Hearing of the Energy Subcommittee of the House Energy and Commerce Committee - Opening Statement of Rep. Pallone, Hearing on Powering America: A Review of the Operation and Effectiveness of the Nation's Wholesale Electricity Markets

Hearing

Thank you for holding this hearing on the operation of our nation's electricity markets. This
is the second hearing on this subject in this subcommittee this month. And just like last
week's hearing Ranking Member Rush and I worked in partnership with Chairmen Upton and
Walden to set up today's hearing in order to provide us important and unbiased background
for future decisions.
I am pleased we have an opportunity to hear from those who are entrusted to run the grid:
the regional transmission organizations, or RTOs. While versions of these "independent
system operators" have existed for decades, it was the Energy Policy Act of 2005 that
enshrined these organizations as central to the wholesale markets. These markets have
yielded us many benefits, including some of the lowest prices we have ever seen for
electricity.
However, that doesn't mean that we should just turn a blind eye to the question of whether
these organizations are properly positioned to address the many changes that are underway
in the electricity sector. RTOs make decisions every day that greatly affect the market, its
participants, and consumers. In some ways, they are more powerful on a day-to-day basis
than the Federal Energy Regulatory Commission (FERC), which is why we need to ensure
that RTOs are providing unbiased management of their systems and not veering into the
kind of policymaking that is responsibility of Congress and the states.
Today, RTOs have their work cut out for them. New technologies, evolving policies, fuel
market changes, and aging infrastructure all influence the operation, reliability and resiliency
of the grid. So too do changes in patterns and distribution of electricity demand. All of
these factors have called into question the most basic tenets of ratemaking, and challenged
the long-standing financial model for utilities. They are also having an impact in wholesalemarkets with implications for the competitive position of more traditional grid assets. I am
sure we will hear more about these issues from our witnesses today.
The growth of distributed generation and these new technologies are also creating
opportunities for consumers and their advocates to have a more active role in the electricity
sector. Consumers are driving policies at the state level through the public utility
commissions and seeking input on decisions that impact generation, distribution, and
transmission of electricity. Although consumers have not played a role in RTO decision-
making, it may be time to put in place formal mechanisms to facilitate direct communication
between consumer advocates and the RTOs.
Each of the organizations we will hear from today operates differently. While they are all
administering wholesale markets, their governance structures, market rules, state and
regional policies, and relationships to market participants and consumers are different. This
hearing gives us the opportunity to compare and contrast the different approaches and to
evaluate whether some approaches offer advantages in managing the grid.
Keeping the electric grid operating is essential to our economy and our society. So, the
RTOs' focus on grid reliability and resiliency is understandable. But, these concepts are
evolving along with the new technologies and tools that have emerged over the past decade.
Reliability and resiliency are no longer defined solely by transmission and baseload
generation assets. In some cases, I've seen transmission projects needlessly
rubberstamped in the name of reliability. There are certainly other ways to address reliability
than just gold plating the transmission system. Newer and bigger transmission lines are no
longer always the best or most cost-effective answer to the question of how we improve
reliability. It's time for the RTOs to begin to adapt to this new reality. Distributed energy
resources --renewable and otherwise--along with efficiency and demand response, are
equally important.
Of course, we certainly do need more interstate and interregional transmission, particularly
from the Great Plains to the rest of the Eastern Interconnection. The lack of progress in this
area leads me to ask whether the approval process between regions is working as efficiently
and effectively as it should and whether regions have become too balkanized and unable to
work together for the greater good.
Mr. Chairman, I'm pleased we have been able to work together on this hearing series
evaluating our nation's electricity markets. Last week, we learned about the perspectives of
market participants, and today have an experienced panel representing our nation's RTOs.
But, what we have been missing so far is an analysis of consumer perspectives. There are a
number of important issues impacting consumers that we must consider, including
governance structures, cost recovery models and appropriate transparency. I hope that you
will commit to holding such a hearing in the near future.
That said, I look forward to hearing from our distinguished panel.

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