ThinkEquity Summer Call Series

“CAN WE DEAL WITH THECHALLENGES TO GETTING

TRANSMISSION BUILT?”

Remarks of James J. HoeckerHusch Blackwell Sanders LLP

Hoecker Energy Law & Policy PLLCJuly 13, 2009

HELP, PLLC

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REGULATORY REFORM: WHAT YOU WANT DEPENDS ON WHO YOU ARE

Percent Ownership (3,100 Utilities)

Co-Ops30%

IOUs7%

POUs63%

Percent of Total Customers Served

Co-Ops12%

IOUs73%

POUs15%

America’s Electric Power Industry

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. . . . AND WHERE YOU ARE

RTO/ISO Operating Responsibility

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TODAY’STODAY’S “NATIONAL” “NATIONAL” GRIDGRID 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

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THE CHALLENGES THE CHALLENGES FACING FACING TRANSMISSIONTRANSMISSION

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

Convoluted regulatory path

THE 111TH CONGRESS

Transmission Legislation Is Pending In Both the House and Senate

H.R. 2454 Waxman/Markey (climate bill)

H.R. 2211 Rep. Inslee S. 539 Sen. Reid S. 774 Sen. Dorgan S. ___ Sen. Bingaman (Energy

& Natural Resources Committee)

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DRIVING THE DEBATE

Commitment to renewables/clean energy Worries about energy security, energy independence & “third world” grid Expanding power markets/demandBUT 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

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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 PLANNING TRANSMISSIONTRANSMISSION

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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?

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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?

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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 transmission providers and customers, grid managers, and technology companies – both publicly- and investor-owned -- dedicated to investment in a strong, well-planned and environmentally beneficial high voltage transmission system.

For a copy of the Browner letter, contact www.wiresgroup.com

Contact Information

James J. Hoecker, Ph.D., J.D. Husch Blackwell Sanders LLPHoecker Energy Law & Policy PLLC

James.Hoecker@huschblackwell.comwww.Huschblackwell.comwww.HELPPLLC.comW: 202-378-2300