put a rule in that says PUCA
disappeared but only temporarily while we went ahead and put it
back in by our rule when obviously you had done a great
injustice to the hard work that went into getting rid of PUCA,
and I am hopeful that you understand what I am saying, and I am
sure you do.
Mr. Spitzer. Very clearly, Senator.
The Chairman. I appreciate that and having said that, let
me say--let me try you on a couple of questions and we will
finish.
The Electric Reliability Organization and we'll speak about
that for a minute. The EPA Act directed to ensure the
reliability and security of the Nation's Bulk Power System
pursuant to the energy bill, a single Energy Reliability
Organization, an ERO will have the authority to establish and
enforce mandatory reliability standards. We're now in the
process of transitioning a system of voluntary compliance to
this new mandatory regime. I am sure you're aware of that. In
order to avoid a one size fits all approach, Congress was
careful to provide a substantial role for the Regional
Reliability Organizations. The National ERO which set the
reliability standards must reputably presume that a standard
proposed by a regional entity is valid. You understand that,
reputably presumed?
Mr. Spitzer. Yes, Mr. Chairman.
The Chairman. As a Commissioner, how will you address the
issue of regional flexibility? How will this fit into the ERO's
National standard and their enforceability?
Mr. Spitzer. Well Mr. Chairman, if confirmed I would of
course follow the law and an organization such as the ERO, the
reliability organization for the West. The statute is clear. As
the chairman said, there's a rebuttable of presumption. The
competing interests are the national necessity for reliability,
but it is imperative that the FERC work with the State
reliability organizations in a cooperative manner, and I would
look forward to doing so.
The Chairman. There has been sustained under investment in
transmission in recent years. In order to encourage global
investment, the EPA Act directed FERC to issue a transmission
incentives rule to establish incentives for greater investment.
Do you think there is a need for greater transmission
investment? And if so, would you comment on whether you believe
transmission incentives are the way to secure that investment
or to pursue more vigorously?
Mr. Spitzer. Mr. Chairman, if confirmed, I would be zealous
in following the congressional mandate for greater incentives.
It is very clear that we need additional transmission not only
in my State where 12,000 people move to Arizona every month,
but across the country to enhance a transmission grid to
provide for reliability, to provide for stronger electricity
interconnections and to provide for vibrant wholesale markets.
So investment in infrastructure is critical. In addition, it is
very difficult in some parts of the country to site
transmission lines. I, Mr. Chairman, am an elected
commissioner, and I've been called upon to vote for powerplants
and transmission lines that people didn't want in their
neighborhoods, but I voted for them because they had to be
built. In other words, Mr. Chairman, it's a problem. Hostility
in some parts of the country to siting transmission, as well as
delays make it very difficult to finance these types of
projects. I look forward, if confirmed, to working with local
communities, with the companies, with the stakeholders, to try
and get the transmission built that needs to be built.
The Chairman. Mr. Spitzer, I want to talk about two issues
that I hardly can quantify and hardly can question properly on,
but I want to make the point and do the best I can.
First, you understand you will no longer be a commissioner
for Arizona right?
Mr. Spitzer. That is very clear, Mr. Chairman, yes.
The Chairman. You will be a Commissioner for the United
States, correct?
Mr. Spitzer. The entire United States. Yes, sir.
The Chairman. Is it clear to you that whatever experience
you had in Arizona will be an experience you had from Arizona,
but that it's incumbent upon you to seek information from other
States in what their problems are as quickly as you can so that
you're not too depending upon information that comes to you
from your state which you served admirably for such a long
period of time?
Mr. Spitzer. Mr. Chairman, the national position is very
exciting. We're moving our family to Washington, and I am very
much interested in serving the entire country and will work
very hard to that end.
The Chairman. Now second Mr. Spitzer, I want to talk about
the issue of being a Commissioner versus being an independent
operative, being a chairman, being in charge of. Do you
understand that way this Commission is structured under Federal
Law, there's only one Chairman, right?
Mr. Spitzer. Yes, sir.
The Chairman. You may be a chairman some day. That's fine,
but for now the chairman is not you and you won't be chairman
for awhile. It's kind of understood, right?
Mr. Spitzer. Mr. Chairman, yes.
The Chairman. You won't have any difficulty serving in a
collegial matter as one of a number working together to achieve
national significance under this act that creates you and gives
you your authority. Is that a fair statement and would you
speak to it for a little bit to give me your assurance that
that's the case in terms of how you will react?
Mr. Spitzer. Mr. Chairman I was elected to the Arizona
commission in the year 2000. I was sworn-in as a member and I
worked with the chairman at that time, it was Bill Mundell. He
is a great man. I worked together with him as part of a team.
In 2003 I became chairman and Mr. Mundell was just a
commissioner and we continued to work together as part of a
team. As I sit here, I am not the chairman of the Arizona
commission and I worked with the current chairman, Jeff Hatch-
Miller, and I am pleased to do so. Joseph Kelliher I consider a
friend, as well as Chairman of the Commission. I think he's
doing a fine job, and I look forward to serving as part of his
team.
The Chairman. That does not appear to give you any
difficulty with reference to maximizing your service. You feel
comfortable doing that?
Mr. Spitzer. I believe I can serve the people of the United
States as a Commissioner working as part of that team, yes sir,
Mr. Chairman.
The Chairman. Having said that, I have no further
questions, nor will I submit any in writing. If any other
Senator has any others, I will rule today. We're going to do it
quickly I understand.
If you have questions, you need to get them in by 5 o'clock
today. If you don't get them in by 5 o'clock, you don't get
them in, so don't waste your time tomorrow, do it today and you
don't have to answer them, sir if they come in next week. We're
finished. We're going to get you out of here before this place
leaves on vacation, so we will try very hard.
Mr. Spitzer. Mr. Chairman, thank you.
The Chairman. With that, I want to thank your relatives for
all the time they have taken to come here and I hope it has
been an interesting hearing for you. It's interesting for us.
They're all interesting even as old as I am, they're
interesting.
We're in recess.
Mr. Spitzer. Thank you, Mr. Chairman.
[Whereupon, at 11:30 a.m., the hearing was adjourned.]
APPENDIX
Responses to Additional Questions
----------
Arizona Corporation Commission,
Phoenix, AZ, July 6, 2006.
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 28 hearing to consider my nomination to
be a member of the Federal Energy Regulatory Commission for the term
expiring June 30, 2011.
If you have further questions or require additional information,
please let me know.
Sincerely,
Marc Spitzer.
[Enclosure.]
Responses to Questions From Senator Domenici
electric transmission infrastructure
Question 1. We discussed at your hearing the need for new
investment in transmission and FERC's role in providing incentives to
industry to build these facilities. One of the obstacles in building
transmission is cost allocation. FERC has taken different approaches to
this issue in different regions, which seems appropriate. However, some
have urged FERC to roll in all transmission expansion costs so that all
users of the system share in its costs. Do you believe FERC should roll
in all transmission expansion costs?
Answer. Not in all cases. The FERC has discretion under the law to
assign transmission costs on a case-by-case basis. The competing
interests to be balanced are the rights of native load customers not to
be improperly burdened against reasonably priced open access to
transmission.
ferc-state relationship
Question 2. With FERC's new expanded responsibilities in the areas
of reliability and backstop transmission siting, there is the potential
for federal/state conflict. How do you propose to promote greater
cooperation and coordination with the states in these areas? How can
FERC best work with the states to identify and resolve congestion
issues?
Answer. The Arizona Commission had the responsibility to site
electricity power plants and transmission lines. During my tenure on
the Commission, no application for construction of a transmission line
was denied. While I believe states generally do a good job siting
infrastructure, I did not oppose the EPAct ``backstop'' provision, nor
Federal line-siting authority where necessary. I believe FERC should at
a minimum consult with state and regional authorities and cooperate
with them as appropriate.
Regarding congestion issues, communication is again the key. FERC
should work with stakeholders to identify those areas in need of
improvement and work towards a collaborative solution, if possible.
Question 3. How would you suggest that FERC and the states better
coordinate to provide regulatory consistency on transmission expansion
issues such as cost allocation and cost recovery?
Answer. Again, communication is critical. During the planning
stages of transmission projects, communication between FERC and the
stakeholders to identify regional cost allocation and recovery issues
is essential.
open access transmission
Question 4. Rather than pursue a Standard Market Design proposal,
which would have fundamentally restructured the electric power
industry, FERC is now focused on revising the Commission's open access
transmission policy under Order 888. How will you approach revision of
Order 888?
Answer. While I would carefully study the record to arrive at a
final conclusion about the proposed revisions to Order 888, I am
convinced that a review of that Order is necessary since a myriad of
changes have occurred in the electric industry since the FERC first
issued Order 888. I believe first and foremost that Order 888 revisions
should enhance grid reliability, while simultaneously affording open
access to wholesale markets in a non-discriminatory and transparent
manner.
Question 5. In Section 1231 of EPAct, Congress gave FERC the
authority to require government-owned utilities and electric
cooperatives to provide open, non-discriminatory transmission access on
their systems in a comparable manner to that required for public
utilities. In its recent NOPR on Order 888, the Commission chose not to
propose a generic rule to implement Section 1231, but instead to apply
its provisions on a case-by-case basis. Do you agree with this
approach?
Answer. While I would carefully study the record to come to a final
conclusion about the NOPR, my experiences with large governmental-owned
utilities and rural cooperatives lead me to believe the correct
approach is to apply EPAct 2005 to those entities on a case-by-case
basis. It is important to note wide disparities in the economics of
transmission with respect to rural cooperatives, even within the same
jurisdiction, so treatment of cooperatives is particularly appropriate
case-by-case.
reliability investment
Question 6. Reliability, of course, is one of FERC's top
priorities. The Commission had indicated that for prudent reliability
expenditures, such as vegetation management charges, it will consider
separate rate recovery mechanisms, such as surcharges. Consequently,
companies need not undertake a full blown rate case.
When utilities seek rate recovery for a reliability investment, do
you agree that the Commission should address this in a single issue
rate case rather than examine the utility's entire set of rates?
Answer. Yes. Companies would be encouraged to make timely repairs
and maintenance if they knew they could timely recover their costs
without the delay and expense inherent in a full blown rate case.
However, surcharge applications should not be filed in lieu of
necessary rate cases and their use should be limited to reasonable and
prudent reliability expenditures.
native load
Question 7. In EPAct, Congress provided that utilities with service
obligations to their native load customers are entitled to use the
transmission they own or hold under contract to meet these service
obligations. Do you agree that the statute makes clear that there is
nothing discriminatory about exercising this right?
Answer. As a state commissioner, I concur with the Congress' intent
to protect service to native load customers. If confirmed, I would
uphold the Congressional intent that a utility's use of transmission it
owns or holds under contract to meet service obligations under state
law is not unduly discriminatory, to the extent the transmission is
required to meet the service obligations.
Question 8. Where there are competing uses of utility transmission
under the open access framework, do you believe that the Commission
must recognize the utility's statutory right to use its transmission to
serve its native load customers?
Answer. Yes. In EPAct 2005, Congress' intent was clear that such
uses of transmission ``shall not'' be considered unduly discriminatory,
to the extent the transmission is required to meet the native load
obligations.
natural gas
Question 9. Inadequate gas storage capacity contributes to
volatility of gas prices. In order to reduce volatility, the Energy
Policy Act of 2005 authorized FERC to grant market-based rates to gas
storage developers, even if they have market power, as long as a
proposal meets a three part test: (1) it is in the public interest, (2)
market based rates are needed, and (3) customers are adequately
protected. I recognize it is unusual for Congress to authorize market-
based rates to a company that has market power.
Are you prepared to support implementation of this provision and
authorize market-based rates, assuming the public interest, need, and
adequate protection criteria are met?
Answer. Yes, assuming the three part test is met, I would adhere to
both the law and Congressional intent.
Question 10. According to FERC, Liquefied Natural Gas (LNG)
presently comprises 2% of the natural gas used in the Northeast and it
could provide up to 17% by 2025. Additionally, there are currently
about 40 LNG terminals either before FERC consideration or being
contemplated by the natural gas industry.
As we meet this growing trend toward LNG in the U.S., what do you
envision FERC's priorities should be and how do you think FERC can meet
these priorities?
Answer. As with all sources, FERC's priority is to ensure reliable,
affordable wholesale energy and competitive markets. With LNG
terminals, safety is of paramount importance. While on the Arizona
Commission, I have advocated for diversity of fuel supplies and
sources, including coal, nuclear and renewables. The observed trend
towards LNG is significant and presents unique challenges. Second to
public safety, FERC's goal should be to ensure adequate infrastructure
so that LNG terminals are used efficiently. LNG is certainly part of
the equation but not the entire solution.
Question 11. In the Energy Policy Act of 2005, Congress clearly
grants FERC exclusive authority to approve or deny an application for
the siting, construction, expansion, or operation of an LNG terminal.
Do you see any practical threats to this authority by those opposed to
the construction of LNG facilities through the use of other laws to
potentially place roadblocks to the construction and siting of LNG
facilities? If so, how do you think this is best alleviated?
Answer. EPAct 2005 indeed confirmed and strengthened FERC's
authority over siting of LNG terminals. Not having adjudicated an LNG
siting case, it is difficult for me to evaluate threats to FERC's legal
authority. However, if confirmed, I would seek to enhance FERC's
outreach to affected communities to explain the paramount importance of
safety and the economic and societal benefits of increased energy
supply, particularly to business, economic development and low income
organizations. Further, FERC should work with state and local officials
and other stakeholders early in the siting process. Finally, I
recognize that lawsuits are inevitable in siting matters, so FERC
should strive to have a strong factual record to sustain its orders and
decisions.
natural gas markets
Question 12. Please comment on what you think the impact of
commodities trading is on the price of natural gas. Do you believe that
executive branch currently has the appropriate authority to effectively
oversee the energy markets? Do you think that FERC has the appropriate
authority necessary?
Answer. Large industrial consumers of natural gas communicated with
me in my capacity as an Arizona Commissioner suggesting a nexus between
non-commercial (i.e. speculative) natural gas transactions and price
volatility. In theory, arbitrageurs mitigate rather than exacerbate
volatility in commodity prices. My expression of concern elicited a
response from the Commodity Futures Trading Commission stating that no
new legislation was needed to protect consumers.
I believe sunshine is a wonderful disinfectant. Transparency is
synonymous with accurate and timely information to market participants
and regulators. As an advocate of free and fair markets, I believe FERC
should use all the information available to eliminate market
manipulation and thereby protect consumers.
Question 13. In recent testimony before another Senate Committee,
Commissioner Brownell stated, ``The natural gas and electricity markets
are inextricably linked. . . . The emergence of renewable wind energy
as an important electricity supply alternative, for example, will have
a mitigating impact on natural gas prices.'' First, do you agree with
this statement?
Answer. Yes.
Question 14. Secondly, do you believe that the authorities under
current law are effective with respect to advancing the production of
renewable energy on federal lands and federal submerged lands?
Answer. I do believe the current laws are sufficient. However, my
experience siting transmission lines in my capacity as a state
commissioner has taught me that without the cooperation of other
Federal agencies, such as the U.S. Forest Service and the Bureau of
Land Management, advancing any proposed project, including renewable
energy projects, may be challenging.
Question 15. The Mobile Sierra doctrine and the public interest
standard were established by the U.S. Supreme Court in a series of
cases a half-century ago. The public interest standard does not protect
sellers, it protects contracts, it protects the agreement. Sometimes
the public interest standard works to the advantage of the seller,
sometimes to the advantage of the buyer. Recently, it has worked to the
advantage of the buyer. The power sales contracts between Calpine and
California are costing Calpine $1 billion, and helped drive it into
bankruptcy. Under the just and reasonable standard, there is little
doubt the contract would have been modified. Under the public interest
standard, Calpine continued to perform. So, the public interest
standard saved California consumers $1 billion. The Supreme Court is
presumed to be competent to read a statute. They read the Federal Power
Act and came up with the Mobile Sierra doctrine and the public interest
standard. What is your view of the Mobile Sierra doctrine? Is it good
law? Do you agree with the Supreme Court?
Answer. The Mobile-Sierra Supreme Court decisions and their progeny
are, of course, judicial decisions based upon specific facts and were
intended to balance the competing interests of certainty of contract
with the obligation to ensure just and reasonable rates. It is my
experience that it is difficult to apply a judicial doctrine to a
rulemaking. The applicability of the Mobile-Sierra doctrine to electric
and gas contracts where the parties did not clearly agree upon a
standard of review is at issue in a pending rulemaking at FERC, so it
would not be appropriate for me to address the merits of the argument
further. Whatever final action the Commission takes should be
consistent with the Federal Power Act, the Natural Gas Act and U.S.
Supreme Court decisions.
Question 16. I want your views on FERC authority over buyer market
power. FERC has been encouraged to regulate buyer market power, by
forcing utilities to buy available lower cost power rather than self
generate. I am not convinced FERC has legal authority in this area.
Also, there is serious potential for conflict with the states, since a
FERC order to a utility to buy power instead of self generating would
undercut state decisions on ratebasing generation. Do you think FERC
has this kind of legal authority and do you think it is good policy?
Answer. I have not exhaustively researched this issue, but I agree
FERC's legal authority over the ``monopsony buyer market'' is
questionable. At the Arizona Commission we ordered a competitive
solicitation for wholesale power for Arizona Public Service and
limitations on the utility's ability to ``self build''. I recognize
that state commissions and legislatures would not desire conflicting
Federal actions with respect to these types of determinations. On the
other hand, the FERC does have authority to preserve competitive
wholesale markets.
Question 17. Under current law, the only way a licensee can
challenge an arbitrary condition included in a FERC hydro license
through exercise of mandatory conditioning authority is to seek
judicial review of the FERC license. That is true even when FERC
believes the mandatory condition is unsupported by the record or even
contradicted by the record. The EPAct alternative condition provisions
should reduce the prospect of arbitrary mandatory conditions, but they
may still be proposed. For reasons of comity FERC sometimes does not
highlight its disagreement with the federal or state agency when they
propose an arbitrary condition. I think that approach is fundamentally
unfair to licensees, since it deprives them of any prospect of
overturning an arbitrary condition through judicial review. I believe
FERC should make any disagreement with a conditioning agency plain in
its orders. Do you agree?
Answer. Yes.
Question 18. As a member of the Arizona Corporation Commission, you
supported a state RPS--15% by 2025. Do you support a national renewable
mandate?
Answer. The question of a Federal RPS mandate is of course up to
the Congress and, if confirmed as FERC Commissioner, I would defer to
any Congressional action. It is my personal view that RPS
determinations are best left to the individual states.
Question 19. There are many studies required to be completed by the
Department of Energy and in the Energy Policy Act. One of them is the
Section 1813 Study. Section 1813 of the Energy Policy Act is an effort
to address a vexing problem in the West: protracted negotiations
regarding rights of way for existing energy infrastructure across
Indian lands.
I wrote to the Deputy Secretary of Energy last November about that
study and in it I requested that the Department work closely with the
FERC, since under the Natural Gas Act FERC has exclusive jurisdiction
and authority to authorize the construction, operation and abandonment
of most interstate natural gas pipelines.
Mr. Spitzer, I bring this study to your attention because I wanted
you to be aware that I consider it important that FERC participate in
the preparation of the study so that it can bring to bear its expertise
on the issues involved in ensuring that there is appropriate energy
infrastructure development in this country.
Answer. I agree. As a Commissioner from a state with many Tribal
nations, I am acutely aware of the balancing of interests to secure
reliable and affordable energy for ratepayers while appropriately
compensating the owners of rights of way, including those located
within Tribal nations. I would cooperate with Department of Energy and
other stakeholders, including the Tribes, to ensure adequate energy
infrastructure development and retention.
Responses to Questions From Senator Thomas
Question 1. Based on your experience at the Arizona Commission, can
you describe the role that fiscal certainty plays in whether or not the
private sector invests in large electric transmission and gas pipeline
projects?
Answer. I have observed the investment community increasingly
expressing concerns over the timing of construction of energy
infrastructure (high voltage transmission, gas storage, LNG terminals,
and gas pipelines). In some cases there is doubt whether a project will
be built at all, particularly with respect to electricity transmission.
Such concerns often eclipse traditional regulatory and financial
matters such as return on equity.
The Arizona Commission changed the rules governing natural gas
infrastructure by allowing pre-approval of participation by Arizona gas
LDCs and electric utilities in gas storage and pipeline projects. This
was an effort to facilitate infrastructure by affording regulatory
certainty to cost recovery.
I believe Federal and state regulators should be, and in fact are,
willing to take a fresh look at working with the public and all
segments of the industry to put steel in the ground, including the
financial sector.
Question 2. I'm concerned that some recent decisions at FERC
indicate the Commission is moving to substantially reduce allowable
rates of return on equity for energy infrastructure investments. I
believe doing so would discourage new infrastructure investment. Do you
share that concern?
Answer. Return on equity is a balancing of the interests of
wholesale and retail ratepayers and applicants seeking a fair rate of
return on their investments. The FERC applies the principle of just and
reasonable rates on a case-by-case basis, and just and reasonable
applies to all parties.
In deciding specific cases, if confirmed, I would be mindful of the
Congress' mandate that FERC oversee reliability of the bulk
transmission system, a task which in my judgment requires vigilance to
ensure adequate investment in infrastructure.
Question 3. Mr. Spitzer, I assume you're aware of the proposal by
the Arizona Public Service Company to build the TransWest Express
transmission line from Wyoming to Arizona. Do you believe the Public
Service Commission will approve this project and the rate-based coal-
fired plants that have been proposed?
Answer. As a sitting member of the Arizona Corporation Commission,
it would not be appropriate for me to comment on the Arizona
Commission's consideration of the TransWest Express project nor the
rate-basing of power plants. However, I am aware of a number of
transmission proposals for the West designed to meet the demands of
dramatic population growth and to transmit low-cost coal and renewable
generation to distant load pockets. I look forward to working with
stakeholder groups to ensure reliable and affordable energy for the
West and for all regions of the country.
Question 4. Are there adequate financial signals to build new
transmission lines in the West? If not, what more do you think?
Answer. I am not sure the gravest concern is financial signals, as
much as certainty of construction and ultimate cost-recovery. Some of
the proposals for the West are vast undertakings requiring planning,
permitting and construction periods of up to ten years, a very long
time for an applicant to await cost recovery. And as you know, much of
the path of construction requires Federal and state permits and
environmental approvals.
Question 5. Do you believe Arizona and other states need to
diversify their fuel-base away from natural gas?
Answer. Even though our Commission sited a coal-fired plant in
2002, I do believe Arizona has become too dependent upon natural gas
for new generation of electricity, and I suggest the same may be the
case in many other jurisdictions and regions.
Responses to Questions From Senator Allen
Question 1. Virginia both produces electricity through coal,
nuclear and natural gas resources and also, at times, imports power
from the Midwest when the costs to generate electricity in that region
are lower than the costs to generate in Virginia. I have been
approached by constituents who are interested to know what assurance
you can provide the Committee that the region will not end up with
``least common denominator'' solutions that might work for other
regions of the country but work contrary to the wholesale competitive
market model that is in place in Virginia?
Answer. Resource adequacy is a prime and appropriate concern of
State Commissions. I believe it is the role of FERC to ensure the bulk
transmission system is capable of sustaining resource adequacy
decisions made at the state and regional levels. The states and the
Federal government should work cooperatively to ensure that wholesale
markets are robust.
Question 2. Do you believe that a competitive market model for
wholesale markets can stimulate new investment in transmission,
renewable resources and energy efficiency? If so, what can be done to
support development of such models? If not, why not?
Answer. I absolutely agree. In fact, I believe interstate
transmission, renewable resources and energy efficiency will thrive in
competitive wholesale markets.
Question 3. The Regional Transmission Organization that operates
the transmission grid in Virginia presently undertakes an independent
regional planning process to determine needed new transmission
infrastructure. All of the instate electricity producers, Dominion,
AEP, Allegheny and the municipal and cooperative utilities, participate
in that process which is open to the public. On the other hand,
Virginia borders other States that do not have similar processes. What
is the best way for the Commission to address the ``seam'' that is
created along the borders where regional planning is undertaken in some
regions and not others?
Answer. Arizona participates in a regional planning process in the
desert Southwest, much as you describe for Virginia. The global issue
of regional transmission planning is a component of a pending FERC
rulemaking, so it would not be appropriate for me to comment any
further on the merits.
Responses to Questions From Senator Smith
Question 1. From your experience on the Arizona Corporation
Commission, can you describe for me the role that fiscal certainty
plays in determining whether or not private sector entities will be
willing to invest in large electric transmission and gas pipeline
projects?
Answer. I have observed the investment community increasingly
expressing concerns over the timing of construction of energy
infrastructure (high voltage transmission, gas storage, LNG terminals,
and gas pipelines). In some cases there is doubt whether a project will
be built at all, particularly with respect to electricity transmission.
Such concerns often eclipse traditional regulatory and financial
matters such as return on equity.
The Arizona Commission changed the rules governing natural gas
infrastructure by allowing pre-approval of participation by Arizona gas
LDCs and electric utilities in gas storage and pipeline projects. This
was an effort to facilitate infrastructure by affording regulatory
certainty to cost recovery.
I believe Federal and state regulators should be, and in fact are,
willing to take a fresh look at working with the public and all
segments of the industry to put steel in the ground, including the
financial sector.
Question 2. Do you believe that such projects will be needed to
meet the nation's future energy supply needs?
Answer. Yes.
Question 3. I've heard concerns that some recent decisions at the
Federal Energy Regulatory Commission (FERC) could indicate that the
Commission is moving to substantially reduce allowable rates of return
on equity (ROEs) for energy infrastructure investments. Some say that
would discourage investment in new infrastructure projects. What are
your views on this issue?
Answer. Return on equity is a balancing of the interests of
wholesale and retail ratepayers and applicants seeking a fair rate of
return on their investments. The FERC applies the principle of just and
reasonable rates on a case-by-case basis, and just and reasonable
applies to all parties.
In deciding specific cases, if confirmed, I would be mindful of the
Congress' mandate that FERC oversee reliability of the bulk
transmission system, a task which in my judgment requires vigilance to
ensure adequate investment in infrastructure.
Question 4. As you know, FERC has a statutory responsibility in
reviewing rates filed for approval by the Bonneville Power
Administration, to ensure that the proposed rate is sufficient to cover
its Treasury obligation. Do you agree that FERC would have to reject
any rate that ``walled off'' revenues from BPA secondary sales and
required such funds be used to pre-pay debt, rather than being used
consistent with established precedent?
Answer. I have not had previous occasion to review these statutory
requirements but, if confirmed, I look forward to delving into BPA
matters. I would follow Congressional mandates with regard to BPA
rates, and apply the law to the factual record, including applicable
judicial decisions, to determine just and reasonable rates.
Question 5. Do you agree that the Federal Columbia River
Transmission System Act (P.L. 93-454) requires the BPA Administrator to
consider all revenue sources ``in the aggregate'' when setting rates?
Answer. I would certainly adhere to Federal law in considering BPA
and all other matters before the Commission.
Question 6. Are you aware that the California ISO has filed a
Market Redesign proposal (MRTU) with FERC and that a number of
entities, including other control areas, in the Western Interconnection
have objected to that filing? After seeing the impact on the Western
markets of the 2000-2001 California energy crisis, are you concerned
about this? Do you plan to insist that no decision be made on this
filing until you are confirmed? Do you think the FERC has the
obligation to resolve the specific seams issues articulated by the
other western utilities before implementing such a dramatic market rule
change?
Answer. I am familiar with this MRTU matter. Because it is likely
to come before me for a vote, if I am confirmed, it is not appropriate
for me to comment on the merits. If confirmed I will take my
experiences as state legislator and state commissioner from 2001-2006
with me to FERC. Based on that experience I am keenly aware of the
circumstances creating the California energy crisis (which was a
western crisis) and will, if confirmed, use every tool in FERC's
arsenal to prevent a repeat performance.
Responses to Questions From Senator Bunning
Question 1. A number of Kentucky electric distribution companies
(and other customers) signed new service agreements with the Tennessee
Valley Authority (TVA) in 1997. The agreements included provisions
under which the Kentucky distributors agreed to remain TVA customers
for another 10 years. However, the agreements also stated that the
Kentucky customers could provide TVA Notice of their intent to leave
TVA after five years and would then be allowed to leave TVA after an
additional 5 years. The contracts also specifically stated that any
departing customers would not be liable for any exit fees or stranded
costs. The agreements further contained language concerning services
(eg transmission) TVA would provide departing customers. Several
Kentucky customers (and a Tennessee customer) of TVA have exercised the
rights they have under these contracts and given Notice of their intent
to leave TVA. The Kentucky customers provided this Notice for, among
other reasons, their ability to secure much less expensive power for
their customers from sources other than TVA. Since giving Notice, these
Kentucky customers have attempted to negotiate with TVA on the rates
and terms and conditions of the requested transmission and/or
interconnection service they requested. TVA has been entirely unwilling
to even discuss the services the departing customers are requesting.
Please provide your views on whether the FERC, as a matter of
public policy, should facilitate access to the interstate transmission
grid and encourage competition in the electric generation market by
ordering the wheeling of power for electric distribution companies that
wish to secure transmission service on the interstate transmission
grid. For purposes of this question, please assume that the FERC has
the legal authority to compel transmission on behalf of customers on
the TVA system (ie ``inside the fence'').
Answer. My record on the Arizona Commission was supportive of
ensuring adequate transmission for our rural distribution cooperatives.
These cooperatives and their suppliers were clearly subject to the
jurisdiction of the Arizona Commission. Where the FERC has been granted
jurisdiction by the Congress, I would, if confirmed, be zealous in
ensuring wholesale customers have access to reliable and reasonably
priced electricity.
Question 2. Kentucky has the least expensive electric rates in
America. This is in large part due to the abundance of coal in Kentucky
and the use of this coal to generate power. The railroads play an
integral part in moving coal from the mine locations to the power
generating facilities. Recently, problems with the reliability of coal
deliveries and the rates railroads are charging for transporting coal
have begun to develop. These problems have the potential to impact the
ability of Kentucky to use its coal to generate reasonably priced power
in Kentucky and to send its coal to other markets.
I understand the FERC recently convened a conference on these coal
issues. Please provide your views on what role the FERC's should play
in assuring an adequate, reliable supply of coal for our nation's
generating facilities.
Answer. The Arizona Commission supported Arizona's rural
cooperatives (the litigant was AEPCO, the genco cooperative) in a
proceeding against a rail carrier before the Federal Surface
Transportation Board. I have not yet read the record of the June 15th
FERC conference. I believe the matter of coal transport is of the
utmost importance. FERC has a clear role with regard to system
reliability, and inadequate coal supply poses a concern. If confirmed,
I look forward to reviewing the record of the FERC technical conference
and then considering whether additional Commission action is necessary.
Question 3. As I noted above, Kentucky has the least expensive
power in the nation. Kentucky is anxious to make sure its citizens and
businesses continue to enjoy this reasonably priced power. Please
explain your views on the importance of the FERC recognizing and
respecting differences in regional energy markets as it makes decisions
on the structure of the interstate energy markets.
Answer. I believe FERC has the responsibility to both recognize and
respect state and regional concerns in fostering reliable, competitive
and efficient wholesale markets.
Question 4. The Energy Policy Act of 2005 (EPAct) gave the
Department of Energy authority to establish National Interest Electric
Transmission Corridors. EPAct further gave the FERC the authority to
authorize the construction of transmission lines in these corridors.
Please provide your views on the responsibility of the FERC to consult
and collaborate with states that may be impacted by the construction of
electric transmission lines in these corridors.
Answer. The Arizona Commission had the responsibility to site
electricity power plants and transmission lines. During my tenure on
the Commission, no application for construction of a transmission line
was denied. While I believe states generally do a good job siting
infrastructure, I did not oppose the EPAct ``backstop'' provision, nor
Federal line-siting authority where necessary. I believe FERC should at
a minimum consult with state and regional authorities and cooperate
with them as appropriate.
Question 5. Concerns have recently been raised that the operating
costs charged by Regional Transmission Organizations are excessive.
These costs can eventually be absorbed by residential and industrial
electricity consumers in states like Kentucky. Please provide your
views on the responsibility of the FERC to oversee and review these
types of RTO costs.
Answer. The FERC has the obligation to ensure RTO costs are not
excessive. It is critical that the stakeholders in organized markets
have faith and confidence in their RTO. To date the FERC has worked
hard to ensure that wholesale customers and retail ratepayers enjoy
benefits from the RTOs. I suggest that traditional regulatory models of
prudency of incurred costs are applicable.
Question 6. Transparency of energy markets and the availability of
timely information about costs and capacity in energy markets are
crucial for state commission to perform their duties. Please provide
your views on the FERC's responsibility and legal authority to provide
for transparency in energy markets and the timely availability of
information about conditions in the energy markets.
Answer. EPAct 2005 granted FERC substantial new legal authority to
ensure transparency in energy markets. This is particularly critical in
a time of escalating wholesale commodity prices. If confirmed, I would
consider transparency of wholesale energy markets a priority.
Responses to Questions From Senator Wyden
promoting green power
Question 1. Recently, the Federal Energy Regulatory Commission
certified an incremental hydroelectric upgrade for the first time under
provisions of the Energy Policy Act of 2005, allowing PacificCorp, an
Oregon energy company, to qualify for a renewable energy tax credit.
Are there other FERC policies and programs that can boost the
production, use and sales of renewable energy? What will you do as a
commissioner to encourage FERC to promote green power?
Answer. The Congress amended the tax code to increase tax credits
for renewable energy projects. The FERC can advance Federal, state and
regional policies supporting renewable energy. For example, constraints
in interstate transmission impaired delivery of two potential projects
in the renewable energy solicitation of Arizona Public Service.
Particularly in the West, a robust transmission grid will enable
renewable energy developers to bring projects to market.
The FERC can also assist state commissions with best practices in
distributed generation, demand side management and energy efficiency,
all of which in my judgment are components of resource adequacy as well
an efficient and reliable transmission grid.
consumer advocate
Question 2. Chairman Kelliher and Commissioner Kelly both support
my proposal to create a Federal consumer advocate at FERC similar to
what more than 40 states currently have. My proposal to create this
position was unanimously agreed to during consideration of the Senate
Energy Bill? Will you support creating a Federal ratepayer advocate at
FERC?
Answer. I have reflected on this question and in fact spoken with
the Director of Arizona's Residential Utility Consumer Office, a state
agency independent of the Arizona Commission. Most state consumer
advocates are members of the National Association of State Utility
Consumer Advocates (``NASUCA''). NASUCA is effective in advancing the
interests of retail ratepayers on a national level. NASUCA has
intervened in FERC proceedings, but perhaps the role of NASUCA at FERC
could be formalized. One benefit of NASUCA intervention, as opposed to
that of a new Federal entity, is that disagreements among and between
states are better managed within a state rather than Federal
organization.
respect for state/local views in lng licensing
Question 3. As you know, the Energy Bill gave FERC exclusive
authority over siting, construction and operation of liquefied natural
gas (LNG) import facilities. The role of states and local communities
is limited to making suggestions to FERC during the licensing process.
What will you do to ensure that the views of states and local
communities are not only considered but given deference in the
licensing process? Will you support licensing of facilities over the
strong objections of the state and local community?
Answer. EPAct indeed strengthened Federal siting authority for LNG
facilities, but such authority is by no means absolute. My view is that
the safe operation of LNG facilities is a paramount concern. The views
of state and local officials must be taken into account, particularly
with respect to issues of public safety. Prudence and good governance
suggest FERC dialogue and then engage with these officials consistent
with Federal law.
hydro relicensing settlements
Question 4. I understand the Commission's practice has generally
been to encourage hydro relicensing settlement agreements, but that the
Commission has never addressed in a comprehensive manner the question
of what kinds of settlement provisions may be incorporated into license
conditions. As a result, similar proposed conditions have been accepted
in some cases and rejected in others. This has caused confusion among
parties to these settlements as to how FERC draws these distinctions.
There appears to be a growing recognition within the Commission that
additional guidance is needed and that prompt agency action is
necessary to provide negotiating parties the regulatory certainty and
clarity they've been lacking. Do you share that view, and if so, would
you agree that the Commission's treatment of proposed hydro licensing
conditions ought to be consistent and predictable for all parties
involved?
Answer. I look forward to delving in to matters relating to
hydropower. I agree that uncertainty and confusion are antithetical to
fair and effective settlement agreements. I look forward to becoming
more familiar with and working on hydro issues.
Responses to Questions From Senator Cantwell
Question 1. Under the Northwest Power Act, FERC has the final say
in approving the Bonneville Power Administration's rates provided that
the proposed rates are ``sufficient to assure repayment of the Federal
investment in the Federal Columbia River Power System over a reasonable
number of years after first meeting the Administrator's other costs . .
. and are based upon the Administrator's total system costs.''
When determining the definition of terms like ``reasonable number
of years'' and other terms in BPA's various organic statutes what
deference would you give to years of agency precedent and practice in
defining those terms?
Answer. Due deference to agency practice and precedent is
appropriate.
Question 2. What deference would you give to federal statues that
define certain provisions in BPA's organic statutes?
Answer. Federal statutes are of course entitled to deference by
FERC.
Question 3. As a FERC Commissioner, would you rely on relevant
judicial precedent in order to define terms in BPA's organic statutes?
Answer. I appreciate the importance of Federal judicial precedent.
My law practice has focused on Federal law for over 24 years. If
confirmed by the Senate as a FERC Commissioner, I would rely on
judicial precedent in BPA and other matters.
Question 4. As you probably know, you will have a number of
applications for renewal of hydroelectric licenses before you in the
next few years. The Northwest is heavily reliant on hydroelectric
generating resources. In WA State alone some 13 projects representing
5,863 MW of generating capacity will be in various stages of the
relicensing process between now and 2015.
Can you provide the Committee with your perspective on
hydroelectric power and your thoughts on the relicensing process under
EPACT '05 and the Interim Final Rule published last year?
Answer. Hydropower is important nationally and particularly in the
Northwest, and I look forward to delving into hydro cases. I would use
all Federal statutes and regulations, including EPAct 2005 and the
Interim Final Rule, to encourage a streamlined and efficient
relicensing process, consistent with due process for all affected
parties.
Question 5. The Northwest has spent more than a decade locked in
contentious debate over various forms of regional transmission
management. The region is currently looking at an option--known as
ColumbiaGrid--that appears very promising, both in its substance and
broad base of support. I will note, however, that it does not meet the
RTO standards of FERC Order 2000.
Do you think FERC should nonetheless encourage the development of
this region-specific development as it moves forward?
Answer. I support regional collaboration and similar collaborative
efforts between FERC and regional bodies, both in RTO and non-RTO
markets.
Question 6. As you know, western energy markets and ratepayers in
WA State are still suffering negative effects of deregulation and
related market manipulation during the 2000-2001 energy crisis.
Ratepayers in the Northwest and the larger regional economy continue to
suffer the ill effects of related energy hikes--some as high as 50%.
The GAO noted in a report last November that ``. . . consumers in
California and across other parts of the West will attest, there have
been many negative effects [related to restructuring], including higher
prices and market manipulation.''
Has energy market restructuring been successful?
Answer. I am convinced that Congress' restructuring of wholesale
natural gas markets in 1982 has saved consumer billions of dollars. I
further believe competitive wholesale energy markets have benefited
ratepayers. The Arizona Public Service competitive solicitation has
saved Arizona consumers over $150,000,000 through reduced wholesale
power costs.
The crisis of 2000-2001 that began in California and engulfed the
West had many and varied causes. Hard lessons were learned from flawed
market design, generation and transmission inadequacies and market
misconduct.
The FERC has many new tools granted by Congress to protect
consumers from fraud and misconduct. If confirmed, I look forward to
insisting upon transparency and to protecting the interests of
wholesale (and ultimately retail) consumers.
I believe in the rights of states to choose their own paradigms for
resource adequacy and in their prerogatives with regard to siting
energy infrastructure. Nevertheless, it is a fact that improvident
decisions by one jurisdiction may negatively affect neighboring states
that have done nothing wrong. If confirmed as a FERC Commissioner, I
would strive to work with regional stakeholders and, if necessary,
intervene early to ensure disastrous scenarios are not repeated.
Question 7. Of those areas of the country that have not
restructured and have not deregulated retail rates, like the Pacific
Northwest, do you believe those regions should largely be left alone to
address the needs of their specific industry structure as they see fit?
If not, how far should FERC go in changing them?
Answer. As a former state legislator, I respect state authority and
as a sitting state commissioner I believe retail utility rates, and
rate mechanisms, should be determined by state commissions. I believe
FERC should work to foster competitive and transparent wholesale
markets that permit states to choose their own paths without fear or
regret.
However, as noted in my answer to Question 6 above, circumstances
may arise whereby one state's actions damage regional wholesale
markets, making Federal intervention necessary and appropriate.
Question 8. In recent press reports, the head of the California
Independent System Operator has suggested that the rest of the West
will simply have to comply with California markets and that the seams
created between California and other areas in the west is a failure of
the neighboring states to adopt compatible models. My region has
suffered once as a result of California's experiments, and stakeholders
throughout the west are very concerned by these comments.
Do you believe that FERC has a responsibility, when reviewing
filings for California's market redesign efforts, to assess the impact
and consequences for neighboring states?
Answer. Without prejudging any matter that may come before me
(including the MRTU filing), the answer is yes.
Question 9. Last year's comprehensive energy legislation included a
broad ban on the market manipulation practices exercised by Enron. As
you know, the Northwest continues to suffer from the ill-effects of
Enron's market manipulation practices. I imagine you are acquainted
with the smoking-gun Enron memos, in which the company laid out
strategies such as `Fat Boy,' `Get Shorty,' `Death Star' and the like,
to drive up prices in the West.
I would like to know whether you believe there is any circumstance
in which a transaction resulting from manipulative market practices can
be ``in the public interest,'' or ``just and reasonable?''
Answer. A fraudulent transaction that damaged ratepayers would in
my judgment fail both the ``public interest'' test as well as the
standard of ``just and reasonable'' rates. I consider myself free-
market, but my record on the Arizona Commission demonstrates I have a
profound sense of right and wrong.
Question 10. Under FERC's Notice of Proposed Rulemaking RM-05-35-
000, the Commission has proposed amending its regulations regarding the
standard of review that must be met to justify proposed modifications
to Commission jurisdictional agreements. Essentially, with the
exception of transmission service agreements under the Open Access
Transmission Tariff and certain natural gas transportation agreements,
when proposed modifications to FERC jurisdictional agreements are not
agreed to be dealt with by contract signatories under the `just and
reasonable' standard, the Commission will review such agreements under
the `public interest' standard, in accordance with the Mobile-Sierra
doctrine. Most people believe that the ``public interest' standard is
practically insurmountable.
I know you can't tell me how you might vote as a Commissioner. I am
concerned about any diminishment of consumers ability to find relief
when they are exposed to rates, terms, and conditions of service that
are not just and reasonable--the standard found in the Federal Power
Act. However, can you tell me your views on the application of the
``public interest'' standard and how you think it should be applied in
contracts where there is no standard of review specified?
Answer. The Mobile-Sierra Supreme Court decisions and their progeny
are, of course, judicial decisions based upon specific facts and were
intended to balance the competing interests of certainty of contract
with the obligation to ensure just and reasonable rates. It is my
experience that it is difficult to apply a judicial doctrine to a
rulemaking. The applicability of the Mobile-Sierra doctrine to electric
and gas contracts where the parties did not clearly agree upon a
standard of review is at issue in a pending rulemaking at FERC, so it
would not be appropriate for me to address the merits of the argument
further. Whatever final action the Commission takes should be
consistent with the Federal Power Act, the Natural Gas Act and U.S.
Supreme Court decisions.
Question 11. Congress revised FERC's merger review authority in the
2005 Energy Policy Act. I am concerned that the Commission may not be
giving sufficient attention to these proposed mergers and their
potential affect. I'm not offering an opinion on the details of this
specific merger, but I am concerned that FERC is giving inadequate
attention to the potential market power implications of proposed
mergers. I am told that the Arizona Corporation Commission carefully
scrutinized, and then rejected, a proposed merger.
Do you agree that FERC needs to take a more careful review of
proposed mergers and the expressed concerns of states and intervenors?
Answer. I agree the FERC should carefully review all merger
applications to ensure the public interest is served. EPAct 2005
broadened FERC's authority over merger transactions beyond a wholesale
generation market power analysis.
The case you referenced was considered by the Arizona Commission at
the same time the Oregon Commission rejected a similar transaction. The
Congress should take comfort from the thoughtful diligence the Oregon
Commission displayed during the Texas Pacific proceeding. I believe
that state commissions are well-suited to exercise jurisdiction and
resolve asset impairment and cross-subsidization issues on a granular
level. That being said, if confirmed I look forward to tackling the
responsibilities assigned to FERC by Congress with respect to proposed
mergers.