Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 02:30 PM

Mr. Michael Easley

NRECA and Wyoming Infrastructure Authority

United States Senate
Committee on Energy and Natural Resources
Implementation of the Energy Policy Act of 2005
Electricity Reliability Provisions
May 15, 2006
Testimony of
Michael E. Easley
Chief Executive Officer
Powder River Energy Corporation
Sundance, Wyoming
and
Chairman of the Board
Wyoming Infrastructure Authority

Mr. Chairman and members of the Committee, thank you for inviting me to appear
before you today. My name is Mike Easley. I am the Chief Executive Officer of Powder
River Energy Corporation (PRECorp), the largest electric cooperative in Wyoming. I am
also Chairman of the Board of the Wyoming Infrastructure Authority (WIA).
Electricity reliability is an increasingly important issue to the State of Wyoming,
the Western Interconnection, the electric utilities that comprise the nation’s electric grid
and the customers we are all privileged to serve. My perspective begins with that of the
individual customer at the end of line and expands to a broader regional perspective
through my work with the Wyoming Infrastructure Authority. In addition, I am bringing
the on the ground view as a member of the National Rural Electric Cooperative
Association (NRECA), an organization representing approximately 930 cooperatives
serving 39 million people across 75% of the nation’s land mass.
PRECorp is a customer-owned electric utility and the largest electric cooperative in
Wyoming serving 350 Mw of industrial, commercial, and rural residential load. Our
service area covers 17,100 square miles in northeast Wyoming and southern Montana.
Our service territory is larger than the States of Massachusetts and New Hampshire
combined. Powder River Energy is unique among rural electric cooperatives due to our
high percentage of industrial and commercial load, a good portion of which is providing
electric service to coal, natural gas and oil companies in the Powder River Basin.
PRECorp’s single largest load is the Arch Coal Company’s Black Thunder Mine
Complex. The largest coal mine operation in the country, it produces 90 million tons of
coal per year. Growing energy needs continue to stimulate Wyoming coal production.
In 2005, Wyoming coal mines led the nation for the 19th consecutive year in coal
production with over 400 million tons produced. Approximately 36% of the nation’s coal
comes from Wyoming with most of the coal used to produce electricity. Wyoming coal is
used in 35 states across the country.
This is just one piece of the energy and electric reliability puzzle. While coal is big
in Wyoming, today it has competition in the Powder River Basin and the competition is
Coal Bed Methane or CBM. CBM is another industry served by PRECorp.
Since the first CBM wells were drilled in Campbell County in the early 1990’s,
production in Wyoming has jumped to more than 12,000 wells. Over 326 million cubic
feet of coal bed methane have been produced in the Powder River Basin over the last
decade. With reserves in the Powder River Basin estimated at as much as 43 trillion
cubic feet, northeast Wyoming and southeast Montana are the sites of a major source of
America’s fastest growing natural resource -- coal bed methane natural gas.
PRECorp also provides electricity to over 60 oil production facilities and various
oil pipeline loads. The majority of an oil facility’s on-going costs come from electricity.
It is safe to say those facilities rely on us to provide reliable electricity.
In the short time taken to read this testimony, if PRECorp were to have lost its
ability to provide electricity to northeast Wyoming, 8,000 homes would have been
without electricity, 600 tons of coal, the equivalent of six rail cars, would have failed to
be produced, and 3,100 cubic feet of natural gas and 2.91 barrels of oil would have had
no way of getting out of the ground.
What would happen if the mines in the Powder River Basin, the very mines that
supply the coal used to generate electricity in 35 states, were themselves without
electricity? What would happen if the coal bed methane and oil production in the Powder
River Basis were to come to a halt because electric power was unavailable? It would take
the term “rolling blackout” to a whole new level.
PRECorp is a customer owned electric utility and in spite of our tremendous
responsibility to provide reliable power for use in this great country, we keep the lights
on in Northeast Wyoming. Our cooperative was formed in 1945 by a group of concerned
citizens who decided not to wait for electricity to be brought to them, and instead brought
the electricity to themselves. Today it is our job to continue this legacy.
PRECorp has long recognized its role in the bigger picture and for the past two
years has been supporting the Wyoming Infrastructure Authority in hopes of creating a
more reliable and robust transmission system in the Wyoming and the West.
The Authority is an instrumentality of the state of Wyoming. Its mission is to
diversify and expand the state’s economy through improvements in the electric
transmission system to facilitate increased utilization of Wyoming’s renewable and
traditional energy resources and to support the development of advanced coal
technologies as it relates to electricity production. It is very important to understand
that the electric grid in the West differs from that of much of the rest of the country.
From its early inception, the electric transmission grid in the United States evolved from
small individual utilities building a “hub and spoke” transmission grid to serve their
customers from specific generation resources. The electric utilities also interconnected
with one another to provide for emergency backup from a neighboring utility and to a
lesser extent, to sell or exchange electrical power. This is very apparent in the West as
the electric transmission grid was not designed for, nor is it capable of, transporting
electric energy over long distances in amounts significant enough to enable the
development of a robust power system capable of capturing regional diversities.
The Western Governors Association recognized the need to strengthen the electric
grid in the West for both reliability and economic development purposes. Wyoming has
been a leader in this area through the efforts of Governor Dave Freudenthal. The
Governor has encouraged the WIA to stimulate private and public partnerships to
strengthen the transmission grid to improve reliability and reduce bottlenecks. Currently,
the WIA is focusing on paths from Wyoming to the Colorado Front Range via the TOT3
project, the Phoenix area via the TransWest Express project, and expansion of capacity
towards Salt Lake City via the Wyoming West project. In addition, the WIA is
participating in the Frontier Project which will provide a reliable transmission grid
capable of moving significant amounts of bulk power to growing markets in California
and Nevada.
Mr. Chairman, I would like to commend Senator Thomas for his leadership efforts
in recognizing the importance of what states are doing to stimulate investments in electric
transmission. Last week, he introduced legislation, which if enacted, would go a long
way toward providing a valuable stimulus to regional transmission expansion. Senator
Thomas' proposal would relax private use restrictions and allow State instrumentalities
like the WIA to issue tax exempt bonds to finance needed multi-state transmission
projects, thereby significantly lowering the project cost of these facilities to consumers,
while improving reliability and reducing bottlenecks. This is a particularly powerful
economic tool and I hope you and others will join Senator Thomas in making this
provision a part of any energy legislation that Congress enacts.
With expanded capacity, the Western states transmission grid will deliver low-cost
electricity to the wholesale marketplace and enable development of alternative and
renewable electric energy supply. Our partnerships involve independent transmission
companies, investor owned utilities, cooperatives, municipalities, independent power
producers, and the Western Area Power Administration. Sister organizations have also
been formed in other states, including North Dakota, South Dakota, Idaho, and Kansas.
All of these efforts should be viewed as reducing constraints and bottlenecks and
thus increasing the overall reliability of the Western Interconnection. We have and will
continue to work closely with the FERC and the Department of Energy as partners in this
process.
Providing adequate and reliable transmission infrastructure is not only important to
support the economic growth of the West, it is essential that alternatives exist for the
delivery of energy. As new advanced coal technologies emerge there will be an effort to
locate generation facilities closer to coal mines to capture favorable economics and to
reduce coal shipping risks. As we have seen in the case of the Laramie River Station in
Wheatland, Wyoming, these risks are very real. This is an unfortunate example of how
generation supply can be impacted by rail transportation issues and how reliability could
be impacted if this occurred on wide-scale basis.
Electric generation at Laramie River Station (LRS) consumes 24,000 tons of coal
per day at full load and requires roughly one and a half unit trains of coal each day for
operation. The Missouri Basin Power Project is a consortium of six public power entities
in the region, which own the Laramie River Station. Basin Electric Power Cooperative is
the majority owner and operator of the plant. The project partners normally keep 700,000
tons of coal in its stockpile for emergencies.
In May of 2005, there were two derailments on the Joint Line out of the Powder
River Basin (PRB), causing a major disruption in the delivery of PRB coal. According to
the railroads, increased demand for PRB coal and problems with their software tracking
system exacerbated rail delivery problems. Sporadic and reduced coal deliveries
throughout 2005 forced the plant to dip into its stockpile for normal day-to-day operation
of the plant. At one time the plant had roughly three days of coal in stockpile, around
125,000 tons. When the stockpile dropped below 50% of normal levels, Basin Electric
notified DOE and the North American Electric Reliability Council of the stockpile
situation, since there was not enough coal remaining in the stockpile to operate the plant
during a major emergency. Project partners also prepared a plan to curtail generation if
the stockpile dropped to critical levels, in order to conserve coal.
Fortunately, curtailment plans were never implemented, and coal deliveries have
improved somewhat since the first part of the year. In great part, the improvement in
supply has been the result of an LRS Unit being in the middle of a seven-week
maintenance outage. However, if it was not for the Unit 1 outage, the plant would have
just 268,000 tons of coal on hand (11 days). The stockpile will likely increase throughout
the remainder of the outage, but the levels are still far too low to accommodate the plant
at full load if there is a repeat of last years rail derailments, a major late spring snowstorm
or other unexpected event.
Situations like the LRS need careful attention and should not be dismissed as a
normal course of business. The reliability of the grid depends on many factors, not
simply technical coordination between system operators. Reliability also depends on a
stable infrastructure, including timely rail shipments, fair costs and enough competition
among shippers to ensure that consumers are realizing benefits of the system they have
paid for over the years.
I understand that this Committee will soon be holding a hearing regarding coal
delivery problems and potential problems for electricity reliability. This is a critical
issue that must be addressed and I appreciate the interest from Senators across the
country that are experiencing similar delivery issues with the railroads.
Finally, I would like to comment on the status of implementation of Section 215 of
the Federal Power Act, as amended by the Electricity Modernization Act of 2005.
NRECA and its member cooperatives were part of a large industry coalition
encompassing investor-owned utilities, municipals, independent power generators,
transmission owners and operators, customers and industry trade associations that
strongly supported the reliability title of the Energy Modernization Act of 2005. As did
all members of the coalition, cooperatives recognized that the enforcement of mandatory
reliability standards would be necessary in the evolving competitive wholesale power
industry in order to ensure the continued reliable operation of the bulk transmission
system.
More than that, however, cooperatives believed that mandatory reliability standards
should be drafted and enforced by a self-regulating industry organization (SRO) with
access to the engineering and operating expertise of all stakeholders. Although a few
stakeholders suggested that FERC should be given direct authority to draft the mandatory
reliability standards, cooperatives, an overwhelming majority of the coalition and
Congress itself concluded that an SRO, operating through an ANSI (American National
Standards Institute)-approved standards development process would best be able to
establish technically rigorous reliability standards, and to judge whether those standards
had been violated.
Such a process would insure that all proposed reliability standards passed the
critical review of a broad spectrum of engineering experts, while also helping to
appropriately separate the reliability standard development process from the commercial
business practice activities at the North American Energy Standards Board (NAESB).
Said differently, cooperatives wanted to be absolutely certain that at the critical moment
when decisions had to be made to keep the lights on, that commercial interests did not
attempt to trump physics. We also wanted, to the extent possible, to make certain that
reliability standards were not used to promote commercial interests.
To demonstrate the importance of this concept to cooperatives, it is instructive to
note that one of the longest running NRECA member resolutions deals with the
establishment of mandatory reliability standards by a self-regulating industry
organization.
Cooperatives were extremely pleased that the Energy Modernization Act gave the
bulk of responsibility over reliability to an Electric Reliability Organization (ERO), with
FERC having the appropriate role of approving reliability standards established by the
ERO, enforcing the standards, and providing the ERO the oversight required to give the
ERO legal “legitimacy.” Cooperatives were also pleased that reliability standards were,
as we believe Congress also intended, not confused with economic or other policy goals,
and that the mandatory reliability standards for the bulk power system were generally not
applicable to small distribution utilities that operate exclusively or primarily at the retail
level.
For these reason we are pleased with the focus, direction and progress of both
NERC and FERC as they move toward final implementation of the Electric Reliability
Organization mandated by Congress. In short, we cooperatives believe Congress got this
one right, and at this point it looks like both FERC and NERC are going to get it right
too.
That is not to say there will not be several bumps along this evolutionary highway.
Cooperatives continue to be concerned that to the extent the Commission believes
changes should be made to existing reliability standards, the process should be
evolutionary, with those standards remanded to the ERO and to the industry for
reconsideration and revision as appropriate. We also are concerned that the eventual
makeup of various working committees at the ERO continues to be representative of all
segments of the industry, as they currently are at NERC. Cooperatives also strongly
concur in NERC’s proposed use of a “material impact on the bulk power system” test to
determine whether entities should or should not be subject to reliability standards, and do
not want it changed. At the same time we remain concerned about the potential for
inconsistency across regional entities in terms of delegated functions, especially with
selection of entities for the compliance registry and compliance/enforcement activities.
But the bottom line for cooperatives is we believe we are moving in the right
direction, and need to continue to move ahead toward timely implementation of the
Electric Reliability Organization.
Mr. Chairman, on behalf of the 15,000 members of PRECorp, the citizens of
Wyoming, and the NRECA membership I would like to thank you and this Committee
for your efforts. Not only in passing the Energy Policy Act, but your active oversight of
the implementation process.
Thank you for the opportunity to testify. I would be pleased to answer any
questions the Committee may have.