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Summary of Energy Hearings: October/November 2001


Hearing on U.S. Energy Security: Options to Decrease Petroleum Use in the Transportation Sector
House Science Committee
November 1, 2001

Bottom Line
On November 1st, the House Science Subcommittee on Energy held a hearing on "U.S. Energy Security: Options to Decrease Petroleum Use in the Transportation Sector."  A panel of witnesses representing auto manufacturers, the electric vehicles industry, the Department of Energy (DOE), and conservationist groups gave testimony concerning the relationship between national security and the nation's dependence on imported petroleum with a focus on the transportation sector.  Witnesses agreed that certain options such as electricity, biofuels, and enhanced vehicle fuel efficiency exist to decrease petroleum use and oil imports, but much more research and development is required to make them a reality.  Testimony was also heard on the status of the public-private sector Partnership for a New Generation of Vehicles (PNGV) and the U.S. Council for Automotive Research (USCAR), an industry research and development consortium.

Hearing Summary
An opening statement by Subcommittee Chairman Roscoe Bartlett (R-MD) introduced energy security problems facing the nation and some of the possible solutions.  Bartlett reported that the U.S. imports 56 percent of its petroleum, the majority of which goes to transportation fuels.  He also pointed out that world oil-production rates are expected to peak later this decade, while demand will continue to rise.  According to Bartlett, "energy efficient vehicles alone cannot address our energy security concerns; we need to develop alternative sources of energy that can be used in place of petroleum by both our existing and future vehicles."  He concluded by mentioning that H.R. 4, the S.A.F.E. Act, which was recently passed by the House, increases funding for research and development on energy efficiency and alternative fuels, and encourages adoption of alternative fuel vehicles in the federal fleet.

Former director of the U.S. Central Intelligence Agency, R. James Woolsey, was the first of six witnesses to provide testimony.  Woolsey began by informing the subcommittee that the U.S. imports more oil than any other country.  He then passionately predicted that the nation's fuel distribution and energy infrastructure will come under attack by terrorists in the future, calling U.S. dependence on the mideast for oil a "disaster waiting to happen."  To avoid or lessen problems in the future, Woolsey suggested decentralization: more local production and smaller generators.  He stressed the need for the development of renewable alternative fuels, specifically citing agricultural waste as an exploitable resource; and flexible fuel vehicles such as the ethanol-compatible cars found in Brazil.  In order to make the nation's current infrastructure compatible with these new technologies, Woolsey strongly advised for immediate commercialization.

The second witness on the panel was David K. Garman, Assistant Secretary for Energy Efficiency and Renewable Energy at DOE.  Garman outlined his strategy to free the nation of its dependency on foreign oil imports.  His approach included increasing vehicle fuel efficiency through the development and introduction of new technology, promoting domestic oil and gas production, diversifying the nation's energy sources, and enhancing security and efficiency of the fuel delivery infrastructure.  According to Garman, DOE is implementing a "higher-risk, higher-reward strategy" that will lead to the use of fuel cells powered by domestically derived hydrogen, meanwhile continuing to develop domestic biofuels as an alternative to imported petroleum.  Garman also gave testimony regarding the program known as the "Partnership for a New Generation of Vehicles," or PNGV.  He admitted that the program will not reach its goal of developing, by 2004, a production-prototype sedan with three times the fuel efficiency of a comparable 1994 model without sacrificing affordability and marketability.  However, he then listed some technologies that the program has delivered, including new composite and thermoplastic materials and increased application of lightweight aluminum for automobile construction.

The next two witnesses were Gregory Dana, Vice-President of Environmental Affairs for the Alliance of Automobile Manufacturers, and Robert H. Burnette from Dominion Virginia Power, speaking on behalf of the Electric Vehicles Association of the Americas (EVAA).  Dana's message to the subcommittee was that all manufacturers have advanced technology programs to improve vehicle fuel efficiency, lower emissions, and increase motor vehicle safety, but there is a need for customer based incentives, such as tax credits, to accelerate demand for the new technology.  He went on to praise H.R. 4 for its provisions that would provide personal and business tax incentives for purchasing hybrid and fuel cell powered vehicles, alternative fueled vehicles, and infrastructure development.  Burnette joined Dana in supporting H.R. 4, while also encouraging the committee to back legislation establishing an Alternative Fuel Vehicle (AFV) Acceleration Program, such as H.R. 2326.  In closing, Burnette stressed the importance of federal partnerships, such as consumer tax incentives and cost-share for research, to assist industry in bringing electric transportation technologies to the marketplace.

David D. Doniger, Policy Director for the Climate Center of the National Resources Defense Council (NRDC), and Dr. James J. MacKenzie, Senior Associate of the Climate, Energy, Pollution Program of the World Resources Institute, were the last two witnesses on the panel.  Both witnesses urged Congress to enact customer tax incentives for advanced vehicle technologies, reinvest in public transit and inter-city railroads, and promote "smart growth" in cities.  After expressing his opposition to drilling in the Arctic National Wildlife Refuge (ANWR), Doniger suggested several "faster, cleaner, and cheaper" alternatives to achieve energy security.  He implored Congress to raise fuel economy standards to 40 miles per gallon (mpg) by 2012 and 55 mpg by 2020, require fuel-efficient replacement tires by 2002, make fuel from farm wastes, and launch an "Apollo Project" for fuel cells and hydrogen fuel.  MacKenzie also had some interesting ideas to present to the committee.  He said that Congress should establish a ten-year purchasing or leasing program that would have the government offer to buy, for a given year, as many battery powered electric vehicles (EVs) or hydrogen fuel cell vehicles as meet established prices and performance goals.  He then entreated Congress to lease or buy a fleet of several hundred EVs and/or hydrogen vehicles for its own use.

During the question and answer session immediately following witness testimony, Rep. Vernon Ehlers (R-MI) made statements regarding the importance of energy security.  In Ehlers's opinion, the U.S. needs to start using more electric vehicles.  He predicted the growth of hybrid vehicles in the coming decade, followed by the introduction and use of hydrogen fuel cell vehicles after major changes are made to the nation's current energy infrastructure.  Before adjourning the hearing, Chairman Bartlett remarked that there is only about 30 years of oil left in the world, and asserted the need for the nation to lessen its vulnerability.  His final thought provoking statement was this: "Drilling in ANWR will solve tomorrow's problem ... but what about the day after tomorrow?"

Full text of written testimony can be found at Energy Subcommittee website.

-CAM


Hearing to receive testimony on H.R. 2952, the Powder River Basin Resources Development Act
House Resources Committee
October 11, 2001

Bottom Line
On October 11th, the House Resources Subcommittee on Energy and Mineral Resources held a hearing on H.R. 2952, the Powder River Basin Resource Development Act, a bill introduced by Subcommittee Chairwoman Barbara Cubin (R-WY).  This bill would establish a process for resolving disputes between developers of coal and developers of coal bed methane (CBM) in parts of the Wyoming portion of the Powder River Basin (PRB).  The Bureau of Land Management (BLM) has issued both federal coal leases and federal oil and gas leases for the same location in PRB, which has created problems as CBM, a greenhouse gas residing in the fine fractures of coal seams, has become an important resource.  CBM is released into the atmosphere when coal is mined, polluting the air and wasting the resource.  Therefore, if CMB is to be captured, it must be drilled before the coal is mined.  If this does not happen, CBM operators' senior leases allow them to stall coal mining operations until the coal miners provide adequate monetary compensation for lost production.  Cubin's legislation gives coal companies more bargaining power on this "uneven playing field."

Hearing Summary
The hearing was opened by Subcommittee Chairman Barbara Cubin with a brief introduction to the problem and the legislation proposed to remedy it, H.R. 2952.  Cubin cited the value of CBM as being less than one-half of one percent that of the coal's value.  Based on this comparison, she stated that the CBM operator "ought not to be able to prevent the far more valuable coal resource to go unmined just because there remains some gas in the seam that may take a few years more to extract."  Cubin explained how the proposed bill would enact a process by which a federal judge would condemn CBM operations that threaten the ultimate mining of the common block of coal, and order fair compensation for the terminated oil and gas rights.  Although reluctant to involve the federal legislation in this conflict, Cubin believes it is necessary to prevent CBM operators from taking advantage of the situation by holding out for compensation several times the market value of the lost methane.  She questioned the fairness of CBM operators deserving more compensation just because they hold senior leases.

The first panel consisted of Tom Fulton, Deputy Assistant Secretary for Lands and Minerals, U.S. Department of the Interior (DOI); and Shawn Taylor, Energy Policy Program Manager for the Wyoming Energy Commission, speaking on behalf of Wyoming's Governor Jim Geringer.  Both witnesses voiced their support for H.R. 2952 and talked about the bill's benefits.  Fulton praised the bill for optimizing the recovery of both CBM and coal resources, and for providing "timely conflict resolution where the inability to reach a settlement agreement could result in bypassing vast amounts of valuable coal."  However, he mentioned that DOI was concerned that the bill would allow certain credits against future royalties to compensate for payments made to CMB developers.  Fulton also stated DOI's opposition to Section 16(b) of the bill, requiring that payments be made to the states for coal royalties that would have been paid, were it not for royalty credits created by the legislation.  He further discussed BLM's current conflict resolution policy, which would work together with H.R. 2952 to protect the rights of the lessee, optimize the recovery of both resources, and protect public safety and the environment.

Ryan Tew, the first witness on the second panel, gave testimony on behalf of Peabody Energy Corporation, a coal developer, and the National Mining Association (NMA).  Tew stressed the idea that coal production from the PRB is critically important to the U.S. as an economic issue and as a domestic energy security issue.  According to Tew, Peabody Energy and NMA support federal intervention in the form of legislation (H.R. 2952) to stop oil and gas developers who seek unreasonable compensation from coal miners who cannot afford extended negotiations or prolonged litigation.  He stated that the bill would provide "a predictable and fair resource development dispute resolution mechanism where negotiations are unsuccessful" and where extended litigation would "prejudice coal lessees and needlessly add to already crowded federal court dockets."  Tew concluded by summarizing the task of H.R. 2952.  He said that it would merely establish that, if an oil or gas well is in conflict with imminent coal production, the oil and gas developer will receive full and fair market value for the well, even if the lease is junior in time to the coal developer's.

Mark S. Sexton, speaking on behalf of the Independent Petroleum Association of Mountain States (IPAMS), and Vernon A. Isaacs, Jr., of RIM Operating, Inc., also spoke on the second panel, but argued on the opposite side of the debate.  Both witnesses were opposed to H.R. 2952 and provided lists of grievances with the proposed legislation.  Sexton, who is president of a coal bed methane production company (Evergreen Resources, Inc.), stated that the bill "effectively grants coal producers the right to condemn, vent and waste CBM and to deduct the costs of condemnation from payments of their federal coal royalties."  According to Sexton, IPAMS is against the legislation because it is unnecessary, it sets a poor precedent for resolving resource conflicts, it encourages waste of the CBM, it does not provide for full compensation to CBM operators for the loss of their resource, and it is constitutionally flawed.  Isaacs echoed this sentiment and stressed the idea that these are private and local disputes that should be solved through private agreement, not federal intervention.  Both witnesses referred to H.R. 2952 as "unconstitutional, unnecessary condemnation legislation."

Full text of written testimony can be found at the House Resources website under Meetings.

-CAM


Hearing to receive testimony on the proposed pipeline to transport natural
gas from Alaska to the lower forty-eight states

Senate Energy and Natural Resources Committee
October 2, 2001

Bottom Line
On October 2nd, the Senate Energy and Natural Resources Committee held a hearing on the Alaska natural gas pipeline issue.  A total of 16 witnesses provided testimony focusing on what route the pipeline should follow, whether it is economically viable to construct one, and the role of the federal government in the largest privately funded project in U.S. history.  Three possible routes were discussed for transporting natural gas from Alaska's North Slope to the lower 48 states: the northern route, the southern route, and the liquid natural gas (LNG) route.  Most parties support the southern route, also called the Alaska Highway or Alcan route, even though it is approximately $2 billion dollars more expensive than the northern route. The pervading economic debate at the hearing was over whether the government should assist producers with subsidies, tax incentives, or other forms of financial aid.

Hearing Summary
Alaska Governor Tony Knowles and Alaska State Senator John Torgerson opened the hearing.  Knowles expressed his support for the pipeline project and offered suggestions as to what kind of legislation would be needed for the project's success.  He suggested that any proposed legislation contain provisions mandating that the Alaskan Highway or southern route is used, because it has the broadest support among Alaskan natives, environmental organizations and business, civic, and bipartisan political leaders.  According to Knowles, the southern route is currently authorized in the Alaska Natural Gas Transportation Act (ANGTA), it is part of an existing international treaty with Canada, and it recognizes the environmental advantage of following transportation corridors already in place.  The Governor's list of provisions also included building American industry and creating American jobs by providing incentives for the use of American and Canadian steel, implementing a product labor agreement to attract organized workers, and addressing employment needs in Alaska.  In addition, Knowles identified three key economic incentives necessary to attract private investment to the southern route: accelerated depreciation, investment tax credits, and a production gas tax credit.

Sen. Torgerson, chair of the Alaska Senate Resources Committee and Joint Committee on Natural Gas Pipelines, was also in favor of the southern route.  He stated his opposition to the producer-proposed legislation, reasoning that because it is route neutral, it gives producers the opportunity to apply for a buried underwater offshore ANWR pipeline route to which Alaska is adamantly opposed.  Torgerson voiced a list of proposals for possible legislation, the first of which was to reaffirm ANGTA as prevailing law.  He then proposed to adopt the provision in H.R.4 to ban the northern or "over-the-top" route, which would go through the Beaufort Sea.  Torgerson also suggested the creation of a joint board made up of members from the Federal Energy Regulatory Commission (FERC) and the Regulatory Commission of Alaska (RCA) to ensure that the state has fair and reasonable access to gas produced in Alaska.  Lastly, Torgerson expressed the need for an accelerated depreciation schedule and urged that the U.S. provide no incentives to natural gas producers from non-North American sources.

The witnesses of the first panel included: The Honorable Patrick Wood III, FERC Chairman; Drue Pearce, Senior Advisor for Alaska Affairs, U.S. Department of the Interior (DOI); and Robert S. Kripowicz, Acting Assistant Secretary for Fossil Energy, U.S. Department of Energy (DOE).  The overall tone of this panel was that of support for the pipeline and a willingness to aid the government and the producers however possible.  Wood said that FERC would treat all applications submitted by producers with national priority status.  Pearce suggested that DOI be involved in pipeline-project oversight.  According to Kripowicz, DOE could assist in expediting permits and would work with the Canadian government to aid the pipeline's progression.

The second panel was made up of representatives of oil and gas companies--referred to as the producers.  Joseph Marushak from Phillips Corporation was fairly optimistic, stating that the project is possible if all of the stakeholders cooperate and if legislation is created to streamline the permitting process.  The largest holder of gas in the North Slope, Exxon-Mobil, was represented by the president of the corporation, Terry Koonce.  He expressed that he does not support the concept of subsidies and asks for no specific incentives.  He did, however, reaffirm Exxon-Mobil's route-neutral stance and requested an expedited regulatory process.  Robert Malone, regional president of BP America, called the pipeline "a work in progress" that is not currently viable.  He also commented on the producer-proposed legislation, stating that it is not set in stone but open to modification.

The first witness on the third panel was Richard Glenn from the Arctic Slope Regional Corp. (ASRC), representing Alaskan Inupiat Eskimos who own land on the North Slope.  Glenn stressed the importance of hiring native Alaskans for the jobs that would be created, and urged producers not to overlook natural gas reserves around the Prudhoe Bay area, which may contain 60 trillion ft3 of natural gas.  The next witness was Patricio Silva, Energy Projects Attorney for the Natural Resources Defense Council (NRDC), who communicated the need for new environmental impact statements.  Silva also urged that the nation practice conservation and efficiency to make the most of the natural gas reserves under discussion.  William D. Sullivan, Executive Vice President of Anadarko Co., voiced concerns that the three producers controlling the pipeline might not provide access to others who need to transport gas.  These feeling were shared by Glenn, who listed possible ways the three major producers might monopolize the pipeline.  According to Glenn and Sullivan, new legislation should include language providing nondiscriminatory tariffs.

The fourth panel included testimony from six witnesses: Mark Aron, Vice Chairman of CSX, Inc.; Keith Bailey, Chairman and CEO of Williams; Scott Heyworth, Chair of Citizens Initiative for the All-Alaska Gasline; Forrest Hoglund, Chairman & CEO of the Arctic Resources Company (ARC); and Mike Stewart and Dennis McConaghy, Co-Chief Executive Officers of Foothills Pipe Lines Limited.  Each of these witnesses spoke in favor of one of the three proposed routes, providing reasons why their choice of route is superior and the other routes are inferior.  Aron and Heyworth spoke in support of the All-American LNG route, also called the TransAlaska Gas System (TAGS), which would involve converting the gas to liquid form and transporting it to Valdez paralleling the Trans-Alaska Pipeline System.  Aron stated that TAGS would supply needed gas to Alaskan communities and optimum pipeline security because it is wholly within Alaska.  Hoglund was the only supporter of the "over-the-top" or northern route, calling it the "shortest, fastest, and most economic option."  He requested that Congress pass legislation to set timetables for regulatory and environmental approvals so that the project could proceed as quickly as possible.  Bailey, Stewart, and McConaghy voiced their support for the southern route.  They strongly urged committee members to reaffirm ANGTA and avoid any new legislation that would modify the existing ANGTA framework.

Full text of written testimony can be found at the Senate Energy and Natural Resources website under "Previous Hearings".

-CAM

Please send any comments or requests for information to the AGI Government Affairs Program.

Contributed by Fall 2001 AAPG/AGI Intern Catherine Macris.

Posted August 9, 2002


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