[tt] Testimony of Mr. T. Boone Pickens before the Senate Energy and Natural Resources Committee

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Testimony of Mr. T. Boone Pickens before the Senate Energy and Natural 
Resources Committee
http://energy.senate.gov/public/_files/PickensTestimony061708.doc.
[Thanks to Sarah for this.]

Hearing to examine the challenges and regional solutions to developing 
transmission for renewable electricity resources.

Tuesday, June 17, 2008

10:00 AM

366 Senate Dirksen Building

Chairman Bingaman, Senator Domenici, and members of the Committee, thank 
you for holding this hearing today. Our country is in a crisis caused by 
imported oil, and any serious solution to help us escape from this trap 
will require action by the Congress to promote private investment in our 
electric transmission system.

We must develop and promote every available domestic energy resource to 
solve this crisis, and the lynchpin to addressing our escalating 
dependence on foreign oil is a willingness and determination to invest in 
and streamline our electric transmission system. Private enterprise will 
invest money, and will build new transmission infrastructure cheaply and 
efficiently, if Congress adopts clear, predictable policies.

And Senators, ladies and gentlemen, simply stated, our main energy problem 
begins and ends with imported oil. Seventy percent of the oil we use is 
imported. With current oil prices, we are getting close to exporting $700 
billion a year overseas because of our addiction to imported oil. That’s 
nearly four times the cost of the Iraqi war. We purchase it from a few 
friends and a lot of enemies. We are paying for the war against ourselves 
and we have got to stop it, some way, somehow.

And the price of oil will go up further. Over the next 10 years, you’re 
looking at exporting $10 trillion out of this country. It will be the 
greatest transfer of wealth from one country to other parts of the world 
in the history of mankind. It is a clear and growing threat to our 
national security, and our national economy. It has to be stopped. We are 
on the verge of losing our Super Power status. It’s time to quit the blame 
game, and look for solutions and leadership to solve the problem.

For decades, every presidential candidate has talked about making us 
energy independent. That hasn’t happened, of course, and the hole we’ve 
dug for ourselves just keeps getting deeper. In 1945 we were exporting oil 
to our allies.  In the 1960s we were importing about 10 percent of our 
oil. By the 1980s it was 40 percent. In 1991 during the Gulf War, it was 
54 percent. Now it’s about 70 percent.

The world produces 85 million barrels of oil a day, or more than 30 
billion barrels of oil a year. We haven’t replaced that amount of 
consumption on an annualized basis since 1985. World oil production, I 
believe, has peaked, and the world’s current oil fields are declining at 
the rate of 8 percent a year.  The simple truth is we’re never going above 
85 million barrels of oil production.

The U.S. consumes 25 percent of the world’s oil, with only 5 percent of 
the world’s population. And what’s going to happen when you’re dealing 
with a supply capped at 85 million barrels and increasing demand as the 
Chinese, Indians, and rest of the underdeveloped countries around the 
world continue to use more and more oil?

I have a plan to fix this problem. I’ve stress tested it with government 
and business leaders across the U.S. in recent months. No one has found 
any major flaws in it. That said, if there’s a better plan out there, it’s 
time to hear it. The time for action is now.

Worldwide 70 percent of the 85 million barrels a day is used for 
transportation. To replace foreign oil, we need a major energy source that 
works for transportation. The domestic energy resources we have are oil, 
coal, natural gas, wind, solar, bio-fuels, hydroelectric and nuclear.

Natural gas and bio-fuels are the only fuels on the list that work to 
replace foreign oil for transportation.  It’s my belief that bio-fuels, 
while helpful, will not be the total solution.

So we have domestic natural gas as the replacement for foreign oil. 
Natural gas is clean, abundant, affordable and, again, domestic.

Natural gas is the second largest energy resource in the country.  When 
you look at the piechart of power generation in the United States, you 
have 50 percent coal, 22 percent natural gas, 20 percent nuclear and 8 
percent hydro and renewables.

If we take the natural gas we’re using for electrical generation and move 
it to transportation, we can replace 38 percent of our foreign oil 
imports. And that, sports fans, is a real number.

Using natural gas for transportation is not a new idea. While there are 
only 150,000 vehicles running on natural gas in the U.S., there are nearly 
8 million automobiles worldwide and that number is growing rapidly. We’re 
getting beat by the French in nuclear power, and by the world in natural 
gas vehicles. We should be leaders, not laggards.

I know that we can do this because we’ve done it before.  President 
Eisenhower led us to build an extraordinary interstate highway system. 
President Kennedy took us to the moon.  And President Reagan led us to win 
the cold war.

If you could lower your foreign oil imports by 38 percent, you are 
reducing the amount of money you’re exporting by 38 percent.  Reduce $700 
billion in foreign oil purchases by 38 percent and you’ll see an annual 
savings of nearly $300 billion every year.  $300 billion more would be 
staying inside our country instead of going to other countries overseas.

Nothing can reduce your imports better than this and you work with energy 
supplies right here.

But if we use all of that natural gas for transportation, how do we 
displace it from the nation’s electrical grid?

The Sweetwater, Texas, wind complex is the model. If you take the total 
Sweetwater complex it will soon be producing 2,000 megawatts. The Shell 
Oil Company and TXU are getting ready to do another project just north of 
Sweetwater, and that’s 3,000 megawatts. My company, Mesa Power, just put 
under contract with GE the largest single turbine order that has ever been 
given. The first phase of the Mesa Pampa Wind Project will be capable of 
generating 1,000 megawatts of electricity, enough for 300,000 average U.S. 
homes. When we complete the entire project, it will have the capacity to 
generate some 4000 megawatts and will have cost close to $10 billion.

We have the best wind in the world. It’s time we got serious about using 
it.

The US wind corridor runs from Sweetwater to Pampa and Goodland, to 
Kansas, and Hastings, Nebraska and right up the line to Canada. The 
Department of Energy in April of this year showed that we could develop 20 
percent of our electricity generation from wind using wind resources in 
the heartland of the United States.



Now, if you take wind power and use it to replace natural gas for 
electricity generation, you can release the natural gas to transportation. 
One million cubic feet (MCF) of natural gas equals 8 gallons of gasoline. 
At $4 dollars a gallon for gasoline, that means an MCF of natural gas is 
worth $32 dollars. And natural gas is selling today around $10 dollars an 
MCF.

We don’t buy all of our oil from our enemies. We do have some friends – 
Canada and a few others. But most of the money that the world pays for oil 
goes into the hands of countries that are not our reliable allies. And 
some of that money is used right back against us in the war on terror. And 
so, we are funding the people who are trying to wreak havoc on this 
country.

The good news is we can use alternatives to address this problem. I am 100 
percent for all alternatives. It is clear that renewable energy sources 
are an essential national security strategy. But in order for renewables 
to replace a meaningful amount of our imported oil, we need a national 
electricity transmission system to carry this electricity, be it wind, 
solar, biomass or other alternatives.

I have always believed that an idea has to be simple to be worth investing 
in.  That is why I am building the world’s largest wind farm.  There is 
good wind in the area where I live in Roberts County in the Texas 
Panhandle, and I have the ability to transmit the electricity to markets 
in Texas that will pay for it.  Good wind and transmission are the keys to 
my project.

I think that most of the witnesses here today have said that those two 
elements are key to every wind project.  That is because, as can be seen 
from the Department of Energy wind resource map above, the large, flat, 
open areas with adequate wind are usually located a long way from where 
electricity is needed.  Since we can’t do much about where nature has put 
the wind, we have to do something about transmission to move the 
electricity to market.

Unfortunately, the large, flat, open areas with adequate wind do not 
already have transmission service because there has been no reason to 
provide transmission service to those areas, so we are looking at a need 
for green field transmission projects.  The Department of Energy map below 
has identified the scale of transmission projects that will be required to 
move electricity generated from our wind resource heartland to the load 
centers that need it.


Greenfield transmission projects all face the same obstacles--siting, use 
of federal lands, permitting, equitable allocation and recovery of costs, 
equitable allocation of capacity, and availability of financing.  Senator 
Reid’s bill, S. 2076, which would provide for the identification of 
National Renewable Energy Zones, will definitely help move the process 
forward, but I would like to explain to this Committee what I see as the 
issues through the eyes of a wind project developer who has had to deal 
with each of these issues.

There is a sequencing problem that is circular—transmission won’t be built 
unless there is generation capacity to be carried, and generation won’t be 
built unless there is transmission.  Furthermore, long distance 
transmission is only economic if it is built to high capacity, which means 
that there must be a large amount of generation capacity in one place.

I happened to be lucky with my project, because I was already planning a 
water project that required a pipeline running in the same direction that 
I needed transmission for my wind project.  The water project pipeline 
right of way eliminated the siting and permitting issues, but I still have 
to face the financing, and cost recovery issues.

As you may know, Texas has taken a leadership role in encouraging the 
development of wind generation.  The Texas Legislature has adopted a 
renewable portfolio standard, which has encouraged development of wind 
projects in Texas, and has directed the Texas Public Utility Commission to 
identify competitive renewable energy zones (CREZ)—areas that are well 
suited to development of renewable energy production, and to adopt 
policies that will make transmission available to those zones.

However, the Texas CREZ process began in 2005, and is expected to be 
completed in 2013.  I am eighty years old, and I don’t have time to wait 
for the process to be completed, and neither does this country.  I am 
building my own transmission line, which will ultimately travel 250 miles 
in Texas from the top of the Panhandle to near the Dallas/Fort Worth area, 
and I will have to pay for this transmission line myself.  Not very many 
wind developers are in a position to do this.

I expect to sell my power in the Texas ERCOT market where prices are set 
by competition among power generators.  As a result, I will not be able to 
simply increase the price of my power to cover transmission; instead, my 
profits will be reduced by my transmission line costs.  This is a penalty 
that I am willing to pay in order to get my electricity to market first, 
but it is not a burden that most developers can bear.  It requires scale 
and financial capacity.  That is how I came to build the world’s largest 
wind farm.  It is the only way to pay for the transmission capacity as a 
private line, and it is only feasible within Texas.  If you want to do it 
on a national scale, where the transmission line distances will be much 
longer, and utility regulations are different, Congress must act.

As I said earlier, I believe that the United States has the opportunity to 
build renewable electricity capacity to serve a substantial part of our 
needs for energy.  By doing so, we will increase our energy security, 
improve our environment, revitalize the heartland of the United States, 
reduce the demand for natural gas to be used as fuel for generation, 
reduce the production of greenhouse gases, and reduce the demand for water 
to be used in thermal generation.

In order to secure these benefits, the issues that I identified above must 
be addressed.  Let me take a moment to explain each of them.

Siting Authority.  As a land owner myself, I understand concerns that 
landowners have about having their property taken for public use.  Quite 
properly, our Constitution provides protection for landowners from 
arbitrary takings.  However, for more than 150 years, we have recognized 
that private companies transporting the common necessities of life, food, 
water, fuel and electricity, to cities and towns are serving the public 
interest because life in the cities would not be possible without those 
necessities.  As a result, private companies, such as Mesa Power, have 
been permitted to use the power of eminent domain, subject to oversight by 
public authorities and the courts, to obtain rights of way for 
transportation corridors.

This system worked well for many years, but the large distances between 
the best sites for renewable power and the places where that power is 
needed have presented new challenges.  The state public authorities that 
oversee the use of eminent domain by private companies are required to 
consider the benefits of the project to the citizens of their states. 
They often have indicated that they do not have the authority to consider 
the benefits to citizens of the United States who are not residents of 
their states in deciding whether a particular transmission line should be 
permitted to be located through the power of eminent domain.

No project sponsor likes to use eminent domain powers.  It is slow, 
cumbersome, expensive and unpredictable.  Negotiated easements that result 
in a landowner willingly permitting the use of the land are very 
desirable.  However, a transmission line with a gap in it, no matter how 
small, is useless.  Any single landowner along a transmission route can 
prevent the entire project from being constructed, no matter how important 
the transmission project, unless the transmission provider has the power 
of eminent domain.

Where state utility commissions are limited by state law to considering 
benefits to citizens of their state, eminent domain power may not be 
available to transmission developers wishing to cross the state without 
providing transmission service to local generators or local electricity 
users.  This problem was recognized in the Energy Policy Act of 2005 
(EPAct 2005), but the provisions of that act, which added Section 216 of 
the Federal Power Act, need to be extended.  Section 216 currently 
requires that the Secretary of the Department of Energy conduct a study 
and issue a report designating corridors as a National Interest Electric 
Transmission Corridors every three years.  After the designation, a 
transmission service provider can seek siting approval from a state 
commission, and if the approval is not received within one year, the 
provider can then seek siting approval from the Federal Energy Regulatory 
Commission (FERC).  This introduces a potential delay of over four years 
before the FERC transmission approval process can even begin.  In 
addition, there is not agreement that the language of Section 216 
authorizes a finding by the Secretary of Energy that transmission is 
“constrained” if there is a proposed project, but no available 
transmission at all.  Congress needs to address these issues by amending 
Section 216 to direct the Secretary to make designations of National 
Interest Electric Transmission Corridors, outside the three year cycle 
provided by Section 216, upon request from a transmission service provider 
who can show that a renewable project developer has requested service and 
a load serving entity is willing to contract to purchase power from the 
renewable project developer. Congress also needs to provide the FERC 
exclusive jurisdiction to site new transmission for a renewable energy 
project in the specific case where a developer has contracted to build, 
and a load has contracted to buy the energy from, a new renewable energy 
resource.

Federal Lands.  Most long transmission lines in the west will cross 
federal lands.  Again, while EPAct 2005 recognized the issue, and provided 
a process to address the issue, the process for approval should be 
streamlined.  Either designation of a national interest electric 
transmission corridor by the Secretary of Energy or specific siting 
approval by the FERC should be sufficient to grant approval by the United 
States for use of any federal lands crossed by the proposed transmission 
line. (EPAct 2005 excluded lands included within the National Park System, 
the National Wildlife Refuge System, the National Wild and Scenic Rivers 
System, the National Trails System, the National Wilderness Preservation 
System, or a National Monument from its scope, and  that exclusion should 
be continued.).  Any affected federal agency could appear in the FERC 
proceeding to present any concerns regarding the use of federal lands 
included in the proposed route for the transmission line.

Federal Permitting.  Every transmission line involves multiple approvals 
from the United States and its agencies and departments.  While it is 
possible with enough time and patience to gather the necessary permits, it 
introduces unnecessary delays into the process.  Again, EPAct 2005 
addressed the issue, but the process can be further streamlined.  While 
EPAct 2005 did authorize the DOE to take the lead in coordinating federal 
permitting, and required other agencies and departments to enter into a 
memorandum of understanding with DOE regarding permitting projects, I 
believe that DOE should be authorized to issue the required permits 
directly after the transmission service provider meets the requirements 
for those permits in the judgment of  DOE.

Equitable Cost Allocation and Recovery.  As I said earlier, a transmission 
line with a gap in it is worthless.  Put another way, there is no useful 
way to build a transmission line in phases.  It either is or it isn’t.  As 
a result, the costs are all incurred at once before it is available for 
use.  Generation, on the other hand, can be built over time, and may have 
to be built as wind turbines become available.  That means that the first 
wind turbines on a transmission line may not be able to bear the entire 
cost of the transmission line until more of the transmission line capacity 
is in use.

In Texas, we have concluded that transmission service to renewable energy 
production areas is socially desirable, and our legislature has directed 
our public utility commission to develop a plan, the CREZ plan that I 
mentioned earlier, to pay for extending transmission lines to serve areas 
where renewable resources are available to generate electricity.  The cost 
of those lines will be paid by the ratepayers throughout ERCOT, because 
all of them benefit.  In Texas, we have a very large market for 
electricity, the ERCOT market, so that several billion dollars of costs 
can be spread across the entire market without creating a problem for 
electric rates.  In much of the rest of the country that is not true.  It 
is a particular problem where many interconnected systems would benefit 
from new long distance transmission to serve renewable generation 
projects, but one utility or group of rate payers is expected to bear the 
entire cost.

Once again, Congress addressed the issue in EPAct 2005, but the FERC needs 
to be directed to spread the costs more widely, across multiple states if 
necessary, to reflect the benefits that are gained from the transmission 
project in terms of congestion relief, and other benefits.  I propose that 
the FERC should be directed to allocate the costs of a new transmission 
line constructed under a special renewable resource NIETC designation that 
the FERC has sited to all load that benefits from the access to the energy 
transmitted over the line.

Equitable Allocation of Capacity.  If I put several billion dollars at 
risk, which I expect to do with my project, it does not strike me as fair 
that someone else can show up after everything is built, and all of the 
risks have been taken, and ask for and receive the right to use the 
transmission line that I paid for and force me to curtail transmission of 
my own electricity to permit them to use the transmission line.  If you 
are going to encourage people to take entrepreneurial risk, you cannot 
expect them to do so if they can receive the same benefits by sitting back 
and waiting for someone else to take all the risk.  Open access is fine 
for transmission lines that have already been in service for many years 
and their costs recovered, but there must be a process that encourages 
renewable generation developers to put up risk capital in return for 
preferred access rights to transmission capacity.

Financial Incentives.  I think that I may be unique both in being willing 
to take the risks that I am taking in developing my wind project, and in 
having the capital to do so.  Most of the other wind developers, even the 
other developers who are willing to develop on utility scale, are not 
willing to take the sorts of risks that I am facing.  I would not be 
willing to do it if I was not a believer that Congress will do the right 
thing in the end.  Wind and other renewable energy projects need 
production tax credits.  For projects like the one that I am building, we 
need predictable policies regarding the credits for the long period that 
it takes to get everything put together.  My project, even with the 
favorable regulatory climate for wind in Texas, will take seven or eight 
years to complete.  If we decide to build more generation capacity to 
supply other parts of the country, it may even take longer from start to 
finish.  We need to know, when we start, what economic incentives will be 
in place when we get to the finish line.  Otherwise, developers have to 
use very conservative assumptions about project economics, and many 
projects just won’t get built.  We also need targeted incentives for 
transmission lines, such as the loan guarantee program for rural renewable 
transmission lines that was proposed by the Senate in its version of the 
Farm Bill.  Long distance transmission projects for renewable energy 
should qualify for an investment tax credit as well.  When climate change 
legislation is considered again, if a cap and trade program is the 
mechanism, renewable energy projects should receive an allocation of 
credits based upon production.  Those credits can be sold to help 
underwrite the cost of transmission lines to serve remote projects.

If we do these things, our country will benefit.  We will see reduced 
demand for imported oil, cleaner air, a reduction in the price of natural 
gas, savings in demand for water to cool thermal generation, 
revitalization of the rural heartland in the central United States, and 
natural gas used for higher, better purposes than electricity generation.

We can fix these problems over time if we move a meaningful amount of our 
power needs to alternatives. There are no enemies, no competitors, nothing 
in domestic alternatives.

I have a mission ladies and gentlemen. That mission is to try to explain 
what I’ve just explained here. And no matter how many times I explain it 
nobody argues with me about it. Which is interesting because I wish 
somebody would jump up and say you’re wrong and let me show you where 
you’re wrong. And nobody does that. Everybody says, well, that sounds like 
a good idea.

So, I don’t know whether it’s a good idea or whether they don’t 
understand.

Again, thank you Mr. Chairman for holding this hearing today. If we don’t 
solve the energy problems we are facing, the hole we are in will continue 
to grow and swallow more and more of our scarce resources and will 
overwhelm us as a nation.

I am happy to answer any questions you may have.

Dallas 1414696v.5