Summary of Hearings on Energy (11-22-06)

  • November 16, 2006: Senate Committee on Commerce, Science and Transportation Hearing on the Reauthorization of the Pipeline Safety Program
  • November 15, 2006: House Committee on International Relations, Hearing on "North Korea's Nuclear Test: Next Steps?"
  • September 13-14, 2006: House Committee on Government Reform, Subcommittee on Energy and Resources Hearing on "Interior Department: A Culture of Managerial Irresponsibility and Lack of Accountability?"
  • September 13, 2006: House Committee on Transportation and Infrastructure Hearing on "Low Pressure Liquid Pipelines: In the North Slope Greater Prudhoe Bay, Alaska"
  • September 7, 2006: House Committee on Energy and Commerce, Subcommittee on Oversight and Investigations Hearing on "BP's Pipeline Spills at Prudhoe Bay: What Went Wrong?"
  • July 17, 2006: Senate Energy and Natural Resources Committee, Subcommittee on Energy Hearing on "Hydrogen Fuel Cell Research and Development"
  • June 21, 2006: Senate Energy and Natural Resources Committee Hearing on "The Enhanced Energy Security Act of 2006"
  • May 25, 2006: Senate Energy and Natural Resouces Committee Hearing on "Coal-Based Generation Reliability"
  • May 23, 2006: Senate Commerce, Science and Transportation Committee Hearing on "Price Gouging"
  • April 6, 2006: House Committee on Resources, Subcommittee on Energy & Minerals, Oversight Hearing on "The Role of the Federal Government and Federal Lands in Fueling Renewable and Alternative Energy in America"
  • March 14, 2006: Senate Committee on the Judiciary Hearing on "Consolidation in the Oil and Gas Industry: Raising Prices?"
  • March 7, 2006: Senate Committee on Energy and Natural Resources Hearing on "The Goal of Energy Independence"
  • February 16, 2006: Senate Committee on Energy and Natural Resources Hearing on the Energy Information Administration's 2006 Annual Energy Outlook
  • December 7, 2005: House Energy and Commerce Committee, Subcommittee on Energy and Air Pollution, Hearing on the Theory of Peak Oil.
  • November 17, 2005: House Resources Committee, Subcommittee on Energy and Mineral Resources, Hearing on the "Outer Continental Shelf Natural Gas Relief Act"
  • November 9, 2005: Senate Commerce Justice and Science, and Senate Energy and Natural Resources Committees, Joint Hearing on Energy Pricing and Profits
  • October 27, 2005: Senate Energy and Natural Resources Committee, Hearing on post-hurricane energy production.
  • October 25, 2005: Senate Appropriations Committee, Interior and Related Agencies Subcommittee, Hearing to examine the oil and gas activities by the Bureau of Land Management, including the impact of recently passed energy legislation.
  • October 6, 2005: Senate Energy and Natural Resources Committee, Hurricanes Katrina and Rita's Effects on Energy
  • September 21, 2005: Senate Commerce, Science, and Transportation Committee, Hearing on "Energy Pricing"
  • September 14, 2005: House Government Reform Committee, Energy and Resources Subcommittee, Hearing on "Meeting America's Natural Gas Demand: Are We in a Crisis?"
  • September 6 and 7, 2005: Two Related Hearings on High Gas Prices and the Impact of Katrina, Senate Energy and Natural Resources Committee and House Energy and Commerce Committee
  • July 26, 2005: Senate Foreign Relations Committee Hearing on "Energy Trends in China and India: Implications for the U.S."
  • June 23, 2005: House Resources Committee, Energy and Mineral Resources Subcommittee Hearing on "The Vast North American Resource Potential of Oil Shale, Oil Sands, and Heavy Oils"
  • May 25, 2005: Senate Environment and Public Works Committee Hearing on Permitting Issues of Energy Projects
  • May 19, 2005: House Resources Committee, Subcommittee on Energy and Mineral Resources, Hearing on The Impacts of High Energy Costs to the American Consumer
  • April 26, 2005: Senate Energy and Natural Resources Committee Hearing on the Nuclear Power 2010 Program
  • April 19, 2005: Senate Energy and Natural Resources Committee Hearing on Offshore Energy Production
  • April 14, 2005: Senate Energy and Natural Resources Committee Hearing on Domestic Oil Shale and Oil Sand Resources
  • April 6, 2005: House Government Reform Subcommittee on Energy and Resources Hearing on America's Energy Needs and Our National Security Policy
  • March 16, 2005: House Resources Committee Subcommittee on Energy and Mineral Resources Oversight Hearing on “U.S. Energy and Mineral Needs, Security and Policy: Impacts of Sustained Increases in Global Energy and Mineral Consumption by Emerging Economies Such as China and India.”
  • March 8, 2005: Senate Energy and Natural Resources Committee Hearing on Power Generation Resource Incentives & Diversity Standards
  • February 16, 2005: House Energy and Commerce Committee Subcommittee on Energy and Air Quality Hearing: "The Energy Policy Act of 2005: Ensuring Jobs for Our Future with Secure and Reliable Energy" Part II
  • February 10, 2005: House Energy and Commerce Committee Subcommittee on Energy and Air Quality Hearing: "The Energy Policy Act of 2005: Ensuring Jobs for Our Future with Secure and Reliable Energy" Part I
  • February 9, 2005: House Science Committee Hearing about Improving the Nation’s Energy Security: Can Cars and Trucks Be Made More Fuel Efficient?
  • February 3, 2005: Senate Committee on Energy and Natural Resources Hearing about the 2005 Energy Outlook

Senate Committee on Commerce, Science and Transportation
Hearing on the Reauthorization of the Pipeline Safety Program

November 16, 2006

Witnesses

Panel I
Vice Admiral Thomas J. Barrett, USCG (Ret.), Administrator, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation (DOT)

Panel II
Carl Weimer, Executive Director, Pipeline Safety Trust
Timothy Felt, President and CEO, Explorer Pipeline Company
Terry Boss, Senior Vice President, Environment, Safety and Operations, Interstate Natural Gas Association of America
E. Frank Bender, Vice President of Gas Distribution and New Business Division, Baltimore Gas and Electric Company

The Senate Committee on Commerce, Science and Transportation convened on November 16, 2006 to examine S.3961, the Pipeline Inspection, Protection, Enforcement and Safety Act of 2006, which would amend and reauthorize The Pipeline Safety Act of 2002. Work on this legislation has been ongoing in the 109th Congress, however, oil leaks in low-pressure pipelines in Prudhoe Bay, Alaska and the shut-down of about half of the pipeline system in the Bay by BP because of serious corrosion have brought the issue of pipeline maintenance and safety to the forefront. Indeed, because of the pipeline problems in Alaska, policymakers have offered additional amendments to the bill to try to prevent the problem from recurring.

Chairman Ted Stevens (R-AK) reported that the Pipeline and Hazardous Materials Safety Administration (PHMSA) is responsible for "160,000 miles of hazardous liquid interstate transmission pipelines, 305,000 miles of natural gas transmission pipelines, and 1.9 million miles of natural gas distribution pipelines." The states are responsible for much longer sections of pipelines that run through their states, where state pipeline safety offices are given authority from the Administration to monitor the safety of intrastate pipelines and certain interstate pipeline programs. He reported that for the most part pipelines are very safe and records have been slightly improved. However, recent events in Alaska illustrate that "much could be done" to improve the original Pipeline Safety Act. Chairman Stevens indicated that he and Senators Daniel Inouye (D-HI), Trent Lott (R-MS) and Frank Lautenberg (D-NJ) have introduced legislation known as the Pipes Act to reauthorize and strengthen the federal pipeline safety programs through the fiscal year 2007-2010. He expressed hope to pass S.3961 during the first week of December and combine S.3961 with House bills, H.R.5782 and H.R.5678, which he stated have very similar goals. Ranking Member Inouye pushed for progress in a bipartisan fashion and echoed Steven's wish to pass this bill before recess. "Time is of the essence," he said.

On the first witness panel, Vice Admiral Thomas Barrett of the Department of Transit's PHMSA, outlined two issues of importance - ensuring the safety of citizens through risk-based assessment and damage prevention programs and raising the cap on grants provided to state pipeline agencies to carry-out these programs and others over the next six years.

Barrett stated his support for swift reauthorization of the pipeline legislation. He reported that PHMSA favored a system-based approach to assessing and managing safety-related risk because large infrastructure systems change over time. Therefore, the provision in the proposed legislation requiring mandated tests every seven years should be adjusted to test instead on the basis of risk factors, according to Barrett. In this way, attention and resources can be deployed "against the greatest risks, worst first."

Furthermore, Barrett challenged the provision which would impose stricter standards on low-stress lines. He stated, "We have not determined yet whether covering more pipeline mileage and imposing more requirements can be justified by cost/benefit analysis. We have this matter under consideration and would appreciate having flexibility for the Secretary to make an appropriate decision to maximize protection of public safety, the environment and the reliability of energy supply."

The second witness panel featured representatives from the gas and oil pipeline industries and Carl Weimer, executive director of Pipeline Safety Trust, a non-profit organization that provides a voice for those affected by pipelines. Weimer outlined provisions that his organization supports and those that it opposes. Weimer noted his support of provisions in S. 3691 that would place all low-stress lines under the same minimum federal standards as high-stress lines, necessitate senior executive signatures on integrity management reports, call for a one-year timeframe to develop distribution integrity management standards, including the obligatory installation of excess flow valves, demand electronically posted monthly summaries of pipeline enforcement achievements and reauthorize technical assistance grants to states.

However, Weimer noted the need for more transparency in the pipeline management process. He urged the committee to publicize national pipeline mapping systems, make inspection findings accessible and report on over-pressurization events. Lastly, he asked that the current language which called for the development of criteria requiring emergency safety valves be strengthened to employ the inexpensive safety precaution immediately.

Tim Felt, president and CEO of Explorer Pipeline Company, noted the success of the Pipeline Safety Improvement Act of 2002, which has resulted in pipeline safety improvements. He urged committee members to reauthorize the bill now so work that has gone into the current legislation will not be lost and result in months if not years of procrastination.

Felt noted provisions within S. 3961 that he felt could be improved, but stressed repeatedly that the passage of this bill was far more important than its amendment. He stated his support for regulating low-stress pipelines on the North Slope of Alaska with the same rules as high-stress lines and urged that Section 13 of the bill adopt the same language as House bill, H.R. 5782 to enforce this. Within Section 6 of S. 2961, which would give DOT jurisdiction to issue mandatory orders to pipeline operators, he suggested modifications be made to allow operators the opportunity to confer informally with DOT before calling a hearing in order to save time and legal costs and improve safety sooner. Finally, he suggested that Section 9 of the bill, requiring monthly informational updates on pipeline enforcement actions, be treated under normal due process and confidentiality procedures. He concluded, "Passage of compromise legislation is more important than any concerns we have with individual provisions."

Terry Boss, senior vice president of Environment, Safety and Operations Interstate Natural Gas Association of America, testified in support of S. 3961 and noted that his association has made this legislation a top priority, encouraging the committee to move the bill forward as soon as possible. He did, however, note that the current seven-year requirement for regulatory tests in the bill lacked any basis in engineering and management and repeated Barrett's suggestion for more risk-based assessment so that pipelines with higher need could be tested more frequently and those that were sound and safe could be tested less frequently.

E. Frank Bender, vice president of Gas Distribution and New Business Division at Baltimore Gas and Electric Company, testified on behalf of the American Gas Association and the American Public Gas Association. He commended the committee for "putting together a solid bill" and committed to working to provide feedback for Congress so that it can secure passage of a final bill this year.

Full text of the witness testimony is available here.

-RB

 

House Committee on International Relations
Hearing on "North Korea's Nuclear Test: Next Steps?"

November 15, 2006

Witness
Nicholas Burns, Under Secretary of State for Political Affairs

Prompted by North Korean missile launches on July 5, 2006 and a nuclear test on October 9, 2006, the House Full Committee on International Relations convened on November 15, 2006, after recess and midterm elections, to discuss the future of foreign policy with North Korea. Chairman Henry Hyde (R-IL) warned against assigning too much weight to the Chinese position in the disarmament of its neighbor.

While he noted that Beijing has been surprisingly cooperative following the tests, even cutting off oil flow to North Korea from the Yalu River, he stated, "If Beijing becomes the key player in resolving the North Korean nuclear issue while we are engaged elsewhere, I fear potential long-term, dire consequences." Hyde did, however, caution against the execution of naval inspections that China, Russia and South Korea did not fully support.

Tom Lantos (D-CA) called for a "new and bold approach," because in his opinion, it is "abundantly clear" that efforts thus far have failed. He suggested "forceful action and high-level diplomacy" could provide a chance, though very slim, for a solution to the problem. He echoed Hyde's stress on the importance of cooperation with China and Russia and said a Security Council Resolution was meaningless without it. Lantos also noted the need to address the extensive human rights violations occurring in North Korea today.

Partisanship flared up during opening statements. Brad Sherman (D-CA), stated that President Bush's assertion that "nuclear weapons [were] out of enemy hands" was completely false given that North Korea has many more than they did six years ago and suggested that until the U.S. was willing to offer a non-aggression pact and secure a firm linkage with China, the country could never be successful. Even more pointedly, Gary Ackerman (D-NJ) stated that Bush's "internal bickering and external dithering" had led directly to a North Korean nuclear test "with more fizzle than bang" and stated that it was "well past time for the president to cut to the chase."

Dana Rohrabacher (R-CA) retaliated, blaming the Clinton Administration for originally putting the current foreign policies in place. He reported that North Korea had received billions of dollars from the U.S. and was one of the biggest recipients of foreign aid. He also pointed to a report* from a bipartisan commission to review US-China economic relations, which he said will be made public on November 16, which states that China has helped North Korea in their nuclear proliferation. The U.S., therefore, cannot rely on China at all, said Rohrabacher.

Witness Nicholas Burns, Under Secretary of State for Political Affairs, testified on the U.S. response to North Korea's "objectionable behavior." According to Burns, in order to succeed in its goals, the U.S. must employ a two part strategy. First, Burns said, the UN sanctions must be fully implemented in order to isolate the region and second, multilateral negotiations must be pursued to return to the Six Party Talks.

Burns reported that the U.S. has responded with force and diplomacy, passing Resolution 1718 on October 14, 2006, which imposes harsh sanctions on the North Korean government, while also pushing North Korea to sign the September 19, 2005 Joint Statement which would lead to the dismantlement of its nuclear weapons and programs.

He has also traveled to Japan, South Korea and China where he met representatives from these nations and Russia in order to develop a common position on sanctions and future diplomatic actions taken towards North Korea. President Bush and Secretary of State Condoleezza Rice are currently in China and will continue negotiations to "firm up" an alliance. His written testimony reports that Japan, South Korea and China are committed to implementing sanctions and all partners support Resolution 1718. The next crucial step, according to Burns, is a clear and unified implementation of the Resolution.

While, Burns supports multilateral negotiations, he stated that there "can't be talks for talk's sake." North Korea must realize the seriousness of purpose and the talks cannot be solely the responsibility of the U.S.

James Leach (R-IA), Ranking Member and Acting Chairman of the latter half of the hearing, challenged Burns' rejection of bilateral negotiations explaining that while solely bilateral talks would be fruitless, they should "complement" the Six Party Talks. Dealing directly with North Korea could lead to a change in North Korean psychology. Burns acknowledged the value of this suggestion and noted that direct face-to-face talks between Assistant Secretary of State, Chris Hill, and North Korean officials took place in July 2005.

-RB

House Committee on Government Reform
Subcommittee on Energy and Resources
Hearing on "Interior Department: A Culture of Managerial Irresponsibility and Lack of Accountability?"

September 13-14, 2006

Part I: Subcommittee on Energy and Resources, House Committee on Government Reform
Witness
Earl E. Devaney, Inspector General, US Department of the Interior

Part II: House Committee on Government Reform
Witnesses
The Honorable P. Lynn Scarlett, Deputy Secretary of the Interior
The Honorable Johnnie Burton, Director, Minerals Materials Management Service, Department of the Interior

A lack of price thresholds in leases between oil companies and the Minerals Management Service (MMS) of the Department of the Interior (DOI) will result in a loss of $10 billion in royalty revenue over the life of the leases. In 1995, Congress enacted the Deep Water Royalty Relief Act in order to encourage oil companies to undertake costly deep water projects at a time when oil prices were low. Those with eligible leases would be allowed to operate royalty-free until they produced a certain volume of oil or until the market price for oil reached a specified ceiling. However, leases from 1998 and 1999 lack this addendum. Two of these flawed leases include the Outer Continental Shelf (OCS) Gulf of Mexico region, where recent discoveries suggest 3 to 15 billion barrels of oil may exist. The House Committee on Government Reform called a two-part hearing on September 13 and 14 in order to examine the DOI and its irresponsibility and lack of accountability on this issue.

On September 13, Chairman of the House Committee on Government Reform, Tom Davis (R-VA) stated, "The Inspector General's Office found in 2004 that forty-six percent of employees within the Department believed that 'discipline was administered fairly only 'sometimes,' if ever.'" He referenced his late grandfather's work on the Interior and said, "I know [he] would also be disillusioned by the culture of waste, fraud, and abuse at the Department and would echo my call for immediate reforms." Davis hopes that the appointment of a new Secretary of the Interior, Dirk Kempthorne, may provide a "bright side at the Department of the Interior."

Chairman of the Subcommittee on Energy and Resources Darrel Issa (R-CA) echoed Davis' concerns. "It is to define a job so narrowly and limited in scope over time - no matter how senior the position - that the person claims neither responsibility nor accountability for fulfilling their basic duties," he said at Part I of the hearing. "The only thing claimed is a paycheck."

At Part II of the hearing on September 14, Ranking Member of the Full Committee Henry Waxman (D-CA) expressed concern "not only that MMS is failing to act. MMS may be collaborating with oil companies." Witness Earl E. Devaney, Inspector General of the DOI, testified the previous day that no evidence exists yet supporting this statement, though his investigation has yet to be completed.

Rep. Carolyn B. Mahoney (D-NY) conveyed frustration that since the 1998 and 1999 leases went into effect, the US has recovered just about $50 million each year when previously royalties paid topped $176 million annually. Mahoney called ethical breaches in the DOI "inexcusable."

On September 13, Inspector General Earl E. Devaney testified before the Subcommittee on Energy and Resources stating that the DOI operates under a code of "D's" - "Deny it happened, defend the indefensible and if all else fails, delay."

"Simply stated, short of a crime, anything goes at the highest levels of the Department of the Interior. Ethics failures on the part of senior Department officials - taking the form of appearances of impropriety, favoritism, and bias - have been routinely dismissed," Devaney stated.

He reported that the preparer of the leases was instructed to take provisions on price thresholds out of the leases by the Economics and Leasing Divisions of MMS. This individual passed a polygraph on the issue. The Economics and Leasing Divisions denied doing so. One of three employees provided a sworn statement, submitted to a polygraph and passed. The second declined to provide any sworn statement, therefore was not asked to take a polygraph. The third provided a statement, but would not submit to a polygraph.

Commendably, Chevron testified previously as to mentioning the lack of price thresholds in leases during a series of meetings in 1998 and 1999. The DOI still took no action. Devaney called this incident "a classic example of bureaucratic bungling."

During Part II of the hearing on September 14, Interior Deputy Secretary Lynn Scarlett and MMS Director Johnnie Burton disagreed with the Inspector Genteral's "broad-brush characterization." Scarlett testified on behalf of both officials stating that the Department is actively working to resolve the situation. She said that the Department's 70,000 workers are dedicated to "strong work ethic… and a commitment to accountability, efficiency, and effectiveness." Negotiations with 10 companies involved in the leases are underway. However, Scarlett said the complexity of the leases called for patience.

When questioned, Burton asserted that two of the companies involved, BP and Chevron, are very close to an agreement with the DOI. Burton discouraged the administration from violating the "sanctity" of contracts by tampering with contracts that it is duty-bound to uphold. Yet House and Senate Committees on Appropriations inserted provisions into the FY 2007 Interior-Environment spending bill (H.R. 5386) which will prevent companies from acquiring other leases in the future if they do not renegotiate their older leases. Furthermore, the House passed an offshore energy bill H.R. 4761 written with language intended to collect lost revenue.

-RB

House Committee on Transportation and Infrastructure
Hearing on "Low Pressure Liquid Pipelines: In the North Slope Greater Prudhoe Bay, Alaska"
September 13, 2006

Witnesses
Panel I
Vice Admiral Thomas Barrett, Administrator, Pipeline and Hazardous Materials Safety Administration, US Department of Transportation

Panel II
Lois Epstein, Senior Engineer, Cook Inlet keeper and the Pipeline Safety Trust, Consultant, Pipeline Safety Trust
Steve Marshall, President, BP Exploration Alaska, Inc.

On September 13, the House Committee on Transportation and Infrastructure convened in response to BP's pipeline shutdown on Alaska's North Slope. Motivated by the industry's negligent maintenance practices that resulted in over 5,000 barrels of oil spilled this year, Congress scheduled a series of hearings to discuss the problem. Chairman Don Young (R-AK) called this particular hearing to focus on newly proposed legislation written for the prevention of future pipeline corrosion problems, specifically the Pipeline Improvement Act of 2006 (H.R. 5782).

Currently the Code of Federal Regulations on pipeline integrity management [Title 49 on Transportation and section 195 on Pipelines (49 CFR Part 195.452)] regulates the transportation of hazardous liquids. However, only low-pressure pipelines in populated areas and under navigable waterways are covered by the regulations. The Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed that low-pressure pipelines in "unusually sensitive areas" be regulated as well. This recommendation is included in H.R. 5782.

Chairman Don Young (R-AK) called the proposed bill a "good piece of legislation" and would like to see it move forward in a timely manner. Vice Chairman Thomas E. Petri (R-WI) also expressed hope for the bill to be approved by the House before the end of September. However, Democrats seemed skeptical that H.R. 5782 will be sufficient.

Ranking Member James Oberstar (D-MN) said that the problem necessitates more frequent inspections on all pipelines regardless of whether they are in a populated area or environmentally sensitive area. Oberstar said that problem resulted because of a "corporate culture of neglect." He stated, "When corporate workroom fails, federal agency must be there to correct their failures."

Furthermore, Rep. Peter A. DeFazio (D-OR) doubted the bill's three-part piecemeal legislation would be effective. Instead of having three separate clauses for pipelines in populated, sensitive, and rural areas, DeFazio called for an "understandable, comprehensive regime." He also challenged the stipulation that only low stress lines within a quarter of a mile from "unusually sensitive areas" be regulated. His reasoning was that damage often extends much further.

Vice Admiral Thomas J. Barrett, administrator of PHMSA, testified on the newly proposed plan which he called a "solid, risk-based approach." He assured members that the prescribed regulations would have prevented the BP spill from ever taking place. "While corrosion is a threat to any line, a well maintained line can operate indefinitely," he said. He addressed DeFazio's concerns indicating that risk-based management was the most efficient since it targets the areas with the greatest risks, for example those that threaten water supply or endangered species. He also noted that the Department of Transportation (DOT) personnel are in Alaska's North Slope supervising BP's mitigation efforts, spot checking inspectors and comparing data.

The second witness, Lois Epstein, engineer for Cook Inletkeeper, an environmental non-profit group emphasized the dire need for federal oversight of pipelines based on the recent BP incident and a 1992 US DOT surveillance of unregulated low-pressure pipelines which found that 84% of the lines were not operated in compliance with 49 CFR Part 195.452. She called the proposed bill "an incremental sliver of the unregulated low-pressure transmission pipeline universe," faulting the plan for reducing 49 CFR 195.452 currently six pages long to one page in which smart pigs, inspection devices that thoroughly check for pipeline corrosion, "may" be used, but are no longer required. She recommended a citizen's oversight group and strategies to harness new energy options and reduce U.S. oil dependency.

H.R. 5782 plans to cover 680 miles of rural low-stress lines, however, as few as 5% of these lines would be regulated under the rule. While Barrett said that around 4000 miles would be left out of federal jurisdiction, Epstein stated that some surveys put the number at 15,000.

The final witness at the hearing, Steve Marshall, president of BP Exploration Alaska, Inc., continued to assert, "No one pointed to these lines as having problems. If they had we would have acted on it." He called for routine use of pigs and DOT's Pipeline Integrity Management Program on all lines. Marshall promised to determine the exact cause of the spill and spend $150 million to replace 16 miles of pipelines.

For the full text of the witness testimony click here.

-RB

House Committee on Energy and Commerce
Subcommittee on Oversight and Investigations
Hearing on "BP's Pipeline Spills at Prudhoe Bay: What Went Wrong?"

September 7, 2006

Witnesses:
Panel 1
Robert A. Malone, Chairman and President, BP America, Inc.
Steve Marshall, President, BP Exploration Alaska, Inc.
Richard Woollam, Former Manager for Corrosion, Inspection and Chemicals for BP Exploration Alaska, Inc.
Kevin Hostler, President and CEO, Alyeska Pipeline Service Co.
Dan Stears, Cathodic Protection Specialist, Coffman Engineers, Inc.

Panel II
The Honorable Thomas J. Barrett - Administrator, Pipeline and Hazardous Materials Safety Administration, Department of Transportation
Kurt Fredriksson, Commissioner, Alaska Department of Environmental Conservation

On September 7, 2006, the House Subcommittee on Oversight and Investigations met to discuss the causes and impacts of BP's pipeline spills at Prudhoe Bay. Over 200,000 gallons of oil spilled from a 34-inch pipeline in Alaska, the nation's largest source of oil in March, followed by a smaller leak, causing BP to shut down the entire Prudhoe Bay field on August 6. This hearing met in bipartisan agreement to determine what went wrong.

Acting Chairman Greg Walden (R-OR) said that while BP stands for "beyond petroleum," these days it "could also stand for broken pipeline." Walden credited BP for acknowledging the mistakes it had made, but blamed BP for ignoring red flags along the way. Rep. Jay Inslee (D-WA) said a number of investigations pointed to the need for maintenance, including a 2001 consultant report which was edited by BP to omit suggestions on corrosion precautions.

Chairman of the full Committee on Energy and Commerce Joe Barton (R-TX) said, "If a company, one of the world's most successful oil companies, can't do the basic maintenance needed to keep Prudhoe Bay's oil field operating safely and without interruption, maybe it shouldn't be operating the pipeline." A simple, inexpensive, and effective process called pigging checks an entire pipeline for corrosion. Although operating lines in Prudhoe Bay are equipped with this maintenance equipment, BP had not pigged its eastern and western pipelines since 1992 and 1998, respectively. Rep. Diana DeGette (D-CO) chided BP on "environmentally-friendly and socially conscious advertising" when in reality the company cannot even follow basic "rudimentary pipe maintenance."

BP's chief pipeline inspection expert, Richard Woollam, pleaded the Fifth Amendment, refusing to testify before the House subcommittee. A 2004 investigation found that Woollam used intimidation tactics in order to discourage workers from voicing safety concerns. He has since been moved from Alaska and is on paid leave.
Robert A. Malone, chairman and president of BP America, Inc. said, "We have fallen short of the high standards we hold for ourselves and the expectations that others have for us." He reported that advisers had been hired for counsel on ethics and safety.

Steve Marshall, president of BP Alaska, Inc. said that both spills have been "fully cleaned up." There is also believed to be "no lasting damage" from either spill. He assured House members that BP's pipeline safety plan is comprehensive, covering over 1500 miles of pipeline. Sixteen miles of pipeline are scheduled to be replaced by the end of the year. Marshall told the subcommittee that ten of these sixteen miles are in "good condition" and production would begin as soon as safely possible. In response to questions on BP's infrequent pigging practice, he claimed that 2004 and 2005 showed a corrosion increase in ultrasound testing and that the company had commissioned a pig to run in 2006. "It is my regret that it was too late," said Marshall.

Kevin Hostler, president and CEO of Alyeska Pipeline Service Company, noted that the Trans-Alaska Pipeline System runs maintenance pigs every 7-14 days and smart pigs every three years to ensure clean pipelines free of sand, shale, and water, materials that lead to corrosion. These "high stress" pipelines are required by federal regulations to perform basic maintenance operations. However, "low stress" pipelines, like those in BP's Prudhoe Bay field do not fall under these requirements.

Last week the Department of Transportation announced that it would begin creating regulations on low stress pipelines in delicate rural areas. This summer the House Energy and Commerce Committee also considered a discussion draft requiring the addition of regulations on low stress lines. "We are going to, if necessary, change federal law to do everything possible to minimize this happening again," said Barton. However, legislation has yet to be introduced detailing what these changes would look like.

-RB

Senate Energy and Natural Resources Committee
Hearing on "Hydrogen Fuel Cell Research and Development"

July 17, 2006

Witnesses:
David Garman, Undersecretary of Energy, U.S. Department of Energy
Donald Paul, Vice President and Chief Technology Officer, Chevron Corporation
Tim Leuliette, President and Chief Executive Officer, Metaldyne, Inc.
Byron McCormick, Executive Director, Fuel Cells Activities General Motors Corporation
Jim Balcom, President and Chief Executive Officer, PolyFuel, Inc.

The Energy Subcommittee of the Senate Energy and Natural Resources Committee held a hearing on July 17 to assess the progress of hydrogen fuel cell development. Witnesses described how the hydrogen fuel cell research process takes time and money, but will yield high rewards for the U.S. economy when it becomes cost competitive. Throughout the hearing, senators demonstrated general support and encouraged financial support to move the research process along as quickly as possible. Chairing the hearing, Senator Lamar Alexander (R-TN) opened the hearing by saying, "This hearing should be interesting because we're talking about the transformation from gasoline combustion engines to hydrogen fuel cells." Senator Pete Domenici (R-NM) agreed. "It is terribly exciting to hold a hearing about an initiative that is so earthshaking in terms of where it can go," he said.

David Garman, Undersecretary of Energy at the Department of Energy (DOE), described how DOE is fostering continued research and development of hydrogen technology. The research is making significant progress. The cost of producing hydrogen has been cut nearly in half, from $5 per gasoline gallon equivalent energy to under $3. The lifetime of an automobile hydrogen storage cell has also been doubled, however, the lifetime is not competitive with the lifetime of an automobile. The most recently developed fuel cells have a lifetime of 2,000 hours, significantly shorter than the 5,000 hours of life expected out of a new automobile. "We have indeed made significant progress, which we credit with the private sector, our colleges and universities, and the congress…we must continue to move forward," said Garman, praising research and development partnerships which are currently researching hydrogen fuel cell technology.

Members asked a number of questions relating to the progress of hydrogen and other alternative automotive fuels. Alexander inquired if the research was classified as high risk. Garman responded that it is high risk, as well as high reward. "Federal high risk research and development is the sort of research one would not expect the private sector to do alone, as there is no [immediate], short term payoff…hydrogen is a high risk, high reward program," responded Garman. Senator Jeff Bingaman (D-NM) was interested in creating a market suitable to enable the mass production of plug-in hybrids. Mass production should lower the cost of these cars. Bingaman suggested a program to encourage federal agencies to purchase plug-in hybrids to help stimulate mass production in the industry. Garman responded positively to the idea, but added that the lithium-ion batteries did not yet have the storage capacity most agencies would expect, and are still quite expensive. The batteries are down to $1000 from $3000, but they have to be around $500 each to be cost competitive. "I think plug-in hybrids offer a tremendous opportunity, and the President does too…ultimately, [these technologies] have to be adopted on a mass basis," said Garman.

Witnesses from the automobile industry explained their progress on developing hydrogen fuel cell cars. Byron McCormick, on behalf of General Motors, stated their progress was significant in hydrogen and other alternative fuel cars. They have put two million E85-ready cars on the road, and increased the efficiency of hydrogen fuel cell cars by a factor of fourteen. "This is a critical time in the history of the automobile industry," he said. "Hydrogen fuel cell technology has the greatest potential." McCormick also stressed implementing more federal incentives to reduce the cost of mass-produced hydrogen fuel cell cars.

Donald Paul, the Vice President and Chief Technology Officer of Chevron Corporation, explained the company's commitment to alternative fuels. "Chevron is committed to diversifying the nation's energy supplies…although there is no silver bullet, we are actively searching for new fuel sources. We are going to need every form of energy, and need to research [alternative fuels]," he said. He also voiced strong support for hydrogen fuel cell technology. "Hydrogen can provide, in the near term, viable transportation fuels, however, this is dependent on solving key technological challenges," he said. Those challenges include hydrogen fuel transportation and storage infrastructure, as well as reducing costs to ensure hydrogen is a cost-competitive fuel.

The remaining witnesses described the development of hydrogen technology in manufacturing. Byron McCormick, Vice President and Chief Technology Officer of General Motors, described how GM sees hydrogen emerging in the automobile market. "This is a critical time in the history of the automobile industry," he said. He described how technology is improving, but is not yet market competitive, and promoted the use the hydrogen as the next primary automobile fuel. Tim Leuliette, President and Chief Executive Officer of Metaldyne, also promoted the change to a hydrogen economy. "A hydrogen economy is better for manufacturing…[it] can boost our economy and our environmental quality," he said. Jim Balcom, President and Chief Executive Officer of, PolyFuel, also concurred with the previous witnesses about the current status of hydrogen technology development.

-TJD

Senate Energy and Natural Resources Committee
Hearing on "The Enhanced Energy Security Act of 2006"

June 21, 2006

Witnesses:
Panel I
The Honorable Evan Bayh, United States Senator, Indiana
The Honorable Norm Coleman, United States Senator, Minnesota

Panel II
Alexander Karsner, Assistant Secretary for Energy Efficiency and Renewable Energy, U.S. Department of Energy

Panel III
Daniel Lashof, Science Director, National Resources Defense Council's Climate Center, Washington DC
Steve Nadel, Executive Director, American Council for an Energy-Efficient Economy, Washington DC
Kateri Callahan, President, Alliance to Save Energy, Washington DC

Members of the Senate Committee on Energy and Natural Resources met on June 21, 2006 to discuss the "Enhanced Energy Security Act of 2006" (S.2747). The bill, sponsored by Senators Jeff Bingaman (D-NM), Evan Bayh (D-IN.), Norm Coleman (R-MN), Lincoln Chafee (R-RI) and Joseph Lieberman (D-CN), sets forth enhanced energy efficiency and conservation measures, including a plan for saving 2.5 million barrels of oil per day in 10 years - roughly the amount of oil the U.S. currently imports from the Middle East.

Senator Coleman explained in his testimony that the bill includes "initiatives that will promote E85 fueling infrastructure and speed the development of cellulosic ethanol, while investing in the development of efficient vehicle technologies and assisting auto manufacturers' transition to fuel-efficient vehicle production." Coleman advocates total independence from foreign oil, something that Brazil has just accomplished this year through government-mandated investment in the production of ethanol and flex fuel vehicles.

Kateri Callahan, President of the Alliance to Save Energy, urged the committee to include a "feebate" program as part of the S.2747 legislation. "The idea is simple," she said. "Provide an incentive (rebate) to make and buy fuel-efficient vehicles, and charge a premium (fee) on gas guzzlers." Callahan explained that the total fees would pay for the rebates so that there would be no net revenue or cost to the government. Steve Nadel, the Executive Director of the American Council for an Energy-Efficient Economy, also recommended that future legislative efforts focus more on promoting energy efficiency. Nadel encouraged the establishment of a national energy efficiency resource standard that would set "electric and gas energy savings targets for utilities, with flexibility to achieve the target through a market-based trading system."

Daniel Lashof, the Science Director of the Climate Center at the Natural Resources Defense Council, supported the bill's national renewable portfolio standard provision. Lashof argued against the state-specific renewable portfolio standards that the Administration favors. He explained that this policy is inequitable because it allows states that do not have renewable portfolio standards to unfairly benefit from lower gas and oil prices that result from the states that do have these standards.

Only one witness, Alexander Karsner, the Assistant Secretary for Energy Efficiency and Renewable Energy, was not overly supportive of the proposed legislation. Karsner testified that the Administration had not had enough time to review S.2747, and as of yet does not have a formal position on the legislation. He noted that parts of the bill appear to overlap with the Energy Policy Act of 2005 and he suggested that these issues be resolved in order to avoid duplicative legislation. Senator Bingaman criticized the Administration and the Department of Energy for not taking the time to review the bill, and complained that it was likely a sign that the proposed bill was not being taken very seriously.

For the full text of witness testimony click here.

-JCR

Senate Energy and Natural Resources Committee
Hearing on "Coal Based Generation Reliability"
May 25, 2006

Witnesses:
Robert McLennan, Vice President of External Affairs, Tri-State Generation and Transmission Association
David Wilks, President of Energy Supply, Xcel Energy Services Inc.
Steven Jackson, Director of Power Supply, Municipal Electric Authority of Georgia
Robert Sahr, Chairman, South Dakota Public Utilities Commission
Edward Hamberger, President and CEO, Association of American Railroads

The Senate Energy and Natural Resources Committee discussed the reliability of shipping coal on U.S. railroads during a hearing on May 25, 2006. Witnesses talked about shipping delays, low reserves at power plants, as well as the railroad industry's efforts to maintain reliable service. Members of the committee emphasized the importance of coal as an energy resource and expressed their concern about the smooth operation of coal-based energy generation.

Chairman Pete Domenici gave a brief opening remark and noted the importance of coal in generating electricity. He mentioned that 50% of the nation's electricity comes from coal, so barriers preventing the operation of coal-based energy generation should be addressed. He hoped to identify the cause of coal transportation delays and find a way for the Committee to address them.

Robert McLennan, representing the Tri-State Generation and Transmission Association, was the first witness to address coal transportation problems. The high quality, low-sulfur coal required to meet emission standards in the U.S. is largely mined from the Powder River Basin in Wyoming, McLennan explained, and this coal must be transported to coal-fired power plants throughout the country. For the past year, traffic bottlenecks on the railways have slowed the rate of delivery of coal from the source to the power plants. He acknowledged that more coal was shipped last year than ever before, however, the railroads still could not keep up with demand. When reserves cannot keep up with demand, foreign coal is sometimes used to supplement domestic supplies. When asked about how much coal the U.S. imports, McLennon noted imports were barely 4% of total consumption and replied, "I don't think we are headed to a situation with coal like we have with oil,"

David Wilks, the President of Energy Supply for Xcel Energy Services, elaborated on the challenges energy companies were having with coal delivery. Most of the plants operated by Excel had run less than their recommended thirty-day reserve of coal and many had less than ten days of reserves. Interruptions in coal supplies necessitate a switch to natural gas, which is more costly to the energy supplier and the consumer. He estimates that in 2006, 340 billion cubic feet of natural gas will be needed to supplement coal power supplies, costing about $2 billion. Later in the hearing, Robert Sahr, Chairman of the South Dakota Public Utilities Commission made similar comments about low reserves and shipping delays.

Steven Jackson, the Director of Power Supply for the Municipal Electric Authority of Georgia, added that energy producers in Georgia have imported coal from Indonesia to supplement reserve shortages. Domenici expressed surprise at this, asking for clarification. "Let me get this straight: even though we have a 250 year supply, we are importing coal from Indonesia?" asked Domenici, interrupting Jackson's testimony. Senators Conrad Burns and Craig Thomas also commented on that statement, reflecting Domenici's surprise and expressing concern.

Edward Hamberger, President and CEO of the Association of American Railroads responded to the allegations of the previous witnesses about railroads becoming an unreliable way to ship coal. He began by saying the railways have worked alongside the power industry for years to meet their shipping needs and hoped further collaboration would solve the issues at hand. He noted a spike in demand for coal shipments in 2005 that the railroads did not have the capacity to handle; the increased demand was from both the coal industry as well as other industries utilizing rail travel. Coal shipments had declined from 2000-2004, so the rail industry had reduced capacity. Furthermore, forces outside of the industry's control contributed to delays in rail shipments. He mentioned the two Gulf hurricanes, as well as flooding in Wyoming and Kansas as examples of natural disasters that caused significant transit delays; there were also delays at mine loading stops and power plant offloading stops. Hamberger mentioned that sometimes rail cars have been delayed because they were waiting to be filled with coal at the mines. Hamberger noted the more than $8 billion that railroads were putting into their infrastructure to increase shipping capacity. Unfortunately building this capacity takes time and Hamberger concluded "We can't do it overnight".

The Senators pressed Hamberger with questions about the delays in rail shipments. Several mentioned the irony of having 25% of the world's supply of coal, yet still having to import small amounts of coal. Hamberger also defended the need for coal imports, saying it is a very small amount of coal, and that like all other products, as prices climb, the consumer will look for new sources. Senator Thomas accused the railways of purposefully removing competition, which allows them to raise rates and reduce service. Hamberger quickly responded that the railways reduced rates 30% from 1991 to 2004. He added that the railways do have to compete with other modes of transportation as well, even if the railroads do not have competition against each other. Senator Mary Landrieu (D-LA) asked whether using barges on America's waterways would be a way to stem a possible overburden of the rail roads. Hamberger commented that waterway shipments may help, but inconsistent funding of the locks and dams makes reliable shipping tough. Barge shipping is also very limited to areas near major waterways and the largest coal mine in the U.S., which is in the Powder River Basin, is not near any major waterways.

-TJD

Senate Commerce, Science and Transportation Committee
Hearing on "Price Gouging"
May 23, 2006

Witnesses:
The Honorable Deborah Platt Majoras, Chairman, Federal Trade Commission
Dr. Nariman Behravesh, Chief Economist, Global Insight
Mr. Robert Slaughter, President, National Petrochemical and Refiners Association
Mr. Mark Cooper, Director of Research, Consumer Federation of America

The full Senate Commerce, Science and Transportation Committee met on May 23rd to review allegations of gasoline price gouging across the nation. Senator Inouye (D-HI) opened the hearing by expressing his concern over alleged price manipulation by oil companies. He noted how several gas stations in Atlanta sold gasoline for nearly $6 a gallon after Hurricane Katrina struck the Gulf Coast, and how actions such as this were not "legally or morally defensible."

Deborah Majoras, Chairman of the Federal Trade Commission (FTC), introduced a report written by the commission regarding price gouging. While she understands the concerns of consumers, Majoras stated there was no evidence that any of the allegations were true, and that the market influences of supply and demand had the greatest influence on gasoline price. She added that the gasoline prices reflected the FTC's predictions after Hurricane Katrina. She referred the committee to the FTC report for more information to support her statements.

Dr. Nariman Behravesh gave a similar testimony, saying that demand growing faster than supply was a natural cause for a price hike in gasoline. Bob Slaughter echoed these comments and noted that there is no way for additional regulation to reduce the price of oil because factors out of the control of American regulation, such as OPEC and the hurricanes of last year, have a bigger impact. Slaughter also noted the need for new refineries and the easing of environmental regulations to reduce the cost to consumers.

Mark Cooper, the Director of Research at the Consumer Federation of America, presented a different point of view. In an energetic testimony, he told the committee that the industry is deliberately keeping capacity and inventory low to maintain a high price for oil products. Cooper explained that the FTC report failed to undercover inept management of the industry, which was unable to adequately respond to market forces to keep prices low.

Senators on the committee asked tough questions of the witnesses. They criticized the FTC report during their allotted comment time. Senator Byron Dorgan (D-ND) described the report as toothless and condescending to anyone who reads it because of the FTC's failure to venture outside of the petroleum industry for information during their investigation. The committee was primarily disappointed with the FTC's opinion that the market was the sole source of price hikes. Senator Byron Dorgan said, "The market didn't work well for the American people" in this case, and stated "[The market] needs a referee." Senator Trent Lott (R-MS) commented on how his constituents have been giving him tough questions and demanding a solution: "The American people are agitated," he said. Senators Maria Cantwell (D-WA) and Barbara Boxer (D-CA) commented on how the west coast has faced the highest gasoline prices in the nation, despite what they describe as heavy concentrations of refineries in the area. They both made comments on how the proximity to refineries should result in lower prices for gas.

-TJD

House Committee on Resources
Subcommittee on Energy & Minerals
Oversight Hearing on "The Role of the Federal Government and Federal Lands in Fueling Renewable and Alternative Energy in America"
April 6, 2006

Witnesses:
Panel I
Wayne Arny, Deputy Assistant Secretary of the Navy for Installations and Facilities, U.S. Navy
Leland Roy Mink, Manager of the Office of Geothermal Technology, U.S. Department of Energy
Dr. Marcia Patton-Mallory, National Biomass and Bio-Energy Coordinator, U.S. Forest Service

Panel II
Brenda Aird, Ombudsman for Renewable Energy, Department of the Interior
Accompanied by:
Ray Brady, Energy Policy Act Implementation Team Leader, Bureau of Land Management
Jonathan Kolak, Associate Program Coordinator, USGS Energy Resources Program
Maureen Bornholdt, Chief of the Marine Minerals Branch, Minerals Management Service

On April 6, 2006, the House Resources Subcommittee on Energy and Mineral Resources heard testimony on developments in renewable and alternative energy resources on federal lands. Officials from the Navy, the Department of Energy (DOE), the Forest Service, and the Department of the Interior (DOI) presented lawmakers with details of their agencies' efforts to increase alternative energy use and development.

"The Department of Navy is committed to implementing a balanced energy program that meets the goals of the Energy Policy Act of 2005," said Wayne Arny, deputy assistant secretary for Navy installations and facilities. He detailed Navy investments in wind, ocean, solar, and geothermal power, emphasizing the Navy's unique geothermal plant at China Lake, California. Capable of producing 270 megawatt capacity of electricity, the plant is the only geothermal plant on Department of Defense (DOD) lands.

Lawmakers were surprised to learn that although the plant is located on federal lands, it is owned by an independent private contractor, who gives the Navy a share of the revenue generated from the electricity sales. Representative Jim Gibbons (R-NV) questioned the logic behind the Navy's decision to not use electricity generated on-site. Arny explained that although laws have since changed, when the plant was built in the 1980s, the Navy could not legally own the electricity generated. He also noted that the Navy's share of the revenue generated from the electricity sales is used for energy development, education, and management.

Geothermal energy is an important resource on non-defense federal lands as well, Roy Mink, a program manager for geothermal technologies at DOE, told the subcommittee. "Geothermal energy is a developing and sometimes overlooked domestic energy source," he said. He noted a common misconception that geothermal energy is a resource found only in California and Nevada. "It is feasible to capture geothermal energy anywhere within the U.S."

DOI renewable energy efforts are being concentrated in wind energy, concentrated solar power, geothermal power, and biomass management. Brenda Aird, DOI Ombudsman for Renewable Energy, told representatives that the Bureau of Land Management (BLM) currently manages 45 leases for active geothermal plants, generates 185 Megawatt-hours of electricity from photovoltaic cells, and authorizes rights-of-way for 22 wind energy production sites on public lands. 78 additional rights-of-way authorizations are pending. Responding to questions from Representative Steve Pearce (R-NM), Aird specified that each pending wind energy plant can produce between 200 and 500 Megawatts of electricity. DOI is also investing in the development of alternative sources of fossil energy, including gas hydrates, oil shale and tar sands. BLM is currently developing regulations for commercial leasing of oil shale and tar sands, and the Minerals Management Service is reassessing the potential quantities and environmental impacts of gas hydrates on the Outer Continental Shelf.

Dr. Marcia Patton-Mallory, the biomass and bio-energy coordinator for the Forest Service, noted two focal points for renewable energy at the Forest Service: hydropower and energy from biomass. Fifteen percent of all U.S. hydropower is generated on Forest Service Lands. That number is unlikely to grow much, Patton-Mallory said, because "most of the best locations for hydropower generation have already been developed."

The energy generated from biomass, on the other hand, is a growing resource. Patton-Mallory noted that a recent Forest Service-DOE report estimates that the U.S. contains over 1.3 billion dry tons per year of biomass potential, 400 million of which come from forest lands. But Pearce accused the Forest Service of making it difficult for private companies to develop that potential. He cited two examples of the Forest Service refusing to give long-term supply contracts to potential developers of biomass energy plants. Representative Mark Udall (D-CO) emphasized the importance of developing long-term agreements with contractors. For companies to make the investment in biomass energy production, he said, they need "stable, predictable feedstock." He also called for increased funding for the President's Healthy Forests Initiative, designed to prevent forest fires by clearing excess wood from forests. "I know we're all going to fight to see if we can fully fund Healthy Forests," he said.

For the full text of witness testimony, click here.

-JAF

Senate Committee on the Judiciary
Hearing on "Consolidation in the Oil and Gas Industry: Raising Prices?"
March 14, 2006

Witnesses:
Panel I
Joseph M. Alioto, Partner, Alioto Law Firm
Tom Greene, Senior Assistant Attorney General for the State of California
Severin Borenstein, Professor of Business Administration and Public Policy, UC Berkeley
Peg Lautenschlager, Attorney General for the State of Wisconsin
David Boies, Chairman, Boies, Schiller and Flexner LLP

Panel II
Rex Tillerson, Chairman and Chief Executive Officer, Exxon Mobil Corp
James Mulva, Chairman and Chief Executive Officer, ConocoPhillips
David O'Reilly, Chairman and Chief Executive Officer, Chevron Corp.
Bill Klesse, Chief Executive Officer, Valero Energy Corp.
John Hofmeister, President, Shell Oil Company
Ross Pillari, President and Chief Executive Officer, BP America, Inc.

The Senate Committee on the Judiciary held a hearing on March 14 to discuss whether mergers in the oil and gas industry are contributing to high gas prices. Committee Chair Arlen Specter (R-PA) opened the hearing by expressing frustration that while consumers are faced with increasing gasoline prices, oil businesses are earning record profits. In 2005, Exxon Mobil's profits reached $36 billion, the largest corporate profit in U.S. history. Specter attributed high prices to anti-competitive behavior resulting from the recent spate of mergers in the oil and gas industry.

Four of the five experts on the first panel of witnesses supported Specter's view that high gasoline prices are not solely the result of tight supplies and increased global demand. Tom Greene, Senior Assistant Attorney General for California, dubbed the oil industry an "oligopoly" and affirmed that concentration in the industry had allowed oil companies to come to "tacit agreements" on price and supply decisions. Joseph Alioto Jr., an antitrust lawyer, alleged that the agreements were hardly tacit. He told senators evidence exists showing that top oil executives routinely meet once a month to share information, discuss prices, and cooperate through joint venture deals and shared refineries and service stations.

Witness allegations also extended to the natural gas market. David Boies, an attorney representing the Alaska Gasline Port Authority, accused BP and Exxon Mobil of conspiring to block development of a natural gas pipeline from Alaska's North Slope. Wisconsin Attorney General Peg Lautenschlager detailed a study showing that while tight supply and demand factors may explain the gradual increase in natural gas prices, they cannot account for the observed volatility in prices.

Oil executives testifying on the second panel denied the claims that mergers were designed to decrease competitiveness and fix prices. Rex W. Tillerson, Chief Executive Officer (CEO) of Exxon Mobil, defended the mergers as necessary to compete in the global oil market. "We need U.S. energy companies that have the scale and financial strength to make the investments, undertake the risks and develop the new technologies necessary to provide Americans with greater energy access and greater energy security," he said. Testifying alongside Tillerson were CEOs and Presidents representing some of the largest U.S. oil companies, including Conoco Phillips, Chevron, Valero energy, Shell Oil, and BP America. All attributed rising prices to increased global demand.

The sole witness to support the oil companies' claims was Severin Borenstein, a professor of business administration and public policy at the University of California at Berkeley. Borenstein noted that wholesale gasoline currently costs $1.66 per gallon, and that $1.43 of that is the cost of crude oil. At most, he said, "only a few cents" of the remaining 23-cent refining margin could be attributed to mergers. He added that the U.S. is "a very small player" in the global oil market, and that changes in antitrust legislation would likely have only minor effects on gasoline prices.

Senators John Cornyn (R-TX) and Tom Coburn (R-OK), both from oil-producing states, defended the oil executives. "It isn't a crime to make a profit," Cornyn said. Nonetheless, Specter was joined by committee Democrats as well Senator Mike DeWine (R-OH) in criticizing the industry's anti-competitive behavior.

Specter has drafted amendments to current antitrust legislation that would increase the difficulty of major oil and gas mergers. Despite significant bipartisan interest in the legislation, Specter is awaiting further comment before deciding whether to attempt to push the amendments through Congress this year.

For the full text of witness testimony, click here.

-JAF

Senate Committee on Energy and Natural Resources
Hearing on "The Goal of Energy Independence"
March 7, 2006

Witnesses:
R. James Woolsey, former CIA Director and Vice President, Booz Allen Hamilton
Susan Cischke, Vice President of Environmental and Safety Engineering, Ford Motor Company
Frank Verrastro, Director and Senior Fellow, Energy Program, Center for Strategic and International Studies
Amory Lovins, CEO, Rocky Mountain Institute

The Senate Committee on Energy and Natural Resources held a hearing on March 7, 2006 to discuss the challenges of achieving of U.S. energy independence from foreign oil. In his opening remarks, Committee Chair Pete Domenici (R-NM) expressed the importance of "being realistic about what is possible in the near-term" while maintaining "energy and enthusiasm" about the long-term possibility of energy independence. He added that while he supports using science and technology to move towards energy independence, it is critical that America use its available resources, including oil resources in the Arctic National Wildlife Refuge (ANWR). Ranking Member Jeff Bingaman (D-NM) noted the need to bridge what he called "a major gap between the rhetoric of the importance of energy independence and what we're actually doing."

Former CIA Director R. James Woolsey testified that achieving energy independence is "primarily an issue of oil" and in particular its use for transportation. He noted that while a number of major investments are targeting alternative forms of electricity generation, these will have little impact on oil markets due to the fact that very little of America's electricity is oil-generated. The transportation sector, on the other hand, is almost exclusively reliant on petroleum. Woolsey pointed out that this dependence makes the U.S. economy vulnerable to terrorist attacks, regime changes, and other political problems. He advised senators to focus on addressing transportation policy and to promote changes that can utilize the existing infrastructure, be made quickly, and use waste products as source material. In particular, he recommended offering incentives to increase the use of plug-in hybrid vehicles, biofuels from cellulosic ethanol, and diesel made from biological waste.

Susan Cischke, Vice President of Environmental and Safety Engineering at Ford Motor Company, detailed the steps the automotive industry is taking to decrease America's reliance on gasoline. In particular, she spoke of increased production of hybrid vehicles, ethanol-powered vehicles, and flexible fuel vehicles (FFVs) that can use various combinations of ethanol and gasoline. Although she championed the use of ethanol-based fuels, Cischke noted that the lack of ethanol fueling stations limits the usefulness of ethanol technology. She urged policymakers to create incentives for expanding ethanol infrastructure and also to take an active role in educating the public about fuel efficiency.

In his opening testimony, Frank Verrastro, Director of the Energy Program at the Center for Strategic and International Studies, presented a more pessimistic view of the feasibility of achieving energy independence in the near future. "Conventional sources will continue to dominate the landscape for at least the next several decades," Verrastro said. He explained that while energy demand is projected to increase 50 percent over the next 25 years, the shares of that demand being met by renewables, coal, and nuclear sources are expected to remain flat. He recommended thinking of "energy interdependence" and the role of the U.S. in the global energy market rather than energy independence, which he called a "misguided effort."

The final witness to testify was Amory Lovins, Chief Executive Officer of the Rocky Mountain Institute, who labeled "the oil problem" as "unnecessary and uneconomic." He emphasized three goals that the U.S. must achieve to become energy independent: making the domestic energy infrastructure resilient, phasing out unstable facilities, and ultimately eliminating oil imports. Like the other witnesses, Lovins emphasized the need to focus on the transportation sector. "The key to wringing twice the work from our oil is tripled-efficiency cars, trucks, and planes," he said. He also noted that by producing more efficient cars domestically, the U.S. can reduce imports of cars, eliminate dependence on foreign oil, decrease costs and emissions, and create a million new jobs.

Committee members raised a number of questions about the development and use of ethanol-based fuels in the transportation sector. Senator Craig Thomas (R-WY) asked about the costs of producing ethanol fuels. Cischke responded that while production costs alone are cheaper for ethanol than gasoline, ethanol fuels contain about 28 percent less energy. Senator Jim Bunning (R-KY) asked Cischke to identify the limiting factor in transitioning from traditional gasoline to E85, a fuel that contains 85 percent ethanol. Cischke explained that ethanol fuels are supplied differently than oil or diesel, and that to increase demand for E85 vehicles, the nation must first develop the infrastructure to supply ethanol at fueling stations.

Thomas also asked about the potential for increasing nuclear power usage. Lovins replied, "I think it's died in the market." He elaborated that the nuclear industry is less competitive than other energy industries, and that the nuclear subsidies included in the Energy Policy Act of 2005 would do little to reinvigorate the industry.

Senators Domenici and Lisa Murkowski (R-AK) raised the issue of replacing foreign oil with oil from domestic sources, namely by drilling in Alaska. Referring to a statement in Lovins' opening testimony, Murkowski challenged Lovins' view that an Alaskan oil pipeline would pose security risks. Lovins responded that a terrorist attack on an oil pipeline could significantly disturb oil supply to the continental U.S. He added that a natural gas pipeline would pose fewer risks because it would not be located aboveground. Domenici noted, "I can't imagine oil from Alaska is less secure [than foreign sources]."

Domenici also asked each witness to identify the two most critical policy changes that should be implemented to improve energy use in the transportation sector. Woolsey emphasized expanding the use of biofuels and plug-in hybrids, which could be accomplished by introducing tax incentives and rebates. Cischke reiterated her opinion that the top priorities were implementing tax incentives for alternative vehicles and fuels as well as educating the public on energy efficiency issues. Verrastro cited the need for supplemental sources of fuel and improved technology that could increase fuel efficiency. Finally, Lovins restated his view that American manufacturers must triple the efficiency of cars, trucks, and planes.

For the full text of witness testimony, click here.

-JAF

Senate Committee on Energy and Natural Resources
Hearing on Energy Information Administration's 2006 Annual Energy Outlook
February 16, 2006

Witness:
Guy Caruso, Administrator, Energy Information Administration, Department of Energy

Guy Caruso, Administrator of the Energy Information Administration (EIA), appeared before the Senate Committee on Energy and Natural Resources on February 16 to present the EIA's Annual Energy Outlook (AEO) for 2006. The outlook, which for the first time includes predictions through 2030, contains substantial changes from last year's forecast.

The EIA's projections show oil prices decreasing slightly over the next decade, reaching a low of about $47 per barrel in 2014 (in 2004 dollars). Predictions for the subsequent decade, however, show an increase to $54 per barrel in 2025, $21 higher than last year's prediction of $33 per barrel. Caruso explained the change as a reflection of tighter investment opportunities, more volatile world oil markets, and a smaller increase in oil productive capacity in the Organization of Petroleum Exporting Countries (OPEC) than previously projected. He also noted similar predicted trends in natural gas prices, which will drop to roughly $4.50 in 2016, then increase to nearly $6 in 2030.

Due to increasing oil and natural gas prices, the EIA projects that the use of coal, renewable fuels, and nuclear energy will grow over the next 25 years. "[Coal's] share of electricity generation … is expected to increase from about 50 percent in 2004 to 57 percent in 2030," Caruso said. This is a significant change from the 2005 AEO, which projected coal's share would remain at 50 percent through 2025. Nuclear capacity is projected to grow by 9 gigawatts over the next 13 years, reaching 109 gigawatts by 2019. The majority of the nuclear increase can be attributed to tax credits included in the Energy Policy Act of 2005. Consumption of renewable fuel is also expected to increase from 6.0 quadrillion Btu in 2004 to 10.0 quadrillion Btu in 2030. Tax credits from the Energy Policy Act of 2005 account for some of the increase in renewable use, however, the majority of the change comes from renewable mandates currently in place in 23 states.

Following Caruso's presentation, Committee Chair Pete Domenici (R-NM) and Ranking Member Jeff Bingaman (D-NM) raised questions about the projected share of domestic oil. Referring to the President's State of the Union address, Bingaman questioned whether the U.S. is likely to reach the President's goal of decreasing Middle Eastern oil imports by 75 percent by 2025. Caruso responded that based on current policies, the EIA's forecast actually shows an increase in imports from the Persian Gulf over the next 20 years. According to the AEO, in 2025 the U.S. will import roughly 3.3 million barrels of oil per day from the Middle East; whereas current imports total approximately 2.5 million barrels per day.

Senator Lisa Murkowski (R-AK) raised concerns about the EIA's assumption that Alaska's North Slope natural gas pipeline will be in place by 2015. Noting that a full agreement about the development of the pipeline has not yet been reached, she asked Caruso how the projections will change if the pipeline is not in place by 2015. "All things being equal, the price of gas would be higher without that project coming on stream," Caruso responded. "If the project is hypothetically delayed until 2016, that would mean one year of somewhat higher natural gas prices, and so LNG imports would be a bit higher."

Murkowski also noted that the U.S. receives about 11 percent of its oil imports from Venezuela, a country that is currently experiencing political turmoil. Caruso concurred that a disruption of oil from Venezuela would be difficult to offset using other sources, and that such a disruption would almost certainly cause an immediate price spike. The magnitude of the spike would depend on the duration of the disruption.

For the full text of Senator Domenici's opening remarks and Mr. Caruso's testimony, click here.

-JAF

House Energy and Commerce Committee, Subcommittee on Energy and Air Pollution,
Hearing on the Theory of Peak Oil.
December 7, 2005

Witnesses:
Panel I
Representative Tom Udall (D-NM)
Representative Roscoe Bartlett (R-MD)

Panel II
Kjell Aleklett, Professor, Department of Radiation Sciences, Uppsala University, Sweden
Robert Hirsch, Senior Energy Program Advisor, Science Applications International Corporation
Robert Esser, Senior Consultant and Director, Global Oil and Gas Resources, Cambridge Energy Research Associates

On December 7, 2005, the Energy and Air Pollution Subcommittee of the House Energy and Commerce Committee met to discuss the theory that oil production will peak sometime in the near future. In his opening statement Subcommittee Chairman Ralph Hall (R-TX) expressed some skepticism towards the idea of peak oil, but also said that he would keep an open mind on the subject. Similarly, Representative Gene Green (D-TX) pointed out that there have been many scares about oil supplies running out in the past, but also acknowledged that oil is not infinite, saying "the wolf does come in the end."

The subcommittee first heard from two fellow members of Congress, Representatives Tom Udall (D- NM) and Roscoe Bartlett (R-MD), who are the co-chairs of the Congressional Peak Oil Caucus. Both congressmen made the case that oil production will peak in the next twenty years, and that the government must initiate a major program, similar to efforts to develop the atomic bomb or send humans to the moon, to promote oil conservation and efficiency and develop alternative fuels. Bartlett was particularly passionate about the coming end of the "age of oil", which he said was a major national security issue and threatened the United States' high standard of living. "We are like children who found the cookie jar," he said, describing Americans unending demand for oil. "We show no restraint."

Most of the subcommittee members refrained from asking questions of their colleagues, but Representative John Shimkus (R-IL) took issue with Udall and Bartlett's assertion that Congress needed to take action on peak oil, saying that he thought that free markets could develop new fuel technologies without government intervention. Bartlett responded by saying, "We have deified the marketplace, but there are some things that even the deity can't do. None of the alternatives have the potential of being ramped up quickly enough."

The second panel featured three experts with different perspectives on peak oil. Kjell Alklett, who represented the Association for the Study of Peak Oil and Gas, claimed that peak oil "is a reality, not a theory", and gave a series of examples that indicated global oil production would begin to decline within the next decade. Robert Hirsch, from Science Applications International Corporation (SAIC), asserted that there is a high level of uncertainty in predicting the peak of oil production, in large part because Saudi Arabia's reserve estimates are a closely guarded secret. Hirsch punctuated his testimony with the phrase "Think Risk", and he strongly urged Congress to act quickly, since by his estimates it will take about 20 years for the United States to adequately prepare for declining oil production.

Robert Esser, from Cambridge Energy Research Associates (CERA), presented a less pessimistic picture than his fellow panelists, arguing that a great deal of new areas would begin producing oil in the near future. "The world is not running out of oil imminently or in the medium term," he said. Instead, Esser predicted that global oil production would head into an undulating plateau, probably beginning around 2030, before gradually declining in the second half of the century. Despite their differing prognoses, however, all three witnesses agreed that surging global demand and slowing production growth would lead to major fuel price increases over the next 25 years. "I don't take comfort in the undulating plateau," Esser said.

While some subcommittee members expressed doubts as to the validity of the peak oil theory, most of the discussion during the hearing focused on potential solutions to a fuel crisis. Subcommittee ranking member Rick Boucher (D-VA) suggested that converting coal to liquid fuel might be the best solution, since the United States has over 250 years worth of coal reserves. Boucher also mentioned that a South African company had come up with a commercially viable coal to liquid conversion process. Esser said that he had not heard of any developments in this area, however, while Representative Bartlett said that Boucher's statement was misleading. The 250 years of coal reserves shrinks to 85 years if consumption increases by only 2% per year, he said, and coal will be used even more quickly if we convert it to liquid fuel. The potential of hydrogen fuel was similarly called into question by Hirsch, who said that major breakthroughs in fuel cells and on-board storage were needed before it would be economically viable.

Esser was more optimistic about the potential of oil sands from Canada to relieve pressure on conventional petroleum supplies. "That is the highest intensity oil production place in the world right now," he said, pointing out that Canadian oil sand fields had the potential to produce 6 billion barrels a day. Bartlett, however, was less hopeful about oil sands, and pointed out several times during the hearing that the oil sands have a negative energy profit ratio, meaning it takes more energy to produce the fuel than it provides. Currently energy companies are using natural gas to derive petroleum from oil sands, which may be a problem as natural gas prices continue to climb. Esser, in turn, pointed out that there were major undeveloped gas fields in Iran and other parts of the Middle East, and that converting gas to liquid fuel represented another viable solution. Both Alklett and Representative Shimkus advocated the development of biofuels technology, but Bartlett urged caution on this as well, saying that both food shortages and topsoil loss would limit energy production through agriculture.

Aleklett suggested that the best solution would be for the United States to reduce its per capita oil use, which is the highest in the world. Several committee members took issue with his comments, saying that Aleklett was not familiar with the long driving distances necessary in many parts of the United States. "I would guess that I have to drive a lot further to go to the supermarket or my children's' school than you do," said Representative Heather Wilson (R-NM). While the hearing did not produce a consensus on what should be done about peak oil, it seemed clear that most subcommittee members took the issue seriously and were open to taking action to reduce the United States' dependence on petroleum. "It doesn't matter when we peak," said Representative Udall. "The focus we should have is what we should be doing."

For witness testimony and other information on the hearing click here.

-PMD


House Resources Committee, Subcommittee on Energy and Mineral Resources
Hearing on the "Outer Continental Shelf Natural Gas Relief Act"
November 17, 2005

Witnesses
Geoffrey Hunt, Senior Vice President, Osram Sylvania
David Bradley, Executive Director, National Community Action Foundation
Jack Gerard, President, American Chemical Council
Keith Oellig, President, Dauphin County (PA) Farm Bureau
Michael L. Bennett, President and Chief Executive Officer, Terra Industries Inc.

On November 17, 2005 the House Resources Subcommittee on Energy and Mineral Resources held a hearing to discuss the Outer Continental Shelf Natural Gas Relief Act (HR 4318), which proposes to allow natural gas drilling in areas more than 20 miles offshore. The bill, which is cosponsored by Representatives John Peterson (R-PA) and Neil Abercrombie (D-HI), is seen by some as a more heavy-handed approach to offshore energy development than a bill introduced by Resources Committee chairman Richard Pombo (R-CA) that would let states opt-out of a current offshore drilling moratorium for both oil and gas development.

Both Peterson and Abercrombie were present to promote the bill. Peterson emphasized that natural gas shortages were a "problem caused by government" since the Clinton administration had promoted the use of natural gas without allowing the development of offshore supplies. Peterson said he was promoting offshore development because it is the easiest way to deliver gas to those who need it and because it has no onshore environmental impact. Abercrombie pointed out that his presence alone indicated that the issue is not a partisan one, and he said the bill's opponents were "missing a genuine opportunity to make a difference."

The witnesses presented the views of several of the industries--including manufacturing, chemicals, fertilizer, and agriculture--that rely on natural gas and face major problems if prices continue to rise. Jack Gerard from the American Chemical Council predicted especially dire consequences. "Winter is coming. Home heating bills will climb by as much as 70 percent. Factories will be forced to close or cut back operations. Jobs will be lost. The economy will contract," he said. "What will it take to finally pass legislation to permit more access to new supplies of energy in deep-sea waters?" David Bradley from the National Community Action Foundation, emphasized the concern that the poor are particularly vulnerable to the high cost of natural gas for home heating. The Outer Continental Shelf Natural Gas Relief Act would provide ten percent of new natural gas leasing revenues to low income home energy programs.

The prospect of jobs and factories moving overseas to countries with cheaper natural gas, in particular China, loomed over the hearing. At one point Peterson warned the committee that Hershey foods, which is based in his district, might soon be making its chocolate outside of the United States. Abercrombie asked the panel about China's policy on offshore drilling for gas. Gerard replied that while China imported most of its gas, it was looking at increasing its domestic onshore and offshore supplies. He also reminded the subcommittee of the often repeated fact that "the United States is the only country in the world that restricts access to energy resources."

Subcommittee members were also interested in hearing the witnesses' ideas on how to increase public awareness of this potential crisis and overcome widespread opposition to offshore drilling. Gerard told the committee that "a lot of people who are environmentally in tune accept this issue." Abercrombie said his experience did not agree with that assessment though. "I've been put in the village stocks by the environmental groups," he said. Bradley predicted that "once the heating bills hit in January, a lot of people are going to support policies that directly impact these costs." Several witnesses suggested that media campaigns to encourage energy conservation could also be used to educate people on natural gas supplies.

Overall the witnesses expressed a great deal of anxiety over the effects of rising natural gas costs, and emphasized it was important for Congress to act as quickly as possible. Geoffrey Hunt, who represented lightbulb manufacturer Sylvania, said his company had gone as far as it could with energy conservation, and he urged the subcommittee members to help him keep Sylvania factories open. "I'm not looking for a handout," he said. "I'm looking for free market economics to work." Gerard told the committee there was still some hope to reverse negative impacts on American industries, since opening offshore areas would send a market signal that would moderate gas prices immediately, even if new production would take several years to come on line.

-PMD

 


Senate Commerce Justice and Science and Senate Energy and Natural Resources Committees, Joint Hearing on Energy Pricing and Profits
November 9, 2005

Witnesses:
Panel I
Lee Raymond, chairman and CEO, Exxon Mobil Corporation
David O'Reilly, chairman and CEO, Chevron Corporation
James Mulva, chairman and CEO, ConocoPhillips
Ross Pillari, president and CEO, BP America Inc.
John Hofmeister, president and U.S. country chairman, Shell Oil Company

Panel II
Deborah Majoras, chairof the Federal Trade Commission
Peter Harvey, New Jersey Attorney General
Henry McMaster, South Carolina Attorney General
Terry Goddard, Arizona Attorney General

On November 9, 2005 the Senate Committees on Commerce Justice & Science and Energy & Natural Resources held a rare joint hearing to question major oil company executives about energy prices and record profits. The hearing room was full of protesters wearing "Exxpose Exxon" t-shirts, and the discussion among the committee members took a hostile tone from the beginning. When Chairman Ted Stevens (R-AK) announced the executives would not have to give testimony under oath, a practice used regularly by some committees in congress, Senator Maria Cantwell (D-WA) asked that the joint committee hold a vote on whether or not the witnesses would be sworn in. Stevens answered, "There will be no vote. It's the decision of the chairman, and I have made that decision." When Cantwell and Senator Barbara Boxer (D-CA) persisted in calling for the witnesses to be sworn in, Stevens said,"I intend to be respectful of the position that these gentlemen hold."

The five oil company executives -- representing Exxon Mobil, Chevron, ConocoPhilips, BPAmerica, and Shell Oil USA-- all delivered similar testimony that stuck to two major themes. First, each executive maintained that the high prices and profits were a natural part of the energy sector and that government intervention would have a negative effect. "The petroleum industry's earnings are at historic highs today. But when you look at our earnings per dollar of revenue - a true apples-to-apples comparison - we are in line with the average of all U.S. industries," said Lee Raymond, the CEO of Exxon Mobil. Raymond and other executives argued that windfall taxes and other punitive measures are not the best solution for increasing the affordability of energy for consumers. Such measures imposed on the industry in the 1970's hindered reinvestment into industry infrastructure, they said.

The second major theme was that oil companies are currently reinvesting profits in order to increase supply. "Today the industry can offer the prospects of profitable growth as it steps up investment in huge, complex energy projects. We feel confident that this response will lead to a moderation of prices and increased energy security," said James Mulva, the CEO of ConocoPhillips. Several of the executives argued that domestic investment was difficult, however, due to restrictions on drilling on public lands and on the continental shelf.

Many of the senators on the two committees appeared to be convinced by the executives' arguments that their profits were justified. "From what I heard today, I can't say they earned it unfairly," said Energy and Natural Resources Committee Chairman Pete Domenici (R-NM). Some, however, were less willing to accept that market manipulation was not occurring. "I'm hard pressed to feel good about defending these types of increases," said Senator Gordon Smith (R-OR), who pointed out that in western states energy markets are fully integrated and prices at the pump are controlled by the major oil companies. Senator Ron Wyden (D-OR) asked the executives whether they agreed with President Bush when he said that high profits indicated that oil companies did not need the tax breaks included in the Energy Policy Act of 2005. The CEOs said they agreed with the president, and Wyden then said "Then you'll agree with me tomorrow" when he would try to repeal those tax breaks. The CEOs said they did not agree with that strategy. Senator Boxer took the executives to task for their high salaries, contrasting their compensation with pay for average workers who have to pay high prices for gasoline. Chairman Stevens told Boxer to take down a chart showing the CEOs salaries, saying it was solely for publicity.

In the afternoon the joint committee heard from regulatory authorities, including the chair of the Federal Trade Commission (FTC) and three state attorney generals. The three attorney generals related their experiences with price gouging law enforcement, and the New Jersey and Arizona attorney generals called for a federal price gouging law to aid in those efforts. South Carolina Attorney General Henry McMaster, however, said, "I see no need for additional federal legislation on these points." FTC chair Deborah Majoras explained the commission's role in enforcing fair energy pricing, saying, "No other industry's performance is more deeply felt, and no other industry is so carefully scrutinized by the FTC." She also cautioned, however, that gouging legislation could inhibit honest price increases. Senator Jeff Bingaman called this a "specious" argument, saying fair prosecution could be done at the federal level if it could be done at the state level.

An archived webcast of the hearing along with opening remarks and testimony are accessible on the Commerce, Science and Justice Committee's website.

-PMD


Senate Energy and Natural Resources Committee
Hearing on Post-Hurricane Energy Production
October 27, 2005

Witnesses:
Gale Norton, Secretary of the Interior
Samuel Bodman, Secretary of Energy

On October 27, 2005 the Senate Energy and Natural Resources Committee met with key administration officials to discuss ongoing efforts to solve energy shortages caused by hurricanes Katrina and Rita. Chairman Pete Domenici (R-NM) spent much of his opening statement talking about the importance of energy conservation. Domenici made it clear, however, that his first priority remained increasing energy supply, saying, "Conservation is like a diet on our demand, but without supply our nation will end up skinny in any event." Overall it was the consensus of the committee that low energy supplies represent a major problem and that the federal government needs to do more to address the issue. "There is no reason for bureaucracy to grind on during a crisis," said Senator Larry Craig (R-ID), who also asked that key federal officials testify before the committee about the progress they are making on a quarterly basis.

During her testimony Interior Secretary Gale Norton recognized the need to increase supply, and made it clear that "energy diversification is a key goal of the administration." Norton summarized the extensive damage to offshore oil and gas infrastructure caused by the hurricane, and praised the oil industry for the prevention of oil spills in the Gulf despite this damage. The Secretary also mentioned that the Minerals Management Service was in the midst of creating its next five year leasing plan for offshore areas, which would likely include leasing the 181 area off the coast of Florida and Alabama. Energy Secretary Samuel Bodman went over a timeline of Department of Energy activities following the hurricanes and pointed out that steps taken to increase supplies after hurricane Katrina helped to reduce a potentially larger disruption following Rita. Bodman also said that in addition to encouraging energy conservation the federal government would "lead by example" and reduce its own energy consumption.

Much of the subsequent discussion in the hearing focused on plans for offshore leasing, particularly the 181 area. Several senators questioned why this area, which had been approved for leasing by the Clinton administration, was not included in the five year plan covering 2002 to 2007. Domenici was particularly adamant about the need to open the area, saying, "I believe 181 has to be done. Five year plans are not very important." Norton said that under current law the area could not be leased until the latter half of 2007, but that if Congress ordered that the area be leased it could happen sooner. The most heated moment in the hearing came when Senator Mary Landrieu (D-LA) declared that she would oppose leasing any new areas for production until Louisiana and other states that currently produced oil received a greater share of revenues. "Opening new areas without sharing revenues is an insult to the people of my state," she said.

Energy conservation also received significant attention, with several senators stating that they supported an increased effort to save energy. Senator Lamar Alexander (R-TN) suggested that oil companies use their windfall profits to fund a conservation advertising campaign, while Senator Craig (R-ID) said, "I suggested that they put the President in a sweater and put him on TV," a reference to former President Jimmy Carter. Ranking Member Jeff Bingaman (D-NM) asked whether the Department of Energy needed additional funding for public campaigns on conservation, but Bodman said that there were no plans to increase the budget for the program. Senator Ken Salazar (D-CO) asked Bodman's opinion on legislation that would mandate a decrease in federal government energy consumption. Bodman said the federal government was doing its best to conserve, but that mandates would not be helpful. "When you start to mandate you may be interfering with the functioning of some government agencies," he said.

-PMD

Senate Appropriations Committee, Interior and Related Agencies Subcommittee
Hearing to examine the oil and gas activities by the Bureau of Land Management,
including the impact of recently passed energy legislation
October 25, 2005

Witnesses:
Kathleen Clarke, Director, Bureau of Land Management
Logan Magruder, President, Independent Petroleum Association of Mountain States
Paul Cicio, Executive Director, Industrial Energy Consumers of America
Ford B. West, President, The Fertilizer Institute

On October 25, 2005 the Interior and Related Agencies Subcommittee of the Senate Appropriations Committee met to examine oil and gas activities on Bureau of Land Management (BLM) lands. Opening the hearing, Subcommittee Chairman Conrad Burns (R-MT) suggested that the current focus on increasing offshore oil and gas production was misplaced. "It takes a long time to build a platform," he said. "There are trillions of cubic feet [of natural gas] onshore, where pipelines are already in place." Senator Larry Craig had harsh words for the BLM, claiming that the agency had not risen to the challenge of meeting the nation's growing energy demand. "I'd like to know who's asleep at the switch," he said.

BLM Director Kathleen Clarke attempted to answer this criticism with her testimony, pointing out that the BLM had rapidly increased the number of drilling permits it approved during her tenure. This year the agency approved 7000 Applications for Permits to Drill (ADPs) she said, double the amount it approved in 2002. Clarke also praised some provisions of the Energy Policy Act of 2005, particularly the establishment of pilot offices to streamline permitting, but pointed out that the law does not address environmental regulations that are a major stumbling block to increased energy development. Logan Magruder, from the Independent Petroleum Association of Mountain States, testified that the backlog of ADPs had increased dramatically over the past few years, and agreed with Clarke that environmental regulations were a major reason behind this. At one point Magruder pointed to a convoluted chart that represented the steps necessary for complying with the National Environmental Policy Act (NEPA). Two other witnesses, Paul Cicio and Ford West, who represent industries that rely on natural gas, testified as to how high natural gas prices are hurting these industries, and in many cases forcing the closure of fertilizer and chemical plants.

Both Cicio and West partly blamed the high price of natural gas on the increasing use of the fuel to produce electricity. Senator Robert Bennett (R-UT) suggested that the Energy Policy Act had addressed this problem, saying that it promotes "nuclear for electricity, and gas for industry." West, however, said, "The problem is only going to get worse, since there are new gas electric plants being built." Senator Pete Domenici (R-NM) asked what the panel thought of gradually reducing the percentage of natural gas that utilities were allowed to use. Cicio said the industries he represents wouldn't support that because it was a government mandate. Instead he suggested that Congress amend the Clean Air Act in order to encourage the use of coal for electricity.

Another subject that prompted discussion during the hearing was the effect of winter regulations on drilling activity. In response to a question from Domenici, Clarke said the BLM was legally required to "accommodate sensitive or game species needing habitat during certain seasons." Magruder said he was sensitive to concerns about elk hunting, but also pointed to anecdotal evidence of drilling being interrupted for up to five months due to habitat restrictions. Burns agreed that this was an issue that needed further discussion, saying, "I'm not an expert, but I've never seen wildlife out there in the dead of winter. This winter issue is bigger than we thought." Clarke also mentioned that there is a pilot program in the Pinedale, Wyoming BLM office testing the effect of winter drilling on wildlife populations.

Most of the hearing was focused on natural gas, but Senator Wayne Allard (R-CO) was eager to discuss the development of oil shale, which is abundant in his state. Clarke said the BLM had received about 20 proposals for research and development permits involving oil shale, and that the agency would finish issuing those permits in the spring.

-PMD

Senate Energy and Natural Resources Committee
Hurricanes Katrina and Rita's Effects on Energy
October 6, 2005

Witnesses:
Red Cavaney, President and CEO, American Petroleum Institute
Kevin Curtis, Senior Vice President for Programs, National Environmental Trust
Christopher Helms, President, Nisource Inc. Pipeline Group, on behalf of the Interstate Natural Gas Association of America
Curtis Hebert, Executive Vice President, Entergy Corporation
Andrew Liveris, Dow Chemical Company and American Chemistry Council

The Senate Energy and Natural Resources Committee convened on October 6, 2005 to hear an update on Hurricanes Katrina and Rita's effects on energy infrastructure. Committee Chairman Pete Domenici (R-NM), along with Senators Jeff Bingaman (D-NM) and Daniel Akaka (D-HI) had just returned from a tour through Baton Rouge to view some of the damage. Domenici reported that loss of electricity accounted for much of the supply setbacks and stressed the need "to ensure a redundant and robust power grid." He also highlighted the need to bring down natural gas prices, recounting that, at the DOW chemical facility, every $1 increase in the cost of natural gas translates to $35 million a year in additional fuel costs.

"We are not just responding to this disaster, we are living it," said Red Caveney of the American Petroleum Institute. He and other witnesses representing Texas- and Louisiana-based petroleum, pipeline, chemical and power industries expounded on the burdens and challenges they are facing in the aftermath of the storms. Caveney explained that the tracks of Hurricanes Katrina and Rita ran side-by-side, impacting an "unprecedented" geographical range of facilities. As of October 6, 68% of the Gulf's total oil production and 69% of the Gulf's gas production remained shut down. Twenty percent of the Gulf Coast's refining capacity was also offline. Curtis Hebert of Entergy, the largest electricity provider in the Gulf Coast, described the seemingly impossible task of restoring electricity to 1.8 million customers in Louisiana.

Each witness supplied the committee with specific recommendations to stabilize electricity rates, reduce natural gas prices, and promote energy conservation. To retain business, Entergy's Hebert asked for direct and indirect federal assistance to protect privately-owned utilities and to compensate the power industry for direct costs and incremental losses caused by the hurricanes. Dow Chemical's Andrew Liveris listed four key ways to protect industry from rising gas prices: pursue outer-continental shelf supplies; open the highly coveted and restricted "Area 181" off the coast of Alabama and Florida; declare a national emergency that mobilizes the public to conserve; and ensure that electricity not derived from natural gas is dispatched to the grid first.

Representing environmental interests, Kevin Curtis of the National Environmental Trust disagreed with the suggestions of the other panelists. Nevertheless, he delivered strong recommendations that emphasized the country's "golden opportunity" to practice conservation and rebuild the Gulf Coast incorporating lessons learned and sustainable practices. He challenged the committee to lead the way in implementing higher automobile fuel efficiency standards, a policy Domenici plans to include in upcoming legislation, along with offshore drilling proposals. Curtis also criticized House Energy and Commerce Chairman Joe Barton (R-TX) for rolling back Clean Air Act and other regulatory requirements as part of a plan to increase refining capacity. "New refineries should stand out as models," he said.

While committee members were receptive to encouraging conservation, they were most impressed and concerned by Liveris' testimony about the outsourcing of manufacturing jobs as a result of high natural gas prices. Many questions explored how to secure states' rights in offshore drilling and economic dispatch policies, which may infringe upon or economically favor some states over others. At the end of the hearing, Chairman Domenici asked Liveris to repeat his recommendations one more time as a closing note. "I am very, very worried," Domenici said of the natural gas crisis.

-KCA

Senate Commerce, Science, and Transportation Committee
Hearing on "Energy Pricing"
September 21, 2005

Witnesses:
Panel 1
Robin West, Chairman of the Board, PFC Energy Team
Odd-Even Bustnes, Energy and Resource Services, Rocky Mountain Institute

Panel 2
John Seesel, Associate General Counsel for Energy, Federal Trade Commission
Jim Wells, Director, Energy, Resources, and Science Issues, Government Accountability Office

Panel 3
U.S. Senator Ron Wyden (D-OR)

Panel 4
Robert Slaughter, President, National Petrochemical and Refiners Association
Tyson Slocum, Research Director, Energy Program, Public Citizen
Guy Caruso, Administrator, Energy Information Administration
Ronald W. Kosh, V.P. Public Policy and Government Affairs, American Automobile Association-Mid Atlantic

On Wednesday September 23, 2005, the Senate Commerce, Science and Transportation Committee held a hearing investigating the rise in energy prices following Hurricane Katrina. In their opening statements, several senators mentioned that rising gasoline and natural gas prices are a major concern for their constituents and they had been asked to do something about it. Senator Maria Cantwell (D-WA) announced that she had introduced legislation to create a federal statute to investigate and prosecute predatory fuel pricing. Senator Gordon Smith (R-OR) also mentioned that he had introduced legislation, The Post-Disaster Consumer Protection Act, that would make price gouging for oil or other essential products illegal for thirty days following a declared disaster.

In the first round of testimony two energy consultants offered their recommendations for solving the problem of high gasoline and other fuel costs. Robin West, from PFC Energy, suggested that the best strategy was to increase supply and decrease demand. He specifically recommended relaxing regulations on new refineries and warned the committee that price caps would only lead to market distortions. Odd-Even Bustnes from the Rocky Mountain Institute claimed that the U.S. could dramatically reduce its use of oil by using existing technologies to create more efficient vehicles and replace fossil fuels with cellulosic biofuels. This could be achieved, said Bustnes, through modest policy innovations including rebates for efficient vehicles.

Most questions focused on short term gas prices. Senator George Allen (R-VA) asked whether or not it made sense to limit the number of fuel blends refined for air pollution non-attainment areas, which West said was "an excellent idea." Senator Barbara Boxer (D-CA) objected to West's suggestion that New Source Review regulations be eliminated to refineries, saying, "if you're going to pollute more, you need to clean it up." West agreed that refineries needed to be held to a high standard to reduce air pollution, but that there are "other ways to manage it". In response to a question from Senator Mark Pryor (D-AR) about OPEC's role in rising prices, West said, "OPEC has blown through their price band and right now they are along for the ride. They are not controlling the market."

In the next panel, representatives from two different federal agencies offered their perspectives on rising prices. John Seesel, from the Federal Trade Commission (FTC) said that the commission had begun a detailed investigation into price gouging and unusual price movements following Hurricane Katrina. Jim Wells of the Government Accountability Office discussed the factors controlling gasoline prices. According to Wells, about half the price paid at the gas pump is due to the price of crude oil, while one quarter is due to refining costs and the remaining quarter is due to other factors including marketing, transportation, labor and profit margins. During questioning Senator Ben Nelson (D-NE) demanded that the FTC produce a less thorough study on price gouging more quickly, and said he would introduce legislation to that effect.

After a break, the afternoon session of the hearing began with testimony from Senator Ron Wyden (D-OR). Wyden said he had extensively investigated this issue and that consumer protection was primarily an issue of political will. "The Federal Trade Commission can get results for the consumer when they sincerely want to. We saw that specifically with the Do Not Call program," he said. Wyden called for a "Do Not Gouge" program that would force the FTC to act when price gouging occurred.

Following Wyden, a final panel of witnesses presented wide-ranging views on fuel prices. Robert Slaughter, President of the National Petrochemical and Refiners Association, echoed Robin West's views that the government should not interfere in pricing and that refinery regulations were limiting fuel supply. Public Citizen's Tyson Slocum made the claim that both oil company mergers and commodities markets played a large role in rising fuel prices and urged that regulatory agencies increase their scrutiny of vertically integrated companies and commodity traders. Guy Caruso from the Energy Information Agency reported a timeline of gas prices before and after Katrina, while Ronald Kosh from the Mid-Atlantic AAA related the specific experience of motorists in his region, where prices have been particularly high. Kosh told the committee that an oil industry executive had told Maryland state legislators that high prices were due to Maryland's reliance on a pipeline, while in Delaware oil company officials said prices were high because the state received oil by ship and not from a pipeline.

Senator Pryor asked Slaughter whether there was any truth to theories that oil companies had intentionally shut down refineries in order to raise prices. Slaughter said this was completely false. "The industry has steadily invested in refinery capacity for the past twenty years," he said. "The problem is that demand growth has exceeded expanded capacity." Slocum, however, maintained that oil companies were engaged in selective withholding and would prefer to sell less gas at a higher price than more gas at lower price. "We need to enforce competitive markets because that is what makes America great," he said.

-PMD

House Government Reform Committee, Energy and Resources Subcommittee
Hearing on "Meeting America's Natural Gas Demand: Are We in a Crisis?"
September 14, 2005

Witnesses
Rebecca Watson, Assistant Secretary for Land and Minerals Management, Department of Interior
Guy Caruso, Administrator, Energy Information Administration, Department of Energy
Michael Zenker, Senior Director, North American Natural Gas, Cambridge Energy Research Associates
Logan Magruder, President, Independent Petroleum Association of Mountain States
Tyson Slocum, Research Director of Energy Programs, Public Citizen

On September 14, 2005, the Government Reform Subcommittee, chaired by Representative Darrell Issa (R-CA), revisited measures to alleviate the burdens of escalating natural gas prices on consumers and businesses. The committee heard testimony from administration officials, industry representatives and consumer advocates on the status of the natural gas crisis in the aftermath of Hurricane Katrina. Discussion also included the virtues and limitations of the new Energy Policy Act of 2005, and recommendations for additional, more aggressive policies.

According to Guy Caruso of the Energy Information Administration, natural gas prices peaked at $13 per thousand cubic feet (tcf) following Hurricane Katrina, up from $10 per tcf, which was already over double 2004 prices. According to Rebecca Watson, Assistant Secretary of Land and Minerals Management, 35% of Gulf Coast natural gas supply, meaning about 7% of the nation's total natural gas supply, remained shut down as of the hearing, as industry continued to repair damage to onshore support facilities. While both officials remained optimistic about recovery, Caruso said that the near-term outlook for price stability would depend heavily on the timing and pace of the effort and that, even if heating prices recovered before this winter, prices of petroleum-based products would remain high for a long time thereafter. Assuming a "medium" rate of recovery, the EIA expected residential heating gas prices to be 46% higher than last winter on average, or 71% higher in some areas of the northern Midwest.

In his opening statement and throughout the hearing, Chairman Issa stressed the negative impact that persistent high natural gas prices have on U.S. competitiveness, as manufacturing industries struggle to keep up with the global market. Although Issa called the recently passed energy bill "a step in the right direction," he added that events such as Hurricane Katrina "have caused a reexamination of policies and practices in terms of domestic production." Namely, Issa called for revisiting possibilities such as year-round onshore drilling, increased outer-continental shelf production, and more liquefied natural gas terminals.

In contrast, the committee's ranking member, Diane Watson (D-CA), zeroed in on the possibility of market manipulation and how it may be impacting prices. She also stressed the importance of facilitating long-term as well as short-term solutions as the nation recovers from the immediate crisis. Similar to the energy crisis in California, she said, supply shocks like the post-Katrina situation are in part attributed to the kind of "shortsighted planning" included in the energy bill, and exacerbated by price gouging among energy companies.

Witnesses tended to side with the views of either Chairman Issa or Representative Watson as they delivered their recommendations. Secretary Watson and Logan Magruder, President of the Independent Petroleum Association of Mountain States, pressed hard for expanded access to natural gas supplies on federal land and the outer-continental shelf, especially the 139 tcf trapped in the intermountain region of the western United States. Watson said that, while the Energy Policy Act of 2005 gave the Interior Department mandates to increase permits to drill, legal battles have increased 4-fold over the last four years, placing further pressure on the supply market. Magruder agreed, calling for an overhaul of the National Environmental Policy Act (NEPA), which he said is primarily responsible for slowing development. Also pushing for supply diversification, Mike Zenker from Cambridge Energy added that there would be no feasible way to meet the nation's growing demand without increasing imported liquefied natural gas.

On the other end of the spectrum, Tyson Slocumb from Public Citizen, a consumer advocacy group, pushed for better regulatory oversight of energy companies and an emphasis on conservation. "Strengthening transparency empowers market participants and makes for more efficient, competitive markets, which in turn lead to fair prices for consumers," he said. One policy he emphasized to curb demand, conceived by the American Council for an Energy Efficient Economy (ACEEE), would reduce natural gas demand by 10% by 2020.

During the question and answer period, witnesses and members disagreed further about where the energy bill failed to meet the nation's needs, and what Congress should focus on now. Representative Brian Higgins (D-NY) agreed with Slocumb that subsidies for energy industry contained within the energy bill dwarfed the bill's conservation measures, asserting that "the energy bill provides just enough incentives for alternative energy sources to say we're doing something." Secretary Watson disagreed with this assessment, arguing that the bill contained several meaningful measures. She declared that the focus of congress should be on public education rather than creating new environmental and other regulatory laws.

-KCA

Two Related Hearings on High Gas Prices and the Impact of Katrina
Senate Energy and Natural Resources Committee and House Energy and Commerce Committee
September 6 and 7, 2005

Senate Energy and Natural Resources Committee
September 6, 2005

Witnesses:
Panel 1:

Guy Caruso, Administrator, Energy Information Administration
James A. Overdahl, Chief Economist, U.S. Commodity Futures Trading Commission
Rebecca Watson, Assistant Secretary for Land and Minerals Management, Department of Interior

Panel 2:
Robert L. Darbelnet, President & CEO of AAA
Bob Slaughter, President of the National Petrochemical & Refiners Association
John Dowd, Senior Research Analyst at Sanford C. Bernstein & Co., LLC
William Shipley III, CEO of Shipley Stores, LLC, Representing the National Association of Convenience Stores and the Society of Independent Gasoline Marketers of America

House Energy and Commerce Committee
September 7, 2005

Witnesses:
Panel 1:

David K. Garman, Undersecretary for Energy, Science and Environment, Department of Energy
Guy F. Caruso, Administrator, Energy Information Agency
John H. Seesel, Associate General Counsel for Energy, Federal Trade Commission
Kenneth P. Moran, Acting Director, Office of Homeland Security, Enforcement Bureau, Federal Communications Commission
Daniel A. Lashof, Science Director, Climate Center, National Resources Defense Council

Panel 2:
Haley Barbour, Governor of Mississippi
Scott A. Angelle, Secretary, Louisiana Department of Natural Resources
Red Cavaney, President, American Petroleum Institute
Bob Slaughter, President, National Petrochemical and Refiners Association
James Newsome, President, New York Mercantile Exchange
Mr. Benjamin S. Cooper, Executive Director, Association of Oil Pipe Lines
Bill Douglass, Representing the National Association of Convenience Stores and Society of Independent Gasoline Marketers of America
William Smith, Chief Technology Officer, BellSouth Corp.
Mark Cooper, Research Director, Consumer Federation of America

Less than a month after President Bush signed an $18 billion energy bill into law, the crisis of skyrocketing oil and natural gas prices, which were further exacerbated by supply disruptions in the aftermath of Hurricane Katrina, motivated congress to revisit more aggressive measures to alleviate the problem. Congressional hearings held on September 6 and 7, 2005 revealed that committee leaders in both the House and Senate were reconsidering several measures that didn't make it into the final energy bill, particularly policies to expand domestic oil and gas production and refining capacity. New policies would hopefully provide more immediate relief to consumers, who are paying over $3 a gallon on gasoline nationwide and who are expected to pay 47-70% more on their heating bills this winter.

The Senate Energy and Natural Resources Committee convened on September 6th to examine the impact of Hurricane Katrina on gasoline supply along with background factors already contributing to high prices, including constraints on refinery capacity and the potential for price-gouging by oil companies, distributors, and retailers. In his opening statement, Committee Chairman Pete Domenici (R-NM) said, "Hurricane Katrina exposed a harsh reality that we have been skirting," referring to the nation's dependence on Gulf of Mexico oil and gas. "Issues not politically possible two months ago are still before us," he added.

At both hearings, Guy Caruso of the Energy Information Administration (EIA) reported that much of Hurricane Katrina's impact came from damage or supply disruption at onshore facilities, including power outages to pipelines and otherwise-working refineries. For both offshore and onshore facilities, "damage assessments are ongoing but still incomplete," Caruso said. According to EIA, the Gulf Coast contains 8 million barrels per day (mmb/d) of refining capacity, 47 % of the nation's total, and it receives 60% of the nation's crude oil imports. Fifteen oil refineries were forced to close or reduce their operations, removing 12% of the nation's total gasoline supplies from the market in the immediate aftermath of the storm. As of September 6th, half of the 1.8 million barrels of oil per day taken offline after the hurricane was back online, with 58% of the Gulf's daily oil production and 42% of its gas production still shut in. Although damage to refineries was not yet fully assessed, three major pipelines from the Gulf Coast were again operating.

In an opening statement, Senator Domenici threw his support to oil and gas exploration in the outer continental shelf, higher fuel efficiency standards, waivers for the blended, "boutique" fuels requirements, and more aggressive incentives to increase refining capacity. During the House Energy and Commerce Committee hearing the following day, Domenici's counterpart, Chairman Joe Barton (R-TX), brought back to life his controversial "refinery revitalization act," a discarded energy bill proposal to ease regulations on refinery licensing in economically distressed areas. The energy bill currently includes two provisions to encourage refining investments, including a tax deduction and a technological assistance program to help states offer incentives. Jeff Bingaman (D-NM), the Senate committee's ranking member, and other Democrats urged congress to gain a better understanding of whether these provisions would have any positive near-term impact before adopting new measures.

Witnesses representing the Society of Independent Gasoline Marketers at both House and Senate hearings commended congress for relieving some of the pressure on the refining industry in the energy bill by restricting the use of boutique fuels, repealing the reformulated gasoline oxygenate requirement, and by providing federal tax incentives. For futher action, they recommended prompt implementation of these provisions, streamlining the permitting process for expanding existing refineries, and adopting additional tax incentives, particularly to spur redevelopment of roughly 50 abandoned facilities.

Price gouging questions also took center stage at each hearing, where officials from the Federal Trade Commission (FTC) and representatives from the petroleum and petrochemical industries battled with members of congress over whether current gasoline prices reflect manipulation of the market. Among these witnesses there was a prevailing consensus that gas prices, though high, were still within the bounds of an open market, and that the industry was closely monitored. Barton asked his witnesses, which in his words represented "the full panoply of the oil and gas industry" to describe in detail how price was set at each stage of the process. They assured the committee in their responses that the industry operated with efficiency and transparency.

But several members of congress, particularly during the Senate hearing, pressed that an increasingly concentrated and vertically integrated domestic oil industry allowed companies more freedom in setting gasoline prices. "It is about as far from a free market as anything I know," said Senator Byron Dorgan (D-ND), who cited that the industry's $100 billion net income in 2005 represents massive windfall profits. Senator Ron Wyden (D-WA) also challenged James Overdahl from the U.S. Commodity Futures Trading Commission (CFTC) over why the federal government had not begun to investigate reports showing companies to be collecting record profits on gasoline price spikes. Overdahl maintained that, even if such an investigation was called for, it was not under the CFTC's purview.

During the weeks following Katrina's devastation, Congress quickly acted on the possibility of market manipulation by introducing several bills to increase FTC's enforcement authority. On September 15th, the Senate also succeeded in moving a measure ordering an FTC investigation of gasoline pricing practices among fuel wholesalers with receipts of at least $500 million in 2004. The provision was a part of the larger fiscal year 2006 spending bill for Commerce, Justice, Science and Related Agencies, and, if agreed to in conference, it will direct the FTC to file an initial report of their findings within 30 days.

-KCA

Senate Foreign Relations Committee
Hearing on "Energy Trends in China and India: Implications for the U.S."
July 26, 2005

Witnesses:
Anthony Wayne, Interim Undersecretary for Economic, Business and Agricultural Affairs, State Department
David Garman, Undersecretary for Science and Environment, Energy Department
Mikkal Herberg, director, Globalization & Asian Energy Security Program, The National Bureau of Asian Research
Randall Schriver, partner, Armitage International
Sumit Gangulym, director, Indian Studies Program, Indiana University

The Senate Foreign Relations Committee held a hearing on July 26, 2005 to discuss the trends in the energy markets in China and India and what implications these trends hold for the United States. China and India have rapidly expanding economies. As Anthony Wayne, an official at the State Department, stated, "In China, for example, the economy has grown an astounding nine percent per year for the past 25 years. The Indian economy has grown by five percent annually during this same period." As these countries continue to expand their economies, a dramatic increase in global energy consumption is inevitable.

The primary source of energy in these countries is coal. Both India and China rely on coal to supply over 50% of their energy supply. However, oil has become an ever more prominent energy resource, with China replacing Japan as the world's second largest petroleum user. Wayne reported that currently China is consuming 6.4 million barrels of oil a day, one-third less than what the U.S. consumes. About 40% of the oil China uses is imported. India, which imports 66% of its oil, is consuming about 2.4 million barrels of oil daily, a figure that is supposed to double over the next few years.

David Garman, director of the Globalization & Asian Energy Security Program, reported in his testimony that the daily global oil demand and consumption has increased by 4.5 million barrels between 2003 and 2004. China, who increased consumption over this period by 1.5 million barrels per day, will significantly impact increased oil consumption. According to Wayne, an International Energy Agency report showed that, "overall demand for energy in China and India is projected to approximately double by 2030, whereas US demand is expected to grow by only 35-50 percent."

As India and China are increasing oil consumption, they are also increasing the amount of oil they import. The growth of oil demand in China and India threatens U.S. security because all three nations are competing for ever more limited resources, demand is outpacing supply and China and India are importing oil from volatile nations such as Iran and Sudan. China's and India's interactions with Sudan and Iran have complicated interpretations of U.S. laws and policies, but on a greater scale, have upset global stability, according the Wayne. Energy Secretary Samuel Bodman launched a comprehensive energy dialogue with India in May, 2005. The dialogue focuses on strengthening energy security by increasing information, trade and investments in oil and gas, advancing understanding of efficient generation, distribution and use of electricity distribution and use of electricity, investing in clean energy technologies, and enhancing the understanding of coal-related issues. The U.S. has also had exchanges with China and China is interested in expanding cooperation with the U.S. on renewable and clean energy sources.

The global use of renewable and cleaner energy sources are crucial because increased oil consumption will exacerbate greenhouse gas emissions. According to Wayne, currently 4% of global carbon dioxide emissions come from India, while China emits 14% of the global emissions. By 2025, these emissions are expected to increase to 5% and 18% respectively, which will almost equal the emissions of the U.S., which is currently responsible for 25% of global oil consumption. These numbers are based on data from the Energy Information Administration.

For the written testimonies of the witnesses from this hearing, please visit: http://foreign.senate.gov/hearings/2005/hrg050726a.html

 

House Resources Committee, Energy and Mineral Resources Subcommittee
Hearing on "The Vast North American Resource Potential of Oil Shale, Oil Sands, and Heavy Oils"
June 23, 2005

Witnesses:
Panel I
Mr. Mike Godec, Vice President, Advanced Resources International Inc.
Mr. Jack Savage, President and CEO, Oil Tech Inc.
Mr. Terry O'Connor, Vice President, External and Regulator Affairs, Shell Unconventional Resources Energy
Mr. Greg Stringham, Vice President, Markets and Fiscal Policy, Canadian Association of Petroleum Producers (CAPP)

Panel II
Mr. Russell George, Executive Director, Colorado Department of Natural Resources
Mr. Michael J. McKee, Commissioner, Uintah County, Utah


On June 23, 2005, the House Resources Subcommittee on Energy and Mineral Resources held a hearing on "The Vast North American Resource Potential of Oil Shale, Oil Sands, and Heavy Oils." In the first panel, representatives from the oil industry described new technologies that they said would lead to economic production of unconventional oil resources, provided that sufficient government support exists. Then in the second panel, Colorado and Utah government officials reported how these states are promoting environmentally and economically sound oil shale development. An additional hearing later in June will include testimony from federal government representatives.

In his opening statement, Subcommittee Chairman James Gibbons (R-NV) noted an increasing U.S. dependency on foreign oil and suggested that unconventional oil could help to wean the U.S. off of imports. Chairman Gibbons said that the U.S. is the "Saudi Arabia of oil shale" with over 2 trillion potentially recoverable barrels of oil. Gibbons stated that the benefits of developing new domestic oil supplies would include more U.S. jobs as well as less economic dependence on hostile or unstable countries.

Oil shale in the Green River formation of Colorado, Utah, and Wyoming was the main focus of the hearing. Mr. Jack Savage of Oil Tech Inc. testified that, despite its name, there is "not one drop of oil in oil shale." He explained that oil is produced from oil shale rock by heating it until naturally occurring organic kerogen is converted to usable oil products. In the previous oil shale boom in the early 1980's, the rock was mined in large open pits and then heated to produce oil, creating significant negative environmental effects. Testimony from Savage and from Mr. Terry O'Connor of Shell Unconventional Resources emphasized that the new technology would be more cost effective and environmentally friendly than it was in previous decades. Oil Tech has developed a technique that involves using modular production units with sealed heating chambers to process the oil shale without creating emissions; Savage emphasized that the technology is scalable and transportable, thus lessening boom-bust development cycles. Shell is demonstrating a technology that uses heaters suspended down deep wells to heat the rock for up to four years, after which it is extracted in a conventional manner as a liquid.

While Savage and O'Connor testified that they believed their processes were currently or would soon be economical, some members of the subcommittee expressed skepticism, perhaps wary of claims made in the 1970's and 1980's about the potential of oil shale. Asked by Rep. Steve Pearce (R-NM) why the companies are not commercially producing oil from oil shale when oil prices are wavering near $60 per barrel, Savage said that Oil Tech was a startup company that was hoping to start commercial production soon and O'Connor said that Shell was still evaluating its research before making a capital expenditure decision. Both offered recommendations for federal policy to encourage oil shale development, suggesting that Congress should change outdated mining law to allow for multiple leases by individual companies, set initial government royalties on federal leases low enough to spur development, ensure that permitting is as efficient as possible, and clarify ambiguities in tax law.

While local and state government representatives on the second panel concurred with many of the recommendations made by Savage and O'Connor, they also emphasized that oil shale production must be economical to prevent another bust and environmentally sound to prevent local degradation. Mr. Russell George of the Colorado Department of Natural Resources testified that Colorado intends "that technology and environmental oversight be rigorous, that development use the best available practices to minimize impacts, that state and local needs are anticipated and funded, that development on public land be prioritized by resource and by region, and that the cumulative impact of mineral and energy development on both public lands and private lands be mitigated." Mr. Michael McKee, Commissioner of Uintah County, Utah, testified that "Uintah County fully supports the development of oil shale and is very concerned that the mistakes made in past efforts not be repeated."

Some members of the subcommittee expressed support for oil shale but urged caution about rushing into developments that could potentially be harmful to the environment. Subcommittee ranking member Raúl Grijalva (D-AZ) said in his opening statement that "impacts should be assessed before the Bureau of Land Management (BLM) launches into a full-scale leasing program."

While most of the focus of the hearing was on oil shale, the prospects of oil sands in the U.S. and in Canada were discussed. Mr. Michael Godec of Advanced Resources International testified about the domestic potential in heavy oil and oil sands: "The U.S. still has very large volumes of undeveloped heavy oil and oil sands (sometimes called 'tar sands'), estimated at 180 billion barrels originally in-place." However, Godec estimated that only 30 billion barrels are recoverable given foreseeable advances in technology. Godec was optimistic about the potential of "zero emissions" production, in which oil recovered using carbon dioxide gas injections would be turned into steam, hydrogen, and electricity, with additional carbon dioxide by-products being used to stimulate further oil production. In submitted written testimony, Godec concluded "Not only would this provide a positive energy balance, but it would provide one more 'market-based' technology option for reducing carbon dioxide emissions to the atmosphere."

Mr. Greg Stringham of the Canadian Association of Petroleum Producers emphasized the growing commercial production of crude oil from oil sands in Canada and told the subcommittee that oil sands are "not unconventional anymore". Stringham said that Canada is producing over 1 million barrels per day from its oil sand deposits and that soon over half of Canadian oil production may be from oil sands. He also suggested that Canada may serve as a model for how to successfully develop unconventional oil sources: "The key to unlocking the vast potential of the Alberta oil sands has been sustained and cooperative industry and government research and development." Many of the recommendations offered by the other witnesses on the panels were modeled after Canadian policies.

-JPV

Senate Environment and Public Works Committee
Hearing on Permitting Issues of Energy Projects
May 25, 2005

Witnesses
J. Mark Robinson, Director of Federal Energy Regulatory Commission (FERC)
Dennis Duffy, Vice President of Regulatory Affairs, Cape Wind
Sharon Buccino, Attorney, Natural Resources Defense Council (NRDC)
Ronald E. Hogan, General Manager, Questar

On May 25, 2005, the Senate Environment and Public Works Committee heard testimony from local and federal regulators, environmentalists and industry representatives on the permitting issues facing wind and natural gas energy projects off America's coasts. Witness testimony focused on approaches to expedite the permitting process while minimizing environmental concerns and maximizing national security.

Federal Energy Regulatory Commission (FERC) director Mark Robinson opened the discussion by explaining his concerns for FERC's current permitting system and offering a new federal strategy. Although the natural gas permitting processes was developed to address the best interests of the public, Robinson said that local opposition to energy infrastructure projects prevents the necessary facilities from being built, causing a negative impact at the regional scale. Robinson called for a more "rational" siting process that would increase the efficiency and effectiveness of siting all types of energy infrastructure, including wind and natural gas terminals. The three-pronged plan would designate one lead agency to have exclusive authority over siting projects; require that all agencies with authority over an aspect of the project develop a single federal record from which all agency decisions would be made; and create one federal appeals process.

Dennis Duffy, who represents a major wind energy facility, spoke about the Cape Wind project and how it will supply 75% of the total energy to Cape Cod and Nantucket by constructing 130 wind turbines offshore, offering a new source of clean, renewable energy. Like Robinson, Duffy hopes that the review process for new energy infrastructure can be accelerated so that the nation's growing energy needs can be met.

Senator John Warner (R-VA) announced plans to offer an amendment to the energy bill that would limit federal permitting for offshore wind farms by requiring wind energy producers to pay royalties similar to the system established for offshore oil and gas producers. Earlier this month, Warner collaborated with Lamar Alexander (R-TN) to propose legislation that would also restrict funding to wind energy developments. Warner characterized environmentalists as having a "hear no evil, see no evil, speak no evil" attitude when it comes to wind farms, which according to his views, would have a great negative aesthetic impact for a relatively small amount of energy. Although he didn't express opposition to developing wind energy, he said "if it's going to be done, do it right."

Testifying on behalf of the National Resource Defense Coucil, Sharon Buccino urged Congress to "enhance the public's voice, not silence it" as they consider legislation to streamline energy permitting. She said laws should uphold the National Environmental Policy Act (NEPA), which is the foundation of the regulatory process. Buccino warns that Congress is currently veering away from NEPA because the House has eliminated the NEPA process in Section 2055 of H.R. 6, and has weakened the framework of NEPA in other sections of H.R. 6. According to Buccino, the current legislation is not supporting our best public and environmental interests, so we need NEPA now more than ever.

In an abbreviated testimony, Questar general manager, Ronald Hogan expressed that the natural gas producer, is trying to lower environmental impacts while increasing worker safety and providing a boost to local economies. However, this has become a challenge for Questar because they are faced with numerous jurisdictions and regulations that "simply defy logic," slowing down the permitting process. Hogan's testimony showed how natural gas producers are suffering from current policies and he encouraged the formulation of new policies that incorporate the environment, the community and the nation so that domestic natural gas can be distributed more efficiently in the U.S..

-AMS

House Resources Committee Subcommittee on Energy and Mineral Resources
Hearing on "The Impacts of High Energy Costs to the American Consumer"
May 19, 2005


Witnesses
James C. May, President and CEO, Air Transport Association of America Inc.
Paul Cicio, Executive Director, Industrial Energy Consumers of America (IECA)
Theresa Schmalshof, board member, National Corn Growers Association (NCGA)
Robert D. Bessette, President, Council of Industrial Boiler Owners
Robbie M. Hyde, President and CEO, Mill Hall Clay Product Inc.
Carol Clements, chair person, National Fuel Funds Network (NFFN)
Katherine Morrison, staff attorney, U.S. Public Interest Research Group (PIRG)

On May 19, 2005, the House Subcommittee on Energy and Mineral Resources heard testimony from witnesses on how high energy costs impact agriculture, manufacturing, transportation and low-income consumers. Chairman Jim Gibbons (R-NV) opened with comments on the astronomically high natural gas prices and how these prices cause important divisions of the economy to close and downsize. Gibbons expressed his interest in using the American National Wildlife Refuge (ANWR) and our nation's plentiful natural gas resources to combat high energy costs. Throughout the hearing, the committee considered proposed solutions addressing how to lower energy costs, increase capital investments, secure jobs and ensure energy and economic stability in the future.

James May discussed how the high oil prices have affected commercial airlines and their employees. The industry faces oil prices reaching a 12-month projected average of $51 per barrel, or $1.55 per gallon. With industry consuming roughly 18.6 billion gallons of oil per year, every penny spent on a gallon of jet fuel increases the industry's annual spending by $186 million. Every dollar increase in the price of a barrel of oil threatens 5,500 jobs. According to May, U.S. air carriers will remain at the mercy of OPEC and the federal government if oil prices continue to soar. Consequently, the airline crisis will persist nationally and internationally, due to the relative weakness of the dollar. May contends that although the industry has made efforts to improve oil consumption and efficiency, the market will only recover with more oil production.

Paul Cicio of IECA, a nonprofit organization that promotes the interests of domestically and globally competitive manufacturing companies, indicated that the U.S. has the most restrictive offshore policies in the world, where "approximately 85% of the lower 48 state offshore acreage has been placed under congressional and executive moratoria." Cicio believes America's best interests lie in the use of our own domestic gas supply rather than imported natural gas and he also noted that natural gas was a cleaner fuel than oil or coal. Because the offshore production of natural gas has a good environmental record, Cicio asserts that the U.S. must remove the moratoria and exploit our offshore natural gas resources to combat the growing energy costs.

Theresa Schmalshof explained how high natural gas prices have affected America's farmers. Elevated natural gas prices affect the costs of producing fertilizers, irrigation, grain drying, feedstock and ethanol production. Like Cicio, Schmalshof contested that we must tap domestic resources and formulate new environmental policies that do not constrict the production of natural gas. Schmalshof emphasized that Congress must issue a policy that promotes natural gas production on the outer continental shelf and Alaska's north slope, the construction of new coal and nuclear facilities, and the conversion of agricultural and industrial facilities to environmentally friendly coal gasification technology.

Robert Bessette, offered a different perspective, calling for a coordinated environmental and energy policy. Bessette expressed his concern for protecting the environment, reporting that an effective linkage between environmental and energy policies could increase natural gas production and energy efficiency, opening the door for considering alternative fuels like biomass and waste coal.

Carol Clements from the National Fuel Funds Network explained how high energy costs have impacted consumers with low incomes. Clement's organization manages funds from the federal Low Income Home Energy Assistance Program (LIHEAP). She claims that, although more people are applying for LIHEAP, there are inadequate funds to support the declining eligibility of the low income families. In her testimony, Clements urged the Subcommittee to consider her proposed solutions for battling the impacts of high energy costs on low income consumers. Her recommendation included increased funding for LIHEAD, strengthening the federal Weatherization Assistance Program, and the formation of a working group among the Departments of Energy, Housing and Urban Development, and Health and Human Services. Strengthening these federal programs would improve energy efficiency and conservation in public and Section 8 housing, which is a program passed by Congress in 1974 that allows tenants to pay for housing on a sliding-scale basis.

Katherine Morrison critiqued the House energy bill (H.R. 6) passed in April. Morrison believes that the supply-based proposals for oil production presented by President Bush and Congress will not solve the problems associated with high oil prices. Instead, Morrison believes the solution lies in fuel efficiency, noting recent technology developed by the National Academy of Sciences (NAS) that could economically increase auto fuel efficiency from 20.8 to 40 miles per gallon. "Congress has wasted four years on an energy policy that won't help consumers or reduce our dependence on oil," Morrison stated boldly, "Congress should reject the energy bill." According to Morrison, H.R. 6 is aimed at lowering oil consumption costs, a fact which President Bush admitted "wouldn't change the price at the pump today." Morrison urged the committee to focus on fuel conserving technologies that will ultimately save consumers money.

In the question and answer portion of the hearing, Thelma Drake (R-VA) requested that each of the witnesses supply the Subcommittee with a letter addressing what the Subcommittee is doing right and what they are doing wrong. John Peterson (R-PA) agreed with the majority of the witnesses that there needs to be a linkage between environmental and energy policies, saying that "natural gas is an island to itself in this country." In closing, Drake challenged Morrison's testimony, stating that stricter fuel efficiency standards would only render American car manufacturers less competitive. According to Drake, the federal government should not be in the business of making choices for the American consumer regarding automobile size and style, calling fuel-efficient vehicles small and unpopular.

-AMS

Senate Energy and Natural Resources
Hearing on the Nuclear Power 2010 Program
April 26, 2005

Witnesses
Jeffrey Clay Sell, Deputy Secretary, Department of Energy (DOE)
Hon. Nils J. Diaz, Chairman of the Nuclear Regulatory Commission (NRC)

The Senate Energy and Natural Resources Committee convened on April 26, 2005 to hear testimony regarding the status of the Department of Energy's Nuclear Power 2010 Program. The program, unveiled on February 14, 2002, aims to provide new base-load nuclear generating capacity in order to meet the Administration's objectives to expand energy supply diversity.

Funded at $50 million in FY 2005, with a Presidential request for $56 million in FY 2006, Nuclear Power 2010 is a federal 50/50 cost-sharing initiative between industry and government to develop new plant sites, bring advanced nuclear technologies to market, and demonstrate the Nuclear Regulatory Commission's (NRC) new combined construction and operation licensing process. Construction of at least one new reactor is expected within the next decade. So far, DOE is pursuing applications to finance three licensing demonstration projects: two new reactors at the North Anna site in Virginia, led by a consortia of five energy companies; a feasibility study for an advanced boiling water reactor at the Tennessee Valley Authority's Bellefonte site in Alabama; and a third research and development project for light-water nuclear reactor designs, led by the NuStart Energy Group.

Committee Chairman Pete Domenici (R-NM) offered the committee's "dedicated and firm" commitment to the emerging "global renaissance in nuclear energy," a phrase Domenici borrowed from an April 26th Washington Post editorial by the World Nuclear Association's director general. Although he was optimistic about the three projects, Domenici listed three major obstacles to address, including the lack of progress surrounding the Yucca Mountain repository, high up-front capital costs that challenge nuclear power's feasibility in the U.S., and NRC's untested regulatory scheme, which could potentially put a drag on nuclear development.

Senator Lamar Alexander (R-TN), Jeff Bingaman (D-NM), and Larry Craig (R-ID) raised other concerns, including funding and staffing needs, the role of judicial review within the licensing process, and expected timelines for completing the current projects. NRC Chairman Nils Diaz testified that the agency is fully prepared, in terms of personnel infrastructure and resources, to handle new applications, predicting that processing new license applications would require roughly $20 million in 2006 and 2007 if industry support remains strong.

Clay Sell, Deputy Secretary of Energy, added his optimism that, as long as the licensing process remained sound and efficient, the certainty of completing plants and putting them online is very high. Compared to the life-cycle cost of new clean coal or natural gas plants, he said, DOE has concluded with "considerable confidence" that nuclear plants are competitive. He suggested that Congress should thus be less concerned with providing construction incentives and more focused on strengthening regulatory certainty.

According to Sell, the Nuclear Power 2010 program runs through 2011, and DOE expects to certify two of the demonstration projects within the next two years, and begin the combined license process in 2008 or 2009. Diaz also reported that in addition, the majority of the existing nuclear fleet in the U.S. have the capability add a new reactor site, which raises the potential for a substantial increased domestic nuclear capacity while dodging the expense of lengthy appeals processes.

Senator Ken Salazar (D-CO) asked Sell to address the challenges posed by recent delays, scandals and political flare-ups surrounding the planned Yucca Mountain nuclear waste repository. Sell responded that DOE remains resolute about moving forward with the repository and confident about overcoming roadblocks, adding, "we are confident in the science that underpins the decision…[but] political difficulties have proved great."

-KCA

Senate Energy and Natural Resources
Hearing on Offshore Energy Production
April 19, 2005

Witnesses
Panel 1
Admiral James Watkins, U.S. Navy (Ret.), Chairman of the U.S. Commission on Ocean Policy
Johnnie Burton, Director of the Minerals Management Service, Department of the Interior
Dr. Robert Thresher, Director of the National Wind Technology Center, National Renewable Energy Laboratory

Panel 2
Scott Angelle, Secretary of the Louisiana Department of Natural Resources
Hon. Frank Wagner, Virginia State Senator
Charles Davidson, Chairman, President and CEO of Noble Energy, Inc., Houston, TX
Debbie Boger, Deputy Legislative Director, Sierra Club

The Senate Energy and Natural Resources Committee, chaired by Senator Pete Domenici (R-NM), met to consider whether any significant policy changes would make energy development in the outer continental shelf (OCS) more viable. Hearing testimony and discussion focused primarily on a bill introduced by Senator Lamar Alexander (R-TN) that would allow states to inventory and lift restrictions on their own offshore resources. The committee also considered the potential of offshore renewable generation, such as wave and wind energy.

Domenici called offshore energy "tremendously important," to increasing domestic energy supply, as the OCS contains an estimated 70 trillion cubic feet of untapped natural gas, however, he remained sensitive to the explosive politics surrounding any language that may lead to lifting moratoria in the OCS. Senator Alexander echoed these sentiments. His bill aims to facilitate greater flexibility for states who wish to develop their resources while protecting those states that don't, by extending state boundaries onto the shelf, allowing states to petition the Department of Interior to develop inventories, and offering states royalties exclusively for marine and coastal conservation efforts. Neighboring states could veto operations that are within view of their coastlines.

These proposals received mixed responses from his coastal-state colleagues on the committee. Senator Mary Landrieu (D-LA) asserted off-shore resources could be promising when well managed and environmentally sound, while Mel Martinez (R-FL) expressed adamant opposition to development which might interfere with Florida's marine environment and tourism industry. Senator Richard Burr (R-NC) also preferred to honor the offshore moratoria as long as North Carolina citizens remain opposed to drilling, but added that he didn't want to preclude other states from exploring their own resources.

James Watkins, Chairman of the U.S. Commission on Ocean Policy, reported the Ocean Commission's recommendations for managing offshore energy opportunities. He testified that a lead federal agency should be named to manage prospects for both hydrocarbon and renewable energy development offshore. The report also calls on the federal government to increase funding for science and technology research, particularly full funding for the Minerals Management Service's Environmental Studies Program, or risk losing credibility. The report also suggests establishing an ocean policy trust fund to set $4 billion in oil and gas revenues aside for conservation projects.

Alexander and Landrieu asked Watkins to better clarify the trust fund concept, wary that the fund would not offer states the resources that they need or fairly distribute revenues. Alexander said that $2 billion offered to states annually through his bill's conservation royalty provision would sustain states better because it would avoid the appropriations process, whereas the trust fund would be subject to adjustments under the budget.

Alexander's bill also explores the possibility of providing separate leases and permitting guidelines for natural gas resources, that are easier, safer and cleaner to develop. But Johnnie Burton, Director of the Minerals Management Service, said regulations must be carefully crafted in order to address circumstances in which oil could be produced inadvertently during a natural gas operation.

Regarding offshore wind and wave energy generation, Robert Thresher, Director of the National Wind Technology Center, compared American and European research and development efforts, reporting that while the EU has launched a concerted effort to sponsor major technological development, the U.S. has not expanded its federal renewable energy program offshore. Thresher testified that technological advancement in the area of offshore wind turbines is "on par with the space program," and deserves public investment. Watkins agreed that the U.S. public perspective is far behind: "while the technology reality changes…perceptions don't."

-KCA

Senate Energy and Natural Resources
Hearing on Domestic Oil Shale and Oil Sand Resources
April 14, 2005

Witnesses
Panel 1

Thomas Lonnie, Assistant Director for Lands and Minerals, U.S. Bureau of Land Management
Mark Maddox, Principal Deputy Assistant Secretary for Fossil Energy, Department of Energy
Dr. Ted Barna, Assistant Deputy Undersecretary of Defense, Nuclear, Biological, Chemical Technology, Department of Defense
Russell George, Executive Director, Colorado Department of Natural Resources

Panel 2
Steve Mutt, Shell Oil Company
Jim Evans, Executive Director, Associated Governments of NW Colorado
Steve Smith, The Wilderness Society

The Senate Energy and Natural Resources Committee convened to discuss opportunities for developing the nation's vast oil sand and oil shale resources. The supplies are trapped within the Green River Formation, which lies under northwestern Colorado, northeastern Utah and southeastern Wyoming. Members heard testimony from federal agency officials and Shell Oil Company in order to address legislative and administrative actions necessary to encourage industry investment in safe and commercially viable development. Committee Chairman Pete Domenici began the hearing by referring to the Senate's version of the comprehensive energy legislation which is still being drafted, but should include language that "must move us towards new, non-conventional sources of fuel."

Domenici invited Senators Orrin Hatch (R-UT) and Wayne Allard (R-CO) to kick off the hearing with their enthusiastic endorsement of oil shale development within their states. "We simply cannot ignore any potential fuel source for this country," offered Senator Allard. Hatch noted that, despite his state's vast resources, Utah imports most of its oil from Canadian sources, most of which derive from tar sands in Alberta. Both Senators reported strong public support in their states, save for a few "environmental extremists." One consortium of public interest groups in southern Colorado, called "Club 20," has drafted a resolution in support of environmentally sound, economically secure extraction efforts. Hatch and Allard, said they are planning to cosponsor legislation, with Senators Ken Salazar (D-CO) and Robert Bennett (R-UT), that will "benefit all sides" including local communities, the regional economy, and national security needs.

According to Mark Maddox, who heads the Department of Energy's Office of Fossil Energy, the U.S. estimates a total of 1.8 trillion barrels of oil trapped within the Green Mountain Formation, 80% of which is within federal land. Even if partially developed, Maddox said the resource could provide 2-3 million barrels per day for decades. If extraction technology became commercially viable, he said, "100 billion barrels of oil from domestic oil shale could be reclassified as proven reserves."

Senators Jeff Bingaman (D-NM) and Salazar challenged the Administration's commitment to oil shale development, referring to the budget proposal for fiscal year 2006, which eliminates oil and gas research programs. In defense of DOE's plan, Maddox upheld the position that there was sufficient capital and interest within the private sector to provide the necessary research and development. Bingaman called this notion "unrealistic," and other members were skeptical that without long-term federal research and development funding, oil shale commercialization would succumb to a boom-and-bust cycle due to the volatile price of oil. Oil shale efforts collapsed after oil prices dropped in the early 1980s, devastating the regional economy.

Maddox conceded that a full commitment by all stakeholders would be necessary to prevent a similar scenario, but industry interests are in a better position than they were 30 years ago. In his view, the federal government should offer regulatory policy that would allow industry greater access to federal lands. But Chairman Domenici, most interested in the Canadian tax policy that has encouraged wide-spread oil shale development, called for federal tax incentives, as well as new investment in a demonstration project, under either DOE or the Defense of Department.

Current federal activities include research within the Defense Department, which plans to use its large fuel purchasing budget to develop the oil for jet fuel. The Department of Interior has also set in motion plans to lease public land for development. Thomas Lonnie, Assistant Director for Lands and Minerals at the Bureau of Land Management (BLM), testified on the progress of the Oil Shale Task Force, which is currently reviewing 32 public comments to inform leasing policy. Among the comments is a popular recommendation to suspend royalty payments during the research and development phase of oil shale production projects.

Steve Mutt from Shell Oil, which has played a leading role in private sector oil shale research, testified on the progress of Shell's field research program. Mutt reported that Shell is making significant progress in in-situ conversion technology, which uses electric heaters to extract oil underground, rather than bringing the rock to the surface. The company plans to conduct an integrated test in order to make the extraction method commercially viable by 2010. To be successful, Mutt said the government should build a research partnership through its National Laboratories in addition to providing tax incentives and royalty relief.

-KCA

House Government Reform Subcommittee on Energy and Resources
Hearing on America's Energy Needs and Our National Security Policy
April 6, 2005

Witnesses
Hon. R. James Woolsey, Former CIA Director, Speaking on behalf of the National Commission on Energy Policy
Robert E. Ebel, Chairman of the Energy Program, Center for Strategic and International Studies
Robert D. Hormats, Vice Chairman, Goldman Sachs (International)
Hon. Clay Sell, Deputy Secretary, U.S. Department of Energy (DOE)

Chairman Darrel Issa (R-CA) called this hearing to address rising global demand for energy, particularly oil, and to consider how national energy policy will affect national security concerns. The recent skyrocketing demand for oil in China, in particular, has led to new alliances and "a shift in energy geopolitics," Issa said. In addition, Issa emphasized in his opening statements that price volatility for oil is largely demand-driven. "To a certain extent we are victims of our own success, in that worldwide economic growth and development are raising living standards but also dramatically increasing energy consumption."

Energy policy specialists from the Center for Strategic and International Studies (CSIS), Goldman Sachs (International), the National Commission on Energy Policy, and the Department of Energy all offered their concerns and recommendations.

Clay Sell, the newly appointed Deputy Secretary of Energy, summarized the President's plan for national energy independence, which favors a tax incentive approach to promote wind, ethanol and biomass power as well as technologies that allow consumers to be more aware of their energy use. The policy fundamentally stresses increased liquefied natural gas imports, domestic oil and gas exploration, improvements in refining capacity, nuclear energy generation, and clean coal power. In the long term, the President's Hydrogen Fuel Cell Initiative would devote $1.2 billion through 2010 to lay the foundation for a hydrogen economy.

In contrast with the President's agenda, Jim Woolsey, former CIA director, presented his views along with those of the National Commission on Energy Policy, who issued their final report, "Ending the Energy Stalemate" last December. Woolsey's solutions tried to address several reasons why dependence on petroleum, particularly in the transportation sector, is dangerous. Among these, the current fuel infrastructure allows no short term substitutes for petroleum; thus policies should emphasize increased fuel efficiency, hybrid technology, and alternative fuels such as waste-derived cellulosic ethanol and biodiesel. Investments in hydrogen, he said, "will not have an effect on oil consumption" in the short term.

Specifically, Woolsey recommended a boost in fuel economy standards (known as CAFE standards), with an added component of flexibility that would allow auto makers to trade fuel economy credits, under an industry-wide cap of 55 mpg (for comparison, European standards average 42 mpg, Japan requires 47 mpg, and the U.S. averages a fuel economy of 20 mpg ). He suggested that plug-in hybrids that supplement their power from grid electricity, would most effectively meet these caps, adapt easily to the infrastructure, and reduce the price of gasoline dramatically.

From a security perspective, Woolsey cautioned that one attack on a major refinery could remove 6 billion gallons from the market, nearly doubling the current price of oil. He also emphasized that wealth transfers from oil production have historically been used to fund "terrorism and it's ideological support." According to Woolsey, Saudis have contributed an estimated $85-90 billion since the 1970s to the spread of Wahhabi beliefs, which form the basis for some Islamic terrorist activities.

In discussing historical trends, geopolitical concerns, and future solutions, witnesses questioned the willingness of Americans to take responsibility for conserving their own energy needs. Robert Hormats of Goldman Sachs stated that the oil embargo of 1973 "was not as much a wake-up call as it should have been." While there has been a lot of rhetoric to develop comprehensive energy legislation, he said, there has been no consensus, no action, and very little new investment in alternative fuels and efficiency. As a result, our oil dependence and that of our major trading partners, is even more pronounced. Robert Ebel of CSIS also suggested, "the public needs to understand that there is no energy option, and that includes renewable forms of energy, that can be described as being risk or cost-free." Ebel blamed a pervasive "NIMBY" ["Not In My Back Yard"] mentality for the nation's energy reliance and legislative inactivity. This obstacle is particularly relevant to the Presidents' proposed expansion of domestic nuclear power. Woolsey agreed with Ebel's assessment.

There was little time for a question and answer period, but Chairman Issa seemed to affirm some of the Commission's policy recommendations, such as a new approach to fuel economy standards. Ebel and Woolsey supported federal incentives for technologies such as hybrid vehicles in order to begin the transition from internal combustion to fuel cell automobiles. Woolsey said that the costs for plug-in hybrids, such as the cost of battery replacement, is negligible compared to the costs required to getting fuel cell vehicles online.

Similar energy policy hearings regarding national security and geopolitical concerns took place early this year under the House Resources Subcommittee on Energy and Mineral Resources on March 16th and the Senate Energy and Natural Resources Committee on February 3rd.

-KCA

House Resources Committee Subcommittee on Energy and Mineral Resources
Oversight Hearing on “U.S. Energy and Mineral Needs, Security and Policy: Impacts of Sustained Increases in Global Energy and Mineral Consumption by Emerging Economies Such as China and India.”
March 16, 2005

Witnesses:
The Honorable Guy F. Caruso, Administrator for the Energy Information Administration
Dave Menzie, Chief, International Minerals Section of USGS
Jeffrey Logan, China Program Manager for the International Energy Agency
Milt Copulos, President of the National Defense Council Foundation
Alan S. Hegburg, Senior Fellow, CSIS Energy Program/The Scowcroft Group

International energy experts warned the Energy and Mineral Resources Subcommittee on Wednesday, March 16, 2005 that Chinese energy demand is rising sharply and is one of the factors contributing to recent high crude oil prices. And China's state-owned oil companies are shoring up supplies around the world, which could pose future problems for U.S. imports.

Strong demand from the United States, China and India has stretched global production capacity to the limit, Guy Caruso, head of the Energy Information Administration, told the subcommittee members. "The only pressure relief valve is prices," he said, noting the current crude price of $55 per barrel.

Currently, U.S. economic growth is outpacing growth in energy demand, Caruso said. For every 3 percent increase in economic growth, energy use is rising only 1.5 percent. Until the late 1990s, China was on a similar growth path, with energy consumption only growing half as fast as its GDP, added Jeffrey Logan, senior energy analyst and China program manager with the International Energy Agency. But since 2000, energy use in China has skyrocketed, somewhat unexpectedly. Energy use in China is growing by 1.5 percent for every 1 percent gain in economic output, Logan said, leading analysts to question the validity of earlier energy data from China.

"In order to sustain this economic growth, emerging economies such as China and India will need more and more supplies of energy and minerals," said the chairman of the subcommittee, Rep. Jim Gibbons (R-NV). "The United States must take a serious look at its energy and mineral supply strategy for the long-term."

Chinese consumers are purchasing more cars and trucks, which is a primary reason for increased demand. And Chinese businesses are using more oil for petrochemical feedstocks and to power backup power plants when coal-fired plants are unable to meet electricity demand. Overall, oil demand in China rose 16 percent in 2004 to 6.4 million barrels per day. By comparison, North America currently uses 25 million barrels per day, Environment and Energy Daily reported.

The Chinese government is taking several approaches to address energy supply concerns, Logan explained. The country has designated four sites as strategic petroleum reserves, similar to the U.S. system. On the demand side, the Chinese will tighten fuel economy standards starting in 2008. On the supply side, Chinese state-run oil companies are making a major push to lock down new supplies around the globe, largely in areas where major multinational companies fear to tread. More than half of Chinese-owned oil production abroad comes from Sudan, Logan noted. Due to instability in that nation, China has stationed several thousand troops there. "A key strength of Chinese [national oil company] activity abroad is their ability to package complete investment deals in producing countries," said Logan. "In exchange for ownership of oil resources there, they can offer associated economic development packages, investment opportunities in the lucrative Chinese market, and potential military transactions." But there are some indications that the Chinese may be backing off that approach, as policymakers realize it makes more sense to rely on markets, strategic petroleum reserves and demand-side changes, then to buy up oil supplies. "It seems likely, therefore, that the overseas purchasing binge will soon slow," Logan said.

Still, other energy analysts testifying yesterday raised a red flag about the potential intersection of Chinese and U.S. oil interests. "The competition for oil could lead to armed conflict -- particularly with China," said Milton Copulos, president of the National Defense Council Foundation. "Lest this statement seem alarmist or far-fetched, I would note that the Chinese are, for the first time, developing a blue water navy capable of operating beyond their shores," a development some analysts say is aimed at securing passage for oil tankers, he added. China is also negotiating with "traditional U.S. suppliers," Copulos said. In January, the Chinese signed an agreement with Canada -- the country that the United States imports most from -- to develop uranium mines and oil reserves. China has also shown interest in developing Canadian oil tar sand deposits in Alberta and potentially building a 720-mile pipeline from Alberta to British Columbia on the west coast. The Chinese are also working on agreements with Venezuela and Mexico, two other top exporters to the United States, Copulos said, as he advocated more domestic energy production in the United States to offset reliance on imports.

Subcommittee ranking member Eni Faleomavaega (D-American Samoa) noted that India wants to build a $4 billion pipeline from Iran through Pakistan, which could have implications for U.S. foreign policy in the Middle East. Beyond oil concerns, panelists said Chinese natural gas use is on the upswing as well, as Chinese officials look to address severe air pollution issues in many of their cities. Last year, government officials built a 3,900 kilometer, $24 billion pipeline which will transport 12 billion cubic meters of gas annually, Logan said. The government is building two liquefied natural gas terminals, and there are plans for a dozen more.

Still, the higher cost of natural gas as compared with coal is a major barrier, as is the lack of incentives for natural gas plant construction. That means air pollution and carbon dioxide (CO2) emissions will remain a major concern since China is currently burning 2 billion tons of coal per year, mostly in outdated, inefficient power plants. "We see increasing amounts of air pollution travelling across the Pacific Ocean and even reaching U.S. territory," Logan said.

Subcommittee members called for further development of natural gas supplies in the United States as the best response to rising oil prices and increased demand from Asia. Rep. John Peterson (R-PA) said it is unlikely LNG imports will increase rapidly in the next decade, due to concerns about terminal siting. Peterson said natural gas development is where the U.S. policymakers should be focusing their efforts, since it is the one fuel that could easily bridge to the hydrogen economy. "We have adequate reserves to drill out of our gas problem," Peterson said.

-ELW

Senate Energy and Natural Resources Committee
Hearing on Power Generation Resource Incentives & Diversity Standards
March 8, 2005

Witnesses:
Panel 1:
David Garman, Assistant Secretary, Department of Energy Office of Energy Efficiency and Renewable Energy
Wayne Brunetti, Chairman and CEO, Xcel Energy
Ryan Wiser, Scientist at Lawrence Berkeley National Laboratory
Richar Morgan, Commissioner, District of Columbia Public Service Commission, National Association of Regulatory Utility Commissioners
Sonny Popowsky, Pennsylvania Office of Consumer Advocates

Panel 2:
Don Furman, Senior Vice President, PacifiCorps
Kerry Bowers, Manager of Customer Technologies, Southern Company
Alan Nogee, Director of the Clean Energy Program, Union of Concerned Scientists
Brian O'Shaughnessy, president and CEO, Revere Copper Products, on behalf of the National Association of Manufacturers

The Senate Energy and Natural Resources Committee considered arguments for and against the use of a federal renewable portfolio standard (RPS) as a means of promoting energy diversity. Senator Jeff Bingaman (D-NM), the Committee's ranking member, continues to propose, for this year's energy bill, a 10% RPS by 2020. According to Environment and Energy Daily, Committee Chairman Pete Domenici (R-NM), who will introduce the Senate version of the energy bill this spring, opposes a federal standard, but recognized the wide support Bingaman's proposal received in the Senate last year. In this hearing, the committee questioned witnesses on national distribution of renewable resources, current state RPS programs, and the possibility of including clean but non-renewable sources in a federal RPS.

David Garman, Assistant Secretary at the Department of Energy's Office of Energy Efficiency and Renewable Energy, spoke for all who oppose a federal RPS when he said it "could create winners and losers among regions of the country." He and others said that regions lacking in sufficient renewable resources would suffer unfair costs and penalties. Kerry Bowers from the Southern Company listed the reasons why southeastern states would not be able to produce commercially viable wind, solar, or biomass resources. Alan Nogee, from the Union of Concerned Scientists, refuted this claim, noting that fear of high costs ignores the fact that most states today pay handsomely for fossil energy imported from other states and countries. He and Ryan Wiser, a Scientist at Lawrence Berkeley National Laboratory, testified that a federal RPS could significantly relieve demand on fossil fuels and help lower natural gas prices, according to a recent study.

Lawmakers and witnesses alike recognized that federal policies should account for the fact that renewable resources are unevenly distributed throughout the country. But several witnesses and Senators in support of a federal RPS insisted that it would not necessarily inhibit the flexible use of a state's unique resources. Don Furman, Senior Vice President of PacifiCorps, testified that a well crafted, federal RPS could strike a reasonable balance between national consistency and regional maximum efficiency if it involved a trading system by which states could buy and sell efficiency credits. States working by themselves, he said "will never achieve ideal efficiency." A national, market-based approach would achieve better energy diversity and efficiency goals than federal subsidies, he said, because it would not depend solely on tax schemes, which are uncertain and unstable.

Regarding specific energy resources, Alexander revealed his skepticism about the viability of wind energy, asking whether a federal RPS should designate certain landscapes off-limits to construction of turbines for aesthetic reasons. Salazar also asked Garman which renewable resources currently show the most potential to offset consumption of conventional resources. Garman listed wind first, reporting that DOE is developing new designs to allow turbines to be located in less aesthetically sensitive locations, such as urban areas and offshore. He identified a good long term prospect for competitive solar energy, for which the department expects prices to reach 6 cents per kwhr by 2020. Ethanol would have more potential, Garman said, if researchers and producers thought beyond corn, which has barely offset the use of fossil fuels. Adding other sources such as municipal waste, he said, could make a sizeable 40-50 percent dent in gasoline consumption.

-KCA

House Energy and Commerce Committee Subcommittee on Energy and Air Quality Hearing:
"The Energy Policy Act of 2005:
Ensuring Jobs for Our Future with Secure and Reliable Energy"
February 16, 2005

Witnesses:
Panel 1
Red Cavaney, President of the American Petroleum Institute
Bob Dineen, President and CEO of the Renewable Fuels Association
Bob Slaughter, President of the National Petrochemcial & Refiners Association
Erik Olson, Senior Attorney for the Natural Resources Defense Council
Lee O. Fuller, Vice President of Government Relations, Independent Petroleum Association of American Geological Institute
Laurnence M. Downes, Chairman of the American Gas Association
Gerald Norlander, on behalf of the National Association of State Utility Consumer Services
David Hamilton, Director of the Global Warming and Energy Programs, Sierra Club
Donald F. Santa, Jr., President of the Interstate Natural Gas Association

Panel 2
John Kane, Senior Vice President of Government Affairs, Nuclear Energy Institute
Navin Nayak, U.S. Public Interest Research Group
James H. Hancock, Jr., Chair, Legislative Affairs Committee, National Hydropower Association
Andrew Fahlund, Vice President for Restoration and Protection, American Rivers
John E. Shelk, Senior Vice President, Government Affairs, National Mining Association
Alan Nogee, Director of the Clean Energy Program, Union of Concerned Scientists
Rhone Resch, President of the Solar Energy Industries Association

A continuation of the hearing of February 10th on the discussion draft of the energy bill, the subcommittee launched straight into testimony from 19 witnesses, the first panel focusing heavily on the contentious provision to grant liability protection for producers of the gasoline additive methyl tertiary butyl ether (MTBE).

Energy and Commerce Committee Chairman Joe Barton said he was "interested in finding a compromise" on MTBE contamination. Representatives of the petrochemical industry, such as Bob Slaughter, President of the National Petrochemcial and Refiners Association, argued for a repeal of the 2% oxygenation requirement under the 1990 Clean Air Act, which he says forced industry into using MTBE to increase octane in gasoline. He and others offered strong support for the liability protection provision in the current energy bill draft, advocating that industry should not be penalized for doing something that the government originally mandated. When corrected that the rule remained neutral about what oxygenate to use, industry representatives countered that no alternative oxygenate was available to meet the regulations in time and thus stood as an equivalent of a MTBE mandate. Erik Olson, on behalf of the National Resources Defense Council, called the MTBE waiver "unfortunate," and retorted that liability is not the result of misplaced blame for using the chemical, but "comes from industry knowing the risks and not reporting leaks and contamination problems."

Bob Dineen of the Renewable Fuels Association reported on the growth of ethanol production and its potential as an effective fuel additive in place of MTBE. According to Dineen, ethanol displaces 400,000 barrels of oil per day, and production is growing at such a rate that the bill's renewable fuel standard of 5 billion gallons per year by 2012 could be realistically much higher. Contrasting this testimony, however, Slaughter testified that using ethanol as a replacement for MTBE would simply yield other environmental consequences.

Other renewable resources took the stage as well. Rep. Allen (D-ME) asserted that the current energy bill draft does not do enough to "bend the demand curve down" for U.S. consumption of fossil fuels, citing evidence that the U.S. automobile industry is lagging behind other countries in developing fuel cell or other fuel-efficient vehicles. On fuel cell technology, Donald Santa of the Interstate Natural Gas Association testified that the transition to hydrogen would "require significant research and development" and would still depend heavily on natural gas from either the Gulf of Mexico or from increased liquified natural gas (LNG) imports.

-KCA

House Energy and Commerce Committee Subcommittee on Energy and Air Quality Hearing:
"The Energy Policy Act of 2005:
Ensuring Jobs for Our Future with Secure and Reliable Energy"
February 10, 2005

Witnesses:
Panel 1
The Honorable David K. Garman, Assistant Secretary of the Department of Energy Office of Energy Efficiency and Renewable Energy
Ms. Cynthia Marlette. General Counsel, Federal Energy Regulatory Commission
Mr. Luis Reyes, Executive Director for Operations at the Nuclear Regulatory Commission

Panel 2
Mr. Guy F. Caruso, Administrator, Energy Information Administration
The Honorable Marilyn Showalter, President of the National Association of Regulatory Commissioners
The Honorable Frank H. Murkowski, Governor of the State of Alaska
The Honorable Victor Carrillo, Chairman of the Railroad Commission of Texas on behalf of the Interstate Oil and Gas Compact Commission

Panel 3
Mr. Thomas R. Kuhn, President of the Edison Electric Institute
Ms. Lynne H. Church, President of the Electric Power Supply Association
Mr. Alan Richardson, President and CEO of the American Public Power Association
Mr. Ed Hansen, General Manager of the Snohomish County Public Utility District on behalf of the Large Public Power Council
Mr. Glenn English, CEO of the National Rural Electric Cooperative Association
Ms. Kateri Callahan, President of the Alliance to Save Energy
Mr. Marty Kanner, President of Kanner & Associates, on behalf of Consumers for Fair Competition
Mr. Mark Cooper, Research Director at the Consumer Federation of America
Mr. Steven Nadel, Executive Director of the American Council for an Energy-Efficient Economy

The House Energy and Air Quality Subcommittee held the first of two hearings on the discussion draft of this year's comprehensive energy bill in an effort to speed the bill through the House. Energy and Commerce Committee Chairman Joe Barton (R-TX) declared, "this is the bill that will not die, and I hope it can be a bipartisan bill because this is the Congress where we are going to pass comprehensive energy legislation." Although the hearing was intended to include discussion on the President's DOE budget request, little discussion was devoted to budget-related policy questions.

Members placed particular emphasis on a written correspondence that took place earlier in the month between Ranking Member John Dingell (D-MI) and FERC Chairman Pat Wood on FERC's suggestions to improve energy reliability. At the hearing, FERC repeatedly came under fire for a provision that would give the agency primary regulating authority over the siting of Liquified Natural Gas (LNG) terminals and electric transmission lines. Democratic members of the Subcommittee, Gov. Frank Murkoswki of Alaska, and Marilyn Showalter, President of the National Association of Regulatory Commissioners, all voiced concern that such provisions are attempts to override state law. According to Rep. Louis Capps (D-CA), FERC would be granted "unambiguous control" over "controversial and complicated projects, involving subjects not covered by FERC's expertise," such as public health, homeland security, and environmental concerns. Cynthia Marlette, representing FERC, said that one federal record and one lead agency for LNG projects would simplify the permitting process, but would not allow the agency to seek pre-emptive federal permits or diminish the ability of states to enforce environmental laws. Guy Caruso of the Energy Information Administration testified that under current law, 10 new LNG terminals would be needed to meet the demand for natural gas by 2025; Rep. John M. Shimkus (R-IL) pointed out the challenges in gaining public support for new terminals.

David Garman, Assistant Secretary of DOE's Office of Energy Efficiency and Renewable Energy, called for increased, diverse domestic fuel production, which must include an expansion of domestic oil and gas resources in addition to nuclear energy, fuel cells, provisions for energy conservation and for "next-generation" technology. Garman testified that opening the coastal plain of the Arctic National Wildlife Refuge would provide sufficient resources to fill the deficiency in the Alaska pipeline's capacity. He also emphasized that clean and safe coal and nuclear technologies are "fully developed" and simply "need to be brought across the finish line." Reporting on DOE research and development programs, he added that by 2020, fuel cell vehicles will appear in showrooms and the price of solar energy will have dropped to a competitive 6 cents/ kwhr. In response to accusations by Rep. Edward Markey (D-MA) suggesting Garman's department has fallen short of its responsibilities to institute fuel efficiency rules, Garman blamed a law established under the Clinton Administration that was aimed at improving transparency, but, according to Garman, has greatly complicated the rulemaking process.

On challenges facing the Yucca Mountain nuclear waste facility, Garman testified that the administration has requested sufficient funds and is "supportive of the repository." According to Garman, the Nuclear Regulatory Commission has not obtained a license for the facility due to delays in the EPA "radiation protection standard" rulemaking. The FY06 budget request includes $651 million for the repository to cover liscensing costs, down from the $880 allocated for FY05 and far below the $1.2 billion DOE previously estimated it would need for FY06.

-KCA

House Science Committee
Improving the Nation’s Energy Security: Can Cars and Trucks Be Made More Fuel Efficient?

February 9, 2005

Witnesses:

William Reilly, co-chairman, National Commission on Energy Policy
Paul Portney, chairman, National Research Council's Committee on the Effectiveness and Impact of Corporate Average Fuel Economy (CAFE) Standards
K.G. Duleep, transportation managing director, Energy and Environmental Analysis, Inc.
Michael Stanton, vice president of government affairs, Alliance of Automobile Manufacturers
David Greene, corporate fellow, National Transportation Research Center

“We need more stringent CAFE [Corporate Average Fuel Economy] standards and we need them now,” said Science Committee Chairman Sherwood Boehlert (R-NY) in his opening remarks for this hearing. “Fuel economy is not just an energy issue, it’s not just an environmental issue, it is, first and foremost, a national security issue. We are doing next to nothing to reduce our reliance on foreign oil. About 60 percent of the oil we consume each day is used for transportation; 45 percent of it just for cars and light trucks. We cannot reduce our oil consumption meaningfully unless we address transportation. That is a simple, unarguable fact.

“And yet while many areas of the economy have become significantly more energy efficient over the past three decades or so, our nation’s fuel economy is worse than it was 15 years ago. That ought to be unacceptable. It ought to be especially unacceptable – intolerable, really – when we have the technology to improve fuel economy without reducing safety, without harming the economy, and without reducing the options people have in the automobile showroom.”

Former EPA Administrator William Reilly, who co-chaired the National Commission on Energy Policy, testified on behalf of the National Commission, which regards a major fuel economy push as the best way to reduce domestic oil consumption. Via Reilly's testimony and previously-released documents, commission members urged lawmakers to raise CAFE standards significantly between 2010 and 2015. When pressed to clarify, Reilly said fuel economy was a "particularly contentious issue" for commission members and they were unable to recommend a specific increase. Upon further questioning and pressure to be more specific, however, and Reilly said that National Commission members felt that a 10 mpg increase in CAFE standards would be feasible and would also have a "significant" effect on domestic oil consumption.

K.G. Duleep, managing director of transportation at Energy and Environmental Analysis Inc., told lawmakers that with existing technologies, automakers could feasibly increase fleetwide fuel economy to 33 mpg. Using more hybrid and clean diesel systems, efficiency could be set as high as 36 mpg by 2015, he said. Currently, automakers meet standards of 27.5 mpg for passenger cars and 20.7 mpg for light trucks and sport utility vehicles.

Reilly noted that regulatory changes to the CAFE program could lower the cost that automakers face in meeting CAFE standards. Adding a credit trading system, for example, could lower compliance costs by 17 percent. With trading, if one company exceeded its fuel economy requirements, it could bank fuel economy credits for later usage, or potentially sell those credits to a company falling short of the regulations.

Paul Portney, president of Resources for the Future, described the findings of a 2001 National Academy of Sciences (NAS) study on the CAFE program's effectiveness. The NAS report, which was overshadowed by energy bill debate and the events of Sept. 11, 2001, when it was released, found that the CAFE program led to major fuel economy improvements, but also had severe adverse effects. Because automakers had to make improvements to efficiency in a relatively short period of time, they primarily worked to make their vehicles lighter, a change that caused between 1,300 and 2,600 more auto fatalities than would have occurred without the program, NAS estimated. During the question-and-answer portion of the hearing, though, all of the witnesses agreed that the technology exists today to significantly increase the fuel economy of cars and light trucks (such as Sport Utility Vehicles, or SUVs) without reducing safety.

Portney stressed that any changes made to the CAFE program should give automakers a long lead time, between 10 and 15 years, so that manufacturers have time to phase in new technologies, rather than just lowering the weight of vehicles. Portney also noted that lawmakers should consider the fact that as fuel economy increases, consumers tend to drive more, partially offsetting any fuel savings from CAFE.

Michael Stanton, vice president of government affairs at the Alliance of Automobile Manufacturers, said automakers support tax incentives included in the energy conference report last year. Those incentives would provide up to $4,000 in tax credits for consumers who purchase hybrid or clean diesel vehicles. Stanton noted that Rep. Dave Camp (R-MI) introduced a bill (H.R. 626) on February 8, 2005 that would provide those same types of tax incentives.

For their part, committee members came to the hearing with strong views. "We need more stringent CAFE standards and we need them now," said Chairman Sherwood Boehlert (R-NY). "But the exact level and timing of the standards and how the CAFE program should be administered, that's all up for grabs."

Ranking member Bart Gordon (D-TN) urged other panel members to consider whether any new regulations would adversely affect the automotive industry, but said he would be open to discussion of tax incentives and changes to the structure of the CAFE program. Other committee members, including Rep. Ehlers (R-MI) suggested that automakers need to spend more time understanding consumer habits and creating marketing and advertising campaigns that would help car buyers understand the benefits of better fuel economy, even if they pay a little more for it up front.

-ELW


Senate Committee on Energy and Natural Resources
2005 Energy Outlook

February 3, 2005

Witnesses:
Guy Caruso, Administrator, Energy Information Administration
Jeffrey Logan, China Program manager, International Energy Agency
Frank Verrastro, Energy Program director and senior fellow, Center for Strategic and International Studies
Andrew Slaughter, senior economist, Shell Exploration & Production.

The Senate Energy and Natural Resources Committee invited testimony from the Energy Information Administration (EIA), Shell Exploration & Production, and the Center for Strategic International Studies to discuss current and future U.S. energy needs, and how they might be affected by global trends in energy production and consumption. Guy Caruso, EIA Administrator, presented the Annual Energy Outlook 2005, to be released later in the month.

Caruso's testimony included projections of domestic energy consumption, production, prices, and carbon dioxide emissions through 2025, highlighting an increase in U.S. imports, natural gas demand, and oil production in the Gulf of Mexico. He testified that under current law, there is little opportunity for energy consumption to switch from oil due to the domination of the transportation sector, and that by 2025 nuclear generation and renewable power would still maintain a 9% combined share of the energy market.

Regarding the International Outlook, Caruso and Jeffrey Logan, EIA's China Program Manager, noted that Canada's oil depletion rates would continue to climb, affecting markets in North American and Asia. The testified that Asia's growth rate would double energy consumption in 20 years, wielding significant implications for greenhouse gas emissions, global markets, and national security. They recommended U.S. policy should engage China on energy issues and encourage the use of natural gas.

Andrew Slaughter of Shell Co. offered insight through presenting theoretical future scenarios for global energy security, each representing a different balance economic efficiency, social cohesion and security. He urged congress to "consider and be prepared for multiple possible outcomes and to build bridges to international markets through infrastructure development and international cooperation." Calling climate change the "wild-card" for scenarios; "what if the world accepts tomorrow that we can no longer afford to take a free rider on nature and must internalize the external costs by for example sequestering CO2?" he asked.

Because the AEO report was based on laws and regulations in effect as of October 31, 2004, and did not incorporate pending or proposed measures, committee members asked witnesses to speculate on the potential impacts of supporting nuclear, clean coal, and hydrogen fuel cell technologies. In response to a question posed by Chairman Pete V. Dominici (R-NM), Caruso reported that without legislative action, capital costs would have to drop to $1450/kW for nuclear power to become a big player in the market by 2015-2025. Slaughter recommended that a long-term energy vision should consider a mixed energy supply, long-term projections, and how public debate would influence the private sector. One suggestion was to encourage and open market by supporting pilot clean-coal plants.

-KCA

Sources: Environment and Energy Daily; Washington Post; New York Times; House Science Committee; Senate Commerce, Justice, and Science Committee; Senate Committee on Energy and Natural Resources; Senate Committee on the Judiciary; Hearing testimony.

Contributed by Katie Ackerly and Emily Lehr Wallace, AGI Government Affairs Staff; Amanda Schneck, 2005 AGI/AIPG Summer Intern; John Vermylen, 2005 AGI/AIPG Summer Intern; Peter Douglas, 2005 AGI/AAPG Fall Intern; Jenny Fisher, 2006 AGI/AAPG Spring Intern; Timothy Donahue, 2006 AGI/AIPG Summer Intern; Jessica Rowland, 2006 AGI/AIPG Summer Intern, and Rachel Bleshman, 2006 AGI/AAPG Fall Intern.

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

Last updated on November 17, 2006