AMERICAN PUBLIC POWER ASSOCIATION NATIONAL MEETING Salt Lake City June 15, 2009 Panel: “WHAT DOES IT TAKE TO GET TRANSMISSION BUILT?” Remarks of James J. Hoecker Husch Blackwell Sanders LLP Hoecker Energy Law & Policy PLLC HELP, PLLC

2 REGULATORY REFORM: WHAT YOU WANT DEPENDS ON WHO YOU ARE America’s Electric Power Industry

3.... AND WHERE YOU ARE RTO/ISO Operating Responsibility

4 TODAY’S “NATIONAL” GRID  Key network infrastructure vital to the nation’s economy  A nationwide164,000-mile, highly-integrated network of transmission lines and control facilities, interconnecting over 750,000 MW of generating capacity to millions of customers in all regions, and 3000 utilities

5 THE CHALLENGES FACING TRANSMISSION  Aging and deteriorating infrastructure  More dispersed sources of generation  Wholesale competition among generators  Complex bulk power markets  Arrival of the digital economy  Electricity consumption doubled after 1980; increased consumer electronics

THE 111 TH CONGRESS Transmission Legislation In Both the House and Senate H.R Waxman/Markey (climate bill) H.R Rep. Inslee S. 539 Sen. Reid S. 774 Sen. Dorgan S. ___ Sen. Bingaman (Energy & Natural Resources Committee)

7 DRIVING THE DEBATE Commitment to renewables/clean energy Worries about energy security, energy independence & “third world” grid Expanding power markets/demand Let’s not forget joint ownership! BUT States/regions take proprietary interest in all utility functions No one ever wants to pay Smart grids and greater efficiency might argue against more transmission Mistrust of the Feds

8 Now: Planning is system by system, state by state, or by region, historically to ensure reliability for native load customers and meet the needs of incremental generation. Individual utilities plan; RTOs plan; ad hoc regional groups and reliability organizations plan; and even groups of governors plan. No single entity has full responsibility for executing on a plan. CHALLENGES: 1. WHO DECIDES WHAT TRANSMISSION IS NEEDED AND WHERE. 2. WHAT IS THE SCOPE OF PLANNING? SUB- REGIONAL, REGIONAL, INTERCONNECTION- WIDE, OR EVEN NATIONAL? 3. DO WE ALREADY HAVE INSTITUTIONS AND PROCEDURES THAT CAN DO THE JOB? PLANNING TRANSMISSION

9 SITING TRANSMISSION Now: Routing transmission lines, including a determination of “need,” is a traditional state role. In 2005, Congress allowed FERC to “backstop” state siting authority for certain projects in designated corridors – a failed solution. CHALLENGE: NEW POLICIES THAT HEAVILY FAVOR ACCESS TO REMOTE CLEAN ENERGY RESOURCES (AND THE INTERSTATE NATURE OF THE MODERN BULK POWER MARKET) MAY ARGUE FOR A MORE PROGRAMMATIC APPROACH. EXCLUSIVE FEDERAL SITING? REGIONAL COMPACTS ?

10 WHO PICKS UP THE TAB Now: Cost allocation raises the issue of who benefits from an upgrade or expansion of the system. Approaches range from direct assignment to “cost causers” to socializing costs across entire regions. There are no national standards for cost allocation and so each utility or RTO decides who will pay in each instance. The result is uncertainty. CHALLENGE: MASSIVE NEW TRANSMISSION ADDITIONS TO BRING RENEWABLES TO MARKET WILL BE COSTLY. SOME REGIONS WOULD FENCE THEMSELVES OUT. BUT RATEPAYER IMPACTS CAN BE KEPT LOW BY BROAD SOCIALIZATION -- WHEN IS THIS EQUITABLE AND WHEN NOT?

11 WIRES’ LETTER TO CAROL BROWNER Grid modernization must address several challenges Planning must be regional, mandatory, independent, and comprehensive States should retain authority to site but not to decide the “need” for major facilities We need clear cost allocation standards Avoid balkanizing the grid by reforming regulation for limited resources or purposes WIRES is a national coalition of entities, including public power, dedicated to investment in a strong, well-planned and environmentally beneficial high voltage transmission system. For a copy, contact