Appearing before a U.S. House subcommittee hearing last Wednesday, FERC Chairman Pat Wood said that a cyber attack on the country's power grid is a "real concern" in the context of ensuring the reliability of U.S. electricity supply.
"I think more than inadequate tree trimming, the potential for somebody at a desk to infect the weakest part of the grid and wreak some damage is a real concern," Wood said at a hearing before the House Government Reform Subcommittee on Energy and Resources examining electric reliability issues. "I think the standards that govern that need to be very agile and very smart and need to be mandatory and consistent."
He noted that the House-approved version of energy legislation includes "a specific, explicit authority over the interstate grid's cyber security standards."
As things currently stand, "our electricity transmission system is the weakest link in our electric supply system," Wood testified. "Although the Commission is working within its current statutory authority to encourage infrastructure investment, additional measures are needed to reach the level of investment required to maintain the reliability of the nation's bulk power system. The energy legislation currently pending before the Congress addresses certain impediments to investment in the short term, but more may be needed in the future."
Wood urged Congress to focus on three issues in finalizing energy legislation: (1) creating a mechanism for mandatory and enforceable power grid reliability standards; (2) providing a federal backstop for electric transmission siting authority; and (3) repeal of the 1935 Public Utility Holding Company Act (PUHCA).
With respect to PUHCA repeal, the FERC chairman said that such a move is "overdue. I think the protections that were not in place in 1935 that would have prevented the need for PUHCA in the first place are in place and have been in place for quite a while at the state-federal level now, both at the utility commissions and at the Securities and Exchange Commission."
He thinks repeal of the 70-year-old law "would spur investment in transmission infrastructure and it would facilitate competition across the country."
Rep. Darrell Issa (R-CA), chairman of the subcommittee, quizzed Wood on whether he agrees with famed investor Warren Buffett's prognosis that billions of new dollars will flow to the U.S. energy sector if PUHCA is repealed or significantly reformed.
"It's an attractive business, if the two big impediments, which are cost recovery and siting issues, can be dealt with," Wood noted.
He said that "allowing utilities to bulk up is not a bad thing. We're talking about the wires business -- having one wires company over maybe four states...as opposed to having four companies in one state. Just natural intuition tells you [with] economies of scale -- those four companies could pack together and become one company and you could probably save some money and run a smooth operation."
Wood said that that's "not a bad thing and PUHCA doesn't necessarily prevent that, but I think it does discourage that the way it's set up."
A world without PUHCA would also probably spur some foreign investment in the U.S., "which, I for one, am not concerned about," the FERC chairman added.
Also, "you would allow companies to buy across the country, which from a generation market power point of view we actually like better than just companies buying their next door neighbor, which is about the only thing you can really merge with under the way PUHCA is written."
Other witnesses appearing at Wednesday's hearing were Michehl Gent, CEO of the North American Electric Reliability Council, David Owens, executive vice president at Edison Electric Institute, and Mark Cooper, director of research at the Consumer Federation of America.
Owens highlighted eight items that he said are critical to maintaining reliability in the U.S. and enhancing the country's overall transmission infrastructure:
The Senate is expected to begin consideration of an omnibus energy bill early next week, after the Senate Energy and Natural Resources Committee recently signed off on the measure.
Assuming the full Senate passes the measure, it would have to be reconciled with the House-backed version of comprehensive energy legislation at a conference committee.
"When the comprehensive bill gets to conference, we will be working with members of the conference committee and staff to resolve any remaining issues in the reliability language," Gent said in his prepared testimony filed for the hearing.
Pursuant to a mechanism approved by FERC, a proposed electric reliability organization (ERO) and regional entities would collect funds from users of the bulk power system to support their reliability operations.
But Gent said that in an effort to reduce the Congressional Budget Office "score" for the energy bill, the House's reliability language contains a cap on spending by the ERO and its regional entities. "That cap would limit annual spending by the electric reliability organization and its regional entities to less than what NERC and the regional reliability councils now spend, before we've implemented some of the programs required by the pending legislation," he said. "The bottom line is that without an adequate budget, the electric reliability organization cannot be successful, and reliability will inevitably suffer."
Gent noted that the Senate Energy Committee has not included any such funding limitations in its energy bill. "We hope to work with the conference committee to eliminate the House reliability funding cap," he added.
Gent earlier this year urged U.S. Rep. Joe Barton (R-TX), chairman of the House Committee on Energy and Commerce, to drop the limitations on ERO funding from the House energy legislation.
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