House Science Committee, February 28, 2001: Hearing on the Nation's Energy Future: Role of Renewable Energy and Energy Efficiency House Energy and Commerce Subcommittee on Energy and Air Quality, February 28, 2001: Hearing on National Energy Policy: the Role of Natural Gas Senate Energy and Natural Resources Committee, January 31, 2001: Hearing on the California Electricity Crisis: Implications for the West
The Bottom Line
The House Energy and Commerce Energy and Air Quality Subcommittee opened a series of hearings dealing with energy policy with a discussion of the role that natural gas should play in comprehensive energy policy. Testimony was heard from the Federal Energy Regulatory Commission Chairman Curt Herbert who was questioned intensely on the procedures of pipeline approval and construction. The members wanted to find out ways in which the pipeline permitting procedures can be expedited. The second panel consisted of representatives from the natural gas industry, consumer groups, the Energy Information Agency, and the National Resources Defense Council. The hearing record was submitted to Vice President Cheney's task force on energy. The Subcommittee Chair Rep. Joe Barton (R-TX) stated that the testimony of the two panels as well as written questions will be used during production of the Subcommittee's energy legislation. The themes stressed in the hearing were the importance of access to public lands, ways to balance natural gas supply and demand, reducing the effect of price fluctuations on domestic consumers, pipeline construction, power plant construction, and pipeline safety.
Committee Member Statements
Chairman Joe Barton (R-TX) opened the hearing, stating that the focus of this hearing was to discuss the role of natural gas in a comprehensive energy policy. The committee will hold several hearings over the next couple of months to discuss other energy sources including coal, hydroelectric, and nuclear power. He highlighted the rising costs of natural gas caused by reduced growth in production combined with increasing demand for this clean burning fuel. Natural gas policy should focus on balancing supply and demand, building and maintaining new infrastructure including new pipelines, and reinforcing pipeline safety guidelines.
Ranking Minority Member Rick Boucher (D-VA) emphasized that fuel "spot market spikes" can be prevented through changes made on both the supply and demand sides of the natural gas market. The most important part of a national energy policy is to have a range of energy sources because the nation "is far too reliant on too few energy sources." Natural gas supply can be increased by strengthening transportation infrastructure links between regions, particularly using the Natural Gas Transportation Act and the Natural Gas Act to help bring Alaska's natural gas "down into the rest of the country." On the demand side, he stressed the need for creation of conservation oriented policy.
Many other committee members made statements along similar lines -- increasing supply through construction of pipelines and other transportation infrastructure, balancing supply and demand in the natural gas market, long term efforts in conservation, and creating a national energy policy that uses a variety of sources. Several members stressed the importance of reducing the high gas and electricity bills of their constituents. Opening restricted public lands to gas exploration and increasing conservation measures were mentioned by several members as gas price spike prevention measures.
Chairman Curt Hebert, Jr., Federal Energy Regulatory Commission
Chairman Hebert's Testimony detailed the Federal Energy Regulatory Commission's (FERC) role in the natural gas market. FERC ensures that there is adequate pipeline infrastructure to support the increasing demand for natural gas. In this function FERC can mitigate price increases through certification of new pipeline projects to ensure that newly developed supplies reach the market quickly and "bottlenecks" are avoided. He stated, "I will do everything I can to ensure that the Commission quickly processes certificate applications for pipeline projects." The other role of FERC is to "set the rates, terms, and conditions of service for interstate transportation and storage of natural gas." FERC has no control over prices paid at the wellhead, but Hebert notes that this winter's price spike should trigger increased production to bring prices down.
Elizabeth Campbell, Energy Information Administration
Ms. Campbell's testimony introduced data on natural gas price fluctuations in past years, the Energy Information Administration's (EIA) market predictions, and ideas for assuring adequate supplies in the future. The highest prices were seen in late December and early January in the California market, reaching $10.53 per thousand cubic feet. The EIA attributes the price spike to high demand in 2000. The demand was met early in the year, but not enough was stored for winter peak demand. After this winter, the EIA predicts that gas prices will stabilize as supply comes into balance with demand and then generally increase near the rate of inflation in the coming years. These predictions are based on the assumption that infrastructure and exploration will keep pace with demand.
Wadlington, Interstate Natural Gas Association of America
Mr. Wadlington stated that in the opinion of the Interstate Natural Gas Association of America (INGAA) the first goal of any energy policy is to have an adequate supply of natural gas. The inadequate pipeline network for natural gas distribution and the public lands that are currently restricted from oil and gas exploration stand in the way of creating adequate supply. INGAA would like to play a role through interagency partnerships in the analysis of delays in pipeline construction and pipeline safety.
Jordan, Independent Petroleum Association
of America, National Stripper Well Association
Mr. Jordan's testimony came from the viewpoint of independent producers who see declining capital investments in domestic markets. The problem of declining investments could be solved through tax reform and market freedom. The other big hurdle for independent producers in the domestic market is getting access to land that has been restricted through congressional and executive actions. The producers believe that modern drilling techniques minimize environmental damage to outer continental shelf land and environmentally sensitive areas.
G. Reiten, American Gas Association
Mr. Reiten emphasized the findings of a National Petroleum Council study on natural gas and the American Gas Association's Fueling the Future: Natural Gas & New Technologies for a Cleaner 21st Century. The reports cite a number of policy recommendations to ensure future natural gas supply -- expansion of natural gas infrastructure, research and development in new technologies, increasing energy efficiency, and greater access to public lands.
J. Littefair, Pickens Fuel Corporation, Natural
Gas Vehicle Coalition
In his testimony Mr. Littlefair discussed the benefits of vehicles run on natural gas, and ways in which the federal government could promote the use of these vehicles. Natural gas vehicles reduce the exhaust emissions of carbon monoxide, carbon dioxide, non-methane organic gas, and nitrogen oxides. Increased use of domestically produced natural gas will help reduce the nation's reliance on foreign oil. The federal government should encourage growth in the natural gas vehicle market through tax incentives, increased funding for research and development in alternative fuels, and governmental acquisition of alternative fuel vehicles.
A. Luxbacher, Natural Gas Supply Association
Ms. Luxbacher emphasized that a national energy policy takes into account the needs of natural gas suppliers, who are already doing what they can to increase natural gas production to meet growing demand. Gas producers should be allowed greater access to public lands for exploration. The regulatory framework needs to allow markets to manage supply and demand, provide market based incentives for environmental responsibility, be efficient, and be predictable. Also, a national energy policy must include a wide range of energy supplies.
Hendrix, Kansas Citizen's
Utility Ratepayer Board
The Kansas Citizen's Utility Ratepayer Board understands the complexity of formulating a national energy policy, but they would like such a policy to reduce the impact of natural gas price spikes on consumers. Demand side policy should include conservation and weatherization incentives and price signals that will cause consumers to adjust consumption patterns. Supply side policy should include increased exploration, pipeline capacity, and storage capacity. Other financial instruments such as "hedging" may help reduce the impact of price spikes on consumers in the short term.
Hilliard, American Public Gas Association
The American Public Gas Association (APGA) believes that market manipulation is the cause of the natural gas price spikes this winter. Hilliard reported, "In the short run, we have not experienced a natural gas supply crisis; we have a natural gas pricing crisis." Simply increasing supply or reducing demand will not alleviate the price spike issue if price manipulation occurs. The APGA would like Congress to investigate the effect of commodity and private trading on consumer prices, the methods used to determine index prices, the role of mega-marketers, and the impact of reliance on natural gas for electric generation.
Gill, CYTEC Industries, Louisiana
Mr. Gill's testimony highlighted industries other than energy that make extensive use of natural gas. Price volatility in natural gas can ripple through the whole economy. The chemical industry provides ammonia and caustic chlorine, which use natural gas during production. Price spikes in natural gas directly affect the cost of these very important materials. Mr. Gill would like a national energy policy to recognize the role that natural gas plays in many sectors of the economy, especially agriculture. A national energy policy should open previously untapped public lands to exploration, and develop a long term strategy to cluster the nation's natural resources by region to promote international competitiveness and smart investment of capital.
Silva, Natural Resources Defense Council
Mr. Silva focused his testimony on balancing natural gas supply and demand through energy efficiency and pipeline construction. Drilling in restricted areas will not be necessary if other measures are taken to use the existing reserves more efficiently. The NRDC supports incentives for construction of more energy efficient buildings, production of efficient appliances, and environmentally sensitive pipeline construction. The group opposes the drilling in the Arctic National Wildlife Refuge and in currently protected offshore areas.
This hearing was called to discuss the California electricity crisis, which reaches beyond the California border and into other western states. Three panels of witnesses presented their views on the origin of the problem, potential remediation measures, and the implications that the crisis has for the west as well as the entire country. The hearing was well attended by committee members, the public, and the media. Testimony was heard from utility representatives of both investor and privately owned firms, energy industry experts, and financial consultants. They agreed that the structure of the California electricity market was going to have to change in the long term to become totally deregulated or re-regulated. Potential short-term solutions were discussed in detail due to the threat of more severe shortages of power during the summer months, a threat heightened by drought conditions for much of the state. Senators and panelists both stressed the need for the public to understand that electricity is not generated by, as stated by Sen. Gordon Smith (R-OR), "flipping a light switch."
Committee Member Statements
Chairman Frank Murkowski (R-AK) opened the hearing with a warning that as bad as the energy situation in California is, it may get worse, especially during summer when air conditioners are turned on. He asserted that California's problem is not an isolated one; it is affecting the entire West. The cause of the crisis is the electricity market being too reliant on electricity bought outside of the state. Murkowski made an analogy between the California electricity market and the U.S. reliance on foreign oil, warning that, "we cannot rely on others to provide our energy security." He also blamed partial deregulation of the electricity market in California for the crisis.
Ranking Minority Member Jeff Bingaman (D-NM) also emphasized that the electricity market in California is not isolated from the rest of the western states. The problems that have been encountered in California are reverberating through the west and the entire country. But he warned that drilling in the Arctic National Wildlife Refuge (ANWR) is not the solution to the crisis. Exploiting oil reserves in ANWR is the only proposal that he has heard from the Bush administration, which needs to quickly find a workable solution in California before the crisis spreads.
Senator Dianne Feinstein (D-CA) submitted a full statement into the record but highlighted some of the main points. She read a letter from California Governor Gray Davis presenting four points that should alleviate the electricity problems of the state: 1) Increase electricity supply through building new power plants in the state, 2) Decrease electricity demand through increased efficiency, 3) Expand energy contracts, 4) Maintain the financial viability of energy companies. The senator expressed the need for the Federal Energy Regulatory Commission (FERC) to impose wholesale price caps as a short-term measure to lessen the effects of the electricity crisis. Feinstein also mentioned two pieces of legislation she will present to the Senate, one dealing with long-term electricity contracts and the other wholesale price caps.
Senator Mary Landrieu (D-LA) stated her commitment to aiding California in this crisis and made suggestions to be included in a national energy policy to guarantee all states a reliable electricity source in the future. She suggested that more domestic oil production must occur, that all states should produce as much energy as they can while following federal environmental standards, that those standards should not be layered at the state and local levels, and that high energy costs caused by bad political decisions should not fall on the poor or small businesses.
Senators Larry Craig (R-ID), Ron Wyden (D-OR), and Gordon Smith (R-OR) all argued that the federal government should not compel the Pacific Northwest region to pay for California's energy problem. In the Bonneville utility district, consumer rates have increased rapidly, while consumers in the state where the problem originated are not paying their share. Another concern this year is the lower than average precipitation in the region that has decreased the hydroelectric generating power of streams. If the Pacific Northwest is to maintain adequate water supply for salmon habitat as well as state power needs, it is impossible to sell large amounts of electricity to California.
Senator Ben Nighthorse Campbell (R-CO) praised President Bush for convening an energy task force chaired by Vice President Cheney to find solutions to the California electricity crisis and discuss other energy issues. Campbell emphasized the need for the federal government to intervene in California's problem because many of the western states share the same power grid, and because the strength of California's economy is connected to the strength of the nation's economy.
Senator Barbara Boxer (D-CA) is not a member of the Energy and Natural Resources Committee, but she made a statement thanking the committee for their commitment to helping relieve the crisis in California for the short term. She asserted that the environmental regulations for clean air are not the cause of electricity shortages in California. She also emphasized the point that the energy crisis is not only a California problem. Boxer will present a bill to encourage implementation of wholesale price caps. She concedes that the California electricity market structure is not deregulated but questions whether consumers would accept the higher prices that a truly deregulated market would bring.
Link to Senate Energy and Natural Resource Committee webpage
Larry Makovich, Senior Director of Research, North American Electric Power, Cambridge Energy Research Associates, Cambridge, MA
Peter Fox-Penner, Principal, Brattle Group, Washington, D.C.
Kit Konolige, Managing Director, Morgan Stanley Dean Witter, New York, NY
Steve Frank, President & CEO, Southern California Edison, Rosemead, CA
Steven Kline, Vice President, Federal Governmental & Regulatory Relations, Pacific Gas & Electric, Washington, D.C.
Fred John, Senior Vice President, External Affairs, Sempra Energy, San Diego, CA
Keith Bailey, President & CEO, The Williams Companies, Tulsa, OK
Steve Kean, Executive Vice President & Chief of Staff, Enron, Houston, TX
Joe Bob Perkins, President & Chief Operations Officer, Reliant Energy Wholesale Group, Houston, TX
Curt Hildebrand, Vice President, Business Development, Calpine Corporation, Pleasanton, CA
Richard Ferreira, Executive Advisor, Sacramento Municipal Utility District, Sacramento, CA
Tom Karier, Council Member, Northwest Power Planning Council, Spokane, WA
John Gale, General Manager, Pricing & Regulatory Services, Idaho Power Company, Boise, ID
Brett Wilcox, Chief Executive Officer, Golden Northwest Aluminum, The Dalles, OR
Mark Crisson, Director of Utilities, Tacoma Public Utilities, Tacoma, WA
Judi Johansen, Executive Vice President, Regulation & External Affairs, PacifiCorp, Portland, OR
The panels consisted of representatives from utilities, energy industry experts, and financial consultants. Many of the panelists discussed similar topics concerning the origins and solutions to the electricity crisis as well as future steps to avoid electricity shortages in impacted areas throughout the country.
Speakers argued that the cause of the electricity crisis in California was that demand has exceeded supply. Many factors have exasperated the problem. Two points emphasized by the panelists were that no new power plants have been built in California even though demand has been increasing, and in the present California electricity market the wholesale price of electricity is not regulated while consumer prices remain capped. The panelists stressed that measures must be taken to both decrease demand and increase supply of electricity. Decreasing demand could involve promoting conservation, allowing customers to pay the market price for electricity, and constructing more energy-efficient power plants, buildings, and appliances. Increasing supply will involve building more power plants in California, developing previously unused gas resources, and improving transmission of power within and between states. Kit Konolidge presented the California energy crisis from the perspective of an investor. He stressed that for the electricity market in California to be attractive to investors the state must allow longer-term wholesale electricity contracts and truly deregulate the industry.
Short-term solutions differ from long-term solutions to the electricity crisis. A major barrier in the short term is finding a credit-worthy electricity buyer in California. Currently the only eligible buyers are the State of California and state agencies. Keith Bailey and Lawrence Makovich suggested that all generating facilities in California must be working at full capacity and that purchasers of power ought to be allowed to use a full range of contract options not just the short-term contracts allowed by the state now. Others advised that short-term solutions should include FERC-imposed price caps. Makovich suggested that in the short term, conservation should be encouraged, environmental and legal limits should be more flexible to be able to provide emergency and backup power, and building of new generating facilities should be expedited.
There was consensus among panelists that in the long term the structure of the California energy market has to be dramatically changed. They gave recommendations including allowing long-term energy contracts between sellers and purchasers, conservation, restoring the financial viability of California's utility companies, and complete deregulation. According to Frederick E. John, the federal government has the role of giving suppliers the incentive to negotiate long-term contracts, and bring the state and utilities together to create "a fair and workable market."
Several panelists noted and several senators agreed that the electricity crisis occurring in California is only the beginning of a much larger energy crisis in the U.S. that has serious implications for all sectors of the nation's economy. There is a need for the country to have a comprehensive national energy policy that balances economic concerns with environmental concerns.
Contributed by Spring 2001 AAPG/AGI Geoscience Policy Intern Mary H. Patterson
Posted July 9, 2001
|Information Services |||Geoscience Education |||Public Policy |||Environmental|
|Publications |||Workforce |||AGI Events|